A taxpayer is in the business of farming if he or she cultivates, operates or manages a farm for profit, either as an owner or as a tenant. A farm includes livestock, dairy, poultry, fish, fruit and truck farms. A farm also includes plantations, ranches, ranges and orchards. Following are 10 key points for farmers in regard to federal income taxes.

1. Crop insurance proceeds. Farmers must include in income any crop insurance proceeds which they receive as the result of crop damage. Farmers generally include those proceeds in the year they receive them.
2. Sales caused by weather-related condition. If a farmer sells more livestock, including poultry, than he or she normally would in a year because of weather-related conditions, he or she may be able to postpone until the next year the reporting of the gain from selling the additional animals.
3. Farm income averaging. Farmers may be able to average all or some of their current year’s farm income by allocating that income to the three prior years. This may lower a farmer’s current year tax if their current year income from farming is high, and their taxable income from one or more of the three prior years was low. This method does not change a prior year tax, it only uses the prior year information to determine a farmer’s current year tax.
4. Deductible farm expenses. The ordinary and necessary costs of operating a farm for profit are deductible business expenses.  An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.
5. Employees and hired help. A farmer can deduct reasonable wages paid for labor hired to perform his or her farming operations. This includes full-time and part-time workers. Farmers must withhold Social Security, Medicare and income taxes for employees.
6. Items purchased for resale. A farmer also may be able to deduct, in the year of the sale, the cost of items purchased for resale, including livestock and the freight charges for transporting livestock to the farm.
7. Net operating losses. If a farmer’s deductible expenses from operating his or her farm are more than their other income for the year, the farmer may have a net operating loss. Like other taxpayers, farmers can carry that loss over to other years and deduct it. A farmer also may get a refund of part or all of the income tax he or she paid for past years, or may be able to reduce his or her tax in future years.
8. Repayment of loans. A farmer cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if the proceeds of the loan are used for the farming business, a farmer can deduct the interest that he or she pays on the loan.
9. Fuel and road use. A farmer may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.
10. Farmers Tax Guide. More information about farm income and deductions is available in IRS Publication 225, Farmer’s Tax Guide, which is available at the official IRS website at www.IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).

For more information about this topic, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also feel free to share this article with others that might benefit from this information.

U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2011, might have a U.S. tax liability and a filing requirement in 2012. Following are some tips from the IRS for U.S. taxpayers with foreign income:

1. Filing deadline. U.S. citizens and resident aliens residing overseas or those serving in the military outside the U.S. on the regular due date of their tax return have until June 15, 2012 to file their federal income tax return. To use this automatic two-month extension beyond the regular April 17, 2012 deadline, taxpayers must attach a statement to their return explaining which of the two situations above qualifies them for the extension. An initial automatic extension to file and pay goes to and includes June 15th, with an additional four-month extension to file only (not pay) available upon request using IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.
2. World-wide income. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.
3. Tax forms. In most cases, affected taxpayers need to fill out and attach Schedule B, Interest and Ordinary Dividends, to their tax return. Certain taxpayers also might have to fill out and attach to their tax return the new IRS Form 8938, Statement of Foreign Financial Assets. [See also, Instructions to Form 8938]. In addition, some taxpayers also might have to file Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts, with the Treasury Department by June 30, 2012, to report amounts in foreign bank and financial accounts. Stiff penalties can apply for the failure to file the necessary forms.
4. Foreign earned income exclusion. Many Americans who live and work abroad qualify for the foreign earned income exclusion. If you qualify for tax year 2011, this exclusion enables you to exempt up to $92,900 of wages and other foreign earned income from U.S. tax.
5. Credits and deductions. You may be able to take either a credit or a deduction for income taxes paid to a foreign country or a U.S. possession. This benefit is designed to lessen the tax burden that results when both the U.S. and another country tax income from that country.
6. Free File. Taxpayers abroad now also can use IRS Free File. This means U.S. citizens and resident aliens living abroad with adjusted gross income of $57,000 or less can use brand-name software to prepare their returns and then electronically file them for free.
7. Tax help. If you live outside the U.S., the IRS has full-time permanent staff in four U.S. embassies and consulates. A list is available on the official IRS Website (www.IRS.gov) in the “Contact Your Local Office Section,” under International. These offices have tax forms and publications that can help you with filing issues and answer your questions about notices and bills.

