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Tax Day now July 15: Treasury, IRS extend filing deadline and federal tax payments regardless of amount owed

IR-2020-58, March 21, 2020

WASHINGTON — The Treasury Department and Internal Revenue Service announced today that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.

Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.

Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004.

The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds are still being issued within 21 days.

“Even with the filing deadline extended, we urge taxpayers who are owed refunds to file as soon as possible and file electronically,” said IRS Commissioner Chuck Rettig. “Filing electronically with direct deposit is the quickest way to get refunds. Although we are curtailing some operations during this period, the IRS is continuing with mission-critical operations to support the nation, and that includes accepting tax returns and sending refunds. As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding – and your patience. I’m incredibly proud of our employees as we navigate through numerous different challenges in this very rapidly changing environment.”

The IRS will continue to monitor issues related to the COVID-19 virus, and updated information will be posted on a special coronavirus page on IRS.gov.

This announcement comes following the President’s emergency declaration last week pursuant to the Stafford Act. The Stafford Act is a federal law designed to bring an orderly and systematic means of federal natural disaster and emergency assistance for state and local governments in carrying out their responsibilities to aid citizens. It was enacted in 1988.

Treasury and IRS will issue additional guidance as needed and continue working with Congress, on a bipartisan basis, on legislation to provide further relief to the American people.

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Trump’s Shutdown Is Turning Out To Be A Nightmare For This Tax Season

The 35-day budget impasse caused “real harm” to taxpayers, according to a new IRS watchdog report.

By Hayley Miller

In December, the IRS was already bracing for an especially challenging tax season when the partial government shutdown gutted its workforce, sending the agency into a tailspin, according to a report released Tuesday by the agency’s internal watchdog group.

The 35-day shutdown significantly affected several federal agencies including the Treasury Department, which houses the IRS. The budget impasse ― the longest in U.S. history ― added to the agency’s existing backlog and resulted in “real harm” for taxpayers, according to the 2018 National Taxpayer Advocate’s report to Congress, issued by the Taxpayer Advocate Service.

“The five weeks could not have come at a worse time for the IRS,” National Taxpayer Advocate Nina E. Olson wrote in the annual report. “Make no mistake about it, these numbers translate into real harm to real taxpayers.”

The shutdown began on Dec. 22. Funds for government agencies allotted in a previous spending bill ran out and President Donald Trump had vowed to veto any new spending bill from Congress that it didn’t allocate $5.7 billion toward his long-promised wall along the U.S.-Mexico border, which Democrats had steadfastly declined to do. Ten days later, tax season began.

Having to implement the massive new tax law pushed by Republicans, along with a completely restructured tax form, already presented IRS workers with new challenges this season, Olson wrote in the report.

“The IRS was already in a position of entering the filing season with a backlog of items and with its resources stretched thin,” she wrote.

The IRS considers tax season to last from Jan. 1 to April 30. In the early days of the shutdown, tax season had not yet begun and the IRS furloughed the vast majority of its roughly 80,000 workers. Less than 10,000 workers during that time period were deemed essential and worked without pay.

The five weeks could not have come at a worse time for the IRS. … Make no mistake about it, these numbers translate into real harm to real taxpayers.

-National Taxpayer Advocate Nina E. Olson in the report

As the shutdown stretched into January, the IRS released a new contingency plan ordering over 46,000 workers to work without pay amid tax season. Most Taxpayer Advocate Service employees, including Olson and the rest of the annual report’s staff, were furloughed, severely hindering the group’s ability to help taxpayers resolve their problems with the IRS.

Trump agreed to end the shutdown on Jan. 25 but said he would close down the government again or declare a national emergency to secure funding for his border wall if negotiations between Republicans and Democrats failed by the new Feb. 15 appropriations deadline.

A day before the shutdown ended, the Taxpayer Advocate Service determined the IRS had over 5 million pieces of mail that had not yet been processed, as well as 80,000 responses to tax credit audits that had not been addressed and 87,000 amended returns awaiting processing. Because the shutdown caused a backlog of tax form requests, the IRS suggested that employers consider requesting filing extensions.

