Tag: IRS


What California and Kansas Can Teach Us about the Laffer Curve and Tax Theory

January 6th, 2015 — 10:00am
The Real Laffer Curve?

The Real Laffer Curve?

Since the economic collapse that began in 2008, politicians and lawmakers all across the United States have been on the move to enact policy that will stimulate the economy and bring back jobs. Tax policy has inevitably become part of this national discussion. The Laffer Curve, an economics theory that posits that cutting taxes is beneficial for economic stimulation, has been put to the test in two real life scenarios that have played out in Kansas and California. The results provide significant evidence that calls into question the well-worn principle that a higher minimum wage decreases overall employment and income.

Arthur Laffer’s Theory

The Laffer Curve, one of the fundamental tenets of supply-side economics, was popularized by the economist Arthur Laffer in the late 1970s. As a curve, it merely demonstrates the relationship between tax rates and total tax revenues collected by the government. According to this construct, the effect of a lower tax rate is an increase in work, output, and employment whereas a high tax rate penalizes these activities. The curve is often used to explain and justify the pro-growth worldview of supply-side economics. It should be noted, however, the Laffer Curve does not say definitively that a tax cut will raise or lower revenues. For example, a tax rate of 100% wouldn’t collect more money than a rate of 25%, as no one would be willing to work for an after-tax income of $0. The value of the Laffer Curve is its ability to predict economical behavior based on simple arithmetic truths.

Kansas Tax Cuts & California Tax Hikes

In the case of Kansas, after the election of Sen. Sam Brownback as governor in 2010, the state rolled out a new tax policy, a virtual low-tax paradise that was eventually meant to eliminate the state income tax. Brownback’s administration consulted Laffer on tax cuts and enacted these measures in the hopes that, according to the Laffer Curve, they would help to fuel the stagnant economy. The measures, called “the largest tax cut ever” at the time, were enacted in 2012. It quickly became clear that Kansas’ economy was not following the upward trajectory the Laffer Curve predicted it should. As a result, the state’s credit rating was lowered, first by Moody’s Investors Service and later by Standard & Poor’s, who cited “a structurally unbalanced budget.”

Meanwhile in California, tax rates were rising as much as 30 percent, raising the sales tax to the highest in the nation at 7.5 percent. The Laffer Curve indicates that California’s job growth should have slowed to a crawl and brought the state’s economy to a grinding halt. This October Governor Jerry Brown was happy to announce that the measures had quite the opposite effect, stating “California is back.”

Contradictory to what proponents of the Laffer theory may have predicted, it was California that came out the winner. Jobs in the state grew at a rate 3.4 times greater than in Kansas, and non-farm payroll jobs increased 7.2 percent in California compared to just 2.1 percent in Kansas. California’s credit rating also improved, unlike Kansas’, which means that the state can borrow money at much lower rates than Kansas can. So what happened? Do these real-life contradictions mean that the Laffer Curve doesn’t work?

What Real Life Contradictions Mean

No economic model is perfect. If anything, what these real world contradictions tell economists is that their models need more refinement, but it sends a message to politicians as well. The real world will always trump theory, and changes in policy would be better based on actual data about the number of jobs and what they pay rather than projections, ideology and theory.

It could be that raising the minimum wage will, in the fullness of time, lead to different results. California’s economy could still collapse, and Kansas could see the job growth its experts hoped for originally.  Kansas may fall behind yet further with their frozen minimum wage. For now, it would be wise of policymakers to look at the results and take note. No theory, however compelling, should be more persuasive than real-life results.

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Will the New Congress Be Able to Make Any Progress on Tax Reform?

January 5th, 2015 — 1:16pm
Tax Reform?  Really?

Tax Reform? Really?

After the November 4th elections this year, it was widely expected that Republicans would take a majority in the House and Senate. Republican leaders campaigned toward victories on promises of change, though it is unclear just how much change will actually be accomplished. While the Obama administration has for years been interested in tax reform, particularly concerning American companies using a technique called “inversion” to repatriate their profits, given the GOP’s track record, it is not surprising that many think major changes like a tax reform bill has little chance of reaching the President’s desk. Chances may be slim that real reform is going to get passed, but small-scale reform may still be possible.

