8 Things to Know About a Letter From The IRS

On June 14, 2022   /   IRS  
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If you receive a letter this year from the IRS, don’t be alarmed. After every tax season, the agency sends out a variety of notices to taxpayers. Not every letter means there’s an impending audit coming your way. Here are 8 Things to Know About a Letter From The IRS.

As always, if you do not feel comfortable, reach out to a tax professional like us here at ATS Advisors for help.

Many of the notices are routine and can easily be resolved. Here’s what to do if one shows up in your mailbox.

1. Stay calm.

Before your heart starts racing, remember that not all IRS letters are delivering bad news. In fact, the large majority can be taken care of fairly quickly and painlessly. You often only need to respond to take care of a notice.

2. The IRS sends letters for all sorts of reasons.

Any notice you receive from the IRS could be about a number of different topics regarding your account or your federal tax return. For instance, the letter could mention any of the following:

  • you have a balance due
  • the IRS has a question about your tax return
  • something on your return was changed
  • you are due a larger or smaller refund
  • you need to verify your identity
  • additional information is requested
  • there’s a delay in return processing

Sometimes letters can wind up being quite lengthy because they also must inform you of your rights and other information required by law. If you need help understanding the letter, contact a tax professional like us here at ATS or call the IRS to ask questions.

3. It could be a change or correction.

You may get a notice that states the IRS has made a change or correction to your tax return. If you do, review the information and compare it with your original return.

4. There are specific instructions.

Each notice should state explicit instructions on what you need to do. As long as you follow them, you likely can take care of the request rather quickly.

Most importantly, do not ignore it! Don’t shove the letter to the side thinking you’ll take care of it later. Many of the instructions within those letters include a due date, so it’s important to take care of it right away. If you procrastinate, another letter will arrive in your mailbox not long after.

5. You shouldn’t have to visit the IRS.

Thankfully, most notices don’t require a call or visit to an IRS office. If you do have questions, however, you can call the phone number located in the upper right-hand corner of the notice. When you call, make sure to have your tax return and the notice in front of you so you can easily refer to specific information and answer any questions the IRS agent may ask.

6. You can agree or disagree with the notice.

Many letters from the IRS will require a response by a specific date. It’s important to comply with that date to minimize additional interest and penalty charges and to preserve your appeal rights if you don’t agree with what’s stated in the notice.

If you agree with the notice, you typically won’t need to reply unless other instructions are listed or you need to make a payment. Follow whatever instructions are given.

If you do not agree with the notice, you will need to respond by writing a letter explaining why you disagree. Within your letter, include any information and documents that support your claim. Mail your reply to the address shown in the upper left-hand corner with the bottom tear-off portion of the notice. Keep in mind, it can take up to 30 days to get a response back from the agency.

In the event that you owe money, always pay as much as you can right away. Even if you can’t pay the full amount, it’s better to send in some money than none at all. Doing so will reduce the extra penalties and fees you may accrue from paying late.

7. Keep a copy.

It’s in your best interest to keep copies of any notices you receive from the IRS with your other tax records. It may be a small chance you have to refer back to it, but it’s better to have a concrete paper trail of the occurrence than nothing at all.

8. All notices come by snail mail.

The IRS always sends letters and notices by mail. They will not contact you by email or social media to ask for personal or financial information. If you are ever contacted by someone via phone, email or social media who claim they are the IRS, immediately discontinue the conversation and call the IRS directly to ask if they are trying to reach you.

Suspicious letters

Even though the IRS only communicates via paper letters, that doesn’t mean you couldn’t wind up receiving a fake notice. If any letter you receive seems suspicious, always contact the IRS to check its validity before you do anything else.

You can report fraudulent letters by visiting the IRS’ Report Phishing page or calling 800-829-1040.

