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Tax Advice, tax preparation

Tax Planning: What You Need to Do If You Can’t Pay Your Tax Bill

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Everyone who likes to file their tax returns, raise your hand! That’s what we thought. 

Filing taxes is massively stressful even if you have prepared. It’s even worse if you are unable to pay your tax bill. Know that you’re not alone, and there are tax planning strategies you can take now if you cannot pay the tax balance that is due.  

The following are practical tax planning strategies when you can’t pay your tax bill:

  1. File your tax return on time. Even if you cannot pay it all, file your tax return by the deadline. Failing to file can result in penalties and additional fees, which will only add to your financial burden. Filing on time means that you avoid complications and show your willingness to fulfill your tax obligations.
  2. Review your tax bill. Carefully review your tax bill. Make sure it’s accurate. Mistakes happen. Regardless, make sure you file as you don’t want to pay more than you owe. Double-check all calculations and cross-reference the information provided with your records. If you see discrepancies, contact the IRS or state tax authorities promptly to resolve the issue.
  3. Explore payment options. The IRS and your state’s tax authorities know that  everyone cannot pay their tax bill in full immediately. So, they offer several payment options to accommodate different financial situations. Those options include:
    a. Installment Agreement: You can request an installment agreement that allows you to pay your tax debt in monthly installments. The IRS or your state tax agency will work with you to determine a reasonable payment plan based on your income and expenses.
    b. Offer in Compromise: You may be eligible for a compromise offer that allows you to settle your tax debt for less than the full amount owed. This option is only available if you can prove that paying the full amount would cause significant financial hardship.
    c. Temporarily Delay Payment: If you’re experiencing a temporary financial hardship, you may be able to request a temporary delay in payment until your situation improves. During this time, penalties and interest will continue to accrue, but it can provide you with some breathing room to get back on your feet.
  4. Communicate with the Tax Authorities: Start communication with the tax authorities is vital when you’re unable to pay your tax bill. Contact the appropriate agency as soon as possible to discuss your situation and explore available options. Ignoring the issue will only lead to more severe consequences, such as liens or wage garnishments. 
  5. Consult a Tax Professional: Navigating the complex world of taxes can be challenging, especially when you’re facing financial difficulties. Seeking guidance from a qualified tax professional, such as a tax attorney or a certified public accountant (CPA), can provide you with valuable insights and help you make informed decisions. They can analyze your situation, explore all possible options, and negotiate on your behalf with the tax authorities.
  6. Adjust Withholdings: If you are unable to pay your tax bill this year, review your withholdings and adjust them. By increasing your withholdings, you’re paying a more accurate amount throughout the year, reducing a significant tax bill next time. Consult with a tax preparation professional to determine the optimal withholding amount based on your financial circumstances.

If you are unable to pay your tax bill it can be overwhelming, but you can take steps to resolve it. By filing your tax return on time, reviewing your bill for accuracy, exploring payment options, communicating with tax authorities, seeking professional guidance, and adjusting your withholdings, you can navigate this challenging scenario. We recommend hiring an accountant or a tax professional to help you with your tax returns or to represent you to the IRS or state tax department.

A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants who can help you do your tax planning and file your tax returns and represent you to the IRS. We do individual and business tax returns. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** You can find out about tax payments and other tax information on the IRS website.

Tax Advice, tax preparation

Tax Preparation: 2022 Laws That May Affect Your Tax Returns

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Every year brings a panoply of new tax laws, passed by the United States Congress. Some of these laws are easy to implement. However, some other new tax laws can be complicated. In any case, it can make tax preparation for most people even more difficult as most people don’t keep track of the laws.  

Accountants spend many hours studying the latest tax laws. We even attend webinars and conventions to learn more about these laws. It’s always a challenge! Some new tax laws make us scratch our heads while others seem to be commonsensical.  

Here are several notable new tax laws to keep in mind when doing your tax preparation: 

