With the deadline to let the Internal Revenue Service know you got an improper Employee Retention Credit (ERC) fast approaching β it's this Friday, March 22 β business owners who are concerned need to act fast.
Recipients of wrong payments can apply for the IRS' ERC Voluntary Disclosure Program by that deadline. If accepted, the businesses can repay 80 percent of the COVID-era tax credit amount they erroneously received.
They also can avoid penalties and interest, as well as avert possible IRS investigation of the wrong credit claim.
So how do business owners know if the ERC money they got was wrong?
Here are seven warnings signs the IRS says could indicate that an ERC claim is incorrect.
1. Too many quarters being claimed. Some ERC promoters urged employers to claim the tax credit for all quarters that it was available. Qualifying for all quarters is uncommon.
2. Government orders that don't qualify. Some promoters told employers they can claim the ERC if any government order was in place in their area, even if their operations weren't affected or if they chose to suspend their business operations voluntarily. This is false.
Some promoters also suggested that an employer qualifies based on communications from the Occupational Safety and Health Administration (OSHA). This is generally not true.
3. Too many employees and wrong calculations. Employers should be cautious about claiming the ERC for all wages paid to every employee on their payroll. Employers need to meet certain rules for wages to be considered qualified wages, depending on the tax period.
Generally, qualified wages must be wages that are subject to Social Security and Medicare taxes. However, they may also include certain health care expenses you pay for your employees.
Employers also should review all calculations to avoid overclaiming the credit. They should not use the same credit amount across multiple tax periods for each employee. The IRS' ERC 2020 vs 2021 Comparison Chart has specifics on amounts.
4. Business citing supply chain issues. A supply chain disruption by itself doesn't qualify an employer for ERC. An employer needs to ensure that their supplier's government order meets the requirements.
The IRS recommends employers review the rules on supply chain issues, as well as check out the examples in the 2023 legal memo on supply chain disruptions.
5. Business claiming ERC for too much of a tax period. It's possible, but uncommon, for an employer to qualify for ERC for the entire calendar quarter if their business operations were fully or partially suspended due to a government order during a portion of a calendar quarter.
A business in this situation can claim ERC only for wages paid during the suspension period, not the whole quarter. Businesses should check their claim for overstated qualifying wages and should keep payroll records that support their claim.
6. Business didn't pay wages or didn't exist during eligibility period. This is pretty much a no-brainer. No business or no employees, no tax credit.
But some companies in this situation have filed anyway, in many cases following promoters' wrong advice. And such patently wrong filing reports aren't apocryphal. The IRS says it has seen records showing businesses that claimed ERC didn't have any employees, or they claimed the ERC for tax periods before the company existed.
So the IRS is reiterating that employers can only claim the ERC for tax periods when they paid wages to employees.
7. Promoter says there's nothing to lose. The IRS gets it. The tax code is complicated, and sometimes business owners need to get advice, especially for new tax provisions during an unprecedented time like the COVID-19 pandemic.
But a promoter of a service is not necessarily the best adviser, especially when the advice benefits the person or company offering it. This is particularly true of when the business offering the advice is a new one, potentially started to literally take advantage of confusing tax law changes and business owners.
If you filed an ERC claim at the urging of an aggressive promote who told you that you "have nothing to lose," review your tax credit filing now. That advice is wrong. Businesses that incorrectly claim the ERC risk repayment, penalties, interest, audit, and other expenses.
You can use the IRS' interactive ERC Eligibility Checklist. It's also available as a printable guide.
If you don't feel confident in reassessing your ERC claim, hire a reputable tax professional. That tax pro can doublecheck your ERC paperwork and give you the correct answer as to whether it is OK, or you need to apply to the ERC Voluntary Disclosure Program.
Either way, do so quickly. Again, the ERC disclosure deadline is this Friday, March 22.
And if you filed a claim, discover it's incorrect, and haven't received the ERC money yet, act as soon as possible to withdraw that wrong claim.
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A couple of weeks ago, I blogged about growing opposition to higher taxes on expensive real estate in Los Angeles and Chicago. So naturally, a recent Institute on Taxation and Economic Policy (ITEP) piece on these so-called mansion taxes caught my eye.
Local mansion taxes have been around since 1982, notes ITEP local policy analyst Andrew Boardman in his article for the Washington, D.C.-based nonprofit. However, the momentum for them has built in recent years.
Nearly all of today's mansion taxes were enacted or expanded between 2018 and 2023.
ITEP says that as of early 2024, 17 cities and counties have progressive taxes on high-price real estate sales, with several others (see Chicago in my earlier post) considering adopting these policies.
Where, and how much, mansion tax is collected: ITEP, a progressive-leaning nonprofit that, per its mission statement, seeks to shape equitable and sustainable tax systems at all governmental levels, says mansion tax money allows communities to make progress on critical priorities such as housing, education, and infrastructure.
And it's a substantial amount of money. In the 17 places where it's collected, mansion taxes raise nearly $3 billion in annual revenue.
The ITEP graphic below details the existing mansion taxes across the United States.
Mansion tax similarities and differences: Current property transfer taxes share many features, but as the ITEP research points out, they differ in key details due to the differences in the local real estate markets.
Some of the key variations include β
Where mansion tax money goes: ITEP says that in close to half of the localities with progressive transfer taxes, the revenue provides a dedicated funding source for affordable housing and homelessness alleviation.
"In places such as Baltimore, Los Angeles, and Santa Fe, no dedicated funding for housing existed before the introduction of a progressive real estate transfer tax," writes Boardman.
Other areas use the added real estate tax money for public school facility improvements (Montgomery County and Santa Monica), transit system projects (New York City), and as a general revenue source for infrastructure, health, and parks expenditures.
Boardman and ITEP argue that taxes on high-end homes enable communities to make greater investments in their area's common good by increasing contributions made by those at the top of the economic ladder.
That's obviously a political and fiscal argument that will continue as states and cities look to balance and/or bolster their budgets.
For now, though, the ITEP data provide a wealth of numbers. I encourage you to check out the full report, Local Mansion Taxes: Building Stronger Communities with Progressive Taxes on High-Value Real Estate, at the ITEP website.
From all the article's facts and figures, I'm selecting 17, the number of current locales with mansion taxes, as this week's By the Numbers honoree.
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ERC voluntary disclosure deadline is March 22
Last December, the Internal Revenue Service announced that businesses that received improper Employee Retention Credit (ERC) amounts could let the agency know about the error.
In these cases, many of which were created when companies got bad tax advice from aggressive ERC promoters, the companies would have to repay only 80 percent of the erroneously received credit amount.
More importantly, they would avoid subsequent IRS investigation and protentional wrongdoing charges.
The deadline to come clean about a bad ERC is next week. Specifically, you must let the IRS know of the improper claim via its Employee Retention Credit Voluntary Disclosure Program (ERC-VDP) by Friday, March 22.
COVID-19 tax break gone bad: The ERC-VDP is just one way the IRS is dealing with the problems created by this refundable tax credit.
As originally designed, the ERC was to help qualifying businesses who kept paying staff during the economic turmoil of extended COVID-19 pandemic company closures.