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Tax Information for Michigan Students

On June 8, 2022   /   Michigan Taxes  
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Listed below is some useful Tax Information for Michigan Students:

American Opportunity Credit

  • Maximum Credit: Up to $2,500 per eligible student annually
  • Limit on modified adjusted gross income: $180,000 if married filing jointly; $90,000 if single, head of household, or qualifying widow(er)
  • Refundable or nonrefundable: 40 percent of credit may be refundable; the rest is nonrefundable
  • Number of years of postsecondary education: Available only for the first four years of postsecondary education
  • Number of tax years credit available: Available only for four tax years per eligible student, including any year(s) Hope credit was claimed
  • Type of degree required: Undergraduate or graduate degree
  • Number of courses: Student must be enrolled at least half time for at least one academic period that begins during the year
  • Felony drug conviction: No felony drug convictions on student’s records
  • Qualified expenses: Tuition and fees required for enrollment; course-related books, supplies, and equipment do not need to be purchased from the institution in order to qualify

Lifetime Learning Credit

  • Maximum Credit: Up to $2,000 credit per return
  • Limit on modified adjusted gross income: $160,000 if married jointly; $80,000 if single, head of household, or qualifying widow(er)
  • Refundable or nonrefundable: Nonrefundable—credit limited to the amount of tax you must pay on your taxable income
  • Number of years of post-secondary education: Available for all years of post-secondary education and for courses to acquire or improve job skills
  • Number of tax years credit available: Available for an unlimited number of years
  • Type of degree required: Undergraduate or graduate degree or non-degree courses to acquire or improve job skills
  • Felony drug conviction: Felony drug convictions are permitted
  • Qualified expenses: Tuition and fees required for enrollment, including amounts required to be paid to the institution for course-related books, supplies, and equipment

Student Loan Interest Deduction

  • Maximum benefit: You can reduce your income subject to tax by up to $2,500
  • Loan qualifications: Your student loan must have been taken out solely to pay qualified education expenses and cannot be from a related person or made under a qualified employer plan.
  • Student Qualifications: The student must be a taxpayer, taxpayer’s spouse, or taxpayer’s dependent and enrolled at least half-time in a degree program.
  • Time limit on deduction: You can deduct interest paid during the remaining period of your student loan.
  • Limit on modified adjusted gross income: $175,000 if married filing a joint return; $85,000 if single, head of household, or qualifying widow(er)

Coverdell Education Savings Account

A Coverdell ESA is set up to pay the qualified education expenses of a designated beneficiary.

Where can it be established?

It can be opened in the United States at any bank or other IRS-approved entity that covers Coverdell ESAs.

Who can have a Coverdell ESA?

Any beneficiary who is under the age 18 or is a special needs beneficiary.

Who can contribute to this ESA?

Generally, any individual (including a beneficiary) whose modified adjusted gross income for the year is less than the IRS limits.

Are distributions tax free?

Yes, if the distributions are not more than the beneficiary’s adjusted qualified education expenses for the year.

Education Savings Bonds

You may be able to cash in qualified US savings bonds without having to include in your income some or all of the interest earned on the bonds, if you meet the following conditions:

  • you pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return;
  • your modified adjusted gross income is less than the IRS limits; and
  • your filing status is not married filing separately.

Scholarships and Fellowships

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate.

A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.

Scholarships and Fellowships are tax free only if

  • the student is a candidate for a degree at an eligible educational institution; and
  • the aid is used to pay for qualified education expenses:
    • tuition and fees required to enroll or attend an eligible educational institution, or
    • course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Expenses don’t include room and board, travel, research, clerical help, or equipment and other expenses that are not required for enrollment or attendance.

Qualified Tuition Program (QTP)

  • Qualified tuition programs are also called “529 plans.”
  • States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student’s qualified education expenses at a postsecondary institution. Eligible educational institutions may establish and maintain programs that allow you to prepay a student’s qualified education expenses. If you prepay tuition, the student will be entitled to a waiver or a payment of qualified education expenses. You cannot deduct either payments or contributions to a QTP. For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it.
  • The tax benefit of a QTP is that no tax is due on a distribution for a QTP unless the amount distributed is greater than qualified educational expenses.

Business Deduction for Work-Related Education

  • If you are an employee and can itemize deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2 percent of your adjusted gross income.
  • If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This reduces the amount of your income subject to both tax and self-employment tax.
  • Your work-related education expenses may also qualify you for other tax benefits, such as the tuition and fees deduction and the American Opportunity and Lifetime Learning credits. You may qualify for these benefits even if you do not meet the requirements listed above.

Qualifying Work-Related Education

You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests:

  • The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose of your employer.
  • The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it is

  • needed to meet the minimum educational requirements of your present trade or business, or
  • part of a program or study that will qualify you for a new trade or business.

If you have any questions please contact us today!

