After months of wondering just how it would play out – and if it could play out without the government being shut down – the government passed a spending bill last week that effectively funds everything the government will do. If you are interested in a larger overview of what’s included, this article from Forbes does a good job of that. In this space, however, I want to concentrate on the tax implications of it.
First, I feel like the Tax Cuts and Jobs Act comes up every week in some form or other, but the spending bill includes money whose specific purpose is for implementing tax reform. This sounds like a great thing, for we want the IRS to be ready for all the new rules and make next tax season as smooth as possible, but the fact that an extra $320 million has been slated to make sure that happens has to give anyone pause. If it takes the IRS that much money to figure it out, how is a taxpayer supposed to be able to get through it all?
Beyond that, the IRS is getting an overall bump in its budget, with its $11.4 billion allocation representing a $196 million jump from last year’s number after years of cuts. That money is earmarked for the agency to modernize its system and increase customer service. With the horror stories that have increased in recent years over how long it can take to actually get anyone from the IRS on the phone, we can only hope this move toward customer service helps that.
In fact, there is even a provision in the bill requiring an employee training program that will include “dealing courteously with taxpayers.” This sounds nice, but then again, one would hope that being courteous was already a general rule.
Overall, $2.5 billion of the IRS’s slate is for taxpayer services. This includes $5.5 million set for identity theft casework. When one sees how small that number is compared to the overall budget, it shows that scams may not be TOO terribly widespread if they can be handled with that amount, but it can also speak to the need for personal vigilance because the IRS is also not spending a TOO terribly great amount of money in the area.
I have written in the past about how the decreased funding for the IRS in recent years has resulted in a lower number of audits. Although it seems that much of its uptick in funding is slated for other areas, I would not be surprised to find that it leads to the number of audits leveling off, if not increasing.
I do not believe that this means anyone should be in greater fear of being audited. Rather, as I always say, your best protection against an audit is filing a legal tax return. Sure, there will still always be some things that trigger an audit, and you can never be guaranteed that you will not face one. You can, however, be guaranteed that an audit will only be a nuisance (granted, possibly a huge one) if there is nothing in your tax return with which the IRS can find fault.
So yes, the tax laws as changing, the tax agency is changing, but there are some things that will always remain the same. And we are happy to also remain and help you through the new landscape with the same high-quality service that you have always been able to count on.
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When I write in this space about tax scams, it is almost exclusively with an eye toward protecting you against unscrupulous criminals. The IRS, however, has been putting out a lot of information in its “Dirty Dozen” scams list, and it made me realize that there are different angles when it comes to taxes and scams. For although there are many criminals from the outside using the general structure of the tax system to take advantage of people, there are also unscrupulous people trying to take advantage from the inside, too.
Some of these are may only arise out of ignorance or faulty information. The IRS has labeled these as “frivolous tax arguments,” which can be used to try to get out of paying taxes. I can’t say this is something I run into that often (which makes sense, no one is coming to me to not pay taxes), but the agency lists the following as some of the most common:
What this boils down to is that you have to pay taxes. For all the loopholes one may hear talked about within the system, there is not a magical one that leads to a world where you don’t have to pay at all.
Even if you file taxes, though, doing things wrong within your return can also be seen as a scam. Some obvious ones that everyone can imagine are claiming expenses or deductions for which you are not eligible. What about claiming extra income, though? This doesn’t seem as obvious, but there are some tax credits for which some extra income could quality you for a larger credit.
With deductions, it is understandable that if one were preparing their own tax return, you could misread a tax rule (possibly with a hopeful, optimistic bent) and believe you are doing things correctly. If one was to alter their income, though, that is a little more willful by its nature. Both cases, however, would result in the submission of a tax return that can open you up to penalties and a bigger bill than you would have had if you just filed a legal return to start.
This brings me back to the “loophole” idea. It’s a term that is so often used that it almost feels like it is okay to look for ways to beat the system. The problem is that you can’t beat the system, but you can work the system to your greatest advantage. There are no secret tricks, just good strategies. I cannot claim that every small fudging of numbers of a return is going to trigger an audit, but if something does trigger it, you want everything to be legitimate.