For more information about this topic, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. More information also is available in IRS Publication 4261, Do You Have a Foreign Financial Account? IRS publications, forms and more information on topics useful to individual international taxpayers can be found on the International Taxpayer page on the IRS website. Please feel free to share this article with others that might benefit from this information.

As announced in the latter part of 2011, the Internal Revenue Service (IRS) has developed a new program to permit taxpayers to voluntarily reclassify workers as employees for federal employment tax purposes. The Voluntary Classification Settlement Program (VCSP) allows eligible taxpayers to voluntarily reclassify their workers for federal employment tax purposes and obtain relief similar to that obtained in the existing Classification Settlement Program (CSP). The VCSP is optional and provides taxpayers with an opportunity to voluntarily reclassify their workers as employees for future tax periods with limited federal employment tax liability for the past non-employee treatment. To participate in the program, the taxpayer must meet certain eligibility requirements, apply to participate in VCSP, and enter into a closing agreement with the IRS.

Whether a worker is performing services as an employee or as an independent contractor depends upon the facts and circumstances and is generally determined under the common law test of whether the service recipient has the right to direct and control the worker as to how to perform the services. In some factual situations, the determination of the proper worker classification status under the common law may not be clear. For taxpayers under IRS examination, the current CSP is available to resolve federal employment tax issues related to worker misclassification, if certain criteria are met. The examination CSP permits the prospective reclassification of workers as employees, with reduced federal employment tax liabilities for past non-employee treatment. The CSP allows business and tax examiners to resolve the worker classification issues as early in the administrative process as possible, thereby reducing taxpayer burden and providing efficiencies for both the taxpayer and the government.

In order to facilitate voluntary resolution of worker classification issues and achieve the resulting benefits of increased tax compliance and certainty for taxpayers, workers and the government, the IRS determined that it would be beneficial to provide taxpayers with a program that allows for voluntary reclassification of workers as employees outside of the examination context and without the need to go through normal administrative correction procedures applicable to employment taxes.

The VCSP is available for taxpayers who want to voluntarily change the prospective classification of their workers. The program applies to taxpayers who are currently treating their workers (or a class or group of workers) as independent contractors or other non-employees and want to prospectively treat the workers as employees. To be eligible, a taxpayer must have consistently treated the workers as non-employees, and must have filed all required Forms 1099 for the workers for the previous three years. The taxpayer cannot currently be under audit by the IRS. Furthermore, the taxpayer cannot be currently under audit concerning the classification of the workers by the Department of Labor or by a state government agency. A taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the workers will only be eligible if the taxpayer has complied with the results of that audit.

A taxpayer who participates in the VCSP will agree to prospectively treat the class of workers as employees for future tax periods. In exchange, the taxpayer (1) will pay 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509 of the Internal Revenue Code; (2) will not be liable for any interest and penalties on the liability; and (3) will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years. Additionally, a taxpayer participating in the VCSP will agree to extend the period of limitations on assessment of employment taxes for three years for the first, second and third calendar years beginning after the date on which the taxpayer has agreed under the VCSP closing agreement to begin treating the workers as employees.

Eligible taxpayers who wish to participate in the VCSP must submit an application for participation in the program. Information about the VCSP and the application now is available on the official IRS website at www.IRS.gov. Taxpayers should use IRS Form 8952 to apply for the Voluntary Classification Settlement Program. For more information, see the following link: Instructions for Completion of Form 8952. Along with the application, the name of a contact or an authorized representative with a valid Power of Attorney (Form 2848) should be provided. The IRS will contact the taxpayer or authorized representative to complete the process once it has reviewed the application and verified the taxpayer’s eligibility. The IRS retains discretion whether to accept a taxpayer’s application for the VCSP. Taxpayers whose application has been accepted will enter into a closing agreement with the IRS to finalize the terms of the VCSP and will simultaneously make full and complete payment of any amount due under the closing agreement. Payment should not be enclosed with the application.

