Diamond Tax Consultants Blog

It is well after the tax deadline of April 15^th and you suddenly realize you have not sent in your federal income tax. What now? Many people will panic and think the feds will soon be knocking down their door. Out of fear, many more people will choose to not act and turn in the required forms since they are already so late. It can be a scary situation, especially if you owe taxes to the government and don’t have enough money to pay in full.

Don’t Wait

While you may feel there is no point in sending in late documents, you absolutely need to act now. File your return as soon as it is complete. A tax professional can help you complete your filing but will be an added expense. Sign all your forms and send them via US Mail with Certified/Return Receipt services to ensure the tax office has received your paperwork.

If You Don’t Owe Taxes

When you complete your taxes and find the IRS owes you money, you will not be penalized. The only downside for you is your refund will be delayed. You can actually get refunds for taxes filed up to three years passed due but finally so late is not something you should attempt.

If You Do Owe Taxes

Send in a check for as much as you can afford. Your penalties for a late filing will depend on how much you owe in back taxes. The late filing penalty is currently at 5% of the total amount you owe to the government for each month you are late. Even if you are only one day late, the penalty for the full month is incurred. There will also be accrued interest at a rate that depends on the current market.

If you need to make payment arrangements, you will also need to include a completed Installment Agreement form with your filings. The Installment Agreement is your request to make monthly payment arrangements to pay off your total debt. It will depend on the total amount you owe and how much money you can afford to pay in each month until the debt is satisfied.

Facing the Fees

Penalties can get quit costly and the later you file, the stiffer the penalty. Even one day late will accrue penalties and interest which increases the overall amount you owe back. The penalty for filing just one day late is 5% of the original balance owed. The maximum penalty for failing to file by April 15 is 25% which is reached by September 16^th, five months after the original due date. Taxes not filed within 60 days of the due date will be penalized whichever is the lesser of $135 or 100% of the unpaid tax amount.

Fraudulent Issues

If you have not filed your taxes with the intention to commit fraud, expect a significantly higher tax penalty. The rate for penalty will be increased from 5% a month to 15% a month. The maximum amount of penalty can be 75% of the original total amount of taxes owned. This penalty is not initiated very often but the IRS will enforce this penalty if fraud is obviously being attempted.

Dealing With Penalties

The IRS has the direct authority to reduce your tax penalties or even eliminate them altogether provided you make the proper request (penalty abatement). If you can prove ‘reasonable cause’ for not filing your taxes on time, you may have your penalties reduced or waived. The type of permissible excuses varies on a case-by-case basis.

Overall, the IRS wants to work with people who want to be helped. Communication is essential in working through the process of filing late taxes. If you are upfront with the IRS and make an honest attempt to make good on your debts, you can work through the process relatively unscathed. On the other hand, if you choose to ignore your tax obligations or try to cheat the IRS on taxes, you’ll pay considerably not only in taxes but you can face possible legal consequences.

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Another tax filing season has come to an end. You might have used an online service like TurboTax, enlisted the aid of a tax professional, or, as some of us still do, used paper and pencil and good old-fashioned arithmetic. 

So, where is your 2009 tax information right now? Has it made its way to the basement to reside with returns from previous years? Did you store it on a secure data server? While keeping your old tax records organized is admirable, learning from them is even better. That’s why I encourage you to take another look at your 2009 return to see what might be gleaned from it—and maybe start making decisions that could benefit you in 2010.

Let’s take an obvious one. It’s not a bad time to examine your energy bills and see if something can be done to reduce both your carbon footprint and your taxes. Were you able to use the maximum $1,500 federal energy credit this year? Would this be a good time to make your home more energy-efficient by replacing windows or making other upgrades that qualify? Should you go even further, and install a geothermal heating system, which qualifies for a separate 30% federal tax credit? Federal stimulus funding is providing additional dollars for state energy rebates on top of the federal credit, so you might want to check out available sources for your state.

How about charitable giving? Ask yourself whether your giving is at the right level, and whether it’s targeted to the causes you consider important. If you contributed to Haitian earthquake relief, there was a tax credit provision for 2009 if your cash contribution was made after January 11, 2010, and before March 1, 2010 (though that deadline might be extended).

Your capital gains picture is set out right in front of you on your return. It may be worth your time to examine your gain/loss position to determine your available loss carryovers, as well as the potential for qualified dividends: their current preferred rate will soon expire. While you’re considering your investments, take a moment to think about your asset allocation. Does it make sense? Is it time to rebalance?

Why not use this opportunity to take a close look at your banking relationships and your use of credit cards? Did you keep a lot of cash in non-interest-bearing accounts or have a surprising amount of nondeductible credit card interest?

