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May 10 – Report Tips to Employee

If you are an employee who works for tips and received more than $20 in tips during April, you are required to report them to your employer on IRS Form 4070 no later than May 10. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 8 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

May 31 – Final Due Date for IRA Trustees to Issue Form 5498

Final due date for IRA trustees to issue Form 5498, providing IRA owners with the fair market value (FMV) of their IRA accounts as of December 31, 2023. The FMV of an IRA on the last day of the prior year (Dec 31, 2023) is used to determine the required minimum distribution (RMD) that must be taken from the IRA if you are age 73 or older during 2024.

Weekends & Holidays:

If a due date falls on a Saturday, Sunday or legal holiday, the due date is automatically extended until the next business day that is not itself a legal holiday.

Disaster Area Extensions

Please note that when a geographical area is designated as a disaster area, due dates will be extended. For more information whether an area has been designated a disaster area and the filing extension dates visit the following websites:

FEMA: https://www.fema.gov/disaster/declarations

IRS: https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

In response to the economic fallout from the COVID-19 pandemic, the U.S. government enacted several measures to provide financial relief to Americans. Among these measures were the Economic Impact Payments (EIPs), also known as stimulus checks. These payments were part of broader legislation aimed at mitigating the financial strain on individuals and families across the country. However, not everyone who was eligible received these payments as expected. To address this, the IRS introduced the Recovery Rebate Credit (RRC), a mechanism allowing individuals to claim on their tax return any stimulus money they were owed but did not receive. With a May 17, 2024, deadline approaching for claiming 2020 refunds, it’s crucial for taxpayers to understand how to claim the 2020 credit if they didn’t previously receive it.

The first round of EIPs, authorized by the CARES Act in March 2020, provided up to $1,200 per eligible individual and $2,400 for married couples filing jointly, with an additional $500 for each qualifying child. A second round of payments, authorized in December 2020, offered $600 per eligible individual, $1,200 for married couples, and $600 for each qualifying child. In 2021, a third round of payments increased the amount to $1,400 per individual, $2,800 for joint filers, and $1,400 per dependent, regardless of age.

The Recovery Rebate Credit was designed for those who did not receive one or both stimulus checks they were entitled to in 2020. This credit is claimed on the 2020 tax return, allowing taxpayers to receive the amount they were owed as part of their tax refund. It’s important to note that the credit is also available for the third round of EIPs, but it is claimed on the 2021 tax return.

The deadline for filing 2020 tax returns was extended to May 17, 2021, providing taxpayers additional time to claim the Recovery Rebate Credit. This extension is critical for those who have yet to receive their full stimulus payment amount, as it offers an opportunity to rectify this and ensure they receive the financial support they were entitled to. In most cases there is a deadline for claiming a 2020 tax refund that expires 3 years after the original extended deadline, which brings it to May 17, 2024.

For those who have yet to claim their Recovery Rebate Credit, taxpayers must fill out their 2020 tax return accurately, paying special attention to line 30 on Forms 1040 and 1040-SR. This line is specifically designated for the Recovery Rebate Credit. Taxpayers should calculate the amount they believe they are owed and include it in their tax return. However, it’s essential to understand that the IRS will review each claim to ensure accuracy. The amount entered on the tax return may be adjusted based on the IRS’s calculations, which consider various factors, including dependency status and income levels.

Several reasons may explain why the amount a taxpayer believes they are owed differs from the IRS’s calculations. These include being claimed as a dependent on someone else’s tax return, calculation errors, changes in the number of qualifying children, and issues with Social Security numbers. Taxpayers should carefully review their situation and consult the IRS’s guidelines to understand how these factors might affect their Recovery Rebate Credit.

For those who find the process of claiming the Recovery Rebate Credit daunting, help is available. The IRS has set up a dedicated page on its website providing detailed information about the credit, eligibility criteria, and how to claim it. Additionally, this office can offer valuable assistance, ensuring that taxpayers accurately claim the credit and receive the full amount they are owed.