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9 Tax Tips for Small Businesses in Michigan

On May 26, 2022   /   Michigan Taxes  
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May 26, 2020 – Sourced from Nationwide

Running a business is hard enough without adding the complexity of filing taxes each year. The key, experts say, is to work with your accountant throughout the year, not just when you prepare your tax return. Making financial decisions without consulting an accountant or financial advisor can put you at risk and cost you more money in the long run. Here at ATS Advisors, we strive to offer more than just tax solutions. We strive to offer solutions that will help mold and shape the financial wellbeing for all of our clients.

Here are 9 tax tips for small businesses in Michigan:

1. Hire the right accountant

Your accountant should offer to do more than just prepare financial statements and do your taxes. If that’s all they offer to do, then they aren’t the right accountant for a small business. Your accountant should work with you throughout the year to track income and spending, to make sure you don’t have a cash flow problem, and to monitor your gross and net profits. Work with your accountant from day one of opening your business, not just in March and April for tax season.

2. Claim all income that is reported to the IRS

The IRS gets a copy of the 1099-MISC forms you receive so they can match the income you’ve reported against what they know you’ve received. Make sure the income you report to the IRS matches the amount of income reported in the 1099s you received. Not doing so is a red flag for the IRS. Even if a client doesn’t send out a 1099, you still need to report that income. The same rules apply with state taxes.

3. Keep adequate records

Keeping thorough and accurate records throughout the year will ensure your tax return is correct. With inadequate record keeping, you could be leaving deductions on the table or, worse, you could be putting yourself at risk for an audit. Almost all CPA’s recommends every business invest in a basic version of an accounting software because it is user friendly, inexpensive, and helps you keep track of all your income and expenses.

4. Separate business from personal expenses

If the IRS audits your business and finds personal expenses mixed with business expenses, regardless of whether you reported business expenses correctly, the IRS could start looking at your personal accounts because of commingled money. Always get a separate bank account and credit card for your business and run only business expenses through those accounts.

5. Understand the difference between net and gross income

If your product costs more money to make than you charge for it, you will lose money regardless of how many units you sell. Small business owners often forget to take into account the difference between their net and gross income.

For instance, if it costs $100 to make your product and you sell it for $150, your gross income is $50. But, he says, after you deduct your expenses, your net income might drop to $10. It’s important to know what your gross and net profits are so you can be more profitable and grow your business. Numbers don’t lie!

6. Correctly classify your business

Failing to properly classify your business could result in overpaying taxes. Deciding whether to classify your company as either a C Corporation, S Corporation, Limited Liability Partnership, Limited Liability Company, Single Member LLC or Sole Proprietor will have a different effect on your taxes. It’s important that small businesses consult with an attorney and accountant to determine how their businesses should be classified.

7. Manage payroll

Most CPAs recommends hiring a company to assist with payroll – but be sure that the company is reputable. To save money, some business owners will hire a lesser-known payroll service, only to find out later the service wasn’t remitting payroll taxes for the company. If that happens, the business owners are on the hook for the payroll taxes. The IRS typically checks every quarter to see if payroll taxes have been paid.

8. Seek your accountant’s advice on your business plan

A good accountant gives you advice on how to grow your business. Seek their advice to determine how much to contribute to your retirement fund and whether you should take a bonus or delay it a year. Your accountant can tell you if buying a small space for your store or business – rather than renting – could save you money.

9. Take advantage of capitalization rules

If you acquire a tangible piece of property or equipment for your business, you may be able to take a significant deduction.

 

Those were our 9 Tax Tips for Small Businesses in Michigan! Hope you enjoyed.

If you have any questions regarding any of these tax tips, please reach out to ATS Advisors and talk with us today!

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Small Businesses should file Payroll Taxes Electronically

On May 19, 2022   /   IRS  
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IR-2022-103, 2022

WASHINGTON – The Internal Revenue Service today urged small businesses to take advantage of the accuracy, speed and convenience of filing their payroll tax returns and making tax payments electronically.

During National Small Business Week, May 1 to 7, the IRS is highlighting tax benefits and resources tied to the theme for this year’s celebration: “Building a Better America through Entrepreneurship.” Filing and paying taxes electronically helps entrepreneurs leave more time for what they really want to do—build their businesses.

What are payroll taxes?

Also known as employment taxes, payroll taxes include federal income tax withheld from employee wages, as well as both the employer and employee portions of Social Security and Medicare taxes. In addition, payroll taxes include the Federal Unemployment Tax, also known as FUTA, which most employers need to pay but is not withheld from employee wages.