The ERC was available during 2020 and 2021, but earlier this year, promoters of the tax break convinced many businesses to apply for it. In some cases, the ERC push was made even if the companies didn't meet all the tax break's eligibility requirements.
And yes, some of them were flat-out tax scams.
When the IRS discovered that many of these recent ERC weren't legitimate, the agency suspended processing of returns that included the tax credit claim.
It also recommended that companies that had filed questionable claims, but not yet received any IRS money related to the ERC, withdraw the claim.
As for those who did get ERC money, but now have doubts about its legitimacy, the IRS established the ERC-VDP. This allows business owners who discovered they got improperly claimed ERC money to alert the IRS, and pay back most of the credit.
Determining disclosure eligibility: If you received the ERC, but discover that you weren't entitled to it, you can apply for the ERC-VDP if the following four conditions also are true.
Then file IRS Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. The Form 15434 must be submitted using the IRS Document Upload Tool.
If the IRS approves the program application, it will mail the employer a closing agreement. The employer must then repay 80 percent of the ERC they received, either online or by phone, using the Electronic Federal Tax Payment System (EFTPS).
The IRS said it chose EFTPS because it is the Treasury Department system that most businesses already use to pay various federal tax obligations.
Financial break for improper ERC admission: In addition to the peace of mind for getting your business' taxes right with the IRS, those who voluntarily disclose their improper ERC also get a financial benefit.
As noted in the application section above, you'll only have to repay 80 percent of errant credit to Uncle Sam. You also will be relieved of any interest and penalty charges that would have been assessed if the IRS found the ERC mistake before you alerted it.
The IRS says it chose the 80 percent repayment level because many of the businesses who used the so-called services of ERC advocates didn't get the full credit amount. They paid the promoters a fee that generally was calculated as a percentage of the dubious credit they claimed.
If you can't pay the 80 percent amount at once, the IRS' collection department will work with you to explore payment options.
You can review the ERC rules to determine whether you need to apply for the voluntary disclosure program.
IRS.gov also has other online ERC resources, including a free video of the IRS' ERC-VDP webinar and highlights of the video if you want a preview; ERC frequently asked questions; and the ERC eligibility checklist, as either an interactive tool or as a printable guide.
You also might find these blog ERC posts of interest:
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President Joe Biden has targeted capital gains tax laws in his fiscal year 2025 budget.
But don't freak out if you have some money in the markets.
For the most part, Biden's looking to get more from really wealthy market mavens who typically pay lower capital gains tax rates on the long-term assets they sell.
Collecting billionaires' unrealized capital gains: When you sell an asset for more than your paid for it, that profit is a capital gain. The tax rate for these gains typically is less than ordinary tax rates that apply to earnings like wages.
In most cases, capital gains and qualified dividends are taxed at a top personal income tax rate of just 20 percent, compared to a the top ordinary income tax rate of 37 percent.
That rate disparity is why the wealthy, who tend to rely on capital gains income more than on ordinary earnings, often end up paying a lower tax rate than what we regular Joe and Jane Taxpayers pay at filing time.
Richer investors also have more leeway as to when they cash in their assets and owe any tax. As the assets' values grow, these unrealized capital gains are out the tax collector's reach.
Biden's proposal dubbed the Billionaire Minimum Income Tax would collect on the unrealized capital gains of taxpayers with a net worth between $100 million and $200 million. The tax would be phased in, with investors wealthy enough to be subject to the billionaire levy facing at tax of at least 25 percent of their total income, including unrealized capital gains, each year.
Other proposed capital gains changes: Biden also wants to limit two other capital gains tax breaks.
The White House budget proposes to tax all income exceeding $1 million at the top ordinary personal income tax rate β which also would be bumped from 37 percent to the pre-Tax Cuts and Jobs Act (TCJA) rate of 39.6 percent β regardless of whether it is capital gains, dividends, or some other type of income.
Biden also wants to end the current tax rule that exempts all capital gains on unsold assets, those sneaky unrealized capital gains, that are passed to heirs when the original owner dies. Now those assets' values are stepped up; that is, they are valued at the time of the owner's death, rather than when they originally were purchased.
That allows an heir who, for example, gets an asset valued at $1 million to sell it for that price and not owe any capital gains, even if the inherited asset originally was worth only a fraction of the inherited value. That shuts the Internal Revenue Service out of any capital gains collections.
Biden's proposal would treat these unrealized gains as taxable income for the final year of a taxpayer's life. The president would still exempt $5 million of unrealized gains per individual, double that for a married couple. Family businesses, including farms, would be allowed to delay the tax if the business continues to be owned and operated by surviving family members.
Capital gains for the rest of us: The Biden budget proposals are like all made by every president. They are a wish list.
The only chance Biden has to enact these capital gains tax changes is to be re-elected and have Democratic House and Senate majorities join him in Washington, D.C. next year.
That means that the existing capital gains tax rates will continue for the foreseeable future, which realistically is through 2025, or the last year of the TCJA tax law changes.
For those of us who might have taxable capital gains to report on our 2023 returns, the table below shows the applicable long-term capital gains rates and income brackets to which they apply.
2023 |
Capital Gains Taxable Income Brackets by Filing Status |
|||
Long-Term Capital Gains Tax Rate |
Single |
Head of Household |
Married |
Married Filing |
0% |
m
$0 to $44,625 |
$0 to $59,750 |
$0 to $89,250 |
$0 to $44,625 |
15% |
$44,626 to $492,300 |
$59,751 to $523,050 |
$89,251 to $553,850 |
$44,626 to $276,000 |
20% |
$492,301 |
$523,051 |
$553,851 |
$276,001 |
For 2024 tax year planning, the following table shows the capital gains tax rates and incomes that apply this tax year to returns filed in 2025.
2024 |
Capital Gains Taxable Income Brackets by Filing Status |
|||
Long-Term Capital Gains Tax Rate |
Single |
Head of Household |
Married |
Married Filing |
0% |
$0 to $47,025 |
$0 to $63,000 |
$0 to $94,050 |
$0 to $47,025 |
15% |
$47,026 to $518,900 |
$63,001 to $551,350 |
$94,051 to $583,750 |
$47,026 to $291,850 |
20% |
$518,901 |
$551,351 |
$583,751 |
$291,851 |
Capital gains tax miscellany: Yes, that zero level in the above tables is correct. Some lower-income investors won't owe any tax on their capital gains.
Higher earners, however, could owe more under the current tax laws.
In addition to the capital gains tax, wealthier taxpayers may also have to pay the additional 3.8 percent net investment income tax, or NIIT. The NIIT applies to single taxpayers with adjusted gross income (AGI) of more than $200,000. The NIIT income trigger for married filing jointly couples is $250,000.
Biden's budget would increase the NIIT rate to 5 percent for individuals earning at least $400,000 and $450,000 for couples.
And finally, there are other capital gains tax rates for other holdings, like collectibles.
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The first Direct Filer was a satisfied IRS employee who got a $400 tax refund. However, GOP opponents of the program say it was wrongly established and misspends tax dollars.
Following a soft launch, the Internal Revenue Service today, March 12, officially opened Direct File to all eligible taxpayers in the pilot program's 12 participating states.
