by | Feb 23, 2022 | Tax Tips and News
The Internal Revenue Service doesn’t want the March 1 tax deadline for farmers and fishermen to be “the one that got away.” Those taxpayers have to pay their entire tax bill from their respective businesses by that time if they didn’t make estimated tax payments.
The March 1 deadline payment date is a special rule, usually applied when a farming or fishing operation made up at least two-thirds of the gross income in either the current year or the previous year. This means filing by the regular April 18 deadline, but paying the tax due in full by March.
Estimated tax payers should make a payment by January 15 to escape a penalty.
Taxpayers can use their Online Account to set up payments through their bank account. They can also schedule payments ahead of time with IRS Direct Pay.
See Publication 505, Tax Withholding and Estimated Tax, for details on estimated tax payments.
Filing for the farmers
Those in the business of farming will report their income and expenses on Schedule F (Form 1040), Profit or Loss From Farming. If their net earnings from farming are $400 or more, they’ll also have to use Schedule SE (Form 1040), Self-Employment Tax, to calculate their self-employment tax due.
Two good resources are Publication 225, Farmer’s Tax Guide (check out Topic No. 554) and the Agricultural Tax Center webpage.
Filing for the fishermen
Schedule C (Form 1040), Profit and Loss from Business (Sole Proprietorship) is the main vehicle to report income and expenses from fishing. Like farmers, fishermen will calculate their self-employment tax using Schedule SE (Form 1040) if they have more than $400 in net earnings from fishing.
General information is available about rules applying to individuals – including commercial fishermen – who file Schedule C. Consult Publication 334, Tax Guide for Small Business.
For those whose business is a partnership or a corporation, Publication 541, Partnerships, or Publication 542, Corporations, can be useful.
Paying online is the fast way to pay
The Internal Revenue Service urges taxpayers, including farmers and fishermen, to pay their tax bill online if possible. Using one’s online account is fast, allowing taxpayers to make same-day payments from their checking or savings accounts. The online account also allows taxpayers to keep tabs on the other aspects of their tax life, from the Adjusted Gross Income calculated on their latest tax return, to tracking their advance payments received from the Child Tax Credit.
IRS Direct Pay is another option for taxpayers, scheduling a payment from their bank account to meet a tax deadline – no registration or login required. The Electronic Federal Tax Payment System, however, should be used by those taxpayers sending payment of business taxes. Enrollment is required to use EFTPS.
Find more information in Tax Topic 416, Farming and Fishing Income; Publication 5034, Need to Make a Tax Payment? (Available in English and Spanish), or visit IRS.gov/payments.
Source: IRS reminds those with farming, fishing businesses of March 1 tax deadline
– Story provided by TaxingSubjects.com
by | Feb 19, 2022 | Tax Tips and News
Phishing emails are a common threat found in your inbox. While these scams range from too-good-to-be-true business opportunities to aggressive threats from “government agencies,” one specific type—spear-phishing scams—can be more challenging to identify at a glance because they are custom-built for each target.
The Internal Revenue Service shared a Security Summit warning about a new spear-phishing scam that specifically targets tax professionals. These messages appear to come from the IRS—even including the agency’s logo—or “a tax preparation application provider,” and they direct recipients to click on an embedded link to resolve an issue with their tax software account or download an “unusual activity report.”
Remember, knowing what to look for can help you avoid falling victim to these scams. So, tax professionals should be on the lookout for any email that contains a subject line like “Action Required: Your account has now been put on hold,” and this is an example of one of these emails that was provided by the IRS:
Your account has now been put on hold
ALL preparers are required to apply security feature to their Tax Pro account towards 2021 Tax Returns processing.
You have failed to apply new update before expiry date
You are restore and update your acc|ount immediately.
Please Click Here to update your acc|ount now.
Important
Failure to update your account within the next 24hours will lead to you account being terminated and be barred from filing tax returns claims for 2021 tax season Your access will be restored once you have updated your details.
Sincerely,
IRS.gov eServices
What should I do if I receive one of these spear-phishing emails?
If you receive an unexpected or suspicious email—even if it appears to be from a trusted source like the IRS—never respond to the sender or click on embedded links and attachments.
When you respond to an email, two things generally happen:
- You let the criminals know that they sent their scam to an active email address
- You accidentally share information that criminals can use to steal your information
Clicking on links and attachments is also dangerous since they can “download malware onto [your] computer;” the Summit warns that these phishing emails appear to generate a pop-up containing fields where victims are expected to enter information.
What should I do if I clicked on a link in one of these spear-phishing emails?
If you fell victim to one of these spear-phishing scams, the Summit says you should immediately contact Support for your tax preparation software provider. Next, they say you need to take the following steps to report the scam:
- Save the email as a file and then send it as an attachment to phishing@irs.gov
- Notify the Treasury Inspector General for Tax Administration at www.tigta.gov to report the IRS impersonation scam
The IRS release closes with links to additional resources:
What is the Security Summit?