In some cases, backup withholding applies to payments made to nonemployees, usually because the recipient failed to provide their correct Taxpayer Identification Number (TIN), to the business making the payments. A TIN can be either a social security number, employer identification number or individual taxpayer identification number. For more information about backup withholding see Tax Topic No. 307.

Why e-file?

All of the returns reporting these taxes can either be filed electronically or on paper. Though the number of payroll tax returns e-filed has grown steadily in recent years—more than doubling in the last decade alone, more than 40% of them are still filed on paper.

Paper filers are missing out on all the advantages of electronic filing. E-file saves time, and it’s secure and accurate. Plus, the IRS acknowledges receipt of an electronically filed return within 24 hours. That doesn’t happen with paper filing.

It’s much easier to make a mistake on paper. With electronic filing, any mistake is often discovered and fixed quickly. With paper filing, it may take weeks or even months to discover and correct a mistake.

How to e-file

Employers have two options: Do it themselves or have a tax pro do it for them. Those choosing to do it themselves will need to purchase IRS-approved software. Alternatively, the Authorized IRS e-file Providers Locator Service, an online database, can help any employer find a suitable tax professional.

For more information about both options, visit IRS.gov/employmentefile.

Pay taxes electronically

Though some employers, especially those with small payrolls, can choose to pay their taxes when they file their payroll tax returns, most need to deposit them regularly with the Treasury Department instead. Federal tax deposits must be made by electronic funds transfer (EFT).

The fastest and easiest way to do that is through the Electronic Federal Tax Payments System (EFTPS), a free service available from the Treasury Department. Payments can be made either online or by phone. Any business or individual can also use EFTPS to pay other federal taxes, including quarterly estimated taxes.

Enrollment is required. To enroll or for more information, visit EFTPS.gov or call 800-555-4477 or TDD: 800-733-4829.

More information about the tax rules that apply to employers can be found in Publication 15, (Circular E), Employer’s Tax Guide, available on IRS.gov.

 

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3 reasons to choose ATS Advisors Public Accountants Plymouth MI

On May 11, 2022   /   ATS Advisors  
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Tax Specialist Plymouth MI

ATS Advisors

ATS Advisors is not just another CPA firm. As your partner we understand your desire to save time and money. We work with you, not just for you, to find effective solutions for your needs whether they are tax, accounting, finance, business or personal.

We build and maintain long-lasting relationships. Nearly 100% of our business was built on referrals and we take great pride in this fact. Your financial well-being is of paramount importance to us and we take that responsibility very seriously.

Our philosophy is simple: we only work with clients we respect and believe have the tools, and drive, to succeed. You will never receive an unexpected bill for services. We discuss all our fees up front and do not have any hidden costs.

Here are 3 reasons to work with ATS Advisors Public Accountants, Plymouth MI:

1.) ATS offers a wide variety of business services such as New Business Formations, Mergers & Acquisitions, Payroll Services, etc. Check the full list of business services here.

2.) ATS offers a wide variety of individual services such as tax preparation, accounting services, estate & trust planning, and more. Check the full list of individual services here.

3.) ATS is a family owned and operated small business with an attention to detail unlike many other firms. ATS Advisors is here to serve you and all of your business & individual needs.

Contact us Today

 

 

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5 Michigan Tax Tips for Michigan Homebuyers

On May 3, 2022   /   Michigan Taxes  
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5 Michigan Tax Tips for Michigan Homebuyers: Home buyers and home sellers may not want to think about real estate transaction taxes, but they are inevitable. You may be liable for any number of federal, state or local taxes upon a sale’s completion. Here’s what you need to know about Michigan real estate taxes.

They are the last thing any home seller or buyer wants to think about in a real estate transaction. What are its tax implications, how much are they, and who pays?

How much you have to pay and if you have to a particular real estate tax at all depends on a number of factors. When it comes to one particular tax, the buyer and seller can even negotiate who pays it.

Having the right guidance to get you through the tax maze can save your tens-of-thousands of dollars. Whether you’re buying or selling, you will want to work with a professional realtor who knows the ins and outs of real estate taxes.

Here’s 5 Michigan Tax Tips for Michigan Homebuyers to get you started and if you have any other questions CONTACT ATS ADVISORS today!

1. Will You Have to Pay Taxes When You Sell Your Home in Michigan?

If you’re a typical home seller in Michigan, you do not need to report your capital gain to the IRS after the sale. However, this does not apply to everyone. If you file as a single person and you sell your home for a capital gain of more than $250,000 (more than $500,000 if you file a joint return), you may have to pay a capital gain on money you earn in excess of the $250,000 limit.

