Average refunds are down more than 8% compared to last year due to the recently enacted change in tax laws. The primary culprits for lower refunds are:
Reduced State & Local Property Tax Deductions
Reduced Tax Withholding from Paychecks
The shock of a lower refund or even worse, having to owe has been all too familiar to taxpayers residing in the Tri-State area. If you need assistance in helping to prepare for next year by learning how to increase your tax withholding or speaking with a tax professional about your property taxes, contact us at (888) APRIL-15 or click “Book Appointment” above.
While the details are just emerging and the final plan is sure to change, the tax overhaul that Trump & the Republican party recently unveiled has clear beneficiaries; and early indications are it is NOT the “middle class”. In fact, according to this analysis, Trump’s tax plan will see the majority of the benefits—i.e. tax cuts— to the rich; particularly the top 1% & 0.1%.
In Indianapolis last Wednesday, Trump outlined his proposal and stated, “…the biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven’t seen in many years…”. This is your classic “trickle down economics” argument that has been made for decades; that by cutting taxes on big businesses and the wealthy, the average American worker will see the benefits work their way down to them in the form of higher wages and more jobs. The only problem is that study after study has shown these benefits never really reach the middle class. Staying true to theory of trickle down, Trump proposes slashing taxes dramatically for Americans who earn north of $730,000 a year.
What’s in Trump’s Tax Plan?
Although far from finalized, the main points of the plan that affect Individual taxpayers are:
Reduce the tax bracket from seven brackets to three: with tax rates of 12%, 25% and 35% percent with a possibility of adding a fourth bracket.
Doubling the standard deduction from $6,000 to $12,000 for individuals and from $12,000 to $24,000 for those married filing jointly.
Creation of a new tax credit for non-child dependents while increasing the current child tax credit.
Elimination of most itemized deductions but keeping the mortgage interest and charitable giving deductions. Tax incentives for retirement saving and education plans will be retained; i.e SEP, Traditional, Roth IRA’s and 529 college saving plans etc.
As far as business & corporate taxes, this proposal is just as ambitious. In President Trump words: “This will be the lowest top marginal income tax rate for small and midsize businesses in this country in more than 80 years…”. Under this plan, businesses and corporations would see:
A decrease in overall tax rate from 35% to 20%
A new tax rate of 25% for “pass-through” income for businesses like sole proprietorships and partnerships which currently make up nearly 95% of all businesses which are taxed at the rate of their owners.
Limitation of the deductibility of corporate interest expenses, in exchange for the option to immediately expense business investments
Preserves tax credits for research and development and low-income-housing from a business standpoint.
Although the tax plan has a vast amount of changes for individuals & business on many levels, the benefits overwhelming favor the affluent and business owners.
How is the Public Reacting to the Trump Tax Plan?
Proponents of this tax plan for companies are overjoyed: “An encouraging step forward in our shared goal of a tax system that delivers higher economic growth, job creation and wages that our country desperately needs.” said Jamie Dimon, the chief executive of JPMorgan Chase and the chairman of the Business Roundtable. John Stephens, the AT&T chief financial officer, said it was “A big step toward meaningful reform that would encourage more investment and job creation in the United States.”
Opponents like Edward D. Kleinbard, a tax expert at the University of Southern California law school calls Trump’s Tax Plan “a very cynical document…The extraordinary thing about the proposal is that we know that it loses trillions of dollars in revenue, yet at the same time the only people we can identify as guaranteed winners are the most affluent.” Even Republican Rand Paul recently came out against Trump’s tax plan calling it a “middle class tax hike”.
This analysis from the Tax Policy Center above clearly illustrates how the current tax proposal favors the wealthy; particularly the top 1 percent and top 0.1% them. Pay particular attention to the Share of Total Federal Tax Change. It breaks down U.S. income earners into 5 categories—from those making the least in the lowest quintile to those making the most in the top quintile. As you can see, the top quintile reaps a whopping 86.6% of these potential tax cuts! The other 4 quintiles combined would only realize 13.4% of these cuts. Parsing these numbers even further for the top quintile the majority of tax cuts go to the top 1% (79.7%) and the top 0.1% (39.6%) which equate to an average tax cut of $207,060 & $1,022,120 respectively. Most Americans don’t even come close to earning the amount of money the top 1% would gain in tax cuts.
Time & time again, Trump has pledged on the campaign trail and as President that the middle class will see the rewards of his tax cuts and it was time for the rich to pay their fair share by closing tax loopholes amongst other things. However, it is hard to come to any other conclusion than this tax plan, if passed, would overwhelmingly benefit the wealthy and not the middle class. In fact, this plan may create even more tax loopholes that would directly benefit wealthy families.