The Tax Code’s Just Too Big

While many politicians have a lot to say about a “simplified tax code” on everything from foreign taxation to the Affordable Care Act, chances are slim that any reforms of substance will be passed by the new Congress. Why? Because any attempt to gut the President’s healthcare legislation through the tax code will most certainly be vetoed, and many Republicans quietly like what “Obamacare” has brought to the table.

Add to the threat of veto a general distaste among voters for re-arguing issues (like Roe V. Wade) that have already been settled, and it becomes clear that there will be no grandiose simplifications of the code that many have long clamored for. As a result, any type of innovation regarding the tax code will likely be more incremental reform.

There Isn’t Enough Time, But There Is Opposition

In order to have enough time to enact meaningful tax reform, the new Congress will have to begin almost immediately. Republicans will need to be very quick to lay out their key points for change, any of which could easily ignite Democratic opposition and lead to pushback.  However, many Republicans are eager to show voters that they can indeed govern, which could potentially lead to compromise on these types of issues.

In an ideal world, the subsequent debate would be enough to begin work on a bill that could take until the next election to craft. Before the bill could be passed, however, lobbies benefiting from the status quo would push to delay a vote, or even move political money to opponents to get the innovators out of office. This jockeying won’t affect the president during the final months of his second presidential term, but it would likely cast a pall over any incentive from Congress to proactively push for tax reform.

In short, unless the a President is committed to tax reform in partnership with a willing Congress and had a four-year term (at the least) to outlast entrenched lobbyists focused on keeping things as they are, meaningful tax reform remains a long shot.

So What Chance of Change is There?

Ultimately, it will be up to the Republican majority and the president to set the tone for any potential talk of tax reform. The real question is whether either sides is willing to consider their common ground and take a stand for the greater good, even when that stance might prove to be unpopular. When outgoing Representative Dave Camp (R-MI) brought up tax reform earlier this year, his attempts to bring the focus back to tax reform were dismissed by Speaker John Boehner, who was heard to say “blah blah blah” in response.

In short, if small reform measures can attract the attention span of the new Republican Congress, they might pass. Otherwise, the chances of real tax reform over the next two years are slim.

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Giving to Charity This Holiday Season? Here’s How to Report it on Your Taxes

December 23rd, 2014 — 11:51am
Reporting Charitable Deductions

Reporting Charitable Deductions

The end of 2014 is just days away, and if you’re like many Americans, you are planning to give to one or more charitable organizations before the new year dawns. Around 34 percent of all charitable giving is done in the last three months of the year and slightly more than half of that is during the month of December. Giving is up substantially this year over 2013, thanks in large part to the continued national economic recovery.

While the desire to help others is the main reason that most people give to charity, they also enjoy the ability to claim a deduction on their tax return. However, many Americans incorrectly report their charitable giving and do not receive the credits they are entitled to.

The biggest mistake, according to the Internal Revenue Service (IRS), is that people don’t verify that they are giving money or goods to a qualified charitable organization. They also make the mistake of assuming that donations made to individuals, political candidates and political organizations are deductible on their tax return. If you try to claim any of these as charitable donations, the IRS will deny your credit.

How to Claim a Charitable Deduction on Your Tax Return

If you plan to deduct your charitable contributions in 2014, you must use Form 1040 and itemize the deductions on a Schedule A. You may donate cash, tangible goods, services or personal property and write it off on your taxes this year. If you are donating a non-cash item, you should use IRS Publication 561 to determine its value.

In the event that you received merchandise in exchange for your donation, the IRS only allows you to deduct the amount of that item that exceeds fair market value. For example, if you donated money to fund a scholarship and the college gave you season tickets to watch its football team, you must deduct the value of those tickets from your charitable donation.

Stocks, bonds, and other deferred financial contributions are typically deducted at fair market value. This is the amount that the item would sell for if a competent buyer purchased it and the seller presented all relevant facts. In effect this means that all used items that you donate, such as cars and clothing, must be in good used condition in order to claim a tax deduction.

Proof of Donations

If the donation you itemized on Schedule A is worth more than $250, you must have written documentation that contains the name of the organization receiving the gift, the amount of the donation, and the date it changed hands. This communication can be in the form of a bank statement, a pay stub showing a payroll deduction, a letter from the receiver, or a printout of a text message or email.

