Ah, the “Age of Technology.” It can be a wonderful thing. The technologies of today make life faster, more convenient, high def and digital. And guess what? This includes your taxes!
During this wonderful age of technology, everybody is going “paperless,” including the Internal Revenue Service. That’s right. The IRS got all technological on us. Here’s a little secret…they’re even on YouTube now.
What does this mean for you?
First, it means that tax returns will be filed electronically instead of by filling out paper documents and mailing them or delivering them to the IRS. The transition to paperless seriously began in 2011 and as of 2012, the IRS is requiring any tax professional who prepares 11 or more tax returns to electronically file all of the returns that they prepare. In addition, the IRS is no longer mailing out tax form packets to individuals.
The second thing this means is that your tax preparer or accountant’s office is probably trying to transition to paperless as well. More and more tax professionals are storing their back-up documentation and past tax returns electronically as PDF’s. In fact, some offices are offering electronic copies of the tax returns to their clients in lieu of or in addition to a paper copy.
Another new technology that is quickly becoming popular is the Secure Portal. This is basically a secured storage site online where you and your tax professional can electronically store and/or exchange documents related to your tax return.
Now the question remains, can the technology be trusted?
In my opinion, yes it can. I have long been an advocate of the electronic filing (e-file) system. It is quicker than mailing a paper return, it is secure, and it reduces the risk for errors. As long as the proper measures are taken to ensure that files are properly and securely stored, a paperless system is going to save time and headaches for all parties involved…and it takes up a lot less space in your filing cabinet! I don’t know about you, but I’d rather have ten years worth of CD’s on my shelf than ten years worth of banker’s boxes.
IRS Offers Several Reasons to File Your Tax Return Electronically
It’s safe. It’s easy. It’s time. Most taxpayers—nearly 80 percent– file electronically. If you haven’t tried it, now is the time! The IRS has processed more than 1 billion individual tax returns safely and securely since the nationwide debut of electronic filing in 1990. In fact, last year, 112 million people – 78 percent of all individual taxpayers – used e-file to electronically transmit their tax returns to the IRS. The number of people who use a paper tax return or who mail a tax return dwindles each year – and for good reason .
1. Safety and security. E-file providers must meet strict guidelines and provide the best in encryption technology. You receive an acknowledgement within 48 hours that the IRS received your return. If the IRS rejects the return, the receipt will explain why so you can quickly correct and resubmit.
2. Faster refunds. An e-filed tax return normally means a fast refund. If you combine e-file and direct deposit the IRS can typically issue your refund in as few as 10 days. About three of four taxpayers receive a refund and last year the average refund was approximately $2,900.
3. More payment options. If you e-file you can file early and set an automatic payment withdrawal date for any date on or before the April due date. You may also pay by paper check or even by credit card.
4. It’s easy. You can e-file using several options: through your tax preparer, commercial tax preparation software or through Free File, the free tax preparation and e-filing service available exclusively at www.irs.gov.
Starting in January 2012, any paid preparer or firm that reasonably anticipates preparing and filing 11 or more Form 1040 series returns, Form 1041 returns or a combination of both generally must use IRS e-file. These tax return preparers must be authorized IRS e-file providers so they can transmit tax returns electronically. More information for paid preparers is available at www.irs.gov.
Here’s the thing. We are all adults here – intelligent adults who are very capable at multiple things. So doing our own taxes to save some money on preparation fees seems like a good idea. They make computer programs for it. It’s so easy…you just log on and answer a few questions and get your refund lickety-split. So what’s the big deal? Well, it IS a big deal and let me give you a very real example as to why.
I was teaching a small class the other night on what kinds of things are deductible to small business owners. The women were very smart and they asked good questions. I knew a couple of them on a more personal level and so I know just how smart they are.
As I was teaching, I started to talk about the deduction for Business Use of Your Home. I explained to the girls that the area used for a home office had to an area used exclusively for business and couldn’t just be a corner of the bedroom that you piled your inventory up into. All of the ladies seemed surprised and one in particular was even shocked. She told me that she had been using one of the do-it-yourself software programs for her taxes and it had just told her to estimate the square footage of the area she used for her business. It didn’t tell her anything about that area having to be exclusively used for business.
So there is your answer. It’s a big deal because the software program doesn’t tell you the tax law. It doesn’t tell you the guidelines that you have to follow. It just asks you to fill in the blanks. If you don’t know the law, how can you follow it? If you are used to doing something the same every year in your software program and a law changes, but the form doesn’t, how are you going to know to fill it in differently?
I suppose you could call their customer support. Do you trust the people on the other end of the phone to help you do your taxes; voices with no faces from some mysterious location across the country (or worse, in another country)?