The Recovery Rebate Credit received does not count as income when determining eligibility for federal benefits such as Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF) and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). Claiming the credit does not affect an individual’s immigration status or their ability to secure a green card or immigration benefits.

Eligibility for the 2020 Recovery Rebate Credit generally requires being a U.S. citizen or U.S. resident alien, not being a dependent of another taxpayer and having a Social Security number issued before the tax return’s due date. Additionally, the 2020 Recovery Rebate Credit can be claimed for someone who passed away in 2020 or later. The credit is intended for lower income individuals and phases out for higher income taxpayers, beginning for unmarried individuals at an income of $75,000, $112,500 for those filing Head of Household and $150,000 for married couples.

The Recovery Rebate Credit represents a critical opportunity for individuals who did not receive their full stimulus payments in 2020 to claim what they are owed. With the May 17, 2024, deadline approaching for 2020 returns claiming a refund, it’s essential for taxpayers to act promptly. By understanding how to claim the credit and seeking assistance if needed, taxpayers can ensure they receive the financial support provided by the government in response to the COVID-19 pandemic.

Tax legislation passed in late 2017 nearly doubled the standard deduction for years 2018 through 2025, and now about 90% of individuals filing a tax return are taking advantage of the higher standard amount and are not itemizing their deductions. For the 10% of filers still itemizing, one of the most common tax-deductible charitable contributions that can be claimed is the donation of household goods and used clothing to qualified charities.

The major complication of this type of contribution is establishing the dollar value of the item contributed as of the date of the contribution. According to the tax code, this is the fair market value (FMV), which is defined as the value that a willing buyer would pay a willing seller for the item.

FMV is not always easily determined and varies significantly based upon the condition of the item donated. For example, compare the condition of an article of clothing you purchased and only wore once to that of one that has been worn many times. The almost new one certainly will be worth more, but if the hardly worn item had been purchased a few years ago and had become grossly out of style, the more extensively used piece of clothing could be worth more. In either case, the clothing article is still a used item, so its value cannot be anywhere near as high as the original cost. Determining this value is not an exact science. The IRS recognizes this issue and, in some cases, requires the value to be established by a qualified appraiser.

Remember that when establishing FMV, any value you claim can be challenged by the IRS in an audit and that the burden of proof is with you (the taxpayer), not with the IRS. For substantial noncash donations, it might be appropriate for you to visit a local charity’s thrift shop or even a consignment store to get an idea of the FMV of used items. Online research may be another way of determining the value if you can find a comparable item for sale. But be careful when using items being auctioned, since the starting price may not be the same as the final sale price.

The next big issue is documenting your contribution. Many taxpayers believe that the doorknob hanger left by the charity’s pickup driver is sufficient proof of a donation. Unfortunately, that is not the case, as a United States Tax Court case (Kunkel T.C. Memo 2015-71) pointed out. In that case, the court denied the taxpayer’s charitable contributions, which were based solely upon doorknob hangers left by the drivers who picked up the donated items for the charities. The court stated that “these doorknob hangers are undated; they are not specific to petitioners; they do not describe the property contributed; and they contain none of the other required information.”

The IRS requires the following documentation for noncash contributions based on the total value of the donation:

• Deductions of Less Than $250 – When claiming a noncash contribution with a value under $250, you must keep a receipt from the charitable organization that shows:

1. The name of the charitable organization,
2. The date and location of the charitable contribution, and
3. A reasonably detailed description of the property.

Note: You are not required to have a receipt if it is impractical to get one (for example, if you left the property at a charity’s unattended drop site).