The no-cost tax preparation and e-filing program cuts out the commercial tax middleman, allowing certain taxpayers able to complete their annual filing task by dealing, as the name says, directly with the IRS.
Right now, that's only taxpayers in 12 states with relatively simple federal tax situations.
Eligible Direct Filers: The participating states are Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming.
To qualify for Direct File, taxpayers must fall into the following categories.
The Treasury Department estimates that around 19 million taxpayers will be eligible for Direct File.
While that's a tiny portion of the nearly 129 million tax returns the IRS expects to receive this filing season, the agency is pleased with Direct File results so far.
"The early results from Direct File have shown taxpayers like the ease and convenience of the tool, and moving into the full-scale launch of the pilot will give more taxpayers the chance to use this free option," said IRS Commissioner Danny Werfel in announcing the program's expansion beyond the test phase.
"Expanding Direct File as the tax deadline approaches will provide more taxpayers a way to file directly with the IRS for free, and it will give us more valuable information to assess this pilot," added Werfel.
If you live in one of the dozen participating states and have an uncomplicated tax return, check out Direct File to see if it will work for your tax filing needs.
First Direct Filer refund: Federal employees were among the first to test Direct File.
And the very first Direct Filer, a 37-year-old IRS employee from the Austin, Texas, exurb of Kyle, Texas, got a $400 refund.
Dixie Warden is just the type of taxpayer the program targets. She has worked for the IRS in a variety of roles for the past 16 years, but not in the tax side of the agency. Currently, she's a human relations specialist with the agency.
She used her home laptop to access Direct File, which she told AP News was "just so darn easy to understand."
Direct File opponents: Warden's assessment, however, is not likely to win over Direct File opponents, which go beyond the commercial software companies that offer their own free versions.
During a February hearing before the House Ways and Means Committee, Republican representatives questioned whether Direct File actually is legal.
The lawmakers argue that the IRS went beyond the Congressional directive to study whether an agency administered tax preparation and filing program is feasible. .
Rep. Adrian Smith asked Werfel at that hearing about the IRS authority to create Direct File. The Nebraska Republican was not pleased with Werfel's reply that the agency has "a responsibility and an authority to offer taxpayers different approaches for how to meet their tax obligation."
Instead, Smith and his GOP colleagues say the directly-run IRS filing program turns the agency "into a tax filer, preparer, and auditor without congressional authority."
In addition to the question about the creation of Direct File, opponents also are concerned about the cost. They argue that the IRS should instead spend the program's money to promote Free File.
Although Free File saw a bump in usage in 2020, it's never been widely popular. An April 2022 Government Accountability Office report found that while 70 percent of taxpayers qualified to use Free File, fewer than 3 percent of taxpayers used it.
Congressional purse strings: The money question is the key one. Regardless of how well received Direct File is, if the agency doesn't get future funding to continue and expand it, it's 2024 debut could be the last of it.
The IRS used additional $80 billion it got under the Biden Administration's Inflation Reduction Act. Republicans, however, continue to chip away at that money.
The debt ceiling and budget package included GOP demands that IRS funds be cut by $1.4 billion. A separate agreement will claw back another $20 billion from the IRS over the next two years.
Any future IRS funding, or cuts, rest on which party ends up in control of Capitol Hill after November's election.
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Two more IRS Taxpayer Assistance Center (TAC) Saturday openings are scheduled for April 13 and May 18.
The Internal Revenue Service's second special Saturday openings this year of Taxpayer Assistance Centers (TACs) will be this Saturday, March 16.
As with the February event, and the two openings in April and May, there's no need for taxpayers to make appointments. They can just walk into the TACs, which will be open from 9 a.m. to 4 p.m. local time, for help.
The following 70 TACs in 34 states, the District of Columbia, and Puerto Rico will be open on March 16:
Alaska |
949 E. 36th Ave., Anchorage, AK 99508 |
Arizona |
4041 North Central, Phoenix, AZ 85012 |
California |
212 Coffee Road, Suite. 200, Bakersfield, CA 93309 2525 Capitol St., Suite 101, Fresno, CA 93721 300 N. Los Angeles St., Los Angeles, CA 90012 1301 Clay St., Oakland, CA 94612 4330 Watt Ave., Sacramento, CA 95821 880 Front Street, San Diego, CA 92101 450 Golden Gate Ave., San Francisco 94102 55 S. Market St., Ste. 100, San Jose, CA 95113 |
Colorado |
1999 Broadway, Denver, CO 80202 |
Connecticut |
150 Court St., New Haven, CT 06510 |
District of Columbia |
77 K St NE, Washington, DC 20002 |
Florida |
400 West Bay St., Jacksonville, FL 32202 51 S.W. First Ave., Miami, FL 33130 1248 N. University Drive, Plantation/Fort Lauderdale, FL 33322 3848 W. Columbus Dr., Tampa, FL 33607 625 N Flagler Drive, West Palm Beach, FL 33401 |
Georgia |
401 W. Peachtree St. NW, Atlanta, GA 30308 |
Hawai'i |
300 Ala Moana Blvd., Honolulu, HI 96850 |
Illinois |
230 S. Dearborn St., Chicago, IL 60604 |
Indiana |
100 East Wayne St., South Bend, IN 46601 |
Iowa |
210 Walnut St., Des Moines, IA 50309 |
Louisiana |
1555 Poydras St., New Orleans, LA 70112 |
Maryland |
31 Hopkins Plaza, Baltimore, MD 21201 |
Massachusetts |
JFK Federal Building, 15 New Sudbury St., Boston, MA 02203 |
Michigan |
477 Michigan Ave., 5th Floor, Detroit, MI 48226 917 N. Saginaw St., Flint, MI 48503 |
Mississippi |
619 Washington Ave., Greenville, MS 38701 100 W. Capital St., Jackson, MS 39269 |
Missouri |
30 W. Pershing Road (Union Station), Kansas City, MO 64108 1222 Spruce St., St. Louis, MO 63103 |
Nevada |
110 City Parkway, Las Vegas, NV 89106 |
New Jersey |
51 Haddonfield Rd., Cherry Hill, NJ 08002 200 Federal Plaza, Paterson, NJ 07505 |
New Mexico |
6200 Jefferson St. NE, Albuquerque, NM 87109 |
New York |
1200 Waters Place, Bronx, NY 10461 420 Albee Square West, Brooklyn, NY 11201 130 South Elmwood Ave., Buffalo NY 14202 57-07 Junction Blvd., Elmhurst, NY 11373 1180 Veterans Memorial Highway, Hauppauge, NY 11788 290 Broadway, New York, NY 10007 2116 Adam Clayton Powell Jr. Blvd., New York (Harlem), NY 10027 |
North Carolina |
10715 David Taylor Dr., Charlotte, NC 28262 225 Green St., Fayetteville, NC 28301 |
North Dakota |
657 2nd Ave. N, Fargo, ND 58102 |
Ohio |
550 Main St., Cincinnati, OH 45202 1240 E. Ninth St., Cleveland, OH 44199 200 N. High St., Columbus, OH 43215 |
Oregon |
1660 Oak St. SE, Salem, OR 97301 |
Pennsylvania |
600 Arch St., Philadelphia, PA 19106 |
Puerto Rico |
Los Frailes Industrial Park 475, Calle C, Guaynabo, PR 00968 349 Avenida Hostos, Suite A-15, MayagΓΌez, PR 00680 2050 Ponce Bypass, Suite 312, Ponce, PR 00716 |
South Dakota |
1720 S. Southeastern Ave., Sioux Falls, SD 57103 |
Texas |
825 E. Rundberg Lane., Austin, TX 78753 1100 Commerce, Room 121, Dallas, TX 75242 700 E. San Antonio, El Paso, TX 79901 4050 Alpha Rd., Farmers Branch, TX 75242 1810 Hale Ave., Harlingen, TX 78550 12941 I-45 N., Houston, TX 77060 1919 Smith St., Houston, TX 77002 8701 S. Gessner, Houston (SW) (Alliance), TX 77074 8122 Datapoint Dr., Ste. 210, San Antonio, TX 78229 |
Utah |
178 S. Rio Grande St., Salt Lake City, UT 84101 |
Vermont |
128 Lakeside Ave., Innovation Center, 2nd Floor, Burlington, VT 05401 |
Virginia |
210 1st St. SW, Roanoke, VA 24011 |
Washington |
2707 Colby Ave., Everett, WA 98201 1301 A St., Room 540A, Tacoma, WA 98402 |
Wyoming |
5353 Yellowstone Road, Cheyenne, WY 82009 |
You can check the special IRS.gov page for the full TAC face-to-face schedule. The drop-down information for each date also lists the addresses of the TACs that will be open on the Saturdays.