The Security Summit is a partnership between the IRS, state departments of revenue, and the private tax industry that is dedicated to raising awareness of tax-related data security threats. This group hosts outreach campaigns throughout the year, providing data-security alerts and tips to taxpayers and tax professionals.
To learn more, visit the “Security Summit” page on IRS.gov.
Source: IR-2022-36
– Story provided by TaxingSubjects.com
by | Feb 17, 2022 | Tax Tips and News
The Internal Revenue Service wants college students to be a little smarter when it comes to their scholarships and any emergency grants they may have gotten due to the pandemic.
The agency is spreading its knowledge by updating frequently asked questions (FAQs) in its webpage on Higher Education Emergency Grants.
Fact Sheet 2022-11 now has two new questions and answers to enlighten taxpayers on their tax responsibilities in relation to higher education.
What do students need to know?
The updated fact sheet says any emergency grants related to the COVID-19 pandemic received by the student taxpayer from the organization providing their scholarship are not taxable and aren’t included in the student’s income.
This covers grants made by a federal agency, a state, an Indian tribe, a higher education institution or some other scholarship-granting organization.
When reporting their qualified tuition and related expenses, taxpayers shouldn’t decrease tuition and expenses by the amount of an emergency financial aid grant.
Students who used an emergency grant to pay for qualified tuition and expenses on or before Dec. 31, 2020, may be able to claim a tuition and fees deduction, the American Opportunity Credit, or the Lifetime Learning Credit on a 2020 tax return. For more information, see Higher Education Emergency Grants Frequently Asked Questions.
After Dec. 31, 2020, the tuition and fees deduction isn’t available. Publication 970, Tax Benefits for Education, has details.
What do institutions need to know?
Since students don’t count emergency financial aid grants as income, higher education institutions don’t have to issue Forms 1099-MISC to report those grants.
Emergency grants made under the Coronavirus Aid, Relief and Economic Security Act—also known as the CARES Act—or the COVID-Related Tax Relief Act are covered by this provision, so they won’t show up in Box 5 of Form 1098-T.
However, any amounts that do qualify for “qualified tuition and related expenses” under the American Opportunity Credit, the Lifetime Learning Credit or the tuition and fees deduction put the reporting requirements of Internal Revenue Code section 6050S into play. If so, those extra amounts, including tuition and expenses paid by emergency financial aid grants to students, will show in Box 1 of Form 1098-T.
Sources: IRS updates FAQs for Higher Education Emergency Grants; Emergency aid granted to students due to COVID is not taxable
– Story provided by TaxingSubjects.com
by | Feb 16, 2022 | Tax Tips and News
The Internal Revenue Service has upped its game in the virtual currency world with a revision of an important reporting form.
Form 14457, Voluntary Disclosure Practice Preclearance Request and Application, lets taxpayers—who could face criminal charges for willful violation of the tax laws—pass information to the IRS voluntarily that they didn’t disclose before.
The upgraded form features an expanded section on reporting virtual currency. Other updates and additions to the form include:
- IRS Criminal Investigation now accepts photocopies, facsimiles and scans of taxpayer signatures. Taxpayers can send this form via eFax to 844-253-5613 to reduce mailing and processing times. Previously, Part II of this form had to be mailed.
- A penalty structure for employment tax and estate and gift issues.
- A check-box for the inability to pay in full.
The changes were made after the IRS got suggestions and other insight from tax professionals and stakeholders, taking into account the trends that vary depending on the type of asset held.
“This is an important form and process for people who recognize it’s better to step forward and address their tax situations head-on, before facing IRS enforcement action,” said Doug O’Donnell, Deputy Commissioner Services and Enforcement. “The revised form includes a number of updates, and we encourage people to review the guidelines and consult a trusted tax professional.”
No escape from the law
Since the form was introduced, the IRS estimates thousands of taxpayers have used it as an option to come clean about their tax situation and possibly avoid criminal prosecution. Making a truthful disclosure, however, doesn’t mean a newly compliant taxpayer can also escape an IRS audit and full payment of taxes, interest and penalties.
Taxpayers who did not commit any tax-related crimes and want to correct their mistakes should use an option other than Form 14457. They should seek the advice of a tax professional or legal counsel to determine which option is best for them.
If using Form 14457 is called for, such voluntary disclosure has to be timely, accurate and complete. The taxpayer making the disclosure also has to go the extra mile and cooperate with the IRS to determine just what their true tax liability is and to make full payment – including interest and penalties.
What if a taxpayer can’t pay up?
A taxpayer unable to pay the tax, interest and penalties that are owed can ask the IRS to consider other payment arrangements. If a taxpayer contends they are unable to pay the total required, they have to disclose this, submitting a Form 433-A, Collection Information Statement.
However, taxpayers should remember if they seek payment options from the IRS, they will have the burden of proof to establish that they are truly unable to pay the total owed.
For more information on the Voluntary Disclosure Practice and other options for compliance, visit:
Source: IR-2022-33
– Story provided by TaxingSubjects.com
by | Feb 15, 2022 | Tax Tips and News
The Internal Revenue Service has come to the conclusion that the agency has more on its to-do list than it can get done at one time. Something, they found, had to be “put on the back burner.”