• Deductions of At Least $250 But Not More Than $500 – If you claim a deduction of at least $250 but not more than $500 for a noncash charitable contribution, you’ll need to keep an acknowledgment of the contribution from the qualified organization. If the deduction includes more than one contribution of $250 or more, either a separate acknowledgment for each donation or a single acknowledgment that shows the total contribution is required. The acknowledgment(s) must be written and must include:

1. The name of the charitable organization,
2. The date and location of the charitable contribution,
3. A reasonably detailed description of any property contributed (but not necessarily its value), and
4. Whether the qualified organization gave you any goods or services because of the contribution (other than certain token items and membership benefits).

If the charitable organization provided you goods and/or services, the acknowledgement must include a description and a good faith estimate of the value of those goods or services. If the only benefit received was an intangible religious benefit (such as admission to a religious ceremony) that generally is not sold in a commercial transaction outside the donative context, the acknowledgment must say so, and in this case, the acknowledgment does not need to describe or estimate the value of the benefit.

• Deductions Over $500 But Not Over $5,000 – To claim a deduction over $500 but not over $5,000 for a noncash charitable contribution, you must attach a completed IRS Form 8283 to your income tax return and must have the same acknowledgement and written records that are required for contributions of at least $250 but not more than $500 (as described above). In addition, the records must also include:

1. How you obtained the property (for example, purchase, gift, bequest, inheritance, or exchange),
2. The approximate date you acquired the property or—if you created, produced, or manufactured the property—the approximate date when the property was substantially completed, and
3. The cost or other basis, and any adjustments to this basis, for property held for less than 12 months and (if available) the cost or other basis for property held for 12 months or more (this requirement, however, does not apply to publicly traded securities).

If you have a reasonable case for not being able to provide information on either the date the property was obtained or the cost basis of the property, you can attach a statement of explanation to the return.

• Deductions Over $5,000 – These donations require time-sensitive appraisals by a “qualified appraiser” in addition to other documentation. When contemplating such a donation, please call this office for further guidance about the documentation and forms that will be needed.

Caution: The value of similar items of property that are donated in the same year must be combined when determining what level of documentation is needed. Similar items of property are items of the same generic category or type, such as coin collections, paintings, books, clothing, jewelry, privately traded stock, land, and buildings. For example, say you donated $5,300 of used furniture to 3 different charitable organizations during the year (a bedroom set valued at $800, a dining set worth $1,000, and living room furniture worth $3,500). Because the value of the donations of similar property (furniture) exceeds $5,000, you would need to obtain an appraisal of the furniture to satisfy the substantiation requirements—even if you donated the furniture to different organizations and at different times during the year. The IRS has strict rules as to who is considered a qualified appraiser and the timing of when the appraisal is to be done.

To help you document some of these noncash contributions, you can download a fillable Noncash Charitable Contribution Statement. The statement includes an area for the charity’s agent to verify the contribution and a check box denoting whether the qualified organization provided any goods or services because of the contribution. Although not specifically blessed by the IRS, this statement includes everything needed for noncash contributions of up to $500—provided, of course, that you and the charitable organization’s representative accurately complete the form.

Do not include items of de minimis value, such as undergarments and socks, in the deductible amount of your contribution, as they specifically are not allowed.

When it comes to managing your small business finances, establishing a consistent routine is important. This is especially true when using QuickBooks, a powerful accounting software system that can help you stay organized and make informed decisions about your finances daily. Here are five key steps you should take every time you open QuickBooks:

1. Look at the Income Tracker

Start each QuickBooks session by taking a look at the Income Tracker. Located under the Customers tab, the Income Tracker provides a quick overview of the status of your receivables. With colored bars indicating various transaction types and dollar totals, you can easily monitor unbilled sales orders, unpaid invoices, and overdue payments. Use the options to create invoices, receive payments, and perform batch actions to simplify customer billing and other payments you are owed.

2. Review Snapshots for Insights

Next, check QuickBooks’ Snapshots feature to gain valuable insights into your company’s financial health. Explore the Company and Payments Snapshots to analyze key metrics and identify trends. Additionally, charts and tables allow you to easily assess business performance over time and proactively address any issues you may not have previously noticed.