"While taxpayers are on our site, it's important they also check other IRS.gov pages because the website offers plenty of information and tools, and they might find an online resource that will meet their needs," said IRS Wage & Investment Commissioner Ken Corbin in announcing the March 16 TAC openings.
Tax filing not among the services: Although the three of the four TAC Saturdays are before Tax Day on April 15, IRS employees won't be offering tax return preparation and filing help.
However, the TAC staff will share information about available local free tax return filing assistance options. They include:
In addition, you can find other online tax resources at IRS.gov, such as the Interactive Tax Assistant tool. It can help answer some taxpayer questions and in some cases resolve tax matters so that they don't have to make a trip to a TAC for help.
You also can find more on available IRS services in Publication 5136, IRS Services Guide.
Where TAC staff can help: IRS staff at TACs can help taxpayers sort through a variety of other, non-filing, tax matters.
This includes such services as getting tax forms, setting up or adjusting a taxpayer account, resolving procedural inquiries, obtaining an Identity Protection PIN (IP PIN), and establishing a tax payment plan. IRS Taxpayer Advocate Service employees may also be available to help with some issues.
You can find exactly which services are offered at your nearby TAC by checking the IRS' Contact Your Local Office website. The online search tool took me to a page showing that staff at my nearest Austin, Texas, TAC can help with, among other things, basic tax law explanations, departing alien clearances, obtaining an Individual Taxpayer Identification Number (ITIN), and filing Form 911 to request TAS help if representatives aren't at the Saturday event.
Special taxpayer considerations: During the upcoming face-to-face TAC Saturdays, professional foreign language interpretation will be available in many languages through an over-the-phone translation service.
For deaf or hard of hearing individuals who need sign language interpreter services, IRS staff will schedule appointments for a later date. If you need the interpreter service, you also can make an appointment yourself by calling TTY/TDD (800) 829-4059.
And where taxpayers have issues that cannot be resolved by IRS TAC staff at the special Saturday hours, they'll receive a referral for these services.
Preparing for TAC tax help: While you can walk into a TAC that's open on Saturday without having to make an appointment, you do need to come prepared.
Regardless of your tax question or problem, you need to bring the following information β
During the visit, IRS staff also may ask you for a current mailing address, an email address, and bank account information so that you can receive payments or refunds by direct deposit.
Office hour expanded, too: In addition to the special Saturday hours, many TACs are expanding their office hours on Tuesdays and Thursdays through April 15.
To see if a nearby TAC is offering the added hours, view its listing at IRS.gov/taclocator.
To make an appointment during regular or expanded hours, call toll-free (844) 545-5640.
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Back in February in posting about tax relief for Maine residents who endured flooding, I predicted that some Californians would be joining the growing group of storm-struck areas granted more time to file 2023 returns.
That wasn't a bold prediction. I've been weather and tax watching for decades, so I was confident in my tax forecast, which was correct.
But some southern Californians who were hit by the recent historic rains aren't the only ones for whom the IRS has granted tax relief and a new June 17 tax filing and payment deadline. Some western Washington State wildfire victims also get similar relief and the new summer Tax Day.
Growing June deadline list: These individual and business taxpayers in San Diego and Spokane become the eighth in the growing list granted the new mid-June Tax Day due to disasters.
They join those who were ill-treated by Mother Nature in Connecticut, Maine, Michigan, Rhode Island, Tennessee, and West Virginia.
This unfortunate addition of more disaster areas with a June 17 delayed tax deadline is why the mid-summer date earns this weekend's By the Numbers recognition (for the second time).
My fellow Texans in the Panhandle's wildfire paths might soon make it nine states with a June 17 filing/paying delay, although they might get a bit longer since those fires still aren't totally contained.
But enough disaster digression. Regular readers know the drill. Here are the San Diego and Spokane tax relief details.
San Diego disaster tax relief: Severe storms that produced flooding in California began on Jan. 21. The damages in the southern part of the state prompted Federal Emergency Management Agency (FEMA) on Feb. 19 to declare San Diego county a major disaster area.
The Internal Revenue Service followed with tax relief. If FEMA subsequently adds other California localities to its disaster declaration, the IRS notes that they also will get the same relief.
So what is that tax relief? The affected San Diego taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments for filings that were due between Jan. 21 and the new June deadline.
This means, for example, that the June 17, 2024, deadline will now apply to:
Also, penalties for failing to make payroll and excise tax deposits due on or after Jan. 21, 2024, and before Feb. 5, 2024, will be abated as long as the deposits were made by Feb. 5, 2024.
Spokane disaster tax relief: Wildfires erupted in western Washington State on Aug. 18, 2023. FEMA declared on Feb. 15 that the flames had produced a major disaster area in Spokane County.
The usual IRS tax relief followed, and will be extended to any other Washington State localities that FEMA might add later to this disaster area.
Specifically, Spokane County individual and business taxpayers now have until June 17, 2024, to file various tax returns and make tax payments that were due from Aug. 18, 2023, through the new June deadline.
This means, for example, that the June 17, 2024, deadline will now apply to:
In addition, individuals and businesses that had an extension to file their 2022 returns will also have until June 17, 2024, to file them. However, tax-year 2022 tax payments are not eligible for this relief because they were originally due last spring, before the disaster occurred.
Also, penalties for failing to make payroll and excise tax deposits due on or after Aug. 18, 2023, and before Sept. 5, 2023, will be abated as long as the deposits were made by Sept. 5, 2023.
General rules apply to both disaster areas: The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. These taxpayers do not need to contact the agency to get this relief.
You can check on any tax relief updates at the IRS disaster relief page, which has details on other returns, payments, and tax-related actions qualifying for relief during the postponement periods in all FEMA disaster areas.