For further information about this IRS program or other employment or business tax issues, contact your professional tax advisor, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also feel free to share this article with others that might benefit from this information.

Also, in an effort to streamline the certification requirements, IRS clarified and expanded upon 2002 guidance to facilitate employers’ use of electronic signatures when gathering the Form 8850 for transmission to state workforce agencies. The guidance confirms that employers can transmit the Form 8850 electronically, and also allows employers to transmit the Form 8850 via facsimile, subject to the ability of the state workforce agencies to accept submissions in those formats. The IRS expects the Department of Labor to issue further guidance to the state workforce agencies providing further clarification.

IRS Notice 2012-13, posted today on www.IRS.gov, and the instructions for Form 8850 provide further details. Businesses claim the credit on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800. This credit is also available to certain tax-exempt organizations by filing Form 5884-C. The guidance released today also provides instructions and a new set of forms for tax-exempt organizations to claim the credit.

For more information, including how to claim the credit, call your professional tax advisor or tax preparer, or go to the official IRS website at www.IRS.gov, or click here [Expanded Work Opportunity Tax Credit Available for Hiring Qualified Veterans] to read an expanded IRS article on this issue. Please also feel free to forward this article to others that might benefit from this information.

Before you file your 2011 tax return, make sure you have all the needed documents, including all your Forms W-2. You should receive an IRS Form W-2, “Wage and Tax Statement,” from each of your employers. Employers have until Jan. 31, 2012 to issue your 2011 Form W-2 earnings statement.

If you haven’t received your W-2, the IRS suggests that you follow these four steps:

1. Contact your employer If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed.  If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.  After contacting the employer, allow a reasonable amount of time for them to resend or issue the W-2.

2. Contact the IRS  If you do not receive your W-2 by Feb. 14, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, Social Security number, phone number and have the following information:

• Employer’s name, address and phone number
• Dates of employment
• An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2011. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return You still must file your tax return or request an extension to file by April 17, 2012, even if you do not receive your Form W-2. If you have not received your Form W-2 in time to file your return by the due date, and have completed steps 1 and 2, you may use IRS Form 4852, “Substitute for Form W-2, Wage and Tax Statement” (see link below). Attach Form 4852 to the return, with an estimate of income and withholding taxes which is as accurate as possible.  There may be a delay in any refund due while the information is verified.

4. File a Form 1040X  On occasion, you may receive your missing W-2 after you file your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing an IRS Form 1040X, “Amended U.S. Individual Income Tax Return” (see link below). Form 4852, Form 1040X and instructions also are available on the IRS’s official website at www.IRS.gov, or by calling 800-TAX-FORM (800-829-3676).

Links to brief IRS prepared YouTube videos (in English, Spanish and ASL) about this topic are included below. For more information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also share this article with others that might benefit from this information.

Links:

• Form 4852, Substitute for Form W-2, Wage and Tax Statement
• Form 1040X, Amended U.S. Individual Income Tax Return and instructions

YouTube Videos:

W-2 Missing? English | Spanish | ASL

There are many benefits that come from being your own boss. If you work for yourself, as an independent contractor, or you carry on a trade or business as a sole proprietor, you generally are considered to be self-employed. Following are six key points you should know about self-employment and self-employment taxes, some of which might be basic, but nonetheless will serve as a handy reminder:

1. Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.

2. If you are self-employed you generally have to pay self-employment tax as well as income tax. Self-employment tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. You can calculate self-employment tax using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax when you calculate your adjusted gross income.

3. If you are self-employed you might have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you fail to make quarterly payments you may be penalized for underpayment at the end of the tax year.

4. You can deduct the costs of running your business or which otherwise are related to the income earned from the business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold, but rather can deduct in the current year.

5. To be deductible, the IRS requires that a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.

6. To report income and deductible expenses from self-employment, including possible net business losses, you need to file an IRS Schedule C, Profit or Loss from Business, or IRS Schedule C-EZ, Net Profit from Business, with your Form 1040.