3. Monitor Inventory Levels

If your business involves selling products, monitoring inventory levels should be a major part of your day-to-day workflow. Utilize QuickBooks’ Inventory Stock Status by Item report to track stock levels, set reorder points, and anticipate shortages. By adjusting reorder points as needed in real-time, you can avoid sellouts and ensure seamless operations.

4. Check Payments to Deposit

Regularly review the Undeposited Funds section in QuickBooks. This will help you identify any payments that need to be deposited. Navigate to the Company tab and select Chart of Accounts to access the Undeposited Funds account. From there, you can easily record deposits and reconcile payments, ensuring that your funds are properly accounted for.

5. Utilize Bill Tracker for Payables

Finally, it’s important to check QuickBooks’ Bill Tracker each time you open the software. This feature is specifically for managing payables. To access it, navigate to the Vendors tab and select Bill Tracker to view outstanding bills and upcoming payment deadlines. You can avoid late fees and maintain positive relationships with your vendors by staying organized and managing your payables on a regular schedule.

By following these five essential steps each time you open QuickBooks, you can streamline your workflow, stay informed about your financial status, and make smarter decisions for your business. Whether tracking receivables, monitoring inventory, or managing payables, QuickBooks provides the small business accounting tools you need to keep your finances in order and achieve your dreams.

Payroll taxes can be a significant headache for many small—to medium-sized business owners. Without proper education, entrepreneurs can find themselves in trouble with the IRS and state tax agencies. Fortunately, if you’ve been struggling with payroll taxes, you’re in the right place.

This guide will help you understand and manage payroll taxes effectively to ensure legal compliance. The temptation to cut corners, especially in employment taxes, can be a pitfall with severe consequences.

Here, we will examine employment tax evasion schemes, educating SMB owners like you about the importance of proper payroll management and the risks associated with attempting to avoid payroll taxes, intentionally or unintentionally.

The High Stakes of Payroll Tax Compliance

Employment taxes are a fundamental obligation for businesses. On the federal level, Social Security and Medicare taxes from employees’ paychecks and the employer’s contribution to these taxes are categorized as “payroll taxes.”

Failure to pay not only undermines a business’s financial integrity but also places it squarely in the crosshairs of the IRS. As former IRS Commissioner Mark W. Everson stated, “Failure to pay employment taxes is stealing from the business’s employees.” This stark reminder underscores the gravity of payroll tax compliance.

Common Pitfalls in Payroll Tax Management

Several strategies employed by businesses to evade payroll taxes have been identified, each carrying its own set of risks and potential for legal repercussions:

1. Pyramiding: This scheme involves withholding taxes from employees but intentionally failing to remit them to the IRS. Businesses caught in this cycle often file for bankruptcy to evade creditors, only to re-emerge under a new name and repeat the process.

1. Misclassifying Workers: Incorrectly classifying employees as independent contractors to avoid payroll taxes is a common tactic. However, the IRS applies strict criteria for classification, focusing on the degree of control a business has over the worker. Misclassification can lead to significant penalties and back taxes.

1. Paying Employees in Cash: While not illegal, paying employees without proper documentation and tax withholding is a red flag for tax evasion. This method makes it challenging for the IRS to ascertain the accuracy of payroll tax submissions.

1. Filing False Payroll Tax Returns or Failing to File: Underreporting wages or not filing payroll tax returns are direct forms of evasion that attract severe penalties and scrutiny from the IRS.

The Consequences of Non-Compliance

The repercussions of evading payroll taxes can extend beyond fines and penalties. Business owners can face criminal charges, sometimes leading to imprisonment for those found guilty. Beyond the legal consequences, the reputational damage to a company can be irreparable, leading to a loss of trust among employees, customers, and the broader business community.