Has your mortgage interest deduction reduced to the point that an accelerated payment plan might make sense now? It may not, but you might want to consider it along with another issue: if your adjusted taxable income is high enough to be subject to the alternative minimum tax (AMT), think about speaking with a tax professional about choices that might improve your picture. Appropriate tax planning right now may allow you to make the tax system—including something as maligned as the AMT—work for you instead of against you.

If your state tax burden seems high, you might want to think about retiring elsewhere. Try vacationing in states with lower tax rates to scout out locations for a potential move. Before you book the trip, compare state tax rates using resources like the one published by the Tax Foundation (excludes estate/inheritance taxes).

There’s a wealth of data on your return and in the supporting documents. Once you’ve filed, look at your return as less of a dreaded tax form and more of a helpful planning tool!

Notes:

• Consider consulting a tax advisor for guidance on your individual situation.
• Request a free financial planning review from Diamond Tax Consultants.

— It’s almost here.

Just a few weeks from now, the calendar will read April 15, which for most years is the tax return deadline. If you have already filed your taxes, take a sigh of relief…..

But for those who are putting off their taxes, there are some things they should be aware of.  Every year, there are hundreds of changes in the U.S. tax code, but only a handful that the everyday person should be aware of. But most go unnoticed, even though it could mean more money for the taxpayer.

Here are a few tax law changes that may prove helpful as you prepare for the deadline.  If you have already filed, forward this tip to someone else so that they too can breath a sigh of relief…..

• One of the most important changes is the first-time homebuyer credit, which was extended. The first homebuyers can receive a tax credit of up to $8,000, while repeat homebuyers may be able to receive a credit of up to $6,000. Repeat homebuyers must have lived in their current home for five of the past eight years. The buyer has to have entered into a contract by April 30 and close on the deal by June 30.

• Another important thing to keep in mind is that with so many jobs being lost during the recession, unemployment benefits have seen a change for the tax season.  The first $2,400 in unemployment benefits that an individual received in 2009 is tax-free. Also, if the taxpayer is unemployed, keeping track of job-search expenses, such as job-placement services or mileage, can help reduce tax liability.

• Other credits include anything that makes a home more energy-efficient, such as doors, windows, water heaters, insulation and furnaces. Taxpayers can also claim some college expenses this year. The American Opportunity Credit now applies to all four years of college, as do some other expenses. Up to $2,500 may be claimed and up to $1,000 of the credit is refundable.

• There’s also been some change with tax credits involving children, such as the Earned Income Credit. The credit was expanded to include families with three or more children. The Child Tax Credit was expanded to allow families to begin qualifying with every dollar earned over $3,000.

• People can also deduct the sales tax on the purchase of a new vehicle. However the new vehicle must have been bought between Feb. 17, 2009, and Dec. 31, 2009. The government has been taking less money out of paychecks, which can affect how much a person receives in tax refunds. They’ll see more in their paychecks, but see a lower refund. If they were close, you may end up owing money.

While people put off filing for a variety of reasons, the Internal Revenue Service says not to wait. And filing online with e-file with an authorized provider is the fastest way to submit a return, the IRS said.

To help make the tax process easier, we suggest keeping a person’s accountant up-to-date with any possible tax situation. These include things such as selling property or any major life change.

Diamond Tax Consultants offer year-round support, this way when it happens, you can plan.

Contact our office to schedule your tax appointment before the deadline at 888-456-0800 or for your convenience, schedule your appointment online.

Do I have to File a Tax Return?

[Diamond Tax Consultants note: ALWAYS file tax return, whether you need to or not. Once you file, you start the clock ticking on the 3 year statute of limitations for audit. If you never file, IRS or the state can come back and ask for a tax return for that year, forever.]

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

Even if you don’t have to file, here are eight reasons why you may want to file:

1. Federal Income Tax Withheld If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
2. Making Work Pay Credit You may be able to take this credit if you have earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
3. Government Retiree Credit You may be eligible for this credit if you received a government pension or annuity payment in 2009. However, the amount of this credit reduces any making work pay credit you receive.
4. Earned Income Tax Credit You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund.
5. Additional Child Tax Credit This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
6. Establish an official record of your earnings and taxes paid for Social Security purposes.

There are other cases where you may have to file a 1040 tax return form that don’t necessarily offer any benefit, such as;

•  owing special taxes on tips or self-employment income of more than $400
• Comply with tax laws. In 2008, if you were single, under age 65 and earned at least $8,950, you are required by law to file a tax return. You can view the complete chart of who should file a tax return for 2008 based on age and filing status (e.g. single, married, separated, etc.) on the IRS website.

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