For donations totaling more than $500 for the year, you need to complete IRS Form 8283 for Non-Cash Charitable Contributions and include it with your return. You should also use Section B of this form for non-cash donations worth more than $5,000 and include a professional appraisal when you submit your return. In most cases, the IRS limits the credits you can claim for charitable giving to 50 percent of your taxable income.

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2015 Tax Season Delayed

December 18th, 2014 — 11:55am
Filing Season Delayed...AGAIN!

Filing Season Delayed…AGAIN!

R&G Brenner has just been informed by our commercial tax software provider, that the IRS has indicated that the 2015 tax season (for filing tax returns for tax year 2014) will be delayed AT LEAST until January 23, 2015.  This means the season could potentially be delayed even beyond 1/23.

While delaying the start of the tax season has become a routine occurrence, this tax season could prove to be especially difficult.  The recent spending agreement passed by congress and expected to be signed by President Obama, cuts the IRS Budget down to levels not seen since 1998:

It is a cynical recipe for a self-fulfilling disaster: Give the [IRS] more and more work. Cut its budget. Blame it for failing to do its job. Repeat…For context, in 1998, taxpayers filed about 125 million individual returns. Last year, the agency had to process 145 million.

The IRS Commissioner, John Koskinen, pleaded with members of congress to increase the IRS’ budget and to act quickly on deciding to renew or let multiple tax laws and patches expire…all of which fell upon deaf ears.  Mr. Koskinen has now dubbed the 2015 tax season “one of the most complicated filing seasons we’ve ever had”  The National Taxpayer Advocate was even more forceful, calling this season “misery” & “the worst filing season ever” for taxpayers.

If there was ever a year to have a tax professional on your financial team, this is it!  Contact an R&G Brenner professional today and we’ll help you tackle what is shaping up to be a very difficult tax season.

UPDATE:

The filing season will commence on January 20th, 2015.

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“Worst Filing Season Ever” Predicted For Taxpayers

November 5th, 2014 — 12:17pm
I just got hung up on by the IRS...again!

I just got hung up on by the IRS…again!

IRS Commissioner John Koskinen recently suggested that the 2015 tax filing season could be misery for taxpayers and IRS employees alike. Between extensive wait times to speak to a representative, implemented laws that have not yet been reflected in the tax code and congressional gridlock, this may be the worst tax season on record.

“The filing season is going to be the worst filing season since I’ve been the National Taxpayer Advocate [in 2001]…” said National Taxpayer advocated Nina Olson.  “…I’d love to be proved wrong, but I think it will rival the 1985 filing season when returns disappeared.”

The major obstacles for this year are as follows:

  • The IRS budget has been slashed.  While the House has tried to reduce the budget, the Senate has proposed to increase the budget by $240 Million.  Even in the slim chance that it passes, that increase would still amount to a 7% decrease to the IRS’ 2010 budget.
  • Multiple laws congress has passed, the IRS has yet to implement into its systems.  The Affordable Care Act (ACA), The Foreign Account Tax Compliance Act (FACTA) and other laws require information from health care providers and other agencies in order to process tax returns correctly…and that is before the antiquated computer systems of the IRS have to be updated
  • The uncertainty surrounding “Tax Extenders”; multiple tax laws that either need to be extended, adjusted and/or replaced.  There are currently over 50 of them.  If these laws are not addressed before December, the tax season itself could be delayed

Until all these issues are resolved, you can expect extra long waits and dropped calls at the IRS like last year when nearly half of the phone calls to the IRS went unanswered.

With all this uncertainty, if there was ever  year to have the help of a qualified tax professional, this is it. Contact R&G Brenner today to find out how we can help you.  “Saving you time and money is what we’re all about”.

Source: Forbes

1 comment » | Tax & Financial News

October 15 Tax Extension Deadline

October 14th, 2014 — 10:33am
Tick-Tock, The Deadline Approaches

Tick-Tock, The Deadline Approaches

The deadline to submit 2013 tax returns to the IRS for taxpayers who elected to file extensions is Wednesday, October 15th.  Failure to do so may result in the penalties and interest assessed on due taxes.  Please note, that if you did not file your taxes yet, and did not file for an extension, your taxes were due on April 15th and you are already accruing penalties and interest on any taxes due.