  1. Charitable Tax Credit increase. The America Rescue Plan deduction returns to the nonrefundable status of $2,000 per qualifying child and is limited to dependents under the age of 16.
  2. More charitable deduction changes. During COVID-19, taxpayers could take an above-the-line charitable donation tax deduction, meaning they are claiming the standard deduction and an additional deduction for a charitable donation. Single filers may deduct up to $300. Married couples filing jointly may deduct up to $600. 
  3. New reporting requirement for third-party settlement organizations. This deals with Paypal, Venmo, Cash App, and other third-party payment companies. TPSOs were required to file a Form 1099-K if customers processed 200 or more transactions and received a minimum of $20,000 or more in payments. This law deletes the transaction requirement and requires Form 1099-K for any account holder who receives at least $600 in payments for goods and services. Recently, the IRS delayed implementing the new law until 2023. Though not mandatory for 2022, you may get a Form 1099-K as these third-party payment companies prepare for the upcoming change.
  4. Child and Dependent Care Credit Decrease. These are deductions for qualified childcare services so that you can work, you can receive a childcare credit for some or all expenses. The IRS did reduce the child and dependent care credit cap in 2022. It decreased from a maximum of $8,000 in 2021 to a maximum of $2,100 in 2022. 
  5. Employer-sponsored retirement contributions increased. The contribution limit for elective deferrals to 401(k), 403(b), most 457 plans, and the Thrift Savings Plan increased to $20,500 for 2022. The total amount that can be contributed to a plan by you and your employer combined increased to $61,500. The catch-up contribution for taxpayers aged 50 and older stayed at $6,500.
  6. Clean Vehicle Credit eligibility change. If you bought a new electric vehicle after August 16, 2022, it had to have had a final assembly in North America to get the $7,500 credit. This requirement was added as part of the Inflation Reduction Act of 2021.

Some of these tax law changes may affect your tax preparation for your 2022 tax returns. If you have questions, you can consult the IRS. We highly recommend that you consult your tax advisor or accountant for your tax preparation and filing.

A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants who can help you get the ball rolling with year-end tax planning for your small business. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** For more information on IRS Tax Brackets visits the Tax Foundation website.  

Tax Advice, tax preparation

Tax Preparation: Estimated Tax Payments Due and 990 Extended Deadlines

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If you were granted a tax filing extension and want to pay more than you need to…this blog is not for you. For anyone else, who was granted an extension, this post will help you to avoid the failure to file a penalty and also guide you on everything you need to make your tax filing go as smoothly as possible.

The extended individual tax filing deadline is October 15. If you have not filed your 2021 taxes yet, you have less than a month to complete this task or risk facing steep penalties.

The fine for missing the deadline is known as the failure to file a penalty. This penalty equals 5% every month you don’t file up to 25% of what you owe.

To put this in perspective, if you owe $10,000 in taxes, and fail to file on time, you’ll owe an extra $500 a month up to $2500. In many places, $2500 is a month or two of rent.

The best way to avoid this penalty is to meet with a tax preparer as soon as possible. When you do meet with your tax preparer, here’s what you should bring to be prepared:

Forms of identification including

  • Photo ID
  • Social Security Cards
  • TIN assignment letters for you, your spouse, and dependents (if applicable)
  • Bank account information if receiving direct deposit for return (voided check can also work)
  • Last 2 years of tax returns

Income documents including

W-2 form(s) for all jobs last year

  • 1099-NEC and/or 1099-K 
  • Records of income not reported on 1099 forms
  • Records of expenses including receipts, credit statements, etc.
  • Record of estimated tax payments
  • SSA-1099 form for Social Security benefits (if retired)
  • 1099-R for pension/IRA/annuity income (if retired)
  • 1099-G (if you received unemployment income or refund of state/local income taxes)
  • 1099-R (if you received disability income)
  • Documents for income or loss from the sale of stocks, bonds, or real estate (if applicable)
  • Documents for alimony received (if applicable)
  • Statements for prizes or lottery/gambling winnings (if applicable)
  • Documents for any other income

Expense documents to claim tax deductions including

  • 401k or IRA contributions
  • Taxes paid on the state and local level
  • Mortgage and property tax bills
  • Receipts for charitable donations
  • Records for supplies used as an educator

Everyone’s situation is different. It’s best to call a tax preparer as soon as possible to know precisely what is needed for your appointment.

Don’t spend 25% more on taxes by missing the deadline. Book an appointment with a tax preparer today and be prepared by gathering all the documents you need to make your appointment go smoothly.

Don’t pay more than you need to.

File today.

A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants and lawyers who can represent you before the IRS and resolve any issues you may have. Call us at (301) 365-1974 for a consultation.

We serve the Bethesda, Rockville, and Montgomery County, MD area.

For more information, visit the Tax Outreach website. 

tax preparation

Income Tax Preparation Update: What to do if you receive a Correspondence Form from the IRS

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There are few things scarier than a letter with “IRS” stamped in bold on the envelope addressed to you. What next black helicopters? Trial? Prison? 

All of those worst-case scenarios may run through your mind as you begin to open the envelope. The good news is this: Millions of tax-paying citizens get these same letters every year. You will not be handcuffed and taken by helicopter to prison.