All of the taxpayers covered by FEMA/IRS major disaster actions also have the option to claim uninsured disaster losses on their tax returns. They also have the option to choose which tax year in which to make the claim.
You can find more about potential disaster tax deductions in my post Considerations in making a major disaster tax claim.
You also can find more on taxes and major disasters in the following posts.
And individuals and business owners in any disaster area also should check with their state tax department about any relief available at that level.
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Health savings accounts, or HSAs, can offer some taxpayers triple tax savings. Holders of HSAs also have a longer window to contribute to these tax-advantaged plans.
As noted in my March tax moves post, you can contribute to your HSA by Tax Day (that's April 15 this year), and have it count as money put into the account for the prior tax year.
In addition to being a good tax strategy, bulking up an HSA is a smart medical move if you have a lot of medical expenses to cover under a high deductible health plan. The tax-free HSA money can be used to cover your eligible medical costs.
Allowable medical costs: The key word here is eligible. Allowable medical costs generally are treatments prescribed by a physician as necessary to diagnose, ease, or prevent a physical or mental illness.
Payments for overall health and wellness products are not considered medical expenses under tax law. Rather, they are personal expenses, and therefore are not tax deductible.
That also means that you also cannot use HSA money to reimburse you for such basic health and wellness expenses. The same tax break prohibition also applies to health flexible spending arrangements (FSAs) health reimbursement arrangements (HRAs), and medical savings accounts (MSAs).
Medical deduction misrepresentations: The Internal Revenue Service this week put out word for folks with any of these medical cost coverage plans to be aware of reimbursement rules.
The reason for the reminder? The IRS recently has seen some companies misrepresenting products as eligible for HSA and similar plan payments.
"Legitimate medical expenses have an important place in the tax law that allows for reimbursements," said IRS Commissioner Danny Werfel in making the announcement.
"But taxpayers should be careful to follow the rules amid some aggressive marketing that suggests personal expenditures on things like food for weight loss qualify for reimbursement when they don't qualify as medical expenses," added Werfel.
Wrong tax reasons: There are several different inaccurate tax claims by these companies.
One seen frequently is the mistaken contention that notes from doctors based merely on self-reported health information can convert non-medical food, wellness, and exercise expenses into tax deductible medical expenses. Not true, says the IRS.
Such a note would not establish that an otherwise personal expense satisfies the requirement that it be related to a targeted diagnosis-specific activity or treatment. Again, these types of personal expenses do not qualify as medical expenses, and are not tax deductible or eligible for medical plan reimbursements.
The IRS provides the following example of an unallowable HSA, FSA, HRA, or MSA expense claim.
A diabetic, in his attempts to control his blood sugar, decides to eat foods that are lower in carbohydrates. He sees an advertisement from a company stating that he can use pre-tax dollars from his FSA to purchase healthy food if he contacts that company.
He contacts the company, who tells him that for a fee, the company will provide him with a "doctor's note" that he can submit to his FSA to be reimbursed for the cost of food purchased in his attempt to eat healthier.
However, when he submits the expense with the note, the claim is denied because food is not a medical expense, and plan administrators are wary of claims that could invalidate their plans.
Added costs of improper medical claims: Sometimes the companies pushing their not-quite-medical products are just ill-informed. Other times, the promotions are scams to increase sales.
Either way, the taxpayer who falls for the medical tax misinformation could end up with tax complications.
Health spending plans that pay for, or reimburse, non-medical expenses are not qualified plans, notes the IRS.
And if a plan is not qualified, all payments made to taxpayers under the plan, even reimbursements for actual medical expenses, are counted as taxable income to the illegal plan owner.
So be careful about what expenses you submit to your tax-favored medical savings plan for payment or reimbursement.
You can read more about allowable medical costs in my prior posts β
You also can go to IRS.gov and check out the special Can I deduct my medical and dental expenses? page, as well as IRS Publication 502, Medical and Dental Expenses.
Tax Felon Friday: If any of the wellness promotions that have caught the IRS' recent attention turn out to be tax-related health scams and the perpetrators are caught by the agency and its Criminal Investigation unit, the investigation and prosecution likely will find a place in the ol' blog's Tax Felon Friday hall of shame.
If you want to catch up on all sorts of tax miscreants that already made it into this category, the Tax Felon Friday page is a good place to start.
And if you want more tax crime posts, notably those that were published long before I gave them a special end-of-week feature, you can peruse, what else, the tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.
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The Recovery Rebate Credit also is available until April 15, 2025, for unclaimed 2021 tax year amounts.
Economic impact payments, or EIPs, issued in 2020 and 2021 helped millions deal with the financial damage caused by the COVID-19 pandemic.
However, some people didn't get the coronavirus stimulus money to which they were entitled.
These eligible individuals still have a chance to collect the cash by claiming the Recovery Rebate Credit. But time is running out.
The Internal Revenue Service is alerting those who didn't file a 2020 tax return need to complete that form and claim the COVID funds by this May 17.
Three years to file for a refund: Tax law says individuals who are due a federal refund have up to three years from a return's original due date to file it and claim their money.
Tax year 2020 returns were due by May 17, 2021, a month late due to the coronavirus. That makes May 17, 2024, the day the three-year filing window will close on those 2020 unfiled returns and associated Recovery Rebate Credit claims.
The same three-year time frame also applies to unclaimed 2021 COVID stimulus money. Those returns were due April 15, 2022, making April 25, 2025, the deadline to get that return to the IRS.
If you're worried about any penalty for filing late, don't be. Tax penalties are assessed on any tax you owe. If you're filing late to collect a refund, there is no penalty for the late-filed return.
But you must do so within three years of the original filing deadline.
Different EIP amounts: The 2020 and 2021 Recovery Rebate Credit provided a way for people who didn't automatically get an EIP to claim the money.
The refundable tax credit, which mean you get the money as a refund if you don't owe any tax, applied to two EIPs in 2020, and a third in 2021.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act that became law in March 2020 provided for up to $1,200 per individual ($2,400 if married filing jointly), plus $500 for each qualifying child you had that year.
The Coronavirus Response and Relief Supplemental Appropriations Act of 2021, enacted in late December 2020, provide for a second round of EIP payments. These were up to $600 per taxpayer ($1,200 if married filing jointly), plus $600 for each qualifying child you had in 2020.
The American Rescue Plan Act of 2021, enacted in March 2021, provided EIPs of up to $1,400 for eligible individuals or $2,800 for married couples filing jointly, plus $1,400 for each qualifying dependent.
Those who didn't get an automatic EIP had to file for the money by claiming the Recovery Rebate Credit for the appropriate 2020 or 2021 tax years.
Credit eligibility: The amounts generally are available to filers who are U.S. citizens or U.S. resident aliens in the respective tax year for which they are making the claim, and who have Social Security numbers that were issued before the tax return's due date.
Credit claimants also cannot be a dependent of another taxpayer.
The IRS also notes that the 2020 Recovery Rebate Credit can be claimed for someone who passed away in 2020 or later.
If you're unsure whether you got stimulus money three (or two) years ago, you can check (or create) an IRS Online Account to see if you got any EIPs years ago.
