Is Living in a State with No Income Tax Really Easier on Your Wallet?

All Americans are obligated to pay federal tax income taxes, and most states (and some counties and cities) will also make their residents pay a separate income tax with a few exceptions. The following states don't have an income tax:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming


Sometimes, people include New Hampshire and Tennessee on that list because earned income (wages and income from self-employment) isn't taxed but those states do tax investment income like interest and dividends. The above seven states have
zero state income tax.

There are some tradeoffs that can come with having no tax on your wages and other income. Tennessee doesn't tax wages but has the highest sales tax rates in the nation, at a 7% base rate with local rates making total average 9.45% which is even higher than New York City's 8.875% sales tax. Texas and Nevada also have very high sales tax rates, which heavily compounds cost of living regardless of how much you earn.

States with High Property Taxes

While states with high income taxes like New York and New Jersey are also home to high property taxes, Florida gathers most of its revenue from sales tax but also has very high property taxes as does Texas. New Hampshire homeowners pay among the highest property taxes in the nation and have the highest in-state tuition at public colleges of any other state. Like sales tax, mounting effective property taxes can make basic living expenses tougher to shoulder and harder to stay in your home if your income falls because of illness, job loss, or the birth of a child.

States that rely predominantly on regressive taxes like sales tax (where the tax takes up more of the taxpayer's income as their income decreases) may also be more devious in other non-tax government fees such as traffic tickets, driver license fees, business licenses, and other public services and necessities. This is a form of taxation that doesn't seem as blatant as having to file a state income tax return alongside your federal one every spring, but it is how state and local governments make up for the shortfall.

High Natural Resources can Offset State Taxes

Contrary to the states that rely on sales tax, Alaska and Wyoming receive massive tax revenue from their natural resources that enables them to have lower costs of living than other states. Alaska is a notable exception in that being so remote and having to rely on imports makes basic expenses like food more expensive, but the state also grants a basic income to its residents through the Alaska Permanent Fund so all the residents can share in the natural resource royalties the state receives as its primary revenue source.

When pondering whether to move to a different state, tax policy alone usually isn't the deciding factor.

Moving for a job, the ease of setting up a business, or to be near loved ones may trump the economic reasons for moving to a low or no tax state. If you've lived in a high-tax state in your prime working years and having more money in your pocket sounds appealing, you should take a look at the state's general approach to public policy and see if it aligns with your budget and values. You might not care about high traffic ticket prices if you don't drive and high costs of getting a business license if you don't want to start a business, but no income tax could still mean some hidden financial pitfalls elsewhere.


Why Hire A Portable CFO?

Why Hire a Portable CFO?

Let’s be honest: Entrepreneurs and small business owners wear many hats. During the regular course of a day, you may find yourself handling customer tasks or orders, interfacing with vendors, or dealing with couriers and shipping companies. More often than not, business owners find there is little time left to cope with the financial aspects of the company. If this sounds familiar, it may be time to explore the Dukhon’s Portable CFO services.

Portable CFO – An À La Carte Menu of Services

Small businesses typically do not require a full-time or even part-time Chief Financial Officer. As an alternative to this traditional role, companies are now outsourcing their financial needs to accounting firms like Dukhon.

In working with our clients, the team at Dukhon realized there was a demand for an à la carte menu of services. Our Portable CFO offerings ensure we are working on what you need, when you need it. And as your company grows, so can the level of support. In essence, as your Portable CFO – we can design a plan of customized services just right for you.

Portable CFO Duties

The duties of a Portable CFO can range from banking and analysis, to policies, procedures and business strategy. Specific tasks can include cash flow monitoring, financial planning and reporting, advice on resources and capital structure, risk assessments, relationship management with creditors and banks, in addition to a full range of accounting and advisory services.

Supporting Your Business Growth

At Dukhon Tax and Accounting, we want to ensure business owners have the support they need to efficiently run and grow their business. To learn more about the Dukhon Portable CFO services or to discuss how we can can help oversee your financial activities, contact our Allston, Massachusetts office at 617.651.0531 or email [email protected]


The IRS Tools of Last Resort: Tax Levies and Liens

April 15th is in most taxpayers' rearview mirrors--except for those with an outstanding tax debt.