There may be several reasons that the IRS has contacted you. They could be any of the following:

  1. Inquiring about a change of address.
  2. Requesting payment for income taxes.
  3. Notifying you about changes to your account.
  4. Request for additional information.
  5. Sending you a tax refund. 

All of those reasons are fairly typical. Most correspondence is a request for more information. It is quite innocent. ***   

However, when you do get a Correspondence Form from the IRS, there are several things you should do:

    1. Open it immediately. Don’t put it off. The letter needs to be read immediately as most correspondence from the Internal Revenue Service has a deadline date for you to respond. Do not delay as delaying could be costly.
    2. Contest the item if it is incorrect. Humans run the IRS and all humans are capable of mistakes. For instance, and this is common, you had a balance due on your tax returns. You paid that amount after you were billed by the IRS. Six weeks later, you receive the same bill from the IRS even though you know you paid it. Send them your bank statement showing it or call them to get it resolved. That is just one example but if they are wrong, you have the right to contest it.
    3. Most correspondence from the IRS can be handled just by calling the 800- number at the top right-hand corner of the notice. When you call, take notes of the date, the name of the person you spoke to and their ID number, and the details of the call. But if you call, keep a record of who you talked to, their ID number, and the next steps that need to be taken. Always keep copies of all IRS correspondences and your responses.  

If it is a correction notice, review the information and compare it to the information on your tax return. You have two options: 

  1. If the correction is accurate, don’t do anything unless a payment is due. 
  2. If you disagree with the correction, send a detailed, written explanation. Include appropriate documentation to support it.   

As you see, a letter from the IRS is not the end of the world as we know it. You can correspond with the IRS and not be concerned with any ramifications.

A.K. Burton, PC, has been working with the IRS for our clients for many years. Our firm has experienced accountants and lawyers who can represent you before the IRS and resolve any issues you may have. Call us at (301) 365-1974 for a consultation. 

We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** For more on IRS correspondence, visit the IRS website.  

    

tax preparation

Summer is the Perfect Time to Do Tax Planning for Now and 2023

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The summer is a good time to take a break. Head to the beach. Take a few weeks off. All of that is good and healthy.

However, summer is also a great time to do some minimal tax planning. It won’t take a lot of time to do it and you can still enjoy your summer. Trust us, you can take a few substantial steps now that will help you later.

So, before you pack the cooler and swimsuits, let’s do a few things:

  1. Retirement planning: You can still make plans by allowing for employer contributions to be made until the extended due date of the return. One way to do it is by making the maximum allowable contribution to your retirement plan. This year, 401(k) and 403(b) have a $20,500 contribution limit. There is also a $6,500 contribution for taxpayers who reach age 50 by 12/31/22. 
  2. Real Estate holdings: The DMV area has a hot real estate market. So §1031 can be used by rolling proceeds from a sale into the like-kind property within a timeframe. (It is specific and must be followed to the letter.)
  3. Capital gains: You may want to defer the tax liability with an Opportunity Zone investment. This is reinvesting capital gains in an Opportunity Zone within a 180-day window. Then defer the tax on the original gain until December 31, 2026. Opportunity Zone investments can be held for ten years as they will not be taxed by the IRS. 
  4. Depreciation: Depreciation, for business owners, need not be determined when the asset (business property) is used. Bonus depreciation is already automatic. “Out of bonus” depreciation can be claimed for each asset class. Attach a statement to the timely-filed tax return and then depreciate the asset over its life. 
  5. Required Minimum Distributions: Your brokerage can pay your RMD directly to the charity you designate. A qualified charitable distribution (QCD) is not recognized as income. It keeps your adjusted gross income lower, and it may even reduce Medicare premiums. You can still make the standard deduction but remember that you can only claim a total of $100,000 per tax year.
  6. Donor-advised funds: You are allowed to take a tax deduction in the year that cash or other assets are transferred to a DAF. They can be invested until you recommend the DAF distribute the funds to all of the charities you support. You are not taxed on interest, gains, and dividends generated by investments made by the DAF. It’s a great way to accomplish tax planning goals. You can also claim a deduction for the fair market value of the donated assets and not have to pay capital gains tax on the appreciation.

These are just a few of the ways you can plan for your 2022 tax returns and beyond. Be sure to consult the IRS, your tax advisor, or your accountant. ***

AK Burton, PC, knows the current tax laws and how to work with the IRS. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS. Call us at (301) 365-1974 for a consultation. 

We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** For more information on tax preparation, visit the IRS website. 

Tax Advice, tax preparation

How to Avoid an Audit on Your 2021 Tax Returns

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Audit!

That word sends shivers into any honest taxpayer. You do everything you know to do on your tax returns. Your CPA has signed it and filed it. 