How Does Trump’s Tax Plan Affect You?
If the previous health care battles are any guide, the political fight to get these cuts enacted will be fierce and has only just begun. This means that the ordinarily taxpayer can most likely expect tax filing delays—similar or worse than in recent years—while congress bickers…especially for taxpayers who file early. It will be a while before we can really dig into the ultimate affects of whichever Trump’s tax proposal is ultimately passed. One thing is for certain: In it’s current form the only real beneficiaries to this proposal are those that make nearly a $1 million or more annually. Because of all this uncertainty and the prospect for an increase in taxes for the middle class, hiring the services of a Tax Professional this tax season may be well worth the money as they can help you navigate this complicated tax climate as well as potentially unlock benefits you might ordinarily overlook.
If you’d like more information about out how Trump’s existing or eventual tax proposal will affect you, feel free to contact us via the web or call us toll-free at (888) APRIL-15 to speak to an R&G Brenner Tax Professional.
Please feel free to comment below on Trump’s proposed tax overhaul.
The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 23, 2017 and before Jan. 31, 2018, are granted additional time to file through Jan. 31, 2018. This includes taxpayers who had a valid extension to file their 2016 return that was due to run out on Oct. 16, 2017. It also includes the quarterly estimated income tax payments originally due on Sept. 15, 2017 and Jan. 16, 2018, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2017. In addition, penalties on payroll and excise tax deposits due on or after Aug. 23, 2017, and before Sept. 7, 2017, will be abated as long as the deposits were made by Sept. 7, 2017.
If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty.
The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 866-562-5227 to request this tax relief.
As of 9/5/17, the following Texas counties have been approved for extended IRS deadlines:
Taxpayers can download forms and publications from the official IRS website, irs.gov, or order them by calling toll free 800-829-3676. Contact an R&G Brenner tax professional if you require assistance; (888) APRIL-15.
The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Parts of Florida, Puerto Rico and the Virgin Islands are currently eligible, but taxpayers in localities added later to the disaster area, including those in other states, will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.
While many states rely heavily on taxes levied on the oil and gas industry, the falling price of oil in recent months is contributing to the drying-up of much-needed tax revenues. How do states such as Alaska, Texas and other mineral-rich states get creative when they need to supplement their budgets? Here’s a quick look at why low oil prices are bad news for state budgets.
Rainy Day Funds
Sure, you love the low price of gas at the pump when filling up, but not everyone thinks this is great. States like Alaska, Louisiana, Montana, New Mexico, Texas, North Dakota, West Virginia and Wyoming depend on severance taxes levied on oil and gas producers, and with oil prices plunging from $96 a barrel in July 2014 to about $50 a barrel today, these states have no choice but to tap into their rainy day funds, slash spending or raise taxes, according to The Huffington Post.
Each state on this list is affected differently. For example, Texas produces more than 100 million barrels per month of oil—more than anywhere else in the nation—yet only nine percent of its revenues are sourced from severance taxes. This stands in stark contrast to Alaska, which only produces 16 million barrels a month yet derives nearly 80 percent of its revenue from severance taxes.
The hardest-hit states, such as Alaska, Texas and Montana, have to consider some hard realities in order to offset the reduction in tax revenues. What they could once count on as a given is no longer an option. With Alaska currently experiencing a $3.6 billion gap in its $6.1 billion budget, law makers in the state are proposing a spending cut of between five and eight percent.
There are other options for Alaska, though: it could tap into its Permanent Fund, which contains money from surplus revenues resulting from the development of the state’s invested oil and gas reserves. This fund currently shells out a yearly dividend to eligible Alaska residents. Currently, that fund holds about $50 billion. Stripping the state spending budget only to essential services could help offset the reduced severance taxes coming in, but over the long haul, many decision-makers feel it’s wise to create a more balanced tax structure to handle dips in the availability of severance funds.
North Dakota is another state looking at a cut in severance taxes—from $8 billion in oil revenue to $4 billion. Its reserve fund holds about $1 billion currently, which includes money earmarked for water projects, disaster relief and infrastructure improvements. However, the state can’t dip into this until a 2.5 percent cut has been made to all state agencies. At the federal level, Congress is considering stepping in to raise the gas tax for the first time since 1993, where this tax has remained at 18.4 cents per gallon, according to The Washington Post. However, that is not a certainty and Congress is still debating the issue.