Anyone who has lived in a home as their primary residence for at least two years (of the previous five) before the sale does not have to pay a capital gain below $250,000.

Here’s how to calculate your capital gain. Take the price that you paid for the purchase price and subtract it from the final sale. So, if you bought a home for $300,000 three years ago, lived in it during that time, and then sold it for $600,000, your capital gain would be $50,000.

That’s the money you may owe taxes on. But this amount can be reduced. If you made $60,000 worth of repairs and home improvements to the property, you can deduct this from the capital gain. To do this, just add $60,000 to $300,000 to the amount of the home’s purchase price.

Now, your net gain on the property is just $240,000, which is below the capital gain limit for a single person. The IRS guide on capital gains from home purchases notes that there are sellers who may want to report their capital gain as a taxable gain even though some or all of it is eligible for exclusion.

Sellers who may want to do this include homeowners who plan to sell another home within the next two years (and expect to receive a bigger gain from the sale of that other property). Because tax laws are quite complicated in Michigan, all home sellers should seek professional guidance.

A local real estate agent will be able to help you determine what your tax liabilities may be. They buy and sell homes everyday and they understand local, state, and federal real estate laws. They are highly knowledgeable and will be able to suggest ways that you can reduce your tax burden on the home sale.

2. How Much Are Real Estate Transfer Taxes in Michigan (and Who Pays Them)?

Real estate transfer taxes can be complicated because several jurisdictions may be responsible for them. They can be imposed by states, counties, or municipal authorities. A real estate transfer tax is typically charged on the transfer of legal deeds, titles to a property, or certificates that are transferred when a buyer formally agrees to the purchase.

These are what are known as ad valorem taxes. An ad valorem tax is based on the assessed value of the item being sold, in this case the home. So, the tax is based on the property value and it is usually the responsibility of the seller.

It’s important to note that a home purchase is a negotiation and that there are no firm rules. A home seller and home buyer can negotiate who pays the transfer tax in most states. So, the tax (and many other parts of a home sale) is negotiable, at least when it comes to who pays for it. It is not unusual for a seller and buyer to come to an agreement where they split the cost of the tax.

Unfortunately, Michigan is not one of the five states (Mississippi, New Mexico, Missouri, Wyoming, and North Dakota) without the transfer tax, which can be hefty. The state transfer tax rate is $3.75 for every $500 of value transferred. There is also a county transfer tax rate in Michigan. It’s $0.55 for every $500 of value transferred. (In some counties the tax rate can be up to $0.75/$1000 of value transferred.)

There are transfer tax exemptions, and a professional realtor will be able to help you take full advantage of them. Exemptions apply in some sales to family members and to the financing of some property sales. Your Clever Partner Agent will be able to guide you through any deductibles you may be entitled to or connect you to a professional tax advisor so that you do not pay more than you have to after the sale.

3. How to Calculate Property Taxes in Michigan

Property taxes are another ad valorem tax. In other words, they are assessed on the value of your property. They can vary greatly from state-to-state, city-to-city, and even neighborhood-to-neighborhood.

The reason for major differences on what you pay in property taxes is due to the fact that they pay for services in the community where the property is located. For example, they may be used for community centers, school funding, roads, etc.

The quality of these services is often dependent on the amount of money a particular neighborhood takes in from property taxes. The more the community collects in property tax revenue, the more they can spend on services for those taxpayers.

As noted above, property taxes are calculated based on the value of your property. This can be done through several methods. In what’s termed a “sales comparison,” the assessor will calculate the value of your home based on other similar properties that have recently sold in the neighborhood. The criteria they use can include the state of the property, the overall market conditions in the area, and the costs of any improvements that are made on the property and any structures on it.

An assessor may also use the “cost method.” In this method, the assessor determines how much it would cost to rebuild your home from scratch. If this method is used, the cost of depreciation is factored into the assessment. Lastly, an assessor can also use what’s called the “income method.” This is used primarily in commercial and business property transactions.

Unfortunately for Michigan homeowners, the state has one of the highest property tax rates in the U.S. Its average tax rate is 1.83%. In Saint Clair County, it’s slightly less at 1.6%. At that rate, a homeowner with a property worth $250,000 would pay $4,080 in taxes a year.