A Call to Action for SMB Owners

The message for SMB owners is clear—the risks associated with avoiding payroll taxes far outweigh any perceived short-term gains. Compliance is not optional but a fundamental aspect of responsible business ownership. Investing in the services of knowledgeable outsourced payroll professionals or robust internal software systems can help businesses remain compliant. Moreover, staying informed about the legal requirements and maintaining transparent financial practices will safeguard your business against the pitfalls of tax evasion.

How We Can Help

Our firm specializes in supporting SMBs in navigating the complexities of payroll management and tax compliance. With our expertise, you can ensure that your business meets its legal obligations and fosters a culture of integrity and transparency. Let us help you build a solid foundation for your business’s financial health and reputation.

Take the Next Step

Understanding and correctly managing payroll taxes is a critical component of business success. By avoiding the common pitfalls and embracing compliance, SMB owners can ensure their business thrives in a competitive and legally compliant environment.

As the parents, ensuring the financial security of our children is paramount. One effective tool for this is a custodial account, a financial mechanism designed to hold and protect assets for minors until they reach adulthood. In this article, we will explore what custodial accounts are, how to set them up, and why they’re a crucial part of planning for your child’s financial future.

What is a Custodial Account?

A custodial account is a financial account established by an adult on behalf of a minor. There are two main types: the Uniform Transfers to Minors Act (UTMA) account and the Uniform Gifts to Minors Act (UGMA) account. These accounts can hold investments like stocks, bonds, mutual funds, and, in the case of UTMA accounts, non-financial assets like real estate and patents.

Setting Up a Custodial Account

Setting up a custodial account is straightforward:

1. Choose a Financial Institution: Start by selecting a bank or brokerage that offers custodial accounts.
2. Decide on the Type of Account: Choose between UGMA and UTMA based on the type of assets you plan to transfer.
3. Provide Necessary Information: You’ll need identification for both you and your minor, such as Social Security numbers and birth certificates.
4. Transfer Assets: Once the account is open, you can transfer assets into it. These can be cash, stocks, bonds, or, for UTMA accounts, other types of property.

The Time Value of Money

The earlier you start, the better. Thanks to the power of compound interest, even small amounts saved today can grow significantly over time. For example, investing $100 monthly with an average annual return of 7% will grow to over $50,000 in 18 years. This can provide a substantial financial foundation for your child’s future.

Uncertain Future of Social Security

Reliance on Social Security is becoming increasingly uncertain. With forecasts showing potential fund depletions by the 2030s, it’s wise to consider alternate long-term financial security strategies for your children.

Benefits of Custodial Accounts

– Financial Responsibility: They offer a practical way to teach children about financial management and investing.

– Flexibility: While the money must be used for the child’s benefit, there are few restrictions on what it can cover, potentially including educational expenses, a first car, or a home down payment.

– Tax Advantages: Although the child’s tax rate can apply to investment earnings, the first $1,100 of unearned income typically is tax-free, and the next $1,100 is taxed at the child’s rate, which is usually lower than that of the adult.

Transition to Adulthood

Once the child reaches the age of majority (usually 18 or 21, depending on the state), control of the account transfers from the custodian to the beneficiary. This transition can provide them with a significant financial boost as they enter adulthood, whether for educational expenses, starting a business, or providing a down payment on a home.

Establishing a custodial account for your children is a powerful way to secure their financial future and teach them about managing money. Early planning can relieve financial pressures later on as a parent and give your child a head start toward a prosperous financial future. For further details on setting up a custodial account, consider consulting with this office to choose the best options for your family’s needs.

Custodial accounts are not just financial tools but stepping stones towards financial independence and responsibility for the next generation. Take the first step today and secure a brighter future for your children.

If you’ve been hearing about changes in retirement plans and need to understand what’s going on, this blog is here to help. Let’s break down the latest news on Required Minimum Distributions (RMDs) from the IRS and explain it in simple terms.

What’s an RMD?