For more information about self-employment income and self-employment taxes, contact your professional tax preparer or tax advisor, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Additional information also is available from the IRS Self-employment Tax Center, and from IRS Publication 334, “Tax Guide for Small Business,” IRS Publication 535, “Business Expenses,” and IRS Publication 505, “Tax Withholding and Estimated Tax,” all available at the official IRS website at www.IRS.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676), or by just clicking on the links below. Please feel free to share this article with others that might benefit from this information and the attached links.

Links:

• Publication 334, Tax Guide for Small Business
• Publication 535, Business Expenses
• Publication 505, Tax Withholding and Estimated Tax
• Schedule C, Profit or Loss from Business and instructions
• Schedule C-EZ, Net Profit from Business
• Schedule SE, Self-Employment Tax and instructions
• Form 1040-ES, Estimated Tax for Individuals

The IRS recently reminded all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits. Here are six tax-saving tips for you to consider before the calendar turns to 2012:

1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn’t paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible. (For a fuller discussion, see the related article, Tax Tips for Year-End Giving.)

2. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the www.IRS.gov website (see link to article below).

3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.

4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.

5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.

6. Don’t Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov.

And here is one final tip to remember: you should always save receipts and records related to your taxes. Good record-keeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.

For more year-end tax information and to access all IRS forms and publications, visit the IRS website at www.IRS.gov. For additional information and assistance, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also forward this article to others that can benefit from this information.

Additional Links:

• Publication 526, Charitable Contributions
• Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011
• Publication 590, Individual Retirement Arrangements (IRAs) 
• Publication 550, Investment Income and Expenses
• Retirement Topics, 401(k) and Profit-Sharing Plan Contribution Limits
• Small Business Health Care Tax Credit for Small Employers

YouTube Videos:

Year-End Tax Tips – December 2011 English | Spanish | ASL

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:

Special Charitable Contributions for Certain IRA Owners

This provision, currently scheduled to expire at the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer. Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Amounts transferred to a charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. See Publication 590, Individual Retirement Arrangements (IRAs), for more information on qualified charitable distributions.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

To help taxpayers plan their holiday-season and year-end giving, following are some additional reminders:

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2011 count for 2011. This is true even if the credit card bill isn’t paid until 2012. Also, checks count for 2011 as long as they are mailed in 2011.
• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, searchable and available online (see link to online version here), lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
• For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2011 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
• For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
• If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
• And, as always it’s important to keep good records and receipts.

For additional information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also forward this information to others that might find it useful.

Additional Links:

• Charities & Non-Profits
• Publication 526, Charitable Contributions

In an annual reminder to taxpayers, the Internal Revenue Service announced recently that it is looking to return $153.3 million in undelivered tax refund checks. In all, 99,123 taxpayers are due refund checks this year that could not be delivered because of mailing address errors. Undelivered refund checks average $1,547 this year.

Taxpayers who believe their refund check may have been returned to the IRS as undelivered should use the “Where’s My Refund?” tool on www.IRS.gov. The tool will provide the status of a taxpayer’s refund and, in some cases, instructions on how to resolve delivery problems. Taxpayers checking on a refund over the phone will receive instructions on how to update their addresses. Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.

While only a small percentage of checks mailed out by the IRS are returned as undelivered, the IRS does offer another option (if taxpayers choose) to help avoid lost, stolen or undelivered checks: taxpayers can opt for direct deposit when they file either paper or electronic returns. The IRS reports that last year, more than 78.4 million taxpayers chose to receive their refund through direct deposit. Taxpayers can receive refunds directly into their bank account, split a tax refund into two or three financial accounts or even buy a savings bond. As usual, the IRS also recommends that taxpayers file their tax returns electronically, because e-file reduces the risk of lost paper returns. According to the IRS, e-file also speeds up refunds. The IRS reports that nearly 8 out of 10 taxpayers chose e-file last year.

As a helpful reminder, taxpayers should be aware that the IRS does not contact taxpayers by e-mail to alert them of pending refunds and does not ask for personal or financial information through email.  Such messages are common phishing scams. (For more information about such scams, see the link to the IRS article below.) The IRS urges taxpayers receiving such messages not to release any personal information, reply, open any attachments or click on any links to avoid malicious code that can infect their computers.  The best way for an individual to verify if she or he has a pending refund is by going directly to www.IRS.gov and using the “Where’s My Refund?” tool.