There are provisions for extending the deadline date for filing, but the extension must be accompanied by a payment, or the clock starts ticking for accruing of interest and penalties and setting in motion a levy or a lien.

 

Settle up or face the dreaded L-words

With its power to levy, the IRS can seize and sell off your property or assets. Said property could include your home, car or boat. The IRS could also seize your wages and other financial assets such as:

  • retirement, bank and investment accounts
  • rent incomes
  • cash value of your life insurance policy

There are three basic criteria that must be met before the IRS enforces a tax levy:

  1. You actually owe taxes and have received a Notice and Demand for Payment in the mail.
  2. You did not pay the tax owed after receiving the final notice, including a notice of your right to a hearing.
  3. You had the hearing and appeal, but couldn't prove your case.

The foregoing process occurs over a period of about 60 days. It also includes an opportunity for you to appeal an adverse ruling, which is a lengthy and complicated process where the services of a qualified tax expert would be helpful.

A lien weighs down your property and credit standing.

A lien, on the other hand, is a legal claim against your property because of a tax debt. It differs from a levy in that the government does not actually take your property. Rather, the lien prevents you from liquidating or otherwise disposing of the property.

The criteria the IRS uses for imposing a lien are the same as a levy.
.

What a lien does

A lien attaches itself to all your assets--property, vehicles, and securities including future assets you acquire when the lien is in effect. A lien will also significantly handicap your personal credit rating.

If you own a small business, all the property owned by the business may be subject to the lien. Bankruptcy is not an escape, because a federal tax lien continues past the bankruptcy settlement and any debt divestiture.

Relief from levies and liens

The IRS has the option to release a levy if you can prove "immediate economic hardship." Such release won't erase the tax bill, but will give you time to work out a payment plan or find other means to discharge your tax debt.

Likewise, the IRS will remove a tax lien on your property when you pay the outstanding balance in full or satisfy the outstanding balance through a successful offer in compromise, for example. Also, a lien determination can become unenforceable if it is overtaken by the ten-year statute of limitations.

Conclusion

Financial and business setbacks sometimes happen to responsible, honorable people. The IRS has no interest in punishing or impoverishing those who make an honest effort to discharge their tax obligations.

Don't panic and don't procrastinate. You have 30 days to respond to the IRS written notice, and your best course of action is to get professional assistance. Contact us today to find out how we can help.


Frequently Asked Questions about Healthcare and Your Taxes

healthcare insurance and taxesBecause of changes initiated by the Affordable Care Act, your healthcare costs during the year now affect your taxes more than they ever did before. Below are some of the most frequently asked questions with regard to healthcare and income taxes to help you prepare your 2015 return.

1. Am I required to have health insurance?

Under the ACA, most people are required to purchase health insurance or pay a penalty. However, if you have low household income or you qualify for a hardship exemption, you may not have to pay the penalty for failing to buy health insurance.

2. What happens if I don't buy health insurance?

If you are required to purchase health insurance under the ACA but you don't have any, you will owe a penalty for every month you didn't have health insurance during the year. The amount of the penalty depends on the number of months for which you didn't have health insurance, the tax year and the size of your family.

3. What forms will I receive if I had health insurance during the year?

Depending on the specifics of your situation, you may receive Form 1095-A, 1095-B or 1095-C. Form 1095-A comes from the Health Insurance Marketplace, Form 1095-B comes from health insurance companies and Form 1095-C comes from employers who provide self-insured coverage.

4. When will I receive these forms?

healthcare insurance and tax prepFor the 2015 tax year, you should receive Form 1095-A by February 1, 2016. Forms 1095-B and 1095-C should be received by March 31, 2016.

5. What information do I need to include on my tax return?

In order to complete your income tax return, you may need to know which months you were covered, what you paid for health insurance policy, the price of your second lowest cost silver plan and the amount of advance tax credit you received, if any.

6. Does the ACA require me to file an income tax return?

If you received an advance premium tax credit or enrolled in a health insurance plan through the Marketplace you will need to file an income tax return. You should also complete a tax return if you think you may qualify for a credit that you didn't receive during the year.

