Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we can perform the requisite research and provide you with a detailed written analysis. Such an engagement would be subject to a separate engagement letter that would define the scope and limits of the desired consultation services.
What to do if you missed the April tax deadline
April 15 or next business day is the tax deadline for most taxpayers to file their tax returns, but if you haven't filed a tax return yet, it's not too late. Here's what you need to do:
First, gather any information related to income and deductions for the tax years for which a return must be filed, then call the office to set up an in-person or virtual appointment.
If you are owed money, then the sooner you file, the sooner you will get your refund. If you owe taxes, file and pay as soon as you can, which will stop the interest and penalties you owe.
If you owe money but cannot pay the IRS in full, pay as much as you can when filing your tax return to minimize penalties and interest. The IRS will work with taxpayers suffering financial hardship. If you continue to ignore your tax bill, the IRS may take collection action.
Some taxpayers may have extra time to file their tax returns and pay any taxes due. These include: individuals living or working in a federally declared disaster area, military service members and eligible support personnel in combat zones, and U.S. citizens and resident aliens who live and work outside the U.S. and Puerto Rico.
What happens if you don't file a past-due return?
It's important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for various enforcement actions - including substantial penalties and fees. For example, the failure-to-file penalty is 5 percent of the tax owed for each month or part of a month that a tax return is late. However, this penalty is reduced for any month where the failure to pay penalty also applies. The basic failure-to-pay penalty rate is generally 0.5 percent of unpaid tax owed for each month or part of a month.
Need help filing your current or past-year returns?
Call our OFFICE today to schedule your preparation and receive instructions on on to submit your documentation.
Now is the Time to Check Your Federal Tax Withholding
Now that tax season is over, it's time to get the new tax year off to a good start by checking your federal income tax withholding. Taxpayers can do this by using the Tax Withholding Estimator on IRS.gov. Let's take a look at why using this valuable online tool is a good idea:
The Tax Withholding Estimator helps employees avoid having too much or too little tax withheld from their wages. It is also useful for self-employed individuals who have wage income or estimated tax payments that they need to make to avoid unexpected tax bills when filing their annual returns. Having too little withheld can result in a tax bill or even a penalty at tax time; having too much withheld results in less money in their pocket. In other words, the estimator can be used to help taxpayers get to a balance of zero or a desired refund amount.
The Tax Withholding Estimator also helps taxpayers figure out whether they need to complete a new Form W-4, Employee's Withholding Allowance Certificate and submit it to their employer or make an additional or estimated tax payment to the IRS.
How it Works
The Tax Withholding Estimator asks taxpayers to estimate:
- Their annual income.
- The number of children they will claim for the child tax credit and earned income tax credit.
- Other items that will affect their next year's tax filing.
The online tool does not ask for personally identifiable information, such as a name, Social Security number, address, and bank account numbers. The IRS doesn't save or record the information entered in the Estimator.
Gather Tax Documents
Before using the Estimator, it can be helpful for taxpayers to gather applicable income documents, including:
- Their pay stubs
- Forms W-2, Wage and Tax Statement , from employers to estimate their annual income
- Forms 1099 from banks, issuing agencies and other payers including unemployment
- compensation, dividends, distributions from a pension, annuity or retirement planForm 1099-K, 1099-MISC, W-2, or other income statement for workers in the gig economy
- Form 1099-INT for interest received
- Other income documents and records of virtual currency transactions
These documents are not needed to use the estimator but having them handy will help taxpayers estimate 2022 income and answer other questions asked during the process.
Taxpayers should be aware that the results of the Tax Withholding Estimator will only be as accurate as the information entered by the taxpayer. It should also be noted that individuals with only pension income should not use the Estimator. Those with wage income can account for current or future pension income. People with more complex tax situations, including those who owe alternative minimum tax or certain other taxes and people with long-term capital gains or qualified dividends, are advised to consult with a tax professional.
How to make a tax payment
There are several ways to make a payment on your taxes: credit card, electronic funds transfer, check, money order, cashier's check, or cash. If you pay your federal taxes using a major credit card or debit card, there is no IRS fee for credit or debit card payments, but processing companies may charge a convenience fee or flat fee. It is important to review all your options. The interest rates on a loan or credit card could be lower than the combination of penalties and interest imposed by the Internal Revenue Code.
What to do if you can't pay in full
Taxpayers who cannot pay the full amount owed on a tax bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be less than if you pay nothing at all. Based on individual circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, a temporary delay, or an offer in compromise. Don't hesitate to call if you have questions about any of these options.