An RMD is a Required Minimum Distribution. When you reach a certain age, you must start withdrawing a minimum amount from your retirement accounts like Individual Retirement Accounts (IRAs), 401(k)s, and other similar plans. The reason for this rule is to make sure people don’t keep their retirement savings indefinitely, avoiding taxes.

What Changed?

The IRS has extended some transition relief regarding RMDs. This means they’re giving more time and flexibility to people affected by recent changes in RMD rules, specifically those introduced by the SECURE 2.0 Act of 2022.

Here’s what you need to know:

The SECURE 2.0 Act changed the “required beginning date” (the age when you must start taking RMDs) for many retirement plans.

Previously, if you turned 72 in 2024, you’d have to start taking RMDs by April 1, 2025. However, the new rule delays the required beginning date by one year. Now, if you turn 72 in 2024, your required beginning date is April 1, 2026.

This extension provides additional transition relief to plan administrators, payors, plan participants, IRA owners, and beneficiaries who were affected by these changes.

Final regulations related to these RMDs will not apply until 2025, giving everyone more time to adjust to the new rules.

Why Is This Important?

If you have a retirement plan, these changes could impact when you need to start taking distributions. It’s especially significant if you’re nearing the age when RMDs would typically begin. This extension gives you more time to plan your withdrawals, allowing you to potentially defer paying taxes on those distributions for an additional year.

What Should You Do?

If you have an IRA or another retirement plan, it’s a good idea to check with your plan administrator or financial advisor to understand how these changes affect you. They can help you navigate the new rules and ensure you’re taking the right steps to comply with the extended RMD transition relief.

Please contact us at www.rbfco.com if you have any questions on how these changes may impact your taxes.

As the season changes and springtime approaches, it’s not just your home that could use a good cleaning. Your financial records, especially in QuickBooks, could benefit from a little spring cleaning too. With tax season in full swing and the start of a new fiscal year for many businesses, now is the perfect time to tidy up your QuickBooks account. Here are some QuickBooks spring cleaning tips to help you freshen your finances:

1. Review and reconcile accounts: Start by reviewing your accounts and reconciling them to ensure that your records match your bank and credit card statements. Look for any discrepancies or errors that need to be corrected.
2. Clean up your chart of accounts: Take some time to review your chart of accounts and clean up any accounts that are no longer needed or relevant. This can help streamline your financial reporting and make it easier to track your income and expenses.

1. Archive old transactions: Consider archiving old transactions to keep your QuickBooks file size manageable. This can help improve performance and make it easier to navigate your data.
2. Update vendor and customer information: Review and update vendor and customer information to ensure that it is accurate and current. This can help prevent any communication or payment issues in the future.
3. Reclassify transactions: Go through your transactions and reclassify any that may have been categorized incorrectly. This way, your financial reports will be accurate and reliable when you need them to make business decisions.
4. Set up reminders and notifications: Take advantage of QuickBooks’ reminder and notification features to stay on top of important deadlines and tasks. This can help prevent any last-minute scrambling and ensure that you stay organized throughout the year.
5. Back up your data: Don’t forget to back up your QuickBooks data regularly to protect against data loss or corruption. Consider using cloud storage like Apple’s iCloud or Google Drive – or an external hard drive – for added security.
6. Evaluate and optimize workflows: Take some time to evaluate your current workflows and identify any areas that could be optimized or improved. This can help streamline your processes and make your accounting tasks more efficient.
7. Attend training or seek professional help: If you’re feeling overwhelmed or unsure about how to clean up your QuickBooks account, consider attending a training session or seeking help from a professional. QuickBooks offers a variety of resources and support options to help you get the most out of your small business accounting software.
8. Plan for the future: Finally, use this opportunity to plan for the future and set financial goals for the coming months. Whether it’s saving for a major purchase or preparing for tax season next year, having a clear plan in place can help set you up for success.

By following these QuickBooks spring cleaning tips, you can ensure that your financial records are accurate, up-to-date, and well-organized. Take advantage of the changing season to give your finances a fresh start and set yourself up for a successful rest of the year!