Of course it is always up to you. Just remember that no matter how your tax return is prepared, whether you do it by hand, use a software program, or go through a tax preparer, your tax return is ultimately your responsibility. You should always look it over as best you can to make sure that nothing was accidentally left off, no errors were made, and the information is true and correct. I look at it this way. Whether you send the return electronically, mail it through the postal service, or drop it off to the IRS in person, your signature is on it. Now when you get audited, do you want to have to call a 1-800 number and have some stranger help you or represent you in audit? Or do you prefer to build a relationship with one person who knows your situation and will be there with you every step of the way?
The fact is, when my car breaks down, I can go to the auto parts store and pick up some things and come home to fix it myself. When I’m sick I can go onto the internet and self-diagnose myself and go to the drugstore to find appropriate over-the-counter medications. These things will probably work fine and I will probably save money for a little while. It’s only a matter of time, however, before I have to take that car in to the mechanic for some major repairs or go to the doctor for an actual prescription or medical procedure. If I have been using a quick fix all along, is it going to cost me more money to have the professional take care of it now than if I had just let them do it in the first place? Moral of the story – it’s always wise to know a good trusted professional.
All you procrastinators out there (including myself) will love this!
The 2012 deadline for filing your individual 2011 Federal Income Tax Return is April 17th. You have two whole extra days this year to get those taxes done. Why do we get this wonderful gift of two extra days? Because April 15th falls on a Sunday and April 16th is the Washington D.C. holiday called Emancipation Day.
Even though you have these glorious two extra days, there are some things you should always keep in mind when it comes to tax deadlines.
1. If you do not file your return by the deadline, you could be charged with “failure to file” penalties. To avoid these penalties, you must file what is called an Extension. An extension gives you six extra months to file your tax return.
2. Filing an extension only gives you extra time for filing the paperwork. It does not give you extra time to pay money owed. If you think you are going to owe money, try to guess how much you will owe and send it in with your extension. If you do not pay the full amount owed, you will be charged “failure to pay” penalties.
3. If you do not file your tax return by the original deadline and you do not file your tax return by the extension deadline, you are out of luck! There are no more extensions after the first one. At that point you are just late and should get it done as quickly as possible to avoid any more penalties or interest.
Here are the basic tax deadlines and tax payment deadlines for you to keep in mind.
January 15th – Estimated payments are due for 4th quarter of the prior year for taxpayers who typically owe money
April 15th – Estimated payments are due for 1st quarter for taxpayers who typically owe money
April 15th (17th this year) – Personal Federal tax returns are due or extensions must be filed by this day
June 15th – Estimated payments are due for 2nd quarter for taxpayers who typically owe money
September 15th (17th this year) – Estimated payments are due for 3rd quarter for taxpayers who typically owe money
October 15th – Extended Personal returns are now due
Determining your filing status is one of the first steps to filing your federal income tax return. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child. Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits and deductions, and your correct tax. Some people may qualify for more than one filing status. Here are eight facts about filing status that the IRS wants you to know so you can choose the best option for your situation.
1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.
6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child, have not remarried and you meet certain other conditions.
There’s much more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676). You can also use the Interactive Tax Assistant on the IRS website to determine your filing status. The ITA tool is a tax law resource on the IRS website that takes you through a series of questions and provides you with responses to tax law questions.
LINKS:
Publication 501, Exemptions, Standard Deduction, and Filing Information
The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a lure to make the communication appear more authentic and enticing. The goal of these scams – known as phishing – is to trick you into revealing your personal and financial information. The scammers can then use your information – like your Social Security number, bank account or credit card numbers – to commit identity theft or steal your money.
Here are five things the IRS wants you to know about phishing scams.
1. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.
2. The IRS does not initiate contact with taxpayers by email to request personal or financial information. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:
• Do not reply to the message.
• Do not open any attachments. Attachments may contain malicious code that will infect your computer.
• Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, visit the IRS website and enter the search term ‘identity theft’ for more information and resources to help.
3. The address of the official IRS website is www.irs.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site and report it to the IRS.
4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. You can forward a suspicious email to phishing@irs.gov.
5. You can help shut down these schemes and prevent others from being victimized. Details on how to report specific types of scams and what to do if you’ve been victimized are available at www.irs.gov. Click on “phishing” on the home page.
Even though each individual tax return is different, some tax rules affect every person who may have to file a federal income tax return. These rules include dependents and exemptions. The IRS has six important facts about dependents and exemptions that will help you file your 2011 tax return.
1. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,700 on your 2011 tax return.
2. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
3. Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption.
4. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe.
5. If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
6. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.
For more information on exemptions, dependents and whether you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available at www.irs.gov or can be ordered by calling 800-TAX-FORM (800-829-3676). You can also use the Interactive Tax Assistant at www.irs.gov to determine who you can claim as a dependent and how much you can deduct for each exemption you claim. The ITA tool is a tax law resource on the IRS website that takes you through a series of questions and provides you with responses to tax law questions.