If you need assistance filing your tax return (whether on extension or not), please contact an R&G Brenner tax professional as soon as possible in order to meet the deadline.

2 comments » | Tax & Financial News

What Do I Do If I Haven’t Received My Tax Refund?

June 5th, 2014 — 2:15pm

Follow These Steps To Track Your Refund

Follow These Steps To Track Your Refund

Filing your tax return was stressful, but now that it’s done you know the amount you’ve got coming and you can’t wait to get your hands on it. This is understandable; we all usually have that refund earmarked for something. That’s why it can be so frustrating when your tax refund doesn’t arrive on time. Read on to learn what to do if you’ve been waiting an exceptionally long time for your tax refund.

Gather Some Information

The first thing you should do when you have yet to receive your federal tax refund is to gather your social security number, filing status and the exact amount that you expect to get so you can check your return status online or over the phone. Having this information close at hand is necessary to start the process.

Check the Status of Your Return

It’s important to first check your return status before you check your refund status. You can do so over the phone or by logging in securely to your account on the IRS website. If you used an e-filing service to process your return, inquire about your status with that company. Many such services offer online log-ins where you can easily check your account. If you didn’t use an e-file service, you can call the IRS toll-free at 1-800-829-1040. If you are lucky to speak to an agent during your first call, hopefully they will be able to tell you if there was a delay, and what the cause was. Often, the return simply hasn’t been processed yet.

Once you’ve confirmed that your tax return has been processed, you can check your federal tax refund status. If you opted for a direct deposit into your bank account, call the bank and see if the check has been deposited. If it hasn’t, a quick way to check on your status is to use the Where’s My Refund? tool provided by the IRS and you can track where your refund is at any time. The site is updated every 24 hours in the evening, so you can start checking it the day after you e-file your return (or a month after you’ve mailed it in).  You can also call the IRS at 1-800-829-1954 to determine where your check is and why it’s taking so long.

Reasons for Delay

Tax season is a notoriously busy time for the IRS: people are filing taxes, refunds are being processed and issues are being sorted. If you wait to file close to the deadline of April 15th, you could wait longer than if you filed a month or two earlier. In some cases, refunds and identities can be stolen. If you suspect suspicious activity as the reason for your refund delay, contact the IRS immediately at 1-800-829-1040.

Often times, there are good reasons why your refund has been delayed. If you opted for a paper check from the IRS, expect to wait at least twice as long as if you did direct deposit. In order to minimize wait time in the future, plan on e-filing with a direct deposit option next year.

6 comments » | Tax Tips, Where's My Refund?

What If I Forgot To Include Information On My Taxes?

May 30th, 2014 — 2:56pm

Forgot Something On Your Tax Return?  Don't Worry!

Forgot Something On Your Tax Return? Don’t Worry!

So, you worked hours on your tax return, gathered your documents, filed on time and you are now awaiting your tax refund with eager anticipation. All is well until that moment of mild terror when you realize you forgot to include a vital document or deduction on your taxes. Don’t panic: all is not lost. There are ways to include missed information on your taxes, even if you’ve already filed them.

File an Amended Tax Return

When you’ve omitted information on your return, the IRS allows you to file an Amended U.S. Individual Income Tax Return called Form 1040X. However, you can’t e-file amended returns; they’ll have to be submitted it in paper form which increases the wait time by many weeks for any potential additional refunds.

Reasons to File

There are lots of reasons you might need to file an amended tax return, but there are some things that don’t necessitate one. You’ll need to file a 1040X form if you have experienced a change in your filing status, income, credits or deductions. But you do not have to file if you caught a math error after the fact. The IRS is pretty good about catching these types of mistakes and usually adjust these automatically for you. For example, If you forgot to attach the proper tax forms and a W2 is missing,  there’s no need to file this amended form. You should get a request from the IRS requesting any missing items. The IRS can easily find income that you may have omitted from your tax return, but sometimes it can take a very long time for the IRS to notify you.  That means if you made an error where you underpaid your taxes in some manner, you will accrue penalties and interest until your tax liability is paid in full.  It could pay for you to file an amended return to minimize penalties & interests.  On the other hand,  the IRS isn’t as well-equipped for finding missing credits or deductions that you may have overlooked, and which could increase your refund.  In this case, don’t wait until you get a letter from the IRS looking for more information. Instead, be proactive and file the amended return.  After all it’s your money and the IRS does NOT have to pay you interest for holding onto your well deserved refunds.