The IRS entered tax season “inundated with correspondence, phone calls, and inventories of unresolved prior year audits and identity theft cases,” Olson wrote in the report.

What’s more, Olson wrote, taxpayers were clearly hurt by the shutdown’s kneecapping of the IRS’s workforce. No IRS employee was excepted during the shutdown to release or withdraw liens or release levies.

“With respect to notices of levy, if the taxpayer cannot contact the IRS and make other payment arrangements within 21 days of the issuance of the levy, the employer or financial institution must pay over the funds to the IRS,” according to the report. “The 21-day period for over 18,000 levies expired during the shutdown.”

TAXPAYER ADVOCATE SERVICE

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If you own a home, the interest you pay on your home mortgage provides one of the best tax breaks available. However, many taxpayers believe that any interest paid on their home mortgage loan is deductible. Sadly, they’re wrong. With home prices skyrocketing in many states, now’s a good time to revisit the interest deduction rules for home mortgages and home equity loans.

It used to be the case that pretty much all interest payments were deductible. Since 1986, however, deductibility has become very complicated. Personal interest is disallowed, but one kind of interest that remains deductible is qualified residence interest. Qualified residence interest is interest incurred from buying, building, or improving your qualified residence, or from home equity loans on that residence. You can deduct interest from up to two qualified residences: your primary home and one other vacation home or similar property. You cannot deduct mortgage interest with respect to a third residence.

However, this deal comes with strings attached. You can’t deduct the interest for acquisition debt greater than $1 million ($500,000 for married individuals filing separately). So, for example, if you were to buy a $2 million house with a $1.5 million mortgage, only the interest that you pay on the first $1 million in debt will be deductible. The rest will be considered personal interest.

Note also that the $1 million ceiling on deductible home mortgage debt includes both your primary residence and your second home combined. Too many taxpayers assume that they can deduct $1 million from each mortgage. But if you have a $700,000 mortgage on your primary home and a $500,000 mortgage on your beach house or ski lodge, you’ll have to count $200,000 of the total as nondeductible personal interest.

The rules are different for home equity loans. Home equity debt is debt (other than acquisition debt) secured by your principal or second residence. Home equity debt is limited to the lesser of $100,000 ($50,000 if your filing status is married filing separately) or your equity in the home. The interest that you pay on a qualifying home equity loan is generally deductible regardless of how you use the loan proceeds, except when the proceeds are used to purchase tax-exempt obligations.

This provides some real savings opportunities if you have equity in your home and also have other debts. Credit card debt is not deductible and usually carries a higher interest rate than home equity interest. By converting your nondeductible, higher-rate, credit card debt to home equity indebtedness (i.e., use the home equity loan to pay off your credit card balance), you will save both on taxes and on the interest rate.

However, you should bear in mind that interest on a home equity loan isn’t deductible for purposes of the alternative minimum tax (AMT), unless you use the loan to improve your home. This is an important consideration, since an increasing number of taxpayers are subject to the AMT.

Employer-paid educational assistance

A tax break allows an employee to receive up to $5,250 a year of tax-free educational assistance under an employer’s educational assistance program. (There are technical rules that prevent too many of these benefits from going to company owners and highly compensated employees.) The beauty of this tax break is that it applies to just about any kind of course or program, including any graduate level course, even if it isn’t job-related. However, the tax break isn’t available for courses relating to sports, hobbies, or games (unless they’re a required part of a degree program or relate to your employer’s business).

If your employer will pay for your courses through a qualified educational assistance program your benefits will be tax-free. Besides tuition, this tax-free assistance can cover related fees, books, and supplies. However, you cannot receive tax-free advances or reimbursements under the plan for tools or supplies (other than textbooks) that you can retain after the course ends, or for meal, lodging, or transportation costs.