LINKS:
Publication 501, Exemptions, Standard Deduction, and Filing Information
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 return this year, the IRS urges you to choose that preparer wisely. Even if a return is prepared by someone else, the taxpayer is legally responsible for what’s on it. So, it’s very important to choose your tax preparer carefully.
This year, the IRS wants to remind taxpayers to use a preparer who will sign the returns they prepare and enter their required Preparer Tax Identification Number (PTIN).
Here are ten tips to keep in mind when choosing a tax return preparer:
1. Check the preparer’s qualifications. New regulations require all paid tax return preparers to have a Preparer Tax Identification Number. In addition to making sure they have a PTIN, ask if the preparer is affiliated with a professional organization and attends continuing education classes. The IRS is also phasing in a new test requirement to make sure those who are not an enrolled agent, CPA, or attorney have met minimal competency requirements. Those subject to the test will become a Registered Tax Return Preparer once they pass it.
2. Check on the preparer’s history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Enrollment for enrolled agents.
3. Ask about their 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. Also, always make sure any refund due is sent to you or deposited into an account in your name. Under no circumstances should all or part of your refund be directly deposited into a preparer’s bank account.
4. Ask if they offer electronic filing. Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return. More than 1 billion individual tax returns have been safely and securely processed since the debut of electronic filing in 1990. Make sure your preparer offers IRS e-file.
5. Make sure the tax preparer is accessible. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.
6. Provide all records and receipts needed to prepare your return. Reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items. Do not use a preparer who is willing to electronically file your return before you receive your Form W-2 using your last pay stub. This is against IRS e-file rules.
7. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.
8. Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
9. Make sure the preparer signs the form and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return. The preparer must also give you a copy of the return.
10. Report abusive tax preparers to the IRS. You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 from www.irs.gov or order by mail at 800-TAX-FORM (800-829-3676).
Navigate your way through the tax season online and skip waiting in line. All you need is a computer and Internet access because the IRS website has a wealth of free information and online tax support. Here are the top reasons to visit www.irs.gov.
1. Unlimited access – get answers 24 hours a day, seven days a week If you find yourself needing help over the weekend, there’s no need to wait to get a form or an answer to a question. Visit the IRS website; it’s accessible all day, every day. You’ll find answers to many frequently asked questions, and the helpful Interactive Tax Assistant is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions.
2. Check the status of your tax refund – Whether you chose direct deposit or asked the IRS to mail you a check, you can check the status of your refund through Where’s My Refund?
3. Make payments electronically – You can authorize an electronic funds withdrawal, use a credit or debit card, or enroll in the U.S. Treasury’s Electronic Federal Tax Payment System to pay your federal taxes. Electronic payment options are a convenient, safe and secure way to pay taxes.
4. Find out if you qualify for the Earned Income Tax Credit – EITC is a tax credit for many people who earned less than $49,000 in 2011. Find out if you are eligible by answering some questions and providing basic income information using the EITC Assistant.
5. Get tax forms and publications – You can view and download tax forms and publications any hour of the day or night.
6. Calculate the right amount of withholding on your W-4 – The IRS Withholding Calculator can help ensure you don’t have too much or too little income tax withheld from your pay.
7. Request a payment agreement Paying your taxes in full and on time avoids unnecessary penalties and interest. However, if you cannot pay your balance in full you may be eligible to use the Online Payment Agreement Application to request an installment agreement.
8. Get information about the latest tax law changes Learn about tax law changes that may affect your tax return. Special sections of the website highlight changes that affect individual or business taxpayers.
Remember the address of the official IRS website is www.irs.gov. Don’t be confused by Internet sites that end in .com, .net, .org or other designations instead of .gov. Also remember that the IRS will NEVER email you.
The Internal Revenue Service has free tax forms and publications on a wide variety of topics. Because of continued growth in electronic filing, the availability of free options to taxpayers and to reduce costs, the IRS discontinued the automatic mailing of paper tax packages last tax season.
If you need IRS forms and publications, here are four easy methods for getting them.
1. On the Internet - You can access forms and publications on the IRS website 24 hours a day, seven days a week, at the IRS Web Site.
2. IRS Taxpayer Assistance Centers – There are 401 TACs across the country where IRS offers face-to-face assistance to taxpayers, and where taxpayers can pick up many IRS forms and publications. Visit the IRS web and go to Contact My Local Office on the Individuals page to find a list of TAC locations by state. On the Contact My Local Office page, you can also select Office Locator and enter your zip code to find the IRS walk-in office nearest you as well as a list of the services available at specific offices.
3. At convenient locations in your community - During the tax filing season, many libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly requested publications. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.
4. By mail - You can call 1-800-TAX-FORM (800-829-3676) Monday through Friday 7 a.m. to 7 p.m. local time – except Alaska and Hawaii which follow Pacific time – to order current year forms, instructions and publications as well as prior year forms and instructions by mail. You will receive your order by mail, usually within 10 days.
