What to Know about Late Filing and Late Paying Penalties

IRS Tax Tip 2015

April 15 was the tax day deadline for most people. If you are due a refund there is no penalty if you file a late tax return. But if you owe tax, and you failed to file and pay on time, you will usually owe interest and penalties on the tax you pay late. You should file your tax return and pay the tax as soon as possible to stop them. Here are eight facts that you should know about these penalties.  

1. Two penalties may apply.  If you file your federal tax return late and owe tax with the return, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.
2. Penalty for late filing.  The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.
3. Minimum late filing penalty.  If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.
4. Penalty for late payment.  The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.
5. Combined penalty per month.  If the failure-to-file penalty and the failure-to-pay penalty both apply in any month, the maximum amount charged for those two penalties that month is 5 percent.
6. File even if you can’t pay.  In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty. So if you can’t pay in full, you should file your tax return and pay as much as you can. Use IRS Direct Pay to pay your tax directly from your checking or savings account. You should try other options to pay, such as getting a loan or paying by debit or credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up an installment agreement with the IRS using the Online Payment Agreement tool on IRS.gov.
7. Late payment penalty may not apply.  If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.
8. No penalty if reasonable cause.  You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time. There is also penalty relief available for repayment of excess advance payments of the premium tax credit for 2014.

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If You Missed the Tax Deadline These Tips Can Help

IRS Tax Tip 2015                                                                        

April 15 has come and gone. If you didn’t file a tax return or an extension but should have, you need to take action now. Here are some tips for taxpayers who missed the tax filing deadline:

• File as soon as you can.  If you owe taxes, you should file and pay as soon as you can. This will stop the interest and penalties that you will owe. IRS Direct Pay offers you a free, secure and easy way to pay your tax directly from your checking or savings account. There is no penalty for filing a late return if you are due a refund. The sooner you file, the sooner you’ll get it.
• IRS Free File is your best choice.  Nearly everyone can use IRS Free File to e-file their federal taxes for free. If your income was $60,000 or less, you can use free brand-name tax software. If you made more than $60,000, use Free File Fillable Forms to e-file. This program uses electronic versions of IRS paper forms. It does some of the math and it works best for those who are used to doing their own taxes. Either way, you have a free option that you can only access on IRS.gov. It’s available at least through the Oct. 15 extension period.
• Use IRS e-file to do your taxes.  No matter who prepares your tax return, you can use IRS e-file through Oct. 15. E-file is the easiest, safest and most accurate way to file your taxes. The IRS will confirm that it received your tax return. The IRS issues more than nine out of 10 refunds in less than 21 days.
• Pay as much as you can.  If you owe tax but can’t pay it in full, you should pay as much as you can when you file your tax return. IRS electronic payment options are the quickest and easiest way to pay your taxes. Pay the rest of the tax you still owe as soon as possible. Doing so will reduce future penalties and interest.
• Use the IRS.gov tool to pay over time.  If you need more time to pay your tax, you can apply for an installment agreement with the IRS. The best way to apply is to use the IRS Online Payment Agreement tool. You can use the IRS.gov tool to set up a direct debit agreement. You don’t need to write and mail a check each month with a direct debit plan. If you don’t use the tool, you can use Form 9465, Installment Agreement Request to apply. You can get the form onIRS.gov/forms at any time.
• A refund may be waiting.  If you are due a refund, you should file as soon as possible to get it. Even if you are not required to file, you may still get a refund. This could apply if you had taxes withheld from your wages or you qualify for certain tax credits. If you do not file your return within three years, you could lose your right to the refund.

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Five Key Tax Tips about Tax Withholding and Estimated Tax

IRS Tax Tip 2015

If you are an employee, you usually will have taxes withheld from your pay. If you don’t have taxes withheld, or you don’t have enough tax withheld, then you may need to make estimated tax payments. If you are self-employed you normally have to pay your taxes this way. Here are five tips about paying estimated taxes: 