That’s more than $1,000 more than the national average. Across the state, Michigan homeowners with properties worth $250,000 pay almost $1,600 more each year than the national average.

It’s something that home buyers need to factor into their budgets. Various municipalities in Michigan set their own dates for when they are due. So, it’s important that you save an appropriate amount each month, although you may only have to pay them quarterly or less infrequently.

4. Tax Breaks for Michigan Home Buyers & Sellers

Michigan home buyers and sellers have a variety of federal and state tax deductions available to them. A Clever Partner Agent can answer any questions that you may have or guide you to a tax professional, potentially saving you thousands of dollars a year. Here are some key deductions that are available.

The Mortgage Interest Deduction

This allows home buyers to deduct the interest from mortgages up to $750,000. These tax credits also allow the lender the option to include the estimated tax credit when calculating the debt-to-income ratio, so it can help make homeownership easier.

Property Taxes

Property taxes are deductible on your 1040 Form (up to $10,000). But be careful to read the fine print (or ask a tax professional) when it comes to the requirements.

Tax breaks for home sellers include:

Costs of Home Improvement Repairs and Improvements

Any home improvements or repairs to a property can be tax deductible. So, it’s important to keep all of your receipts. And remember, there are time limits. The repairs and improvements typically have to made within 90 days of the closing date.

Selling Costs

Home sellers can also reduce their income tax by the amount of their selling costs. These may be costs associated with title insurance, broker’s commissions, inspection fees, and any repairs made to the property.

5. The Next Step

Whether you’re buying a home or selling one, there are tax implications to the sale of property. You need to be fully aware of your responsibilities and tax liabilities. That’s why it’s essential that you speak to a Clever Partner Agent.

They can help you determine what all of the costs of selling a home will entail. If you’re a home buyer, they’ll help you work through a complete budget that can get you into your own home, sometimes even for the same amount you may be paying for rent.

They can also point you to professional tax advisors who can let you know about the variety of tax programs, credits, and other benefits you may be entitled to. These can save buyers and sellers thousands of dollars.

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May 16 filing deadline for many tax-exempt organizations

On April 26, 2022   /   IRS  
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WASHINGTON — The Internal Revenue Service today reminded tax-exempt organizations that many have a filing deadline of May 16, 2022. Those that operate on a calendar-year (CY) basis have certain annual information and tax returns they file with the IRS. These returns are:

  • Form 990-series annual information returns (Forms 990, 990-EZ, 990-PF)
  • Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ
  • Form 990-T, Exempt Organization Business Income Tax Return (other than certain trusts)
  • Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code

Mandatory electronic filing

Electronic filing provides fast acknowledgement that the IRS has received the return and reduces processing time, making compliance with reporting requirements easier.

Organizations filing a Form 990, 990-EZ, 990-PF or 990-T for CY2021 must file their returns electronically. Private foundations filing a Form 4720 for CY 2021 must file the form electronically. Charities and other tax-exempt organizations can file these forms electronically through an IRS Authorized e-File Provider.

Organizations eligible to submit Form 990-N must do so electronically and can submit it through Form 990-N (e-Postcard) on IRS.gov.

“To help exempt organizations comply with their filing requirements, the IRS provides a series of pre-recorded online workshops,” said Robert Malone, Exempt Organizations and Government Entities Director. “These workshops are designed to assist officers, board members and volunteers with the steps they need to take to maintain their tax-exempt status, including filing annual information returns.”

Common errors

The IRS also reminds organizations to submit complete and accurate returns. If an organization’s return is incomplete or the wrong return for the organization, the return will be rejected. Common errors include missing or incomplete schedules.

Extension of time to file

Tax-exempt organizations that need additional time to file beyond the May 16 deadline can request a 6-month automatic extension by filing Form 8868, Application for Extension of Time To File an Exempt Organization Return PDF. In situations where tax is due, extending the time for filing a return does not extend the time for paying tax. The IRS encourages organizations requesting an extension to electronically file Form 8868.

 

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Missed Tax Deadline? File Now To Limit Penalties

On April 20, 2022   /   IRS  
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Taxpayers who owe and missed tax deadline should file now to limit penalties and interest; not too late to claim the Child Tax Credit for 2021.

The Internal Revenue Service encourages taxpayers who missed Monday’s April 18 tax-filing deadline to file as soon as possible. While taxpayers due a refund receive no penalty for filing late, those who owe and missed tax deadline without requesting an extension should file quickly to limit penalties and interest.