7. What if I don't receive the forms I need?

If you don't receive the forms you were expecting, you can still complete your tax return using your insurance cards, statements from your insurance company, records of advance premium credits and other documents. You can also request a copy of any forms you didn't receive by contacting the issuer.


Quarterly Estimated Taxes: What they are, What they are for, and Why you may need to pay them

Estimated taxes are commonly paid by those who are self-employed or have unconventional income, such as income from stocks and bonds. Those who are on salary and receive a check from payroll generally pay their estimated taxes through their company; their income tax is withheld from each check and then filed by the business. Those who do not receive salaried checks must complete these calculations and payments themselves.

Who Needs to Pay Estimated Taxes?

estimated tax payments for store owners entrepreneursGenerally, any individual who will be expected to owe taxes of $1,000 or more when a return is filed will need to pay estimated taxes. For corporations, the threshold is lower; corporations must pay if they will owe taxes of $500 or more on their return. Accounting and tax services can make the process of filing estimated taxes much easier, as they can calculate the amount that is likely to be due and make sure that the payments are sent in on time. If estimated tax payments are late, an individual may incur significant penalties when they file their taxes for the year.

Who Doesn't Need to Pay Estimated Taxes?

Any individual who had no tax liability for the prior year and has been a US resident for that year will not need to pay estimated taxes. Further, those who work in the farming industry have unique qualifications regarding estimated taxes. Anyone who is on payroll and has state and federal withholdings taken out of their paycheck does not need to pay estimated taxes; they essentially already are, but through their employer. Having multiple W-2’s may cause you to owe taxes at the end of the year if your withholdings are not enough to cover your liability.

How Do Estimated Taxes Work?

Estimated taxes are paid on a quarterly basis and are estimated based on the individual's income and tax bracket. If the individual does not pay enough, they may be charged a penalty.

Generally, if the quarterly estimated tax payments have been correct, the individual will not need to pay any additional taxes on the annual tax return. However, the annual tax return still needs to be filed. If the individual's estimated tax payments were more than necessary, the individual will get a tax refund. Usually, it's best to overpay slightly on estimated taxes rather than to underpay.

It is important to note that estimated tax payments are not an additional payment on top of annual tax returns -- they are simply a way of paying taxes in advance to avoid a hefty tax bill at the end of the year, in addition to fines and penalties.

Are you wondering whether you need to pay estimated taxes? Contact Dukhon Tax and Accounting today to find out more about when estimated tax payments are needed and what you need to do to get started immediately. With proper tax planning or even a simple conversation with your CPA, you can avoid the surprise of hefty bill on April 15th. There may not be time to change your situation for 2015, but you can start 2016 off right.


Year-End Tax Planning for 2015

This guide is generally oriented towards the time-honored approach of deferring income and accelerating deductions to minimize 2015 taxes. For individuals, deferring income also may help minimize or avoid AGI-based phaseouts of various tax breaks.

tax planning 2015 bostonYear-end tax planning for 2015 must take account of the many important "temporary" tax provisions that have expired and may not be retroactively reinstated and extended before year-end (if they are extended at all). They include: the election to claim sales and use taxes as an itemized deduction instead of state income taxes; charitable distributions from IRAs for those age 70-1/2 and older; bonus first-year depreciation deductions for qualifying new purchases; and generous expensing limits under Code Sec. 179.

Effective year-end tax planning also must take into account each taxpayer's particular situation and planning goals, with the aim of minimizing taxes. For example, higher income individuals must consider the effect of the 39.6% top tax bracket, the 20% tax rate on long-term capital gains and qualified dividends for taxpayers taxed at a rate of 39.6% on ordinary income, the phaseout of itemized deductions and personal exemptions when income is over specified thresholds, and the 3.8% surtax (Medicare contribution tax) on net investment income for taxpayers whose income exceeds specified thresholds (which are lower than the thresholds at which the phase-out of itemized deductions and personal exemptions begins,).

Concerns for High Earning Individuals

Higher-income earners have unique concerns to address when mapping out year-end plans. They must be wary of the 3.8% surtax on certain unearned income and the additional 0.9% Medicare (hospital insurance or HI) tax. The latter tax applies to individuals for whom the sum of their wages received with respect to employment and their self-employment income is in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately).