Tax season can be stressful enough without having to worry about falling victim to tax scams. With cybercrime and identity theft becoming increasingly prevalent as more people file their taxes online, it’s wise to be vigilant and aware of potential scams targeting your personal information (and your financial well-being!)

Here are the top 10 ways to spot a tax scam and protect yourself from becoming a victim:

File Early: Beat scammers to the punch by filing your taxes as early as possible. This reduces the window of opportunity for fraudsters to file a false return in your name. Plus, you’ll probably get your tax refund faster!

Sign Up for an IP PIN: The IRS offers an Identity Protection Personal Identification Number (IP PIN) program, providing an extra layer of security by requiring a unique code for tax filing. Consider enrolling to safeguard your tax return every year.

Beware of Unsolicited Contact: The IRS never initiates contact via email, text, or social media to request personal information. Be wary of any communication claiming to be from the IRS and asking for sensitive data. The agency only sends initial correspondence via the United States Postal Service (USPS).

Verify Caller Identity: If you receive a phone call purportedly from the IRS, verify the caller’s identity. The IRS does not ask for credit or debit card numbers over the phone and will never demand payment via gift cards or cryptocurrency. Furthermore, legitimate IRS agents will identify themselves with their employee ID number as a matter of course.

Watch for Spoofed Numbers: Scammers may use spoofing technology to make it appear as though they’re calling from an official IRS number. Don’t be fooled by the caller ID; always exercise caution when sharing personal information over the phone.

Know the Payment Process: The IRS only accepts payments in U.S. dollars and will never insist on unconventional payment methods like gift cards or cryptocurrency. If a payment request seems suspicious, verify it directly with the IRS.

Stay Informed: Educate yourself about common tax scams and stay updated on the latest tactics used by fraudsters. Awareness is key to avoiding falling victim to fraudulent schemes. Popular scams can change from one tax season to the next, so do your research annually.

Trust Your Instincts: If something feels off or too good to be true, it probably is. Trust your instincts and err on the side of caution when dealing with unfamiliar or suspicious requests for personal information.

Seek Professional Advice: If you’re unsure about the legitimacy of a communication or suspect you may be targeted by a tax scam, seek advice from reputable sources such as the Identity Theft Resource Center or the Federal Trade Commission.

Report Suspected Scams: If you believe you’ve been targeted by a tax scam or have fallen victim to identity theft, report it immediately to the appropriate authorities. Prompt reporting can help mitigate the impact of fraud and aid in recovery efforts.

Protecting Yourself Further

Speaking to NBC News, Colleen Tressler, a senior project manager at the FTC’s Division of Consumer and Business Education, shared the importance of taking swift action if you suspect you’ve been targeted by a tax scam. Tressler said, “It’s much easier to stop tax ID theft before it happens than to recover from it.”

Utilize resources like identitytheft.gov to report incidents of identity theft and access guidance on protecting yourself from various types of fraud. Remember, staying informed and proactive is key to safeguarding your financial well-being during tax season and beyond.

Tax season doesn’t have to be synonymous with anxiety and uncertainty. By staying informed, vigilant, and proactive, you can spot potential tax scams and protect yourself from falling victim to identity theft and financial fraud. Remember, just like with your physical health, prevention is always better than cure when it comes to safeguarding your personal information and financial welfare.

Stay safe and secure this tax season – and every tax season!

About 3 out of 4 American taxpayers receive a refund each year when they file their income tax returns, but there are those who for one reason or another end up owing. Of those who owe Uncle Sam, many don’t have the means to pay what they owe by the return due date (usually in April).

NOTE: If you live in a federally declared disaster area the due date may have been automatically extended. The extension will apply if you reside in the disaster area, and you need not be directly affected by the disaster to qualify. Check the IRS website at Tax Disaster Relief Situations for areas that have disaster filing relief extensions. Call this office to confirm you qualify and for information related to state disaster relief due date postponements.