Rules

You have three years from the original filing date to submit Form 1040X, or two years from the date of tax payment.   You’ll need to submit a separate 1040X form for each tax return you’re amending and mail them separately to the IRS. Also, don’t assume they are all being mailed to the same mailing address.  There are usually separate processing PO Boxes for each tax year you are amending.  If you plan on claiming more of a refund, you must wait until you get your original refund in the mail or via direct deposit before filing the 1040X. Again, keep in mind that amended refunds take awhile to process, so it could take up to 12 weeks before you receive anything. If you owe more taxes as a result of the amended return, pay what you owe right away to avoid fees and penalties from piling up, as the IRS will begin charging you based on the due date of your original tax return.

Track Your Status

Similar to tracking your original refund status, the IRS has a Where’s My Amended Return? tool (you can also check R&G Brenner’s Where’s My Refund page as we include State Refund links as well) that you can use to track your amended return’s status. Alternatively, you can call the IRS at 866-464-2050. Have your taxpayer identification number or social security number handy, along with your date of birth and zip code.

If you forgot to include some vital information on your tax return, follow the steps above to make sure you pay all the right taxes and get your full refund.  Or, simply contact an experience R&G Brenner tax professional today, and we’d be happy to assist you.

1 comment » | Tax Tips

What Are the Next Steps If I Missed the April 15th Deadline?

May 13th, 2014 — 12:32pm

Did You Miss The Deadline?

Did You Miss The Deadline?

Tax season is always a stressful time of the year.  Regardless if someone files themselves or hires a professional, nobody relishes the thought of having to file their taxes. Most people manage to get their taxes filed before the deadline, but there are always some who cannot get their taxes filed on time and don’t file an extension. 

The April 15th deadline for filing taxes for the 2013 tax year has passed. This sounds serious, but don’t panic. While you may incur some penalties for failing to file on time, acting quickly can help ensure that they won’t be too severe. If you have extenuating circumstances that prevented you from filing your taxes on time, you may even be able to get your penalties abated. Here’s what you need to know for filing your taxes after the deadline:

Your Refund Will Be Unaffected

If you are getting a refund, don’t worry, it will be perfectly safe. Unclaimed refunds can only be forfeited after three years, but the IRS won’t impose any penalties on your refund if you file late. The worst that can happen is that you will receive a refund later than you would have if you had made the deadline, and the IRS does not pay interest.  There is nothing gained from having the IRS hold onto your refund, so if you are due a refund, file a tax return as soon as possible.

Penalties for Filing and Paying Late

The penalty for filing your taxes after the deadline is five percent of the unpaid tax bill for every month your tax return is late. These fines and penalties will not exceed 25 percent of your total bill, however. The penalty for failing to pay any taxes that you may owe is one-half of one percent of the unpaid balance.

If you owe taxes that you cannot pay, you should still file as soon as possible, and set up a payment plan to pay off what you owe in installments to minimize penalties. You can also pay a partial amount when you file to lower the balance—it’s a good idea to pay as much as you can. The important thing is that you make an effort and do your best to stick to any payment plan that you set up. Keep in mind that you will most likely need to fill out additional paperwork if you owe more than $50,000 and wish to pay in installments. The IRS will want to see financial statements to ensure that your payment plan is realistic.

Filing an Extension

While it is too late now to request an extension, for future reference you can receive a six-month extension of the tax deadline by filling out Form 4868. This will give you more time to file your taxes, but it won’t give you more time to pay any taxes that you may still owe. Still, it can help you avoid any penalties that come from filing late.

Whatever you do, you should never decide not to file or pay your taxes. You might be afraid of the penalties that come from missing the April 15 deadline, but the penalties for not filing at all are much worse. The most important thing is that you file, even if you file much later than the deadline. Your chances of getting into real legal or financial trouble become much greater the longer you wait to pay what you owe to the IRS.