1. When the tax applies.  You should pay estimated taxes in 2015 if you expect to owe $1,000 or more when you file your federal tax return next year. Special rules apply to farmers and fishermen.
2. How to figure the tax. Estimate the amount of income you expect to receive for the year. Also make sure that you take into account any tax deductions and credits that you will be eligible to claim. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax.
3. When to make payments.  You normally make estimated tax payments four times a year. The dates that apply to most people are April 15, June 15 and Sept. 15 in 2015, and Jan. 15, 2016.
4. When to change tax payments or withholding.  Life changes, such as a change in marital status or the birth of a child can affect your taxes. When these changes happen, you may need to revise your estimated tax payments during the year. If you are an employee, you may need to change the amount of tax withheld from your pay. If so, give your employer a new Form W–4, Employee's Withholding Allowance Certificate. You can use the IRS Withholding Calculator toolhelp you fill out the form.
5. How to pay estimated tax.  Pay online using IRS Direct Pay. Direct Pay is a secure service to pay your individual tax bill or to pay your estimated tax directly from your checking or savings account at no cost to you. You have other ways that you can pay online, by phone or by mail. Visit IRS.gov/payments for easy and secure ways to pay your tax. If you pay by mail, use the payment vouchers that come with Form 1040-ES.

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Seven Tips to Help You Determine if Your Gift is Taxable

IRS Tax Tip 2015

If you gave money or property to someone as a gift, you may wonder about the federal gift tax. Many gifts are not subject to the gift tax. Here are seven tax tips about gifts and the gift tax. 

1. Nontaxable Gifts.  The general rule is that any gift is a taxable gift. However, there are exceptions to this rule. The following are not taxable gifts:
   
   • Gifts that do not exceed the annual exclusion for the calendar year,
   • Tuition or medical expenses you paid directly to a medical or educational institution for someone,
   • Gifts to your spouse (for federal tax purposes, the term “spouse” includes individuals of the same sex who are lawfully married),
   • Gifts to a political organization for its use, and
   • Gifts to charities.
2. Annual Exclusion.  Most gifts are not subject to the gift tax. For example, there is usually no tax if you make a gift to your spouse or to a charity. If you give a gift to someone else, the gift tax usually does not apply until the value of the gift exceeds the annual exclusion for the year. For 2014 and 2015, the annual exclusion is $14,000.
3. No Tax on Recipient.  Generally, the person who receives your gift will not have to pay a federal gift tax. That person also does not pay income tax on the value of the gift received.
4. Gifts Not Deductible.  Making a gift does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than deductible charitable contributions).
5. Forgiven and Certain Loans.  The gift tax may also apply when you forgive a debt or make a loan that is interest-free or below the market interest rate.
6. Gift-Splitting.  You and your spouse can give a gift up to $28,000 to a third party without making it a taxable gift. You can consider that one-half of the gift be given by you and one-half by your spouse.
7. Filing Requirement.  You must file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if any of the following apply:
   
   • You gave gifts to at least one person (other than your spouse) that amount to more  than the annual exclusion for the year.
   • You and your spouse are splitting a gift. This is true even if half of the split gift is less than the annual exclusion.
   • You gave someone (other than your spouse) a gift of a future interest that they can’t actually possess, enjoy, or from which they’ll receive income later.
   • You gave your spouse an interest in property that will terminate due to a future event.

For more information, see Publication 559, Survivors, Executors, and Administrators. You can view, download and print tax products on IRS.gov/forms anytime.

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Still Time to Make Your IRA Contribution for the 2014 Tax Year

IRS Tax Tip 2015

Did you contribute to an Individual Retirement Arrangement last year? Are you thinking about contributing to your IRA now? If so, you may have questions about IRAs and your taxes. Here are some IRS tax tips about saving for retirement using an IRA. 

• Age rules.  You must be under age 70½ at the end of the tax year in order to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.
• Compensation rules.  You must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If you are married and file a joint tax return, only one spouse needs to have compensation in most cases.
• When to contribute.  You can contribute to an IRA at any time during the year. To count for 2014, you must contribute by the due date of your tax return. This does not include extensions. That means most people must contribute by April 15, 2015. If you contribute between Jan. 1 and April 15, make sure your plan sponsor applies it to the year you choose (2014 or 2015).
• Contribution limits.  In general, the most you can contribute to your IRA for 2014 is the smaller of either your taxable compensation for the year or $5,500. If you were age 50 or older at the end of 2014, the maximum you can contribute increases to $6,500. If you contribute more than these limits, an additional tax will apply. The added tax is 6 percent of the excess amount that you contributed.
• Taxability rules.  You normally won’t pay income tax on funds in your traditional IRA until you start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.
• Deductibility rules.  You may be able to deduct some or all of your contributions to your traditional IRA. Use the worksheets in the Form 1040A or Form 1040 instructions to figure the amount that you can deduct. You may claim the deduction on either form. You may not deduct contributions to a Roth IRA.
• Saver’s Credit.  If you contribute to an IRA you may also qualify for the Saver’s Credit. The credit can reduce your taxes up to $2,000 if you file a joint return. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. You can file Form 1040A or 1040 to claim the Saver’s Credit.