You also can find more on the tax break and how to claim any funds for which you're eligible the IRS' special Recovery Rebate Credit page.
Don't dally. If you didn't get the coronavirus relief money years ago, and find you were eligible in either 2020 or 2021, then file for the money. Just do so soon.
You also might find these items of interest:
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If you're ever tempted to utter "these kids today" with a sigh and head shake, then take a few minutes to read about some California teenagers who are making a big tax difference in their community.
The Rancho Cucamonga high school students come back to campus every Saturday during tax filing season to run a Volunteer Income Tax Assistance (VITA) clinic.
The students, many of whom are planning on financial careers once they graduate high school and college, filled out 250+/- Internal Revenue Service returns last year for taxpayers in the city just east of Los Angeles.
The tax training also helps the students, and their families.
"Many of them now look over their parents' shoulders to make sure they file their tax returns on time and get every deduction," writes New York Times financial columnist Ron Lieber.
One of the VITA volunteers also did his own taxes for the first time, telling Lieber, "I work at Taco Bell. I got an $8 refund. Which is $8 I can buy more candy with."
Locally provided tax help nationwide: While the tender age of the Rancho Cucamonga VITA clinic might be unusual, the operation itself is just one of thousands of sites across the United States that, like its companion community tax help operation Tax Counseling for the Elderly (TCE), are staffed by volunteers who help eligible taxpayers prepare and e-file their returns for little or no cost.
VITA and TCE sites have been around for more than 50 years. The clinics typically are sponsored by community and nonprofit groups at locations that are convenient for local taxpayers to find and get to, like the southern California high school in the NYT story.
Volunteers in many locations are able to help taxpayers whose first language isn't English.
And since taxes and people's money are involved, the sponsoring groups and IRS also want to make sure the VITA and TCE preparers know what they are doing.
The California high school students, like VITA and TCE volunteers of all ages, had to pass IRS sanctioned tax law training that meets or exceeds the tax agency's standards. This training includes guidance on maintaining the privacy and confidentiality of all taxpayer information. You can see the curricula in IRS Publication 6744, the VITA/TCE Volunteer Assistor's Test/Retest.
In addition, the IRS requires a quality review check for every return prepared at a VITA/TCE site prior to filing.
Qualifying for VITA, TCE help: Like the volunteers, the taxpayers who come to a VITA clinic for help also must meet some requirements.
The first is income. The earnings threshold typically is adjusted each year. Generally, to qualify for VITA help this year, you must make $64,000 or less.
VITA assistance also is available to individuals with disabilities, and taxpayers whose native language is not English.
TCE, the companion program to VITA, also offers free tax prep and filing assistance to taxpayers who are age 60 and older. As you might expect, TCE staff specialize in tax questions about pensions and retirement-related issues.
Some VITA and TCE sites also provide help with state tax returns.
A sort-of DIY option, too: Some of the program sites also offer a less hands-on assistance option. They give filers the option to prepare their own basic federal and state tax returns for free at the locations, using web-based tax preparation software.
How is this do-it-yourself option at a VITA or TCE location different from Free File? At one of the volunteer locations, you do your taxes online, but if you run into a problem someone is there to help guide you through the process.
Look for the "Self-Prep" notation in the location listings if you're interested in trying to do your taxes yourself, but like the idea of expert back-stopping if you have trouble or questions.
Finding VITA or TCE sites: Now about those tax help locations.
VITA and TCE sites are generally located at community and neighborhood centers, libraries, schools, shopping malls, and other convenient locations across the country. You can locate the VITA or TCE site nearest you by using the IRS' VITA Locator Tool or calling toll-free (800) 906-9887.
When looking for a TCE site, keep in mind that a majority of the TCE sites are operated by the AARP Foundation's Tax Aide program. To locate the nearest AARP TCE Tax-Aide nearest you, use the AARP Site Locator Tool, which is updated regularly from the start of tax season through April. Or you can call, again toll-free, (888) 227-7669.
For mobile device users, you IRS2Go mobile app will help you find a site near you.
With a couple of clicks on my laptop, I found 22 VITA and 40 TCE locations within 50 miles of my house. Hey, I'm a Texan, specifically a West Texan. We're used to driving longer distances. But if you don't like hitting the road, you can search for sites as close as 5 miles from your home.
Pre-help preparation: You also need to be aware of the pre-VITA/TCE site visit requirements related to your taxes. Specifically, you must do some pre-filing prep work.
To ensure that your tax return can be completed accurately, all volunteer tax filing help sites ask that you bring with you:
Also note that if you're married and you and your spouse want to file a joint return, both of you must come to the VITA or TCE site.
Lots, but not total, tax help: Finally, remember that VITA and TCE volunteers focus on helping a broad base of taxpayers. This means they work on returns that cover more basic filing issues.
So that necessarily means that some, particularly more complex, tax areas are not addressed at VITA and TCE sites. Returns that involve the following will not be worked on at the sites:
You can find more on the type of tax issues VITA and TCE will and won't tackle, as well as a reminder of the documents you need to bring, in IRS Publication 3676-B.
You also might find these items of interest:
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While the saying that March comes in like and goes out like a lamb usually is a reference to this month's weather transition from winter to spring (or, here in Central Texas, to summer already), feline aggressiveness could come in handy at tax filing time.
There are plenty of tax moves you can make during this final full month before Tax Day, which is this year is the normal April 15 due date.
Here are five tax matters to consider in March that could help make next month's filing easier and potentially less costly.
1. Establish or add to your IRA. If you have an IRA, Roth or traditional, and didn't max out your contributions last year, do so now. Tax law gives you until Tax Day β it's the usual April 15 date this year β to add to your retirement account and have it count toward the prior tax year.
If you don't have an IRA, you also have until the April deadline to open one and use it for the previous year's contributions.
The maximum contribution for 2023 tax year purposes is $6,500 for either type of IRA. If you're age 50 or older, you and add another $1,000.
By adding that much to your prior tax year contributions, you'll maximize the value of your IRA and its compounding power. And for some taxpayers, contributions to a traditional IRA also could mean immediate tax deductions.
The biggest tax break is available to filers and, if married, their spouses, who don't have workplace retirement plans. In these cases, the full contribution amount is tax deductible.
However, if either spouse participates in a job-sponsored retirement plan, income thresholds based on modified adjusted gross income, or MAGI, amounts kick in. The following Internal Revenue Service table shows how much of a deduction a traditional IRA contribution is worth if you're covered by a retirement plan at work.
If Your |
And Your MAGI Is |
Then You Can Take |
Single or |
$73,000 or less |
a full deduction up to the amount of your contribution limit. |
more than $73,000 but less than $83,000 |
a partial deduction. |
|
$83,000 or more |
no deduction. |
|
Married filing jointly or |
$116,000 or less |
a full deduction up to the amount of your contribution limit. |
more than $116,000 but less than $136,000 |
a partial deduction. |
|
$136,000 or more |
no deduction. |
|
Married filing separately |
less than $10,000 |
a partial deduction. |
$10,000 or more |
no deduction. |
|
If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the "Single" filing status. |
Yes, you do have until next month to make your IRA contribution for 2023 tax purposes. But again, the sooner you get the money into the account, the faster its compounding power can get to work for you.
