Options for Paying a Balance Due to the IRS

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While the majority of taxpayers these days generally enjoy a nice refund, not everyone does. So what happens for those who owe? There are many ways for you to pay your balance due between now and April 15.  Here’s how:

You can use the old fashioned method and mail a check or money order. However, this is the least secure payment method since the check has to get to the IRS and will be handled by individuals at the payment-processing center. When there’s payment involved, you generally want the most direct, secure channel possible. If you’re mailing a check, follow these two steps:

1. Mail the check or money order with
Form 1040-V, “Payment Voucher,” to the mailing address for your state as listed in the IRS form instructions.
2. Make sure the check or money order is payable to the “United States Treasuryand you put the form number, year and primary social security number in the memo section of the check. Consider making a copy of the check or money order for your files.

A safer, more secure, payment method is to authorize an electronic funds transfer directly from your bank account. This method can be done for Form 1040 payments when your tax return is electronically filed. You will select a payment date and provide the Treasury with the bank name, routing number and the account number of the account you wish to have debited. You will see “IRS USA Tax Payment,” “IRS USA Tax Pymt,” or something similar on your account statement once the payment is made. Payment information will only be used for the tax payment(s) authorized and will not be disclosed for any reason other than for processing the payment.

The third free option is the Electronic Federal Tax Payment System (EFTPS). This is a payment account for all types of taxes that uses a secure government website. The service is convenient, accurate and can be accessed online 24/7. Once you’re enrolled, you can make any type of federal tax payments online. The system allows you to schedule individual tax payments up to 365 days in advance and business tax payments up to 180 days in advance.  It’s free, easy to use and always available once you set up the account. EFTPS works really well if you make estimated payments or have multiple types of federal taxes because it allows you to decide when you will make your tax payment(s).  

You can set up an EFTPS account at
www.EFTPS.gov or by calling IRS EFTPS Customer Service at 1-800-555-4477.   Once the EFTPS account is set up, you will have access at any time for any type of tax payment.

If none of these options work for you, you can always pay with a credit card, but you will have to pay some fees. The IRS does not pay the card fees like merchants do, so you are responsible for paying the card fees in addition to the tax fees. Fees can range from $2.99 to $3.
95 for a debit card payment to 1.8 – 2.35 percent for credit card payments. You’ll want to check with your credit card company. All credit and debit card transactions for tax payments are handled by service providers under contract to the IRS.

The IRS suggests you exhaust options outside of the IRS and Treasury department first such as a personal loan, borrowing from a family member, or using a credit card to pay your tax bill if the above options do not work for you. The IRS charges penalties and interest, with the interest compounded at a faster rate than banks, which will make your final bill much higher with IRS than a conventional lender. That being said, 
the IRS offers a Payment Plan with a set up fee of $105. You can lower the fee to $52 with a direct debit agreement. If your income is below a certain level, you may qualify for a reduced payment plan fee of $43. This is a one-time only fee and is not part of your payments. You must owe less than $50,000, be able to pay your balance in full within 72 months and make a minimum $25 a month payment to be eligible for the IRS payment plan.

To get started, complete
Form 9465, “Installment Agreement Request, and either mail or e-file the application. This can be done when you submit your tax return. When you enter into an installment agreement, make sure you pay as much as you can when you file your tax return, continue to pay as much as you can, but be sure to not default on the plan. Contact the IRS if at any time you are unable to make your monthly payment. If you default on the plan, the IRS will demand payment in full and can send your account to collection if you don’t pay. You can generally reinstate the payment plan but the IRS will assess another set-up fee.

If you are in an installment plan, the IRS will hold any future refunds and apply them to the tax debt until the debt is paid off. For more information on payment plans visit


March 29 is National Mom and Pop Business Day

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National Mom and Pop Business Day is the day set aside in the U.S. to celebrate family owned small businesses. In honor of these folks, let’s look at some of the special tax considerations for small business owners.

Married couples who own a small business can file on Schedule C and get Social Security credits for each taxpayer. The IRS allows taxpayers who jointly own a business to elect to file two Schedule C’s for the business by splitting the income and expenses based on each taxpayer’s investment. Both taxpayers must be actively involved in the business to qualify for this option called a qualified joint venture (QJV) election. Using the QJV election allows married taxpayers who own a business together to avoid the more complex and costly filing of a partnership return. Business owners who meet all the of the following qualify:

  - A husband and wife team are the only owners of the business
  - Taxpayers must be recognized as married for federal income tax filing 
  - Taxpayers must file a joint tax return 
  - Both taxpayers must be active participants in the business 
  - If not a new business, the spouses filed a partnership return in previous years 

What are the benefits?
 Each spouse pays into Social Security for future benefit protection, Schedule C is a less complex form to complete than the partnership return and the taxpayer completes the portion of the return for the business and their individual return all at one time, and a QJV filed on a Schedule C generally does not require an employer identification number (EIN) unless there are employees.    

Some of the other rules governing small business for this year include:  Taxpayers are still eligible for 100 percent bonus depreciation on tangible assets placed in service during 2012; Up to $250,000 of Leasehold Improvements are eligible for section 179 deduction. Leasehold improvements are often the remodeling a business does to the space rented for their business; Business owners that accept credit cards and debit cards will receive a Form 1099-K reporting all credit and debit card payments they received last year. Each payments settlement entity (PSE) that collected funds for the merchant will send a Form 1099-K. This income should be included on the Schedule C only once since it is possible to have it reported on a 1099-MISC also; Taxpayers may deduct 100 percent of theirs and their family’s health insurance cost as a direct deduction from income on Form 1040; Common required tax and state mandated employer costs: Unemployment insurance (FUTA and SUTA), Worker’s Compensation insurance, Medicare and Social Security taxes.  