If your employer-paid educational benefits aren’t from an educational assistance plan, they still may be tax-free if a number of conditions are met. The education must be job-related. That is, it must help you maintain or improve your employment skills, or be required for you to keep your job, your salary level, or your current status. The education cannot, however, enable you to meet the minimum qualifications for your job, or qualify you for a new trade or business.

In order to receive educational expense advances or reimbursements tax-free, you must substantiate the expenses to your employer, and you must be required to return any excess amount that your employer may have advanced to you.

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Posted: May 27, 2016  |  Source: IRS.gov

WASHINGTON — The Internal Revenue Service today issued a warning to taxpayers about bogus phone calls from IRS impersonators demanding payment for a non-existent tax, the “Federal Student Tax.”

Even though the tax deadline has come and gone, scammers continue to use varied strategies to trick people, in this case students. In this newest twist, they try to convince people to wire money immediately to the scammer. If the victim does not fall quickly enough for this fake “federal student tax”, the scammer threatens to report the student to the police.

“These scams and schemes continue to evolve nationwide, and now they’re trying to trick students,” said IRS Commissioner John Koskinen. “Taxpayers should remain vigilant and not fall prey to these aggressive calls demanding immediate payment of a tax supposedly owed.”

Scam artists frequently masquerade as being from the IRS, a tax company and sometimes even a state revenue department. Many scammers use threats to intimidate and bully people into paying a tax bill. They may even threaten to arrest, deport or revoke the driver’s license of their victim if they don’t get the money.

Some examples of the varied tactics seen this year are:

• Demanding immediate tax payment for taxes owed on an iTunes gift card.
• Soliciting W-2 information from payroll and human resources professionals (IR-2016-34)
• “Verifying” tax return information over the phone (IR-2016-40)
• Pretending to be from the tax preparation industry (IR-2016-28)

The IRS urges taxpayers to stay vigilant against these calls and to know the telltale signs of a scam demanding payment.

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The Department of Taxation is moving to a new integrated tax system as part of the Tax System Modernization Program. After August 15, 2016, the new system will be used to administer general excise (GE), transient accommodation, use, sellers collection, rental motor vehicle, and county surcharge tax types. Taxpayers will benefit from faster processing and a new online portal for managing these tax accounts. The online portal will provide improved access to account information and free e-filing options.

Visit tax.hawaii.gov for more information.

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The day that we have been looking for has finally arrived! Back in November 2015, we announced that Tatsuguchi CPA LLC and RH Associates, CPAs, Inc. were merging to become one company, effective January 1, 2016. We’re proud to announce that we are now one great company.

Tatsuguchi CPA welcomes Lynn Hiromoto and Karen Remigio! (Read more about them under About tab.) These partners make a great addition to our team and offer an incredible depth and breadth of experience. Most important of all, they bring a reputation as trusted advisors with solid integrity. We are fortunate to be working together! The best is yet to come and we’re excited about what’s in store for 2016!

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Posted: August 11, 2015  |  Source: AICPA, The CPA Client Tax Newsletter

As business owners know all too well, hiring an employee costs more than just paying a salary. Employers generally provide benefits to employees, which can be expensive. Moreover, employers must pay a share of Medicare,Social Security, and state unemployment taxes.

None of the above applies when your company hires an independent contractor– a publicist to get your company’s name in the news, for example, or a freelance website designer. You pay these people the agreed upon amount and let them worry about funding their retirement or handling payroll tax. If that’s the case, why not just use a group of independent contractors to work for your company and do with few or even no employees?

Defining the difference

The answer is that the IRS is well aware of the advantages of using contractors. Therefore, the IRS has established rules governing how independent contractors are classified, as opposed to employees. Drilling down, the major difference is a matter of control.

Hiring an independent contractor to do a specific task is fine. You tell the contractor what you want done, and you pay for results. However, if you tell the worker how and when and where the work is to be done, you risk having that worker re-cast as an employee by the IRS.