Families who don’t owe taxes to the IRS can still file their 2021 tax return and claim the Child Tax Credit for the 2021 tax year at any point until April 15, 2025, without any penalty. This year also marks the first time in history that many families with children in Puerto Rico will be eligible to claim the Child Tax Credit, which has been expanded to provide up to $3,600 per child.

Some taxpayers automatically qualify for extra time to file and pay taxes due without penalties and interest, including:

File without penalty to get a tax refund

Some people may choose not to file a tax return because they didn’t earn enough money to be required to file. But they may miss out on receiving a refund. The only way to get a refund is to file a tax return. There’s no penalty for filing after the April 18 deadline if a refund is due. Taxpayers are encouraged to use electronic filing options including IRS Free File which is available on IRS.gov through October 17 to prepare and file 2021 tax returns electronically.

While most tax credits can be used to reduce the tax owed, there are a few credits that allow taxpayers to receive money beyond what they owe. The most common examples of these refundable credits are the Earned Income Tax Credit, Child and Dependent Care Credit and Child Tax Credit. Those who don’t usually file and didn’t qualify for a third-round Economic Impact Payment or got less than the full amount may be eligible to claim the 2021 Recovery Rebate Credit when they file their 2021 tax return. Taxpayers often fail to file a tax return and claim a refund for these credits and others for which they may be eligible.

Generally, the IRS issues nine out of 10 refunds in less than 21 days for taxpayers who e-file and choose direct deposit. However, it’s possible a tax return may require additional review or take longer. The IRS processes paper tax returns in the order they are received.

Taxpayers can track their refund using the Where’s My Refund? tool on IRS.gov, IRS2Go or by calling the automated refund hotline at 800-829-1954. Taxpayers need the primary Social Security number on the tax return, the filing status and the expected refund amount. The refund status information updates once daily, usually overnight, so there’s no need to check more frequently.

File to reduce penalties and interest

Taxpayers should file their tax return and pay any taxes they owe as soon as possible to reduce penalties and interest. An extension to file is not an extension to pay. An extension to file provides an additional six months with a new filing deadline of October 17. Penalties and interest apply to taxes owed after April 18 and interest is charged on tax and penalties until the balance is paid in full.

Filing and paying as much as possible is key because the late-filing penalty and late-payment penalty add up quickly.

Even if a taxpayer can’t afford to immediately pay the full amount of taxes owed, they should still file a tax return to reduce possible delayed filing penalties. The IRS offers a variety of options for taxpayers who owe the IRS but cannot afford to pay.

Usually, the failure to file penalty is 5% of the tax owed for each month or part of a month that a tax return is late, up to five months, reduced by the failure to pay penalty amount for any month where both penalties apply. If a return is filed more than 60 days after the due date, the minimum penalty is either $435 or 100% of the unpaid tax, whichever is less.

The failure to pay penalty rate is generally 0.5% of unpaid tax owed for each month or part of a month until the tax is fully paid or until 25% is reached. The rate is subject to change. For more information see the Penalties page on IRS.gov.

Taxpayers may qualify for penalty relief if they have filed and paid timely for the past three years and meet other important requirements, including paying or arranging to pay any tax due. For more information, see the first time penalty abatement page on IRS.gov.

Pay taxes due electronically on IRS.gov/payments

Those who owe taxes can pay quickly and securely via their Online Account, IRS Direct Pay, debit or credit card or digital wallet, or they can apply online for a payment plan (including an installment agreement). Taxpayers paying electronically receive immediate confirmation when they submit their payment. With Direct Pay and the Electronic Federal Tax Payment System (EFTPS), taxpayers can receive email notifications about their payments.

Selecting a tax professional

The IRS offers tips to help taxpayers choose a Tax Professional to assist in tax return preparation.

The Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help taxpayers find tax return preparers who hold a professional credential recognized by the IRS or who have completed IRS requirements for the Annual Filing Season Program.

Taxpayer Bill of Rights

Taxpayers have fundamental rights under the law that protect them when they interact with the IRS. The Taxpayer Bill of Rights presents these rights in 10 categories. IRS Publication 1, Your Rights as a Taxpayer, highlights these rights and the agency’s obligation to protect them.

 

Missed Tax Deadline? Contact Us today with any questions!

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Michigan 1099-G Info for Identity Theft Victims

On April 11, 2022   /   Michigan Taxes  
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What Should I Do?