While the states facing this oil and gas revenue shortage are by no means broke, this situation does pose a challenge for them, prompting more creative uses of budgetary resources. However, these States would be wise to start thinking about contingency plans as low oil prices could become the “new normal”; especially since the push for clean & renewable energy has been reinvigorated as prices drop and climate change becomes harder and harder to deny.
If you’re willing to relocate, you can save quite a bit of money on taxes. By shopping around from state to state, you can save significant amounts on your bill for business or personal taxes. According to Entrepreneur, individuals can save 10% to 30% simply by moving. States and municipalities set widely different tax rates on personal income, gas, property and sales. Your business could enjoy major savings in a different state.
But don’t pack those boxes yet: determining which state is complicated as the states that have business-friendly tax policies are not always the most tax-friendly for individuals and vice versa. To help you decide if there is a move in your future, here is a closer look at which states are “tax-friendliest”.
The Top Tax-Friendliest States for Individuals
Tax rates in a number of states are easy on the personal budget. Florida ranks high as a tax friendly state for individuals because it charges no personal income tax. Property is taxed at just 3.45%, well below the national average. Add that to the fact that it’s warm all year round, and it makes for an attractive destination for a move.
If life in the Southwest suits your fancy, you can do well on the personal tax side. Nevada also has no income tax and the rate on property is just 3%. New Mexico does charge income tax at 1.70% to 4.9%, but property is taxed at just 1.93%. Utah is a bit higher at a 5% income tax rate, but property rates are set at 2.75%.
In the West, Wyoming has no income tax and the rate on gas is a mere $0.14 a gallon. The sales tax is 4%. Washington State has no income tax, and property is taxed at 2.91%, but the state levies a 6.5% sales tax to help fund its annual budget. If you love beautiful scenery and hate paying taxes, consider Alaska. There is no personal income tax there either, nor any sales tax. Property tax is just 4.55%.
According to USA Today, three states—Wyoming, South Dakota and Nevada—are especially friendly for businesses. All three have no corporate income tax or gross receipts tax, as well as no personal income tax.
Each of the three states has set up a solid tax base that doesn’t rely on personal and general business taxes. Wyoming charges taxes on the extraction of oil, coal, gas and minerals for its tax base, which produces close to $1 billion each year for the state. South Dakota has a strong economy built on two foundations. Its had a policy of actively attracting credit card companies to set up business in the state since the 1980s. In addition, Ellsworth Air Force Base is a major employer. Nevada, of course, has its casinos, which provide 5% of its tax needs. The state also has taxes on drilling for gas and oil.
What Makes a State Tax-Friendly?
According to the study done each year by the Tax Foundation, there are a number of factors that impact how tax-friendly a state is. Even if a state has no corporate tax, it may have a gross receipts tax, which can actually increase what a company has to pay at tax time. Then too, within each state some counties are more tax-friendly than others, complicating the decision of where to move.
The fact that a state does not have a personal income tax or a sales tax helps businesses as well as individuals. That’s why Alaska is number four on the list of the top 10 business tax-friendly states as well as being one of the tax-friendliest for individuals. The fact that Alaska has a high corporate tax is balanced by the absence of a sales tax or personal income tax.
Florida, with no personal income tax, is number five on the list, even though it is ranked #14 for its corporate tax. Montana is sixth because it has no sales tax, which offsets the fact that its corporate tax rate earns it its spot at #18 on the list of business tax-friendly states. Rounding out the top 10 are New Hampshire, Indiana, Utah and Texas.
If you’re paying more than you think you should at tax time, perhaps a move to another part of the country should be considered. You and your business could save a bundle when the taxman comes around next year by simply relocating to a different, tax-friendlier state.
With growth from the gaming industry leveling off in most locations, many Native American tribes are now considering a brand new source of income in states where marijuana has been legalized, either medically and recreationally. As more and more states–including New York–legalize marijuana in one form or another, Native Americans will have a huge advantage over other retailers in the business: Tribal earnings are not subject to federal income tax laws, as long as they are earned on the reservation and are not distributed to individuals as earnings.
The Native American Tax Advantage
The advantages that would be enjoyed by Native American tribes for the sale of marijuana would be similar to the tax-exempt status they already enjoy in those states where gaming is conducted on reservations. 422 tribal gambling facilities in 28 different states earned $26.5 billion, $27.9 billion, and $28 billion from 2011 through 2013, none of which was taxable by the federal government.