In some cases, common sense will apply. If that freelancer works on your website while doing other paying jobs for other companies, chances are the IRS will go along with independent contractor classification. On the other hand, if you have a person who works from home as a freelancer but works only on your website, does it more or less full time, and takes direction from your IT people, you may have a difficult time treating him or her as a contractor.

If you have been misclassifying employees as contractors, the penalties can be steep. Our office can discuss your workers with you, letting you know how to proceed in order to legitimately treat them as independent contractors.

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Few people pay exactly the correct amount of income tax during the year. When you filed your return for 2014, you probably discovered that you paid too little (and owed more tax) or paid too much (and could request a refund). Typic:ally, refunds are due to employees who have too much tax withheld from their paychecks.

Example 1: Arlene King is paid twice a month. From each paycheck, her employer withholds $1,000 for federal income tax, so Arlene’s tax payments for 2014 were $24,000. When Arlene filed her 2014 tax return, she learned that her tax obligation for last year was $21,000. Thus, Arlene could request a $3,000 tax refund.

Does over-withholding and getting a refund in this manner make sense financially? That depends on a taxpayer’s situation.

Positive features
The advantage of getting a tax refund is, well, who wouldn’t want to receive a large check from the federal government? Moreover, federal income tax refunds aren’t taxable. (A state or local tax refund may increase the tax you’ll owe.)

Thus, Arlene could decide to use her $3,000 refund check to invest or to pay down debt or to make a special purchase. In effect, her $3,000 of excess tax withholding becomes a form of forced saving, which she can utilize every year when the check comes in.

Now for the negatives
On the other hand, having too much money withheld for income tax has been likened to making an interest-free loan to the IRS. It’s your money-you earned it-so why wait for months to get your hands on it? This strategy can be especially unappealing if your overwithholding results from a major change in your life.

Example 2: In early 2014, Bianca and Craig Carter bought a house, using a large mortgage for the purchase. Bianca left her job to stay home with their young child. Thus, the Carters had lower income and higher deductions than in 2013, resulting in a smaller tax bill.

However, Craig did not adjust his tax withholding at work. Thus, he paid more tax than necessary throughout the year. It’s true that the Carters got back the overpayment with a 2015 tax refund, but they went through 2014 with less cash flow than required, forcing them to struggle to cover the costs of a new home and a growing family.

Winning the numbers game
If you feel that you need the disciplined forced savings of overwithholding, then relying on an annual tax refund may make sense. Conversely, if you prefer to get your money as you earn it, you can reduce the amount withheld by filling out IRS Form W-4, Employee’s Withholding Allowance Certificate, and submitting it to your employer. Our office can help you fill out Form W-4 so you get the right amount withheld, avoiding either a large refund or a large tax obligation with next year’s tax return.

Trusted Advice – Adapting allowances

• On IRS Form W-4, employees can claim a number of personal allowances.
• The more allowances you claim, the lower your withholding and the more income you’ll receive with each paycheck.
• Two income couples can calculate the total number of allowances to which they’re entitled.
• For such couples, withholding usually will be most accurate when all allowances are claimed on the Form W-4 for the higher earning spouse.
• The lower earning spouse then can claim zero allowances on his or her Form W-4.

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If managed and planned for properly, the surprise can be taken out of the equation. Yearend tax planning can inform the client in late December that he or she will owe $10,000 in taxes on April 15th. A client then has four months to plan for it accordingly. Tax planning can assist not just for April 15th but also for any quarterly estimated tax payments for the upcoming year due June, September and January 15th.

Tax planning is not just telling a client how much they owe and when to pay it. There are legitimate techniques and strategies that are available to reduce a person’s income tax liabilities. They are largely based on a person’s specific facts and circumstances as well as their risk adverse comfort level.

I normally don’t advocate one strategy or pursue an aggressive tax position. Part of my responsibility is to give my client both the advantages and consequences of the choices available. It’s their money; not mine. They should be comfortable with the decision that affects their money.

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