2. Contribute to your HSA. The same tax year contribution timing shift also applies to health savings accounts, or HSAs. That gives you until April 15 to make your 2023 tax year contribution.
Doing so helps bulk up an account that's already a triple tax-saving threat. You get a write-off for contributions, tax-free growth in the account, and don't owe any tax on withdrawals used to cover qualified medical expenses.
Sounds great, right? They are, but only for folks who have high deductible health plans (HDHP). In these cases, their HSAs help pay their larger out-of-pocket medical expenses.
For 2023, HSA owners with individual HDHP coverage you can contribute up to $3,850 to an HSA. Family HDHP coverage will let you put up to $7,750 in an HSA. Policy holders who are 55 or older can sock away an additional $1,000 for the tax year.
If you can afford to max out your HSA for the prior (and current) tax year, do so. The more you can contribute, the more you can benefit from the HSA's potential triple tax advantages.
3. Adjust your withholding. If you've already been working on or filed your 2023 tax return and discovered you owe Uncle Sam, act now to avoid a repeat next filing season. Tweaking how much comes out of your paychecks also is a good idea if you're getting a refund.
The ideal payroll withholding situation, is to have just enough tax β not too much, not too little β taken out of your paychecks to meet your eventual annual tax bill.
I know, a lot of folks like the forced savings of overwithholding. But if you get that money every pay period throughout the year, you can use it to pay down your monthly bills, reducing some of the interest you're probably paying on revolving credit balances. Adjusting your withholding is easy, especially if you use the IRS' online Tax Withholding Estimator. Then just plug the tool's numbers into a new W-4 form you'll give your payroll office.
4. Evaluate your estimated taxes. If you work for yourself, either full-time or by taking on a few gigs to supplement your wages, you'll need to make estimated tax payments on that money, as well as to cover the associated self-employment (SE) tax, which is the independent contractor's equivalent of payroll taxes.
The estimated tax requirement also applies to any other taxable income not subject to withholding, such as gambling winnings or investment earnings, which are sort of both sides of the same coin, if you think about it.
Estimated tax payments are made four times a year: April (along with your annual filing for the prior tax year), June, September, and then January of the next year. The IRS prefers you make four equal payments, preferably electronically, although it still accepts check payments along with Form 1040-ES.
Now is the time to evaluate your 2024 expected earnings and get your estimated tax payment plan in place. Shorting the IRS on 1040-ES amounts could leave you open not only to the due estimated taxes your underpaid, but also penalties and interest charges.
5. Find a day camp for your kids. I know, it's not even officially spring yet, but working parents know that they're going to need child care for their youngsters when school's out for the summer. Finding a day camp that meets your kids' interests and your care and security requirements takes some time. Also, the best ones fill up quickly.
Day camps are good beyond occupying your youngsters while you and your spouse are at work. You can use at least part of the camp's cost to claim the child and dependent care credit. Even better, since it's a tax credit, it reduces your tax bill dollar-for-dollar once you've calculated ow much you owe. Depending on your income, the number of dependent children at the camp and the camp's costs, the credit could provide a tax break of up to $1,050 for care of one child or as much as $2,100 for camp care costs of two or more children.
This tax credit for this summer's camp costs won't apply until your file your 2024 return next year. But this year you'll have that tax planning knowledge, along with the more important parental peace of mind that your youngsters are entertained, educated, and otherwise supervised while you're at work.
More March Tax Moves: That's plenty of tax tasks to think about this first full week of March, but if you want more to fill up the rest of the month's 31 days, check out the ol' blog's right column.
There you'll find the latest monthly tax moves, listed by dates under the countdown clock that's keeping track of the rapidly dwindling time remaining until to Tax Day 2023.
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The stock market has been on a roll, rather than a roller coaster, of late. On Friday, March 1, The Nasdaq recorded its first record close in more than two years. The Dow and S&P 500 are off to their best start to a year since 2019.
That's more good news for investors, particularly those whose holdings are in retirement accounts.
These savers already saw their retirement vehicles achieve their highest balances in nearly two years, according to Fidelity's 2023 Retirement Analysis. The investment firm looked at the savings behaviors and account balances for more than 45 million IRA, workplace 401(k) defined contribution, and 403(b) public or nonprofit workplace retirement accounts.
That examination of these tax-favored accounts found that the average retirement balances for the fourth quarter of 2023 were $116,600 for IRA owners; $118,600 in 401k plans; and $106,100 for those with a 403(b) account.
Average Workplace Retirement Plan Balances
Beyond those retirement plan account averages, Fidelity's study found that the number of 401(k) millionaires in last year's last quarter increased by 20 percent.
Contribution rates rose, too: It's not just improved market conditions that have contributed to the surge in retirement wealth. Fidelity said consistent contributions have helping boost average account balances to their current highs.
In the fourth quarter of 2023, 10 percent of employees increased the contribution rate to their company 401(k)s. For the full year, 37.2 percent bumped up how much they put into the workplace plans.
The hikes were intentional, not automatic.
Fidelity says that 48 percent of individuals proactively increased their contribution rate in 4Q 2023, rather than relying on auto increases. That end-of-year action outpaced all of last year, when 27 percent proactively increased their retirement contribution rate.
The attention to the contribution rate also underscores the participants' commitment to putting in enough of their own money to get their employers' matching contribution.
Other highlights from the report β
Still time to add to IRAs: While the 2023 tax year closed on workplace plans after Dec. 31 hit midnight, IRA owners still have time to max out last year's contributions to those accounts.
You can contribute to your IRA, Roth or traditional, up through the next year's Tax Day. That's April 15 this year. And 4/15 is this weekend's By the Numbers figure.
But there are a couple of more amounts to note before closing.
If you haven't contributed the full $6,500 to your IRA allowed for tax year 2023, do so in the next six weeks or so. If you're age 50 or older, you can add another $1,000 to help you catch up on your savings.
Then you can start stashing money for 2024. Inflation adjustments bump this year's contribution maximum to $7,000 for younger IRA owners, and $8,000 for those old enough to make catchup contributions.
Get a jump on workplace contributions: You also might want to look at your workplace retirement plan. You don't have to wait until the end of the year to increase your contributions.
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the TSP is $23,000 for the 2024 tax year. The workplace plan catch-up contribution limit this year for employees aged 50 or older and who participate in these plans is another $7,500.
The sooner you start putting more money into your company-sponsored retirement plan, it will give the power of compounding more time to help you join the 401(k) millionaire ranks.
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The Internal Revenue Service has been making the news (and blogs) recently for its efforts to get more money from wealthy taxpayers.
The new IRS revenue collection initiatives β new audits of business aircraft use and collection notices to wealthy non-filers β piqued my curiosity about other tax matters that focus on the rich.
I found a few β seven actually β and am sharing them in this weekend's Saturday Shout Outs.
Let's start with the man who heads the IRS.
After the aircraft audit announcement, CNBC Wealth Editor (what a cool job title!) Robert Frank talked with IRS Commissioner Danny Werfel. There's a video of their conversation.