There are things we can do with tax planning and preparation that can make a return look better than you may have thought it would. These aren’t tricks, though, and these aren’t scams. It is simply the value of having someone on your side who knows how to legally get you all that should be yours.
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Sometimes the numbers involved when it comes to taxes can be staggering. Like how about the fact that there could be over a billion dollars that the government in willing to pay out from three years ago? Now, don’t get too excited, for if you are reading this, I imagine chances are good that you are not in the group that stands to benefit from this – those we have not yet filed a 2014 federal income tax return.
Most of the time when we think about not filing a tax return, a heavy debt is imagined along with penalties and interest. And, of course, there is a segment of the population that tries to ignore filing taxes because they know they can’t pay the bill which will result. (We can discuss the lack of wisdom behind that decision at another time.) There are also groups, though, who don’t file a tax return even when it will result in then receiving a refund.
So sure, most of my readers won’t fit in that category, but you might know someone who does. Some of those people may not have even known they had to file taxes. Some of those people may not have thought they needed to file taxes. Many of those people were students or only working part-time when it happened.
Now to get back to that big number from the beginning, the IRS estimates there could be unclaimed refunds totaling $1.1 billion from 2014 returns.
This becomes crucial now for taxpayers are given a three-year window of opportunity to claim a refund. After that time, the money becomes the property of the U.S. Treasury. So on April 17, 2018, you should have your 2017 return filed (or get an extension, which I’m sure we will also be discussing in the future), but it also marks your last opportunity to submit one of those 2014 returns.
There could be work involved in submitting a past return, for if one did not file, they probably didn’t keep any W2 forms from time either. A phone call to a former employer may be all that is necessary to get one, however. And let’s say that that call takes 20 minutes even, it could be well worth it, for it is believed that the median return on these unfiled 2014 returns is $847.
Yes, these are now more reasonable numbers, but it adds up when there are thousands of estimated unfiled returns worth millions from every state in the country.
In conclusion, yes, taxes can be scary. Avoiding them, however, never leads to a better place. And yes, taxes take some time to properly handle. It’s time, however, that when spent correctly returns a pretty good financial return. So if you know anyone who may have avoided filing taxes over the last three years (for that three-year window is still open through 2015 and 2016, too), send them our way. We pride ourselves on helping taxes feel better for all our clients, and it always feels better when it results in them leaving with a little extra money coming their way.
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Now that we are into March, if you have not yet received certain tax forms, you need to take action. Possibly the most important of these is any W2s from employers that report your wages from 2017. Most people get these by the end of January, so it is really late if you don’t have one.
The first thing to do is to contact your employer. The issue could be as simple as the form was sent to the wrong address. And even if it has been lost for some other reason, you can usually get a copy without an issue.
If for some reason you cannot get a copy from your employer, then you must contact the IRS for a substitute form. The agency can be reached at 1-800-829-1040, and requests that you have the following information handy:
Yes, this is all a hassle, but the longer you procrastinate taking care of it, the bigger of a hassle it will feel like as mid-April looms ever larger.
So that covers if you do not yet have a W2 from 2017, but this is also a good time to think about what your 2018 form will look like. Following the recent Tax Cuts and Jobs Act, it will not quite be the same as it was last year.
Chances are that you have already noticed some changes in your paycheck as part of the fallout from the act’s passage. That reflects some of the changes based on your current withholding. It could be worth taking some time, though, to consider what you are currently withholding.
The IRS recently released a new withholding calculator to determine if you are having enough money withheld from your paycheck to cover what your tax obligation is going to be under the new rules. Or, conversely, this could be a chance to have less withheld from your check if you would prefer a little more money in each check than a larger tax refund check.
Even if this would only come to something like $20 each check, putting it into a simple savings account lets you hold onto the money and earn some interest on it rather than having the government hold onto it.
No matter which side of the dynamic you end up on, the IRS also released a new W-4 form if you want to change your withholding. It is recommended that the following groups take advantage of this check-up, for it is more likely that their tax picture changed:
And whether you fit into any of these groups or not, rest assured that we remain vigilant and ready to continue to help you navigate the new tax landscape.
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