Federal Economic Impact Payments – Frequently Asked Questions

In response to the COVID-19 pandemic, Congress recently passed legislation authorizing stimulus payments to most Americans. These payments, called Economic Impact Payments, are being processed by the Internal Revenue Service (IRS) at the current time. Many people have questions about these payments, so this FAQ has been assembled to help you find answers.

Is the Economic Impact Payment considered to be taxable income?

No, this payment is not considered “income” by the IRS and you will not need to pay income tax on it. This payment will not effect your refund, or increase the amount you owe when you file your 2020 tax return in 2021. This stimulus payment will also have no impact on your eligibility for other federal assistance programs that use income to determine eligibility.

How can people who receive a Form SSA-1099 or RRB-1099 check their payment status?

Taxpayers can use the IRS Get My Payment tool to check on the status of their stimulus payment. This will require you to verify your identity by answering a set of security questions.

If my bank account information has changed since the last time I filed a tax return, how do I update my direct deposit information?

The Get My Payment tool at irs.gov does not allow you to change your direct deposit information. This is a security precaution to prevent these payments from being stolen by changing this information.

If the IRS sends your payment using the … Read the rest

10 Tips to Help You Choose a Tax Return Preparer

Many people look for help from professionals when it’s time to file their tax return. If you use a paid tax preparer to file your federal income tax return this year, the IRS urges you to choose that preparer carefully. Even if someone else prepares your return, you are legally responsible for what is on it.

Here are ten tips to keep in mind when choosing a tax return preparer.

1. Check the preparer’s qualifications. All paid tax return preparers are required to have a Preparer Tax Identification Number. In addition to making sure they have a PTIN, ask if the preparer belongs to a professional organization and attends continuing education classes.

2. Check on the preparer’s history. Check with the Better Business Bureau to see if the preparer has a questionable history. Also check for any disciplinary actions and for the status of their licenses. For Certified Public Accountants, check with the state boards of accountancy. For attorneys, check with the state bar associations. For Enrolled Agents, check with the IRS directly.

3. Ask about service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers can. Also, always make sure any refund due is sent to you or deposited into an account in your name. Taxpayers should not deposit their refund into a preparer’s bank account.

4. Ask to e-file your return. Make … Read the rest

Can’t pay your 2019 tax bill by July 15, 2020?

If you have a tax bill for 2019 that you can’t quite pay, you do have options.

Even if you can’t pay in full, I’d highly encourage you to file your return on time, which has been extended from April 15 to July 15 this year due to the pandemic and resulting recession. This way, you avoid the late filing penalties that can be added on to your tax liability, which can add up to 25% of your balance due. Also, try to pay as much as you possibly can with your return. If you are going to be filing an extension, pay as much as you can with your extension.

The IRS is currently charging a 5% annual interest rate, compounded daily, on all tax debts. On top of that, you will be subject to a failure to pay penalty, which will further increase your tax debt.

It may be worthwhile to consider using credits cards or a loan to pay your tax bill. When you consider the extensive penalties the IRS charges, your credit card interest rate may actually be quite a bit lower.

If you absolutely cannot pay your tax bill this year, then use either the online payment agreement request system at irs.gov, or complete Form 9465 to request a payment plan. You are not required to wait until the IRS bills you before requesting a payment plan.

The most important thing to remember is that, … Read the rest

How to Choose a Tax Firm for Complex Needs

Choosing a tax professional isn’t an easy task anyway, but mix in the coronavirus tax extension deadline and current economic recession, and this process just got a whole lot more complicated. Keep reading for all you need to know about how to choose a tax firm for your complex accounting, tax planning, and taxpayer representation needs.

Do I even need an accountant or tax firm?

According to the Internal Revenue Service (IRS), every taxpayer is entitled to representation. The taxpayer may either represent themselves, or with proper written authorization, have someone else represent them. However, this representative can’t be just anyone. They must be a licensed attorney, Certified Public Accountant (CPA) or Enrolled Agent. Each individual may verify a representative’s eligibility.

Why would I want a representative?

You may want a representative (such an accountant or tax firm) to represent you for a number of reasons. These include a specific tax problem, a notice from the IRS or a tax audit. For most taxpayers, the chances of being audited are less than 1 percent. Those most likely to get audited are among those in the highest income brackets and those in the lowest. If this happens to you, your representative can help to interact with the IRS on your behalf as well as provide information and explanations. They can also enter into agreements with the IRS once you reach them. However, it is important to select your representative carefully because, … Read the rest

Quick Guide to Late Filing, Amended Returns, and Late Payment Penalties

In most years, April 15 is the deadline for the majority of Americans to both file their tax return and pay any taxes that are due on that return. If you don’t file on time, you potentially face one set of penalties. If you don’t pay by this date, there’s another set of penalties that applies.

Here’s the good news for individuals that are unable to pay by the normal due date: The late payment penalty isn’t nearly as stiff as the late filing penalty.

The reason for this is because the IRS is far more interested in knowing how much you owe rather than having you pay it on time. They rely heavily on people filing their tax returns in order to make the proper tax assessment (never let the IRS do your tax return for you). Knowing how much you owe them starts a well defined process, but when the IRS doesn’t know how much you owe, they can get pretty grumpy about it.

Of course, the more you pay with your tax return or extension, the lower your penalty and interest charges are going to be in the long run. This is because all of your penalties and interest are a percentage of the unpaid balance due after April 15th.

The penalty for not filing a tax return is typically 5% per month or part of a month. One day is considered “part of a … Read the rest

Firefighter and ambulance meal deduction facts

There is a pervasive myth within the emergency services professions regarding a tax deduction for meals during their on-shift days.