However, despite all that, the audit notice from the IRS has arrived. You’re stressed.

It doesn’t have to be that way. You can avoid an audit on your 2021 tax returns if you take the right preventative steps to do it. Here are some smart and legal ways to do it: 

    1. Don’t lie or attempt to cheat the IRS: This is the first and foremost reason! SO many people try to cheat the IRS every year. Some get away with it but most do not. Besides that, it’s just wrong. Dishonest tax filers claim excessive or unreasonable tax deductions. They are so obvious, that the IRS flags them and begins investigating. Their agents will ask for additional information. If discrepancies are found, the agency may levy penalties. Instead, be truthful in all your deductions and credits.
    2. Keep accurate and detailed records: There is a boatload of different forms that are available based on deductions and income. They can be confusing and it’s easy to make mistakes or forget them. Thus, the importance of keeping accurate and thorough records during the year. Keep all expense receipts in a file labeled for that year. That file should be accessible at all times. File your taxes only when you have all the required forms so you won’t have to amend your tax return.
    3. Don’t overdo it with your home office deduction. Self-employed people who have businesses in their homes are considered independent contractors. The deductions designated for that should be “reasonable” as the IRS defines it or it may become a huge red flag, especially if the home office is where you derive most of your income. So, claim just a percentage of your mortgage or rent that is your true workspace. Other expenses, such as phone, AC/heat, supplies, and other expenses can be claimed as business-related.
    4. File electronically. A good way to avoid audits is to file them online. The IRS encourages this for one big reason: paper filing usually contains many more errors than electronic files. Hard copy errors are 21% as electronic filing is 0.5%. The IRS software has protections in place so that filers have fewer errors. 
    5. Hire an experienced bookkeeper, accountant, or CPA. Tax laws change every year. It’s almost impossible to keep up with them unless you are an accounting professional. So, protect yourself and hire an accountant or bookkeeper to file your taxes for you. Most good accountants will also represent you to the IRS, which can be invaluable to prevent an audit. 

Tax Day is April 18, 2022, which is only a few weeks away as we publish this blog. No one wants to be audited. It can be agonizing. If you have not done the above steps or wonder if you are going to be audited, please contact an accountant for a consultation. 

AK Burton, PC, knows the current tax laws and how to work with the IRS. Our experienced tax preparers can file your business and personal tax returns and represent you to the IRS. Call us at (301) 365-1974 for a consultation. 

We serve the Bethesda, Rockville, and Montgomery County, MD area.

tax preparation

Income Tax Preparation: How You Can Get Your Tax Refund ASAP

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The good news is that the IRS gave us an extra month to file our tax returns for 2020. It is May 17, 2021, and not April 15, 2021. ***

The bad news is that it may take a while to receive your tax refund.

It is frustrating, especially if you need the refund to catch up on bills you may have accumulated during the COVID crisis. Here are several ways you can get your tax refund quicker:

  1. E-File: Submit your tax returns electronically versus mailing your tax return in.
  2. Confirm that you have all your income documents before you file. You should have all of your 2020 income documents by now, but if you don’t, get them before you file. If you don’t have them and file your return, then you might have to amend your return(s). 
  3. Double-check your mailing address. This one is crucial! The IRS contacts you by mail for required updates on your tax return. Make sure your mailing address is correct so that you will receive all correspondence, (including a refund check), from the IRS. 
  4. Double-check your bank information on your return. If you choose direct deposit to speed up receiving your refund but fail to provide the correct bank account information, then you won’t receive your refund by direct deposit. 
  5. Check all your ID numbers. IRS has every citizen’s name and address on file. Each name has a unique ID number that is tied to the name, birthdate, income amount, and social security number. 
  6. Confirm that you are the only one claiming your dependent(s). If you know someone who could also claim your dependent on their tax return, then verify who will be claiming the dependent(s). If a dependent is claimed by more than one person, then the second tax return to claim them will be rejected by the IRS. 

Have a Certified Public Accountant file your tax returns for you. Tax laws are notoriously complicated and change year to year. So, save yourself the stress and fees by hiring a CPA to file your taxes for you. They can file them and represent you before the IRS. What’s not to like?!

As of this blog posting, there are still a few weeks left before the May 17, 2021 posting. Have you done all of the above?

A.K. Burton, PC, can do all your income tax preparation. We have experienced staff who can prepare and file your tax return and represent you before the IRS. Call us at (301) 365-1974 for a consultation. Our office is open. At this time we are not providing in-person services because of the pandemic. We serve the Bethesda, Rockville, and Montgomery County, MD area.

*** See the IRS website for updates on the new tax return due date for 2021.