The surtax is 3.8% of the lesser of: (1) net investment income (NII) or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return and $200,000 in any other case). As year-end nears, a taxpayer’s approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than net investment income and other individuals will need to consider ways to minimize both NII and other types of MAGI.

The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward year-end to cover the tax.

While many taxpayers will come out ahead by following the traditional approach (deferring income and accelerating deductions), others, including those with special circumstances, should consider accelerating income and deferring deductions. Most traditional techniques for deferring income and accelerating expenses can be reversed to achieve the opposite effect. For instance, a cash method professional who wants to accelerate income can do so by speeding up his business's billing and collection process instead of deferring income by slowing that process down. Or, a cash-method taxpayer who sells property in 2015 on the installment basis and realizes a large long-term capital gain can accelerate income by electing out of the installment method.

Inflation adjustments to rate brackets, exemption amounts, etc.

For both 2015 and 2016, some individuals will benefit from inflation adjustments in the thresholds for applying the income tax rates, higher standard deduction amounts, and higher personal exemption amounts.

Capital gains

Long-term capital gains are taxed at a rate of (a) 20% if they would be taxed at a rate of 39.6% if they were treated as ordinary income, (b) 15% if they would be taxed at above 15% but below 39.6% if they were treated as ordinary income, and (c) 0% if they would be taxed at a rate of 10% or 15% if they were treated as ordinary income. And, the 3.8% surtax on net investment income may apply.

Low-taxed dividend income

Qualified dividend income is taxed at the same favorable tax rates that apply to long-term capital gains. Converting investment income taxable at regular rates into qualified dividend income can achieve tax savings and result in higher after-tax income. However, the 3.8% surtax on net investment income may apply.

Traditional IRA and Roth IRA year-end moves

One can convert traditional IRAs to Roth IRAs. And, one can then recharacterize such a conversion and can even, possibly, reconvert the recharacterized transaction.

Expensing deduction

Unless Congress changes the rules, for qualified property placed in service in tax years beginning in 2015, the maximum amount that may be expensed under the Code Sec. 179 dollar limitation is $25,000, and the beginning-of-phaseout amount is $200,000 (Code Sec. 179(b)) . In earlier years, the dollar limit was $500,000 and the beginning-of-phaseout amount was $2 million. However, despite what Congress does (or doesn't do) to adjust the Code Sec. 179 limits for 2015, some businesses may be able to buy much-needed machinery and equipment at year-end and currently deduct the cost under a "de minimis" safe harbor election in the capitalization regs.

First-year depreciation deduction

us tax deduction propertiesUnless Congress extends Code Sec. 168(k), property bought and placed in service in 2015 (other than certain specialized property) no longer qualifies for the 50% bonus first-year depreciation deduction. However, because of the half-year convention that generally applies in the computation of cost recovery deductions for property (other than real property) first placed in service during the current tax year, year-end purchases of depreciable property can achieve tax savings even if bonus depreciation is not extended. Under the half-year convention, a business asset placed in service at any time during the tax year-even in the final days-is generally treated as having been placed in service in the middle of that year.

Deduction for qualified production activities income

Taxpayers can claim a deduction, subject to limits, for 9% of the lesser of (1) the taxpayer's "qualified production activities income" for the tax year (i.e., net income from U.S. manufacturing, production or extraction activities, U.S. film production, U.S. construction activities, and U.S. engineering and architectural services), or (2) the taxpayer's taxable income for that tax year (before taking this deduction into account). This deduction generally has the effect of a reduction in the taxpayer's marginal rate and, thus, should be taken into account when making decisions regarding income shifting strategies.

Changes in individual's tax status may call for acceleration of income

Changes in an individual's tax status, due, say, to divorce, marriage, or loss of head of household status, must be considered.

Alternative minimum tax (AMT)

Watch out for the AMT, which applies to both individuals and many corporations. A decision to accelerate an expense or to defer an item of income to reduce taxable income for regular tax purposes may not save taxes if the taxpayer is subject to the AMT.