Direct Pay. For individuals, IRS Direct Pay is a fast and free way to pay directly from your checking or savings account. Taxpayers who need more time to pay can set up either a short-term payment extension or a monthly payment plan.
Payment Plans. Most people can set up a monthly payment plan or installment agreement that gives them more time to pay. However, penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. You should pay as much as possible before entering into an installment agreement.
Taxpayers who have a history of filing and paying on time often qualify for penalty relief. A taxpayer generally qualifies if they have filed and paid timely for the past three years and meet other requirements.
Your specific tax situation will determine which payment options are available to you. Payment options include full payment, a short-term payment plan (paying in 120 days or less), or a long-term payment plan (installment agreement) (paying in more than 120 days). User fees may apply depending on the type of installment plan you are approved for. A sole proprietor or independent contractor should apply for a payment plan as an individual.
You may qualify to apply online if:
Long-term payment plan (installment agreement): You owe $50,000 or less in combined tax, penalties, and interest and filed all required returns.
Short-term payment plan: You owe less than $100,000 in combined tax, penalties, and interest.
Cash Payments. Individual taxpayers who do not have a bank account or credit card and need to pay their tax bill using cash are able to make a cash payment at participating PayNearMe payment locations (places like 7-Eleven) in 44 states. Individuals wishing to take advantage of this payment option should visit the IRS.gov payments page, select the cash option in the other ways you can pay section, and follow the instructions.
Estimated Tax Payments: The Facts
Estimated tax is the method used to pay tax on income that is not subject to withholding, including income from self-employment, interest, dividends, alimony, rent, and gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is not enough.
Filing and Paying Estimated Taxes
Both individuals and business owners may need to file and pay estimated taxes, which are paid quarterly. The first estimated tax payment of the year is normally due on the same day as your federal tax return is due. This year, that date was April 18, 2022.
For estimated tax purposes, the year is divided into four payment periods, and each period has a specific payment due date. For the 2022 tax year, these dates are April 18, June 15, September 15, and January 17, 2023. You do not have to pay estimated taxes in January if you file your 2022 tax return by January 31, 2023, and pay the entire balance due with your return.
If you do not pay enough by the due date of each payment period, you may be charged a penalty even if you are due a refund when you file your tax return.
If you had a tax liability for the prior year, you may have to pay estimated tax for the current year, but if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.
Who has to pay estimated tax?
If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. If you are filing as a corporation, you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.
Special rules apply to farmers, fishermen, certain household employers, and certain higher taxpayers. Please call the office for assistance if any of these situations apply to you.
You do not have to pay estimated tax for the current year if you meet all three of the following conditions:
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You had no tax liability for the prior year
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You were a U.S. citizen or resident for the whole year
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Your prior tax year covered a 12-month period
Calculating Estimated Taxes
To figure out your estimated tax, you must calculate your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year. If you estimated your earnings too high, simply complete another Form 1040-ES, Estimated Tax for Individuals, worksheet to re-figure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter.
If you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings. To do this, file a new Form W-4 with your employer. There is a special line on Form W-4 to enter the additional amount you want your employer to withhold. You had no tax liability for the prior year if your total tax was zero or you did not have to file an income tax return.
Try to estimate your income as accurately as you can to avoid penalties due to underpayment. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits or if they paid at least 90 percent of the tax for the current year or 100 percent of the tax shown on the return for the prior year, whichever is smaller.
When figuring your estimated tax for the current year, it may be helpful to use your income, deductions, and credits for the prior year as a starting point. Use your prior year's federal tax return as a guide, and use the worksheet in Form 1040-ES to figure your estimated tax. However, you must make adjustments both for changes in your situation and for recent changes in the tax law.
The Electronic Federal Tax Payment System
The easiest way for individuals and businesses to pay their estimated federal taxes is to use the Electronic Federal Tax Payment System (EFTPS). You can make your federal tax payments, including federal tax deposits (FTDs), installment agreement, and estimated tax payments, using EFTPS. If it is easier to pay your estimated taxes weekly, bi-weekly, monthly, etc., you can, as long as you have paid enough in by the end of the quarter. Using EFTPS, you can access a history of your payments so you know how much and when you made your estimated tax payments.
Don't hesitate to call if you have any questions about estimated tax payments or need assistance setting-up EFTPS.
What to Know if You are a Victim of Identity Theft
Please CLICK HERE for a .pdf guide to navigating tax-related identity theft.