If you received a 1099-G and suspect that you may be the victim of identity theft, please complete these three steps:

Step 1

Complete a Form 6349, Statement of Identity Theft and submit it along with a detailed report to the Unemployment Insurance Agency (UIA).

After processing your report, UIA will send you a new 1099-G indicating the corrected amount of compensation.

Report Identity Theft to UIA Now

If you have questions about how to complete or submit the Form 6349, please call UIA at 1-866-500-0017.

Step 2

Receive a corrected 1099-G from UIA.

Step 3

After receiving your corrected 1099-G, send a copy of it to the Michigan Department of Treasury.

Ways to Send Your Corrected 1099-G to Treasury

Mail a copy of your corrected 1099-G to Treasury:

Michigan Department of Treasury

P.O. Box 30058

Lansing, MI 48909

Email a copy of your corrected 1099-G to Treasury:

Treas-1099gUIA@michigan.gov

 

Contact Us Today With Any Questions about Michigan 1099-G Info for Identity Theft Victims!

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6 Month Tax Extension announced by IRS

On April 4, 2022   /   IRS  
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A 6 Month Tax Extension was announced by the IRS for all taxpayers who use IRS Free File to request an extension.

WASHINGTON — The Internal Revenue Service reminds taxpayers that if they’re unable to file their tax return by this year’s April 18 deadline, there’s an easy, online option to get a 6 Month Tax Extension .

Taxpayers who need more time to complete their return can request an automatic six-month extension to file. An extension allows for extra time to gather, prepare and file paperwork with the IRS; however, taxpayers should be aware that:

  • An extension to file their return doesn’t grant them an extension to pay their taxes,
  • They should estimate and pay any owed taxes by their regular deadline to help avoid possible penalties and
  • They must file their extension no later than the regular due date of their return.

E-file an extension form for free

Individual tax filers, regardless of income, can use IRS Free File to electronically request an automatic tax-filing extension. The fastest and easiest way to get an extension is through IRS Free File on IRS.gov. Taxpayers can electronically request an extension on Form 4868 PDF. Filing this form gives taxpayers until October 17 to file their tax return. To get the extension, taxpayers must estimate their tax liability on this form and should timely pay any amount due.

Get an extension when making a payment

Other fast, free and easy ways to get an extension include using IRS Direct Pay, the Electronic Federal Tax Payment System or by paying with a credit or debit card or digital wallet. There’s no need to file a separate Form 4868 extension request when making an electronic payment and indicating it’s for an extension. The IRS will automatically count it as an extension.

Important reminders on extensions

The IRS reminds taxpayers that a request for an extension provides extra time to file a tax return, but not extra time to pay any taxes owed. Payments are still due by the original deadline. Taxpayers should file even if they can’t pay the full amount. By filing either a return on time or requesting an extension by the April 18 filing deadline, they’ll avoid the late-filing penalty, which can be 10 times as costly as the penalty for not paying.

Taxpayers who pay as much as they can by the due date, reduce the overall amount subject to penalty and interest charges. The interest rate is currently four percent per year, compounded daily. The late-filing penalty is generally five percent per month and the late-payment penalty is normally 0.5 percent per month.

The IRS will work with taxpayers who cannot pay the full amount of tax they owe. Other options to pay, such as getting a loan or paying by credit card, may help resolve a tax debt. Most people can set up a payment plan on IRS.gov to pay off their balance over time.

Other automatic extensions

Certain eligible taxpayers get more time to file without having to ask for extensions. These include:

  • U.S. citizens and resident aliens who live and work outside of the United States and Puerto Rico get an automatic 2-month extension to file their tax returns. They have until June 15 to file. However, tax payments are still due April 18 or interest will be charged.
  • Members of the military on duty outside the United States and Puerto Rico also receive an automatic two-month extension to file. Those serving in combat zones have up to 180 days after they leave the combat zone to file returns and pay any taxes due. Details are available in Publication 3, Armed Forces’ Tax Guide PDF.
  • When the President makes a disaster area declaration, the IRS can postpone certain taxpayer deadlines for residents and businesses in the affected area. People can find information on the most recent tax relief for disaster situations on the IRS website.

The deadline to submit 2021 tax returns or an extension to file and pay tax owed this year falls on April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia. Taxpayers in Maine or Massachusetts have until April 19, 2022, to file their returns due to the Patriots’ Day holiday in those states.

If you need more information regarding the 6 Month Tax Extension please Contact Us Today!

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