Time value of money

Any decision to save taxes by accelerating income must take into account the fact that this means paying taxes early and losing the use of money that could have been otherwise invested.

Estimated tax

Rules for estimated taxes can be affected when taxable income is shifted from one tax year to another.

Obstacles to deferring taxable income

The Code contains a number of rules that hinder the shifting of income and expenses. These include the passive activity loss rules, requirements that certain taxpayers use the accrual method, and limitations on the deduction of investment interest.

Charitable contributions

charitable donations and taxes advice bostonThe timing of charitable contributions can have an important impact on year-end tax planning. Note that in earlier years (but not 2015, unless Congress extends this tax break), individual taxpayers who are at least 70-1/2 years old could contribute to charities directly from their IRAs without having the amount of their contribution included in their gross income. By making this move, some taxpayers reduced their tax liability even more than they would have if they had received the distribution from their IRA and then contributed the amount distributed to charity. Some taxpayers, who would take advantage of this tax break for this year, if it were extended, should consider deferring until the end of the year their required minimum distributions (RMDs) for 2015.

Net operating losses and debt cancellation income

A business with a loss this year may be able to use that loss to generate cash in the form of a quick net operating loss carryback refund. This type of refund may be of particular value to a financially troubled business that needs a fast cash transfusion to keep going. Also, a debtor who anticipates having the debt cancelled or debt reduced should consider steps to defer the resulting taxable income until 2016.


Life Milestones and Their Effect on Your Taxes

The breadth of our life experiences and changes that occur as we mature always have wider tax implications. The major milestones of our lives bring both tax benefits and liabilities. Almost every milestone we reach, whether it includes the excitement of change or the sadness of loss, directly or indirectly affects our status as a taxpayer.

For example:

Getting married

Whether you file separately or jointly, your filing status will change when you marry. You will be able to claim a new tax exemption and adjust your paycheck deductions. Also, working couples have an advantage over single taxpayers, whose earnings reach the higher tax brackets sooner.

Having children

new baby tax benefitsYour little bundle of joy becomes a tax exemption for the entire tax year. With the 2 AM feedings come advantages like child tax credits and other benefits. For example, when both spouses return to work, there is the Child and Dependent Care Tax Credit to pay a babysitter during the workday. Also there are tax credits and other breaks when the child goes off to college.

Losing your job

Lose your job and you immediately enter a lower tax bracket. Worse news is that you will be taxed on unemployment benefits and will be liable for taxes on severance pay and vacation time your former employer bought back. Make sure your former employer sends you that W-2. Keep track of job search expenses- they could be tax deductible.

Divorcing or Legally Separating

You are considered unmarried at the end of the tax year when separated under a divorce decree or a separate maintenance agreement. Alimony you receive or pay is either taxed or can be deducted, depending on whether you are the receiver or the donor.

Likewise, whichever divorced parent has custody of a child for the greater part of the calendar year will be eligible for dependency deductions and other tax benefits accruing from having a child. Although alimony can be tax deductible, child support is not.

Moving to another state

moving to another state tax savingsHeading out for that new job and fresh start? You can deduct some of your moving expenses for which your employer will not reimburse you . You will need to deal with the tax rules of both your former and your new state and might end up filing two state tax returns. Also, resist the temptation to cash in your former employer's retirement plan. Otherwise, you could be looking at a high income tax rate on the proceeds.

Saving for retirement

Most likely, your Social Security benefits will not be enough to assure a comfortable retirement. Whether you participate in a 401(k) or traditional IRA, your contributions will reduce your yearly income tax bite. Your retirement years will also be taxed as the government takes back some of that Social Security money for income tax and Medicare coverage. You will also need to plan those traditional IRA withdrawals beginning at age 70 years six months.

Meanwhile, in between milestones…

Life happens in between all of these milestones. We get busy and sometimes forget the tax implications of our happiest and saddest moments. Reach out to us at Dukhon Tax and Accounting if there is any way we can help you focus on these milestones without worrying about your taxes.