Generally, tax due occurs when a wage earner has under-withheld on his or her payroll or a self-employed individual fails to make adequate estimated tax payments during the year. In some cases, a transaction may have occurred during the year that created a large capital gain, and the taxpayer didn’t adjust their withholding or estimated payments to cover the extra tax, resulting in a large tax bill at filing time. This can be a huge problem for those who are unable to pay their liability.

It is generally in your best interest to make other arrangements to obtain the funds for paying your 2023 taxes rather than be subjected to the government’s penalties and interest for payments made after April 15, 2024. Here are a few options to consider.

• Family Loan – Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.
• Home Equity Loans and HELOCs – Use the equity in your home—that is, the difference between your home’s value and your mortgage balance—as collateral. As the loans are secured against the equity value of your home, home equity loans offer extremely competitive interest rates—usually close to those of first mortgages. Compared with unsecured borrowing sources, such as credit cards, you’ll be paying less in financing fees for the same loan amount. Unfortunately, obtaining these loans takes time, so if you anticipate that you’ll need funds from such a loan to pay your taxes that are due in April, you should get the application process started right away.
• Credit Card – Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay a credit card discount fee (the fee charged by the credit card company), you will have to pay the fees due and pay the higher credit card interest rates.
• Short-Term Payment Plan – If you can fully pay the tax owed within 180 days and owe less than $100,000 including tax, penalties, and interest, you can apply for a short-term payment plan online at the IRS website. You won’t be charged a set-up fee but will still have to pay penalties and interest until the balance owed is fully paid. Set-up fees will be charged if you apply for a payment plan by phone, mail, or in person instead of online.
• IRS Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate, which recently has been 7% or 8% annually. There is a user fee to set up the payment plan. However, the IRS generally waives the fee for low-income taxpayers who agree to make electronic debit payments. In making the agreement, you’ll need to agree to keep all future years’ tax obligations current. If you do not make payments on time or you have an outstanding past due amount in a future year, you will be in default of the agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed. If you seek an installment agreement exceeding $50,000 you will need to validate your financial condition and need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). You may also pay down your balance due to $50,000 or less to take advantage of the streamlined option.
• Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because you are jeopardizing your retirement lifestyle and the distributions are generally taxable at your highest tax bracket, which adds more taxes to your existing problem. In addition, if you are under age 59½, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further.

Filing Extensions – Don’t mistake the ability to apply for an extension of time to file your tax return as also being an extension to pay any tax liability. It is not and does not grant you an extension of time to pay. The penalties and interest on the amount due will continue to apply as of the original due date of the return.

Enforced Collections – If the taxes cannot be paid timely, and the IRS is not notified why the taxes cannot be paid, the law requires that enforcement action be taken, which could include the following:

• Issuing a Notice of Levy on salary and other income, bank accounts, or property (IRS can legally seize property to satisfy the tax debt).
• Assessing a Trust Fund Recovery Penalty for certain unpaid employment taxes.
• Issuing a Summons to you or third parties to secure information to prepare unfiled tax returns or determine your ability to pay.

Note: To collect delinquent tax debts, certain federal payments (vendor, OPM, SSA, federal salary, and federal employee travel) disbursed by the Department of the Treasury, Bureau of Fiscal Service (BFS)) may be subject to a levy through the Federal Payment Levy Program (FPLP).

Fresh Start Initiative – The IRS also has what is called the “Fresh Start” initiative to offer more flexible terms in its existing Offer-in-Compromise program which, under certain circumstances allows taxpayers to settle their tax debt for reduced amounts. This enables financially distressed taxpayers to clear up their tax problems faster than in the past. While resolving tax problems might previously have taken four or five years, taxpayers may now be able to resolve their problems in as little as two years.

If you have questions about the payment options or an offer-in-compromise, please call this office for assistance. Don’t just ignore your tax liability because that is the worst thing you can do.