- 4% charged on underpayments; 4% paid on overpayments.
- 4% charged on underpayments; 3% paid on overpayments.
- 6% charged on large corporate underpayments.
- 1.5% paid on the portion of a corporate overpayment exceeding $10,000.
Interest rates charged by the IRS on underpaid taxes and applied by the IRS on tax overpayments will remain the same for the second quarter of 2017 (April 1 through June 30). Therefore, the rates will be as follows for individuals and corporations:
Getting a letter or notice from the IRS can be upsetting, confusing, and unnecessary. The IRS sends taxpayers notices to request payment for taxes, to notify them of a change to their account, or to request additional information. Attention to the following details will reduce the likelihood that you will become pen pals with the IRS.
Never send a payment to the IRS without designating what it is for. Otherwise the IRS may apply it in any manner they want. Every payment should include your name, your taxpayer identification number (social security number), the type of tax you are paying, and the period the tax payment is for.
Make sure the name and social security number on your tax return agree with the Social Security Administration's records. If you change your surname, notify the Social Security Administration and request a new social security card.
Don't claim a tax exemption for your child unless you are entitled to do so. Special rules apply to divorced parents. If both parents claim the child as a dependent, both returns will be subject to further IRS review.
Respond promptly to any notice you receive from the IRS, even if you think the notice is incorrect. If the IRS doesn't hear from you within the time specified on their notice, you may lose the right to protest any changes made to your return.
Send a change of address form (Form 8822) to the IRS when your address changes. If you fail to provide the IRS with your current mailing address, you may not receive a refund check or a notice if there are problems or adjustments to your return. And even if the IRS can't find you, penalties and interest will continue to accumulate on any tax due.
Send your income tax return and any other correspondence to the IRS by certified mail, return receipt requested. The receipt provides evidence that you filed on time. That proof will be valuable in the event the IRS or Postal Service loses your paperwork and the IRS threatens to assess late-filing and late-payment penalties.
The IRS has revealed that its level of service to U.S. taxpayers is expected to decline due to a combination of factors – increased workloads and cuts to the agency’s 2015 budget.
The increased workloads are partly associated with new tax issues related to the Affordable Care Act. The budget cuts will impact how the IRS is able to respond to customer service telephone and written inquiries. Also notable: the budget cuts could result in taxpayers experiencing delays in receiving their refunds.
On top of all this is the expectation that the IRS will have fewer resources to conduct audits, thus resulting in less revenue collection. IRS Commissioner John Koskinen says the decreased service levels are “unacceptable” and looks forward to finding a resolution.
Are you aware of the numerous age-related provisions in the IRS code? They are probably more plentiful and significant than you thought. Here are a few examples of the age-related tax rules that could affect you and your dependents.
Imagine this scenario. Your wealthy Uncle John is something of an art collector, buying paintings and sculptures from promising young artists. When he retires, he moves into a small condo in a retirement community and has to downsize his art collection. He gives away much of his art to family members, and you receive an abstract painting. He tells you that he paid $5,000 for it only two years ago.
A few years later Uncle John passes away, and soon after that you decide to sell the painting. You're delighted when an art dealer offers you $12,000 for the painting. Unfortunately the IRS audits your tax return for that year and informs you that you owe capital gains tax on the sale.
How much do you owe? In theory, you received Uncle John's cost basis in the picture when you received it as a gift. Your taxable gain would be $7,000 ($12,000 sales price less his $5,000 cost basis). But unless you can document the purchase price, the IRS might well claim that you owe tax on a $12,000 gain.
When you sell property you received as a gift, the general rule is that your basis is the donor's cost basis. If you sell at a loss, your basis is the lower of the donor's basis or the fair market value on the date you received the gift. There are adjustments to these numbers in some cases. But the important point is that without cost records, you have no way of proving the donor's basis and no way of disputing an IRS claim.
While it might seem embarrassing to ask for records of the cost when you receive a gift, it could save you a significant amount of taxes in the future. And if you have received valuable gifts in recent years, it might be worth going back to recover the cost records before they're lost forever. On the other hand, if you're the one making the gift, give the cost records at the same time. If you don't, you may end up giving a gift to the IRS in the form of unnecessary taxes.
The IRS has just issued a "Taxpayer Bill of Rights" that you should be aware of.
The Rights are divided into ten main categories. According to this "cornerstone" document you have The Right:
For years, the IRS interpreted the IRA rules to allow taxpayers to do one rollover per year in each IRA he or she owned. In doing a rollover, the taxpayer is not taxed on the funds taken from the IRA so long as the funds are redeposited into an IRA within 60 days of the withdrawal.
A recent court ruling stated that the rollover limit should be applied on an aggregate basis, meaning that only one rollover per year is allowed for all IRAs owned by the taxpayer, not one for each. The change becomes effective January 1, 2015.
Contact us for assistance before planning any IRA rollover to be sure you don't end up with a tax surprise.
If you are involved with a tax-exempt (nonprofit) organization, be aware of this approaching deadline: An annual report must be filed with the IRS on the 15th day of the fifth month after the organization's year-end. For calendar-year organizations, the deadline for 2013 reporting is May 15, 2014. Organizations with gross annual receipts below $50,000 can file an E-postcard rather than a longer version of Form 990.
Each year the IRS adjusts certain tax numbers for inflation and tax law changes. Here are some of the adjusted numbers you’ll need for your 2014 tax planning:
The dividing line between a business and a hobby may be thin, but it can look like a canyon when you are on one side and your tax deductions are on the other. The gap is a function of differing treatment of expenses. For example, when you incur ordinary and necessary expenses in the operation of your business, those costs reduce the taxable income of the business. In addition, business losses can generally be used to offset income from other sources, such as wages.
When your activity is considered a hobby, expenses can only be claimed to the extent of income from the activity, and are generally deductible as a miscellaneous itemized deduction on your personal return.
Here are nine ways to help convince the IRS that you have a business rather than a hobby.
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