Even if commercial activities are conducted on tribal lands, they are exempt from taxes, as long as they are not conducted by individuals. Individuals within the tribes are U.S. citizens and they can be taxed, which is why corporations are usually formed before embarking on a gaming enterprise, and why the same would likely be true of the marijuana business. The legal status of the corporation prevents any federal intervention or taxation on the income from gaming currently, and barring legislation that alters this status the same would be true of income generated from growing and selling legal marijuana.
Tribes must be careful, however, not to distribute earnings from gaming or marijuana sales to individuals as compensation for their work in the industry. These earnings can be taxed, but there is another federal law which comes to the individual tribe members’ aid in this situation. Earnings can be distributed to individuals as payments from a general welfare program that is earmarked for the needs of families and individuals, relative to health, food, and other essentials that are not related to compensation for services.
State Tax Laws
At the state level, Native Americans cannot be taxed on income that is generated from reservation resources unless that income is generated within the state but not within the boundaries of the reservation. In effect, this neutralizes attempts by state agencies to levy any kind of tax on the potential earnings of Native Americans from either gaming or marijuana growing. Marijuana grown on the reservation would thus be completely un-taxable in any state where it is grown.
As one might expect, this kind of exemption makes both the federal government and state governments very uneasy, and inclined to eye the legislation which currently grants such sweeping freedom from taxation very closely. As Native American enterprises begin entering the preliminary phases of entering the retail marijuana market and the media notes the enormous taxation advantages they would enjoy, federal agencies and state agencies are both taking hard looks at the situation.
It is hard to estimate exactly how lucrative the marijuana growing industry could be for Native Americans, but assuming it is on par with the gaming industry, a huge windfall would accrue to tribes all across the country. Some experts feel so strongly that they’ve said that growing marijuana could eventually eclipse the gaming industry as a source of income, and for tribes that have precious few sources of income on reservations, the allure of huge profits is likely to be overwhelming.
Filing taxes is a painstaking process for almost everyone and every year, without fail, many returns full of mistakes are sent in to the IRS. In fact, mistakes are extremely common on tax returns, with an error rate of 50 percent; on self-prepared returns, according to the Government Accountability Office. There is a near-infinite number of things that can be done wrong on tax returns, from simple computational errors to missing out on deductions. Knowing which mistakes people commonly make is a good place to start when trying to avoid making them yourself. To that end, here’s what not to do on your taxes.
Include Undocumented Charitable Contributions
Though many charitable contributions are deductible, not every donation qualifies, and those that do must be meticulously documented. Every donation requires an accurate record, complete with confirmation receipts of the donation amount from the recipient at a qualified charity. Many people now donate money to crowdfunding campaigns, such as those hosted through Kickstarter, but many of these, because donors receive goods or services in return, don’t qualify as charitable contributions.
Taking a Write-Off for College You Don’t Qualify For
There are currently two write-offs available for college education: a $4,000 tuition and fees deduction and the $2,500 American Opportunity Tax Credit. Most people take the tuition and fees deduction because it seems like more money, but because the AOTC gives a dollar-for-dollar reduction, as opposed to lowering the income subject to tax, it can often be a better deal. It’s worth crunching some numbers to figure out which is the better option for you each time you file.
Claiming State Refunds as Income
Many people make the mistake of claiming their state tax refunds as income on federal tax returns. The only time a state tax refund should be declared is if the filer does not receive a tax benefit from deducting the taxes. Taking a standard deduction as opposed to itemizing means the filer doesn’t need to show state tax refunds as income.
Confusing Real Estate Taxes
Confusion regarding real estate and other property is one of the biggest sources of tax mistakes. People often take the wrong deductions, on everything from home offices to mortgage interest payments. New homeowners should be particularly careful and make sure to check which taxes they paid during closing to ensure they apply for the accurate deductions on their returns.
Forgetting IRA Savings
Throughout the year many people make regular IRA contributions, but they often forget to report them when filing their tax returns. Many of these IRA contributions qualify individuals for tax breaks. Furthermore, reporting all contributions is mandatory and even nondeductible contributions should be reported in order to avoid paying for them during retirement.
Incorrectly Reporting Foreign Investments
Though foreign investments are only applicable to a relatively small percentage of the tax base, they are amongst the more costly areas to make mistakes. Failing to accurately report foreign bank or financial accounts unintentionally carries a penalty of $10,000 per violation. For willful violations, the fine is $100,000 or 50 percent of the balance of the unreported account at the time of violation, for each violation, if the IRS catches it in an audit. That’s a very expensive mistake!