Don't Want to Buy Health Insurance? Look Into Market Place Hardship Exemptions

If you can afford health insurance but you don't wish to buy it expect a higher federal income tax bill for 2015. Under the Affordable Care Act, unless you have a health coverage exemption, the IRS will assess an additional penalty, using the higher result of the following two criteria:

  • 2% of your yearly earnings: The amount of income above about $10,150, the tax-filing threshold, is what you use to calculate the penalty. The amount is capped according to what the IRS figures is the "average bronze plan premium."
  • $325 per person for 2015--$162.50 per child under age 18: The maximum family penalty per family using this method is $975.

health tax exemptions

What qualifies as health coverage--and what does not

Most health plans, including any Marketplace plan, or individual insurance plan you already have qualifies as coverage. Any job-based or retirement plans, Medicare Parts A or C, and TRICARE plans for military retirees also qualify.

Not all plans offered outside the Marketplace will qualify for minimum essential coverage, though.

Plans that would not qualify include:

  • health plans that cover a fixed, limited term
  • health plans that have fixed benefit restrictions
  • Medicare supplemental plans only, like Part D and Medigap
  • certain Medicaid schemes covering only specific benefits
  • limited-benefit plans, e.g., vision only, dental only

Exemptions and how to get them

For tax year 2015, you can apply for an exemption to avoid paying the tax penalty. The exemptions are income, health, and group membership related. They also cover anyone serving a prison sentence, U.S. citizens living abroad, and certain non-citizens.

Income-related

You could qualify for an income-related exemption if:

  • the least expensive health coverage available (Marketplace or job-based) would amount to more than 8.05 percent of your household income
  • you do not earn enough to be required to file an income tax return

Health coverage related

These apply when:

    • your lack of health insurance coverage was for no more than two consecutive months
    • your home state failed to expand its Medicaid program to meet the requirements of the Affordable Care Act, but if it had, you would have qualified

Group membership related

Certain groups are exempted:

    • members of a federally recognized Native American tribes
    • members of a recognized health care sharing ministry
    • religious sects that object to health insurance, Medicare and Social Security

Hardship exemptions

Some life situations can prevent you from getting health insurance. Examples of hardships that qualify include homelessness, eviction or foreclosure, domestic violence, natural disaster, family tragedy, etc.

To qualify for a hardship exemption, you must complete a paper application and mail it to the Marketplace. For a list of qualifying hardships and instructions on how to apply, go to the Healthcare.gov webpage.

Loss of previous coverage

Likewise, if your insurance company canceled your plan, and you believe other Marketplace plans are unaffordable, you can apply for an exemption. The above-mentioned 8.05 percent of the household income criteria applies.

You can apply for this exemption either on your 2015 income tax return or completing a separate Marketplace exemption application. Download the application forms and instructions from the Marketplace.cms.gov website.

Need some help?

Your health coverage now affects your 2015 federal income tax return. The fees for not having health insurance could be another unexpected financial hit. Need some help or advice on addressing tax implications on yourself, your family or your employees? Dukhon Tax and Accounting has the expertise and experience to help you through tax year 2015 and beyond with the plans and strategies you need for the best tax planning.


Avoiding Tax Identity Theft

"Identity theft is one of the fastest growing crimes nationwide, and refund fraud caused by identity theft is one of the biggest challenges facing the IRS."…IRS Tips for Taxpayers, FS-2014-2, January 2014

According to an IRS report, Mauricio Warner, a Georgia resident, had a $10 million tax fraud and identity theft operation underway before he was caught and convicted. Warner used the names and social security numbers of online victims who "were told they could submit an application for an 'Obama stimulus payment' or 'Free Government Money.'”

Warner was sentenced to 240 months in federal prison and three years supervised probation, ordered to pay over $5 million in restitution, and forfeited his $4.1 million bank account.

The IRS has been aggressive in tracking down identity thieves and criminals like Warner. Its Identity Theft Clearing House since its inception in 2012 has pursued over 7,600 leads involving 1.47 million fraudulent returns amounting to almost $7 billion.

Avoiding Tax Identity Fraud

If you're the victim of a tax-identity theft, your tax return may only be the beginning. The IRS recommends the following precautions:

Don't fall for scams

tax fraud identity theftAny email addressed directly to you claiming to be from the IRS is fraudulent. The IRS never contacts taxpayers by email or social media. They do not use the web to demand payment or offer refunds to taxpayers. Forward suspicious email to [email protected].