In order to service taxpayers filing now for the 2021 tax year, the IRS decided to suspend over a dozen additional letters to taxpayers, including automated collection notices, which are sent out when a taxpayer owes additional tax, but the IRS doesn’t have a record that they filed a return.
On the surface, it may seem as though this might not free up the manpower the IRS expects. But many of these letters—which include unfiled tax return notices and balance-due notices—are likely to generate a large workload by IRS personnel. That, when added to the several million income tax returns that the IRS has in backlog from the previous filing season, could be beyond the agency’s capabilities.
The COVID-19 pandemic led to a slowdown in processing of these backlogged returns; many of them have issues that meant the returns should be examined by an IRS specialist. The pandemic forced the agency to be even more short-staffed than normal.
IRS Commissioner Chuck Rettig says the only way to have enough staff to process the current crush of income tax returns was to shelve the letters and notices for later.
“IRS employees are committed to doing everything possible with our limited resources to help people during this period,” said Rettig.
“We are working hard, long hours pushing creative paths forward in an effort to be part of the solution, rather than the problem. Our employees continue to expend every effort to balance a confluence of multiple, unprecedented demands—including successfully starting the filing season, working our inventory of unprocessed tax returns as well as looking for additional ways to minimize burden for taxpayers, tax professionals and businesses.
“Our efforts are not limited to suspension of these additional letters and the possibility of similar actions going forward. We have redeployed and reallocated resources throughout the IRS and have implemented innovative strategies in an ongoing effort to provide a meaningful reduction in our inventories,” Rettig said.
The commissioner added that the automatic notices have been suspended until the IRS can work through the backlog of returns.
Not all notices stop
Some notices will still go out to taxpayers and tax professionals in the coming weeks. The IRS stresses, however, that there’s generally no need to call or respond to the notice; the agency is working as fast as it can to clear the backlog.
At the same time, however, the IRS recommends that if a taxpayer or tax pro gets a notice and believes it’s accurate, they should take corrective action to comply with the notice.
Taxpayers who have a balance due, for example, could have interest and penalties increase. IRS employees may also issue notices to particular taxpayers, covering specific compliance issues.
It should be noted that the IRS doesn’t have authority to stop all notices; many are required by law to be issued within a certain period.
What’s included in the suspension?
Notices to individual taxpayers:
- CP80, Unfiled Tax Return
- CP59 and CP759 (in Spanish), Unfiled Tax Return(s) – 1st Notice
- CP516 and CP616 (in Spanish), Unfiled Tax Returns – 2nd Notice
- CP518 and CP618 (in Spanish), Final Notice – Return Delinquency
- CP501, Balance Due – 1st Notice
- CP503, Balance Due – 2nd Notice
- CP504, Final Balance Due Notice – 3rd Notice, Intent to Levy
- 2802C, Withholding Compliance letter
Notices to businesses:
- CP259 and CP959 (in Spanish), Return Delinquency
- CP518 and CP618 (in Spanish), Final Notice – Return Delinquency
Source: IR-2022-31
– Story provided by TaxingSubjects.com
by | Feb 12, 2022 | Tax Tips and News
Workers have returned to the service industry lately—in droves. With the threat of coronavirus subsiding in many locations, restaurants and other establishments have sprung back to life.
With the surge in employment, we thought it appropriate to remind workers throughout the service industry there’s one phrase they should never forget: Tips are taxable income.
Anyone who works in the service industry—or has a side hustle in the gig economy—needs to keep that advice front and center come tax time. The point is taxpayers need to understand their obligations that come along with the tips they earn, so they don’t get a nasty surprise when they file.
Straight talk on tips
We’ll say it again: all tips a taxpayer receives must be reported as income. This includes tips that come directly from customers; tips that are added using credit, debit or even gift cards; and tips that come from a tip-splitting arrangement with fellow employees.
And don’t think those two tickets to the concert that your last customer gave you are not fair game—they are. Non-cash tips are income and subject to tax, just as if they were cash.
The Internal Revenue Service says three good habits can keep taxpayers out of hot water with their tips.
First, keep a daily record of tips received. This gives taxpayers hard numbers they can report to the IRS and avoid guessing later.
Second, report all tips to the employer. Simple enough.
Third, report all tips on the taxpayer’s tip record on their income tax return.
If taxpayers have questions about whether their tips really are taxable, they can consult the Interactive Tax Assistant on the IRS website for help.
Employers should remember that any employee who receives more than $20 in tips in any month has to report that month’s tips to the employer. The report has to be made by the 10th day of the following month.
For example, if a waiter gets $25 in tips during November, he has to report his total tips for that month by December 10.
Since the employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips, it’s vital that the employee makes the monthly report on time.
For more information on tips and how to report them, see these resources from the IRS:
Source: IRS Tax Tip 2022-23
– Story provided by TaxingSubjects.com
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