If you’re a small business owner
, don’t forget to review your tax situation throughout the year and complete estimated tax payments each quarter.   

Tax Considerations for New College Grads

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Graduating from college leads to important life changes that can trigger significant tax benefits. The United States National Center for Education Statistics estimated that 3.4 million college degrees were awarded in the 2011-12 school year. Many of these recent college graduates took on new and exciting responsibilities in the real world, like starting their first job this past tax year. And many of these graduates may not be aware of the tax benefits available to them.

Mark Steber, Chief Tax Officer, recommends new graduates check out these tax tips:

Deduct student loan interest
– Taxpayers can claim up to $2,500 in student loan interest paid during the year as long as they are legally obligated to repay the loan, were at least a half-time student in a degree or certificate program when the loan was awarded and attended an eligible institution.

Know how being claimed as a dependent by someone else can impact their taxes
– Many college students are claimed as a dependent on their parent’s or guardian’s tax returns. This affects eligibility for certain deductions and credits, like student loan interest paid. Taxpayers should verify their dependent status before filing their taxes.

Be aware that scholarships, fellowships and apprenticeships can affect their taxes
– Scholarships and fellowships are taxable if they are not paid directly to the institution or were awarded to a non-degree candidate. Any part of the scholarship that is used for room, board or travel is also taxable. Generally, any payments from apprenticeships are taxed the same way as wages.

Choose withholdings
– It is easy to owe taxes when taxpayers start their first ‘real job’ because they are accustomed to having a small amount of withholding. Any time income increases, it is important to make sure to have enough withholding to cover the new tax liability. The IRS Withholding Calculator helps taxpayers determine the best way to determine withholdings.

Claim moving expenses from relocating for a new job
– Taxpayers must work full-time for 39 out of the next 52 weeks to be eligible. Keep track of mileage, lodging expenses and tolls when relocating, as well as the cost of moving any household goods and pets. All these relocation expenses can be tax deductible.

My Dog Ate My W-2...and Other Excuses for Filing Late

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When do you file your taxes? Do you get them prepared right away or wait until the last minute? Now that we are halfway through March, we thought we'd take a look at some excuses for why people procrastinate when it comes to filing their taxes.

Excuse: I might owe money!
Reality: Even if you file now and owe money, it isn't due to the IRS until April 15.

Excuse: I don't know if I have everything I need to file. 
Reality: By now, you should already have all forms required for your taxes. If anything is missing, your tax preparer will let you know. 

Excuse: Money is tight. I can save by doing my own taxes.
Reality: The tax code has seen more than 4,000 changes in the past 10 years. Missing out on even a single deduction or credit could cost you BIG TIME. Leave it to a tax professional.

Excuse: If I wait, prices for tax prep will probably come down.
Reality: NOW is the time to look for a deal or bargain and beat the last-minute rush.

Excuse: My preparer is too busy.
Reality: You need to find a new preparer.

Excuse: I don't understand taxes.
Reality: That's ok. It's why tax preparers were invented.

Excuse: I have a headache.
Reality: Your headache might very well be caused by an acute case of "tax return procrastination." Our prescription? Visit a tax preparer, STAT, and put your worries aside.

Excuse: My Uncle Ralph promised to help me with my taxes.
Reality: Do you really want a guy more commonly known for his knock-knock jokes to handle your taxes?

Excuse: I can reduce my risk of an IRS audit by filing at the last minute.
Reality: You would be better served to rub your tax return with a chicken bone and mumble magic words. Last-minute filing has no impact on your audit risk.

Excuse: I really don't need a $3,000 refund right now.
Reality: No one actually said this. If you're like most people, you can probably use that tax refund money. File your return, get your refund and get on with your life.

Tax Tip - Amended Returns

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What happens if you filed a tax return and later realize that you omitted income or overlooked some deductions? You can amend your return by filing Form 1040X, Amended U.S. Individual Income Tax Return. Generally, you must file your amended return within three years after the date you filed your original return. You cannot change your filing status from Married Filing Jointly to Married Filing Separately after the due date of the original return. 

Tax Tip - Dependents

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Wondering if you can claim someone as a dependent on your 2012 tax return? To qualify as a dependent on your tax return an individual must meet the following three tests:   

  • Cannot be a dependent of another taxpayer
  • Cannot file a married filing jointly tax return
  • Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico during the year

Dependents fall into two specific categories: they are either a qualifying child or a qualifying relative. While both types of dependents are eligible for a $3,800 exemption, the qualifying child dependent is the only one eligible for the Child Tax Credit, Additional Child Tax Credit and Earned Income Tax Credit. 

Tax Tip - Car Expenses

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When you use a car for business, you may deduct the mileage expense by using either the standard mileage rate or the actual expenses of maintaining the vehicle. If you take the actual expenses, you can deduct the depreciation, gas, oil, insurance, tires, licenses, repairs, etc. If you choose to take actual expenses when you first start using the car for business, you cannot change to the standard mileage rate deduction.