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Avoid These Common Tax Mistakes

IRS Tax Tip 2015

Nobody’s perfect. Mistakes happen. But if you make a mistake on your tax return, it will likely take the IRS longer to process it. That could delay your refund.

Here are eight common tax-filing errors to avoid:

1. Wrong or missing Social Security numbers.  Be sure you enter all SSNs on your tax return exactly as they are on the Social Security cards.
2. Wrong names.  Be sure you spell the names of everyone on your tax return exactly as they are on their Social Security cards.
3. Filing status errors.  Some people use the wrong filing status, such as Head of Household instead of Single. The Interactive Tax Assistant on IRS.gov can help you choose the right status. If you e-file, the tax software helps you choose.
4. Math mistakes.  Double-check your math. For example, be careful when you add or subtract or figure items on a form or worksheet. Tax preparation software does all the math for e-filers.
5. Errors in figuring credits or deductions.  Many filers make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit, and the standard deduction. If you’re not e-filing, follow the instructions carefully when figuring credits and deductions. For example, if you’re age 65 or older or blind, be sure you claim the correct, higher standard deduction.
6. Wrong bank account numbers.  You should choose to get your refund by direct deposit. Be sure to use the right routing and account numbers on your return. The fastest and safest way to get your tax refund is to combine e-file with direct deposit.
7. Forms not signed.  An unsigned tax return is like an unsigned check – it’s not valid. Both spouses must sign a joint return.
8. Electronic filing PIN errors.  When you e-file, you sign your return electronically with a Personal Identification Number. If you know last year’s e-file PIN, you can use that. If you don’t know it, enter the Adjusted Gross Income from the 2013 tax return that you originally filed with the IRS. Do not use the AGI amount from an amended return or a return that the IRS corrected.

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Top Eight Tax Tips about Deducting Charitable Contributions

IRS Tax Tip 2015

When you give a gift to charity that helps the lives of others in need. It may also help you at tax time. You may be able to claim the gift as a deduction that may lower your tax. Here are eight tax tips you should know about deducting your gifts to charity: 

1. Qualified Charities.  You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates. To check the status of a charity, use the IRS Select Check tool.
2. Itemized Deduction.  To deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.
3. Benefit in Return.  If you get something in return for your donation, your deduction is limited. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.
4. Donated Property.  If you gave property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.
5. Clothing and Household Items.  Used clothing and household items must be in at least good condition to be deductible in most cases. Special rules apply to cars, boats and other types of property donations. See Publication 526, Charitable Contributions, for more on these rules.
6. Form 8283.  You must file Form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.
7. Records to Keep.  You must keep records to prove the amount of the contributions you made during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction. For more about what records to keep refer to Publication 526.
8. Donations of $250 or More.  To claim a deduction for donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

Also refer to Publication 561, Determining the Value of Donated Property.

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Are You Self Employed? Check Out These IRS Tax Tips

Are You Self Employed? Check Out These IRS Tax Tips

IRS Tax Tip 2015-34

Many people who carry on a trade or business are self-employed. Sole proprietors and independent contractors are two examples of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. Here are six important tips about income from self-employment:

• SE Income.  Self-employment can include income you received for part-time work. This is in addition to income from your regular job.
• Schedule C or C-EZ.  There are two forms to report self-employment income. You must file aSchedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form.
• SE Tax.  You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. If you owe this tax, make sure you file the schedule with your federal tax return.
• Estimated Tax.  You may need to make estimated tax payments. People typically make these payments on income that is not subject to withholding. You usually pay this tax in four installments for each year. If you do not pay enough tax throughout the year, you may owe apenalty.
• Allowable Deductions.  You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.
• When to Deduct.  In most cases, you can deduct expenses in the same year you paid for them, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.

Visit the Small Business and Self-Employed Tax Center on IRS.gov for all your federal tax needs. You can also get IRS tax forms on IRS.gov/forms anytime.

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