Likewise, unexpected phone calls from someone claiming to be an IRS agent are impersonation scams. The caller might ask for personal information to send you a refund or threaten you with arrest or deportation if you don't pay an overdue tax bill. Report these impersonation scams online or call 1-800-366-4484.

Finally, any website that claims to be an official IRS site but does not begin with www.irs.gov is bogus. Make a phishing report at the link cited above.

File early and hold your personal information close

File your tax return as early as possible. Income tax identity thieves strike early in the year.

Safeguard your social security number and never give it out unless you have initiated contact requiring its disclosure. Never routinely carry a social security card or documents that display your social security number.

Protect all personally identifiable information on your computer. Use firewalls, anti-spam and virus detection software, and use secure passwords for Internet accounts. Be especially discrete with your online activity in public places over non-secure networks.

If you become a victim

The signs

You are likely to have become a victim of tax fraud if the IRS informs you that:

  • they have received more than one tax return filed under your social security number
  • you owe the IRS money for a refund overpayment
  • you reported wages from an employer you never heard of

What to do

Don't procrastinate; work with the IRS. In addition to following the FTC-recommended steps to limit the damage of identity theft:

  • respond to the IRS notice right away using the telephone number and contact information on the notice
  • complete IRS Form 14039, the Identity Theft Affidavit. Go to IRS.gov/pub/irs-pdf/f14039.pdf and follow the instructions for transmitting the form to the IRS.
  • pay your taxes and file your tax return, even if you must use paper documents

It might take a while, and you could use some help

Tax identity fraud cases can become complex and perplexing. An IRS resolution to tax identity fraud could drag on for months. If you need help in extricating yourself from identity-theft problems, Dukhon Tax and Accounting offers just the expertise, advice and services to individuals and businesses on a year-round basis.


Filing your federal tax return after filing for an extension

filing taxes after the extension dateApril 15th may be more than six months away but it is never too soon to start thinking about how and when you will file your tax return. If all taxes due are not paid on time, you run the risk of penalties and interest. This is not a situation most people want to be in.

You avoid penalties by withholding a sufficient amount from your earnings or paying a quarterly estimated tax. However, you can get a waiver of the penalty for underpayment if:

  1. you suffered some financial misfortune caused by a disaster or “unusual circumstance” and it just wouldn’t be fair to impose a penalty, or
  2. you retired after age 62 or became disabled during the tax year

So long as your underpayment was not due to “willful neglect,” the IRS will consider overlooking the penalty. Naturally, you still have to report the estimated tax penalty in your return.

Speaking of penalties…

If you miss the April 15th tax filing date, an additional clock starts ticking. The penalties and interest on what you owe mount, and they will not stop until the matter is resolved. There are some automatic 6-month extensions for filing individual tax returns for citizens living and serving in the Armed Forces outside the United States.

Everyone else can apply for an automatic 6-month extension by filing IRS Form 4868. The form must be filed by April 15th.

If you are owed a refund, there is no penalty for missing the April 15th filing date.

The big “however”…

The IRS makes it clear that an extension of time to file your return does not grant you any extension of time to pay your tax liability.

Nevertheless, there are valid reasons…

Our personal and financial lives are fraught with the unexpected. Unforeseen circumstances--fire, flooding, business reversals--can place records keeping and tax accounting on the back burner.
On the other hand, unexpected financial windfalls or unanticipated income could have tax liability consequences. The extra filing time could provide the breathing room to gather the documentation, fill out those additional forms and take advantage of what our tax code offers to reduce that tax bill.

To recap…

When You File that Extension Request, the Due Date Gets Pushed, but...

  1. You still owe outstanding taxes
  2. The tax must be paid by April 15, or penalties/interest will accrue
  3. If you cannot pay all/anything, consider requesting a time payment or offer in compromise. (Note: Expect an additional charge to set up a payroll deduction or direct debit agreement to pay off your tax bill.)

Your extension request is in. Now what?

If you need assistance with filing your tax return that is on extension or are considering extending a tax return in the next tax year, reach out to us. We can assist you with the process from start to finish.