This myth is most common with the firefighter ranks, but is also seen within ambulance, police, and other emergency services professions.

Where this myth comes from, I’m not certain. But it definitely maintains it’s urban legend status due to being passed from one person to another. It can only be assumed that tens of thousands of emergency services personnel illegally take this deduction every year.

So let’s set the record straight: There is no on-shift meal deduction permitted for emergency services personnel.

It doesn’t matter if you work a 24-hour shift, and it doesn’t matter what you do for a living (this isn’t limited to emergency personnel, it’s EVERYBODY): If you’re at your job, in your home area, regardless of shift length, there is no meal deduction. Period.

Meal deductions, including per diem (Meals and Incidental Expenses – M&IE), are only permitted when you travel away from home for business or work, and are not reimbursed. If you actually get paid per diem, you can’t also deduct it (no double dipping, in other words).

Here is what firefighters and other workers can do, however. Some fire stations, police stations, and other work places where it is common to work long shifts have what is called a common meal fund. Basically, everybody pitches in a certain amount of money per … Read the rest

Attention Truckers: Don’t forget to file Form 2290 this week

If you are a tractor-trailer operator or run other heavy highway equipment, you are probably already familiar with IRS Form 2290 and the payment of heavy vehicle highway use taxes. In general, this return is due on August 31st, along with payment for your vehicles that are taxed as heavy vehicls.

The deadline generally applies to Form 2290 and the accompanying tax payment for the tax year that begins on July 1, 2012, and ends on June 30, 2013. Returns must be filed and tax payments made by Aug. 31 for vehicles used on the road during July. If you put a new vehicle into service after July 2012, you will need to file another return and pay the tax on that vehicle by the end of next month after placing the vehicle in service. So, if you put a new rig into service in November, the return and the tax are both due on December 31.

The highway use tax applies to highway motor vehicles with a taxable gross weight of 55,000 pounds or more, which generally includes trucks, truck tractors, and buses. Ordinarily, vans, pick-ups, and panel trucks are not taxable because they fall below the 55,000-pound threshold. The tax of up to $550 per vehicle is based on weight, and a variety of special rules apply, which are explained in the instructions to Form 2290.

If you have not yet filed and paid these particular taxes, they … Read the rest

Final Thoughts For 2011 Tax Returns on Deadline Day

Today is April 17th: Tax day. I’m sure that it will be discussed during the day’s talk shows and news broadcasts, and there will be long lines at the post offices that stay open until midnight. There will be reminders aplenty around you today that this is the day, the final day, the deadline, the “do it or go to jail” day.

In reality, that’s all hogwash.

In all actuality, there is only one firm, hard deadline today for most taxpayers: Today is the last day the IRS will accept e-files. If you file tomorrow, you have to mail it in.

What about an extension? Yes, if you want to file an extension, it’s a good idea to do so. But NOT filing an extension doesn’t have any real consequences.

If you owe the IRS money for 2011, then yes, today is theoretically the deadline to pay it. But for most people reading this particular article, the reason they’re reading this info in the first place is because they don’t have the cash on hand to pay their tax bills. So what really happens if you don’t file and pay on time?

Really, nothing of non-monetary consequence.

Yes, you’re going to pay some interest and penalties if you owe. There are both late filing penalties AND failure to pay penalties, and yes, they’re steep. These penalties are a percentage of what you owe, as are interest charges. Interest is … Read the rest

Is the IRS Holding Your Unclaimed Refund Check?

Finally, a happy thought when it comes to taxes: The IRS may be holding money that is yours, and they really, really do want to give it to you!

If you had a job and had income taxes withheld from your paycheck, but you didn’t file a return either because you didn’t have to because of your income level or because you thought you wouldn’t get the money back, you may actually be in for a surprise. It may not necessarily be a lot of money, but I believe you should even file your claim for a $10 refund merely on principle if it’s owed to you.

The IRS keeps millions of dollars every year that they are not legally entitled to keep, simply because taxpayers didn’t realize they could get the money back. In order to file a return for the express purpose of getting a refund, even if you weren’t legally obligated to file a tax return, you need to file the return and request the refund within 3 years of when the tax return was originally due, which is generally April 15th of each year for personal income tax returns. After this three year period, the government says, “Too bad, so sad” and gets to legally keep your money.

If you file a tax return late, but are due a refund, there are no penalties for late filing. They only whack you with late filing penalties … Read the rest

Unfiled Tax Returns

Do you have past due tax returns? If so, you’re not alone. While the IRS does not publish statistics on this, nor are they really able to track this number, but my own research and statistical analysis (because I’m a numbers geek and do stuff like that), estimates that there are between 5 and 8 million outstanding personal income tax returns in the United States for the past three years alone.

If you owe a tax debt to the government and are seeking to get that situation resolved, you will first need to file any missing returns. The IRS will NOT negotiate a payment plan or a reduced settlement if you have past due tax returns. The reason for this is pretty simple: If you don’t file the returns, they don’t know how much you really owe.

While any tax preparer, CPA, or Enrolled Agent can probably assist you with filing your past due tax returns, it is important to note that many of these tax preparers focus their practices solely on current year tax return filings. Since the tax laws change literally every year, it’s a daunting task just to keep up with the tax code for the current year, so many tax preparers don’t bother trying to keep up with prior year tax matters.

A firm that specializes in taxpayer representation, on the other hand, often does exactly the opposite. Many of these firms don’t even offer current … Read the rest