Changing Jobs and Withholding Too Much/Too Little
Those who switch jobs during the middle of the year and have combined earnings of greater than $117,000 should make sure they are not having extra money withheld. The maximum withholding rate is 6.2% for the first $117,000 of income, but both employers may withhold this amount if the employee made less than that sum at each individual company, meaning the filer would pay too much. It might make for a nice, big tax return, but it also means you’re overpaying on your taxes, and no one wants that. On the flip-side, if you switch jobs or get promoted and withhold too little, you could be surprised you owe taxes come April 15th when you were expecting a refund.
Overpaying on Investments Sold
Making mistakes on investments sold is frequent as it requires many calculations and meticulous record keeping of stock splits, reinvested dividends, capital gains distributions, and sales commissions. There are several online tools available to help investors make accurate calculations of shares bought. Make sure to keep clear records of all your investments.
These are just a few of the things you absolutely shouldn’t do on your taxes. While it’s by no means an exhaustive list, these mistakes are some of the most frequent—and also some of the easiest to avoid. If you’re concerned that you’ve made mistakes (or will make mistakes) on your taxes, you can always contact an R&G Brenner tax professional for assistance.
The Internal Revenue Service (IRS) requires all employers to provide employees with a W-2 form, which lists the employee’s income information for the previous year. It doesn’t matter how long you worked for the company; if you earn more than $600, your employer must issue you a W-2. If any of your wages were withheld for Social Security or Medicare, the employer must issue a W-2 no matter how much you earned. Employers are required to provide you with this information by January 31 so that you can complete your tax return by April 15. Once you have your W-2 in hand, it’s time to get to know the form so you can be sure you don’t make any errors in reporting your income taxes.
What Each Box on the W-2 Means
When your W-2 arrives, check it to make sure that your social security number is listed correctly. The boxes on the left of the form should list your employer’s name and address, as well as your name and address. Directly below your social security number is your employer’s identification number. This number must be entered on your tax return.
Each of the boxes on the right side of your W-2 should have a number. Box 1 indicates the total salary you received, less any tax-exempt or tax-deferred benefits. This includes health insurance, dental insurance, retirement savings, and the cost of most other benefits that your employer deducts from your paycheck. Box 2 is the total amount of income tax withheld by the federal government. Box 3 indicates your total wages subject to the Social Security tax, including amounts not listed in Box 1. This number could be higher than the one in Box 1, because it’s calculated before payroll deductions. Box 5 indicates wages subject to Medicare taxes; since there is no cap for Medicare taxes and they generally don’t include any pretax deductions, this number might be bigger than the one in Box 3.
Boxes 4 and 6 indicate how much you paid for Social Security and Medicare taxes, respectively. The amounts are calculated based on a flat rate: 1.45% for Social Security and 6.2% for Medicare. That means that the numbers in Boxes 4 and 6 should be equal to the amounts in Boxes 1 and 3 multiplied by 1.5 and 6.2 Boxes 7 and 8 reported wages earned from tips; if you don’t report tips to your employer, these boxes will be empty. Box 9 actually no longer serves a purpose; the reporting requirement that made Box 9 necessary expired a few years ago, but the box has yet to be removed from the form.
If your employer paid any dependent care expenses on your behalf, you will see the total amount in Box 10. In Box 11, your employer lists any amounts distributed to you during the year from its non-qualified deferred compensation plan. Box 12 is pretty complicated, and involves entering different codes, only some of which are taxable. For a better explanation of Box 12, it’s best to go straight to the source and read what the IRS has to say about it. Boxes 13 and 14 will be filled out by your employer to indicate if you’re a statutory employee, if you participated in your company’s retirement plan or if you received sick pay from a third-party insurance policy.
Boxes 15 through 20 are information you need to file your state income tax return. This includes your state’s two-letter abbreviation, your employer’s state identification number, your income subject to state taxes (including that which is currently exempt from federal taxes), the amount of state income tax withheld from your paychecks last year, your local wages, local taxes, and the locality name where you paid them. It’s not common for figures to appear in the last three boxes.
What to Do if You Don’t Receive a W-2
If you haven’t received your W-2, make sure your employer mailed it to the correct address. If it was returned to your employer as undeliverable, request a new one and then wait until February 14. At this point you will need to contact the IRS and provide your full name and social security number, your employer’s complete address, your employer’s telephone number, and your estimated wages and tax paid for last year. If you haven’t received a W-2 by April 15, use Form 4852, Substitute for Form W-2, Wage and Tax Statement to file. Should you receive your W-2 after you have filed, use Form 1040X to send the correct information.
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.
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.
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.
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