But if you prefer reading to watching, check out the CNBC article, which gets the first shout out of the weekend. In it, Werfel says U.S. millionaires and billionaires are evading more than $150 billion a year in taxes, adding to growing government deficits and creating a "lack of fairness" in the tax system.
Shout out #2 goes to an article on an international group's examination of a global minimum tax on billionaires. British newspaper The Guardian reports that G20 leaders gather in Brazil to explore solutions to hypermobile super-rich avoiding tax.
The group, which represents the world's most powerful countries, is looking into a proposal that would levy a minimum tax on the world's 3,000 billionaires, which would end a "race to the bottom" that has enabled the super-rich to pay less than the rest of the world's population.
CNN offers a U.S. take on the international confab, noting in shout out #3 that while a global tax on billionaires is on the agenda, the big question is, "Will it ever happen?"
The G20 global billionaire tax talk was prompted by a report last month from Oxfam, a British-founded confederation of 21 independent non-governmental organizations that focuses on alleviating global poverty. Nearly 80 percent of the world's billionaires live in G20 countries, according to the nonprofit's report (shout out #4), and they pay an effective tax rate lower than the average worker.
Rich push back: Naturally, the wealthy aren't too happy with such suggestions. They also have some support from groups who are opposed to such moves.
The Manhattan Institute notes in its position paper The Limits of Taxing the Rich, which earns shout out #5, that the U.S. federal tax code is already the most progressive in the Organisation for Economic Co-operation and Development (OECD) and has become sharply more progressive over the past 40 years.
Plus, says the New York City-based conservative think tank focused on domestic policy and urban affairs, "an aggressive tax-the-rich agenda that targets high earners and corporations could raise, at most, 1.5% or 2.0% of GDP in revenuesβand likely significantly less than that."
Raising taxes on the wealthy often is cited as a way to help stabilize the Social Security program, which most rich people don't have to worry about relying on when they retire. In this weekend's shout out #6, the Tax Foundation looks at a Democratic legislative proposal to raise taxes on people earning more than $400,000 to help bolster the national retirement system.
But, says the Washington, D.C.-based conservative tax policy think tank, relying solely on taxes hikes for the top 1 percent will not fully solve the entitlement crisis, and will hurt economic growth. Rather, the Tax Foundation argues in its analysis Sustainably Reforming Social Security and Medicare Will Need More than Just Tax Hikes.
State burden, too: Finally, we head west for this weekend's final #7 shout out to a MoneyWise report published by Yahoo Finance about wealthy Californians.
The Golden State's 14.4 percent individual tax rate on those earning more than $1 million has prompted those taxpayers to move, according to the article 'We're leaving!': Rich Americans are ditching California and taking their tax dollars with them β and now the tax rates they're fleeing have been raised even higher.
This glimpse of the tax downside of being wealthy is something for the rest of us to ponder. But even given higher taxes, I'd sure like to give being ultrarich a shot!
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That's not going to stop the latest IRS effort to get wealthy individuals to file tax returns. (Image: Giphy)
The Internal Revenue Service crackdown on wealthy taxpayers who are skirting tax laws continues.
Last month, Uncle Sam's tax agency announced plans to audit business aircraft that were used, most often by well-paid corporate execs, for personal travel.
Now it's cutting right to the chase, going after wealthy taxpayers who haven't filed federal tax returns for years.
This week, the IRS issued compliance letters on more than 125,000 cases where tax returns haven't been filed since 2017. The mailings include more than 25,000 to those with more than $1 million in income.
Another 100,000+ are going to people who had incomes between $400,000 and $1 million between tax years 2017 and 2021.
Snared by third-party reporting: So how did the IRS determine who gets these notices?
They are all cases where IRS has received third-party third party information, such as W-2 and 1099s forms, but those amounts weren't reported by the non-filing recipients.
The IRS said its efforts to match these amounts with non-filers had operated sporadically since 2016 due to severe budget and staff limitations. However, with the added funds provided by the Inflation Reduction Act funding available, the IRS says it now has the capacity to do this core tax job.
"At this time of year when millions of hard-working people are doing the right thing paying their taxes, we cannot tolerate those with higher incomes failing to do a basic civic duty of filing a tax return," said IRS Commissioner Danny Werfel in announcing the non-filer initiative.
"The IRS is taking this step to address this most basic form of non-compliance, which includes many who are engaged in tax evasion," added Werfel.
Highest paid non-filers atop the mailing list: The compliance alerts for failure to file a tax return are formally known as IRS CP59 notice.
The IRS says it will send about 20,000 to 40,000 letters each week, beginning with the filers in the highest-income categories.
Some of these non-filers have multiple years included in the case count, noted the IRS, so the number of taxpayers receiving letters will be smaller than the actual number of notices going out.
Dollar amount due unclear: Since the IRS doesn't know the non-filing individuals possible tax credits and deductions, the agency can't speculate on the amount of revenue the U.S. Treasury could potentially collect.
However, it did say that the third party information on these taxpayers indicates financial activity of more than $100 billion.
Even with a conservative estimate, the IRS believes hundreds of millions of dollars of unpaid taxes are involved in these cases.
In the cases where taxpayers do owe, they will end up paying more than their tax bills, which have in some cases been delinquent since 2017. Penalties and interest will be applied starting from those returns' original due dates.
The interest charges vary, but the failure-to-file penalty is 5 percent of the amount owed every month, up to 25 percent of the tax bill.
What to do if you get an IRS notice: Regardless of how much or little you make, any time you get any IRS notice, you need to act, and promptly.
Since this latest IRS action involves the CP59, here's what you can expect if you get this non-filer compliance alert from the IRS.
You will get a CP59 notice when the IRS has no record that you filed a personal tax return(s).
The CP59 has been recently updated, as part of the IRS' effort to simplify communications and make notices and what they require more understandable. The notice provides details on what you need to do to resolve your non-filing status, including β
On Form 15103, you can explain:
Alternatively, you can fax your information to the number in the notice, using either a fax machine or an online fax service.
You can get additional information and answers to frequently asked questions on IRS.gov's Understanding Your CP59 Notice page.
Act or face additional consequences: People receiving these CP59s should act immediately to avoid additional follow-up notices, higher penalties as well as increasingly stronger enforcement measures.
You also should follow-up just in case your late filing could produce a tax refund. That's a possibility, although admittedly a slim one for the wealthy filers who are the targets of this latest non-filing collection effort.
Still, those who are due a refund risk losing it if they file within three years of the return due date.
Taxpayers who don't respond to a non-filer letter will receive additional notices and other actions. Ultimately, this can lead to a variety of IRS compliance activity, including collection and audit action, as well as potential criminal prosecution.
Tax Felon Friday: Ah, yes. Potential criminal prosecution.
If any of the wealthy taxpayers who didn't file between 2017 and 2021 and who are getting notices eventually end up in the deepest tax criminal hot water, they'll be candidates for future mention on Tax Felon Friday.
If you want to catch up on all sorts of tax miscreants that already made it into this category, the ol' blog's Tax Felon Friday page is a good place to start.
And if you want more tax crime posts, notably those that were published long before I gave them a special end-of-week feature, you can peruse, what else, the tax crimes category. You'll find this post at the top of that collection right now, so just scroll down for more.
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