For more information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also share this article with others.

Links:

• “Where’s My Refund?” tool
• IRS Article: “The IRS does not initiate contact with taxpayers by email to request personal or financial information”

Taxpayers who owe taxes may be relieved to know that there are some options for those who owe and cannot afford to pay the full amount right away. Following are some things to know if you need more time to pay your taxes.

1. To begin with, if you are unable to pay all your taxes that are due, it still is helpful to pay as much as you can afford. By paying as much as possible currently, the total amount of interest and penalties owed will be less. If paying by check or money order, it is important to send the payment to the correct IRS office, to properly designate the tax year and tax form for which payment is being made, as well as to properly include the primary taxpayer’s social security number or taxpayer identification number on the payment.
2. Based on the circumstances, a taxpayer can qualify for an extension of time to pay, an Installment Agreement, temporary delay of the payment, or an Offer in Compromise.
3. If you cannot pay the full amount, you immediately should consult with a professional tax advisor to determine your options, or at a minimum, call the number or write to the address on the IRS bill you receive. Delay in dealing with the unpaid amount can make the problem worse since the IRS might begin to take more severe collection actions that can be far less favorable than other alternatives that might be available to you.
4. If possible, you may want to consider financing the full payment of your tax liability through a loan. The interest rate and fees charged by a bank or other lender might be lower than the amount of interest and penalties imposed by the Internal Revenue Code. Payment on a credit card also is an option, but should be done only after careful consideration of the fees and interest that will assessed on such credit card account as compared to the interest and late fees collectible from the IRS. Consideration also should take into account the possibility of the discharge of credit card debt in bankruptcy versus possible discharge of IRS income tax debts in bankruptcy.
5. If you cannot pay the taxes in full immediately, you may qualify for a short amount of additional time—up to 120 days—to pay in full. Generally no fee is charged for this type of payment arrangement and this option may minimize the amount of penalties and interest you incur. Note that interest on any unpaid amount will continue to accrue during this period.
6. You also might want to consider an Installment Agreement. This arrangement allows you to make monthly payments after a one-time fee of $105 is paid. If you choose to pay through a Direct Debit from your bank account, the fee is reduced to $52. Lower-income taxpayers can qualify for a reduced fee of $43. To apply for an Installment Agreement, you can use the Online Payment Agreement application available on the IRS website (see link below); file a IRS Form 9465, Installment Agreement Request (see link below); or call the IRS at the telephone number shown on your bill. A professional tax advisor or tax preparer also can assist you with the preparation of an Installment Agreement.
7. In some cases, a taxpayer might qualify for an Offer in Compromise, an agreement between the taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. Generally, the IRS will require complete and detailed financial records (including recent income and expense records) before it will agree to compromise a tax debt. Taxpayers should consult with a tax professional to learn more about the Offer in Compromise process, including the associated fees and forms to submit an application for an Offer in Compromise.
8. Even if you set up an installment agreement, the IRS still can file a Notice of Federal Tax Lien to secure the government’s interest until you make the final payment. This generally would mean a notice is filed in your County of residence, and likely in any other jurisdiction where you own or hold a real property interest. Such notice often will prevent the sale of any property which is subject to the lien, until the lien is either satisfied, or unless and until the government agrees to release or withdraw the lien notice. The notice of lien also generally will appear on the taxpayer’s credit report.
9. It is important to respond to an IRS notice. If you do not pay your tax liability in full or make an alternative payment arrangement, the IRS is allowed to take collection action, which action often is more severe than one of the alternate arrangements.

For more information on the IRS collection process, go to www.IRS.gov or see IRS Publication 594, The IRS Collection Process (see link below). To obtain additional information, contact your professional tax advisor or tax preparer, or call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985. Please also feel free to share this article with others that might benefit from this information.

Links:

• Payment Options – Ways To Make a Payment
• Other Ways to Resolve Tax Debt That Could Save You Money
• Online Payment Agreement Application
• Form 9465, Installment Agreement Request
• Publication 966, The Secure Way to Pay Your Federal Taxes
• Publication 594, The IRS Collection Process

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