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April 15 Countdown & Last Minute Tax Tips

April 14th, 2014 — 2:50pm
Tick Tock, TickTock...April 15th Deadline

Tick Tock, TickTock…April 15th Deadline

With the clock about to strike midnight on the 2013 Tax Year Filing season, the following is a quick list of tax tips for all you last minute filers out there:

April 15th Deadline

Yes, we all know the saying “Death & Taxes…”. And nothing drums up the cold sweats and association with taxes like the April 15th deadline. However, here is something that many taxpayers do not know: This deadline is only if you OWE taxes to the IRS.  If you are due a refund from the IRS, you actually have 3 full years from the April 15th deadline to claim and receive your refund before it becomes the property of the U.S. Government.  So, as long as you file your 2013 tax return by April 15th, 2017 you will get your refund.  There are of course, many reasons to file your 2013 tax return before the deadline.  It’s your money!  So don’t let the government hold on to it especially when they do not have to pay interest on it.  If you owe, and you do not have all of your tax documents ready, you can always file an extension.  Extensions must also be filed before the April 15th deadline.  REMEMBER: An extension is only an extension to file your final tax return, NOT to pay the taxes you owe.  Therefore, expect to send payment for the estimated amount of taxes you owe along with any extension.

Beware of IRS Scams

IRS & Tax related Scams have been steadily increasing over the last few years.  The most common scam going around is IRS impersonators contacting unsuspecting taxpayers and getting them to divulge their confidential personal information which can be used to open up credit cards in the victims name and/or to a file a fraudulent tax return in their name in order to steal refunds.  NOTE: The IRS will NEVER initiate contact with your via email, phone, fax or text.  They will always send you a written notification with instructions.  Even if you receive written communication, double check that the contact information on the letter matches the IRS contact information from the IRS website.  If you think that you are the target of a tax related scam, report it to phishing@irs.gov.

Sign Your Return & Mail To Correct Address

While this may sound trivial, many taxpayers forget to sign their tax returns!  Your tax return is technically not considered filed if it is not signed.  While the majority of tax returns are filed electronically, there are still many reasons why a return would be filed as paper.  Furthermore, if you had your return prepared by a professional, be sure that they signed the return as well.  While the taxpayer is ultimately responsible for what is listed on their return, a common scam that many “professionals” use to avoid any liability is to file a tax return as “self-prepared”.  In other words, the IRS thinks that the taxpayer prepared and filed the tax return themselves when in reality it was filed by a paid income tax preparer.  So be sure to check for all appropriate signatures!  Furthermore, be sure you are mailing your tax return to the right IRS processing center.  The IRS tends to change their mailing addresses annually and some  have separate mailing addresses for refunds and taxes due.  Here is a list of all the IRS tax processing centers.

Keep Your Tax Records

So you just sent in your taxes and now you can throw all of your W2s, 1099s, receipts & other tax related documentation into the fireplace, right?  WRONG! Depending on your situation, the IRS says to keep all of your tax records between 3 & 6 years.  So, just to be on the safe side, keep all of your tax records for at least 6 years.  Sometimes it could take years before the IRS notifies you with an issue and/or adjustment on your tax return.  If you plan on contesting changes in the IRS’ favor, you’ll need your backup documentation.  Recent budget cuts to the IRS will probably delay the notification process even more.

File With A Tax Professional

While millions of taxpayers are electing to forego using a tax professional in favor of filing themselves, the numbers don’t add up.  A couple of years ago R&G Brenner investigated The True Cost Of Preparing Your Own Tax Return and found that taxpayers who filed themselves were losing an average of $594 in refunds as opposed to using a Tax Professional.  Similarly, H&R Block is running ads this year that found 1 in 5 taxpayers who prepares their own taxes are not claiming all the deductions they are entitled to and are losing $490 in refunds.  Now there are many taxpayers who have very simple returns (standard deductions, no house, no kids, etc) and can easily file themselves.  However, the moment your tax return gets even a little bit complicated, you should seek professional help.  If you are going to Itemize Deductions (Schedule A), claim mortgage interest, have children (Earned Income Tax Credit), deduct business expenses (Schedule C), have rental income (Schedule E), or other complex tax positions, it is almost never a good idea to prepare your own tax return.

If you would like information about R&G Brenner, our services or if you need any tax assistance before or after the April 15th deadline, please feel free to contact us here, or call us toll free at (888) APRIL-15.

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