Choosing the Correct Business Entity
Questions about which type of business entity to choose? CLICK HERE for a .pdf guide.
How to Check the Status of a Tax Refund
Tracking the status of a tax refund is easy with the Where's My Refund? tool. It's available anytime on IRS.gov or through the IRS2Go App. Where's My Refund provides a personalized date after the return is processed and a refund is approved. While most tax refunds are issued within 21 days, some may take longer if the return requires additional review.
There are a few reasons a tax refund may take longer such as:
The return may include errors or be incomplete.
The return could be affected by identity theft or fraud.
Many banks do not process payments on weekends or holidays.
If more information is needed to process a taxpayer’s return, the IRS will contact taxpayers by mail. It is important to note that calling the IRS won't speed up a tax refund. The information available on Where's My Refund? is the same information available to IRS phone assistors.
Taxpayers who claimed the earned income tax credit or the additional child tax credit, can expect to get their refund March 1 if:
- They file their return online
- They choose to get their refund by direct deposit
- The IRS found no issues with their return
Fast and easy refund updates:
The Where's My Refund tool provides a personalized date after the return is processed and a refund is approved. Taxpayers can start checking on the status of their return within 24 hours after the IRS acknowledges receipt of an electronically filed return or four weeks after the taxpayer mails a paper return. In addition, the IRS recently introduced a new feature that allows taxpayers to check the status of their current tax year and two previous years' refunds (tax year 2019 or 2020 returns).
The tool's tracker displays progress in three phases:
- Return received
- Refund approved
- Refund sent
To use the Where's My Refund? tool, taxpayers must enter their Social Security number or Individual Taxpayer Identification Number, their filing status, and the exact whole dollar amount of their refund. The IRS updates the tool once a day, usually overnight, so there's no need to check more often.
Is your student's college scholarship taxable?
May 1st is the traditional deadline for undergraduate students to commit to their college of choice, which means tuition payments are not far behind. If you're wondering if your child's scholarships are taxable, here's what you should know.
First, it's important to understand how a scholarship is defined. Generally, a scholarship is an amount paid or allowed to a student at an educational institution for the purpose of study. It can include both merit and need-based institutional aid. Other types of grants include need-based grants (such as Pell Grants or state grants) and Fulbright grants. A fellowship grant is generally an amount paid or allowed to an individual for the purpose of study or research.
Fulbright grants may be either scholarship/fellowship income or compensation for personal services, which is usually considered wages. If you are a U.S. citizen recipient of a Fulbright grant, you must determine which category of income your grant falls into in order to know how the grant is taxed for U.S. Federal Income tax purposes.
Tax-Free:
If you receive a scholarship, a fellowship grant, or other grant, all or part of the amounts you receive may be tax-free. Scholarships, fellowship grants, and other grants are tax-free if you meet the following conditions:
- You're a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and
- The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution or for fees, books, supplies, and equipment required for courses at the educational institution.
Taxable:
You must include in gross income:
- Amounts used for incidental expenses, such as room and board, travel, student health insurance, and optional equipment.
- Amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant.
However, you don't need to include in gross income any amounts you receive for services that are required by the National Health Service Corps Scholarship Program, the Armed Forces Health Professions Scholarship and Financial Assistance Program, or a comprehensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) operated by a work college.
Emergency financial aid grants under the Coronavirus Aid, Relief, and Economic Security Act, the COVID Relief Act, and the American Rescue Plan Act of 2021 for unexpected expenses, unmet financial need, or expenses related to the disruption of campus operations on account of the COVID-19 pandemic, are not includible in gross income.
Reporting a Taxable Scholarship on Your Tax Return
Generally, you report any portion of a scholarship, a fellowship grant, or other grants that you must include in gross income as follows:
If filing Form 1040 or Form 1040-SR, include the taxable portion in the total amount reported on the "Wages, salaries, tips" line of your tax return. If the taxable amount wasn't reported on Form W-2, enter "SCH" along with the taxable amount in the space to the left of the "Wages, salaries, tips" line.
If filing Form 1040-NR, report the taxable amount on the "Scholarship and fellowship grants" line.
Estimated Tax Payments May Be Due:
If any part of your scholarship or fellowship grant is taxable, you may have to make estimated tax payments on the additional income. For additional information on estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax, and Am I Required to Make Estimated Tax Payments? For more information about estimated taxes, see the article Estimated Tax Payments: The Facts above.
If you have any questions about whether your college student's scholarships are taxable, please call us.
