refund

September 13 2019

To Amend or Not Amend?

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Is it always a good idea to amend your tax return?

There’s usually an element of relief after your annual tax return has been filed. But what do you do if you find an error on your tax return? Should you always file an amended return? Here are some things to consider.

Errors in the IRS’ favor

Errors discovered that lead to an additional tax obligation are legally required to be fixed by filing an amended tax return. This is especially true if the discovered error is from missing information found on a 1099 form or W-2 reported income. Why? This information is being reported to the IRS and matching programs will typically catch the error. The sooner you amend your return and pay the tax the lower the possible interest and penalties.

Errors that result in lower tax

If correcting the error or omission results in a large additional refund the answer is usually obvious. File the amended return. But this is not always the case.

Your tax return may be open to audit for a longer period of time. Federal tax returns are typically subject to audit for three years after the original tax return due date OR the date the return was filed whichever is later. If your amended return is filed towards the end of the audit limits, additional time is automatically added. If the IRS wishes to review your return they may request you extend their review time. So if you have other areas in your tax return that might be audit risks you may have second thoughts regarding amending your return.
The amended return may become examined. Amending a tax return could put a spotlight on your tax return. The IRS has certain topics that could trigger individual examination when amended returns are requested. Amended tax returns based on things like the Earned Income Tax Credit, Small Business Income and the Research Tax Credit for small businesses, could result in a visit from your local IRS examiner. Do you have the necessary records to substantiate your amended tax return?
Amending one tax return, may require amending a number of them. Making a minor change in one year may require you to make changes in other tax years. This could result in resetting the audit clock on as many as three to four tax years. Is it worth it?
Don’t forget other taxing authorities. Making a change on your federal tax return may require you to file an amended state or local tax return. Do not assume that an amendment in your favor on the federal level will necessarily be in your favor on the state/local level.
Don’t expect the refund to be timely. Amended tax returns can take a long period of time to be reviewed. There have been cases where the IRS has delayed initial review of an amended return for more than a year, then decided to examine the return. While not typical, the process could take up to 1 1/2 years to resolve.
Timing is important. Remember there is also a time limit to request a change in your tax return and receive an additional refund. This is typically set to three years after the initial filing deadline of the tax return. Make sure you file these tax returns using certified mail. Should the IRS delay responding to your amended return, you may need to prove it was filed timely.
You have a chip in your pocket. If the refund amount is not large enough to justify an amended tax return, still keep the documentation. Should you be chosen for an audit, you can often present your case at that time to offset any additional tax.

While finding an error or omission on your tax return can be unsettling, rest assured there are ways to fix the problem, but it is often worth taking a balanced approach to determine the best solution.

Gilliland & Associates, P.C. is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.

January 4 2019

Those Darn Kids

Tax Break, Tax Law, Tax Planning, Tax Tips College, kiddie tax, refund, tax law

A warning to kids who want to file their own tax return

If you have children younger than 19 years old (or 24 if a full-time student) coordinate the filing of their taxes with yours. How they file is a matter of tax law.

The problem

Your child is away for college. You prepare and try to file your tax return on April 14th after finally receiving all the required documentation. Unfortunately, the e-filed tax return is rejected because your college student filed their own tax return and received a nice refund. Now you have a mess on your hands. You must file an extension, file an amended tax return for your child, return a refund, and paper file your tax return.

A matter of law

The dependency rules and kiddie tax laws are clear and must be followed. If you have a dependent child as determined by the tax code, you will need to conduct the tax calculations to determine what is taxed at your child’s tax rate and what will be taxed at your higher rate. The same is true for which tax return receives exemptions and standard deductions. This requires coordination of your tax filings with that of your dependent children.

Suggestions

Remind your independent minded kids to hold off filing their tax return until consulting with you.

Claiming oneself as a dependent is not a choice, it is a matter of law. Remind your child there are rules that must be followed before making this tax decision.

Plan for a dependency shift. Sometimes arranging for a shift in dependent from a parent to a student makes financial sense. If you think this might be true, conduct a tax planning exercise prior to making the change.

Consider using the tax filing process to introduce your young adult to the benefits of tax planning. You never know, it could save you money as well as the hassle of undoing an improperly filed tax return.

Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in McLean and Tysons Corner, VA. Gilliland & Associates is known for our superior knowledge and aggressive interpretation and application of tax laws. We help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.

August 17 2018

Look for Tax Help When Disaster Strikes

Credit, Individual Taxes, Tax Break, Tax Tips Disasters, Federal disasters, Gain, homes, insurance, IRS, loss, refund, Tax deadline

Image courtesy of Tyler Durden at https://www.zerohedge.com/news/2018-01-02/global-disasters-wreaked-havoc-2017-total-economic-losses-top-300-billion

Disaster Losses

When natural disasters occur, they often leave many people with severely damaged or destroyed homes and businesses. Some lose everything they own. If you are affected by a disaster that is declared by the President to qualify for federal assistance, there are several provisions in the tax law that may provide relief.

Extended tax deadline and interest abatement. The IRS is authorized to postpone the deadlines for filing returns and paying taxes for up to one year in a Presidentially declared disaster area. Also, the IRS will not charge interest that would otherwise accrue for the extension period.

Faster refund. Taxpayers suffering losses in a federal disaster area have a choice of which tax year to deduct the casualty loss. You may deduct it on the return for the year the loss occurs, or it can be claimed on your prior year’s tax return. Amending your prior year’s return may give you a refund of much-needed cash sooner than waiting to deduct the loss on your current year’s tax return.

Tax-free gain. If the insurance payments you receive exceed the tax basis of your property, you will end up with a casualty gain. Casualty gains in federal disaster areas receive special tax treatment. For example:

Individuals may qualify for up to a $250,000 gain exclusion ($500,000 for married couples) on their principal residence. That’s because the destruction of the residence is treated as a “sale” for tax purposes.
No gain is recognized on the insurance reimbursement for the contents of a building as long as those contents were not separately listed on the insurance policy.
If you replace your property with similar property within four years, you may be able to avoid or postpone paying tax on any gain from your involuntary conversion.

If you suffer a casualty loss, call to discuss the best tax course of action in your situation.

April 30 2018

Your refund check is coming — Watch out

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Image courtesy of Sira Anamwong at freedigitalphotos.net

Tax Day has passed, which means you’re likely waiting for your refund to arrive. This typically takes about three weeks if you filed electronically. Keep in mind that now is the time scammers try to steal tax refunds from taxpayers. They often do this by pretending to be IRS agents calling and demanding refunds be sent to them because it’s supposedly in error. Luckily, you can track your refund using the IRS refund status tool.

As a reminder, the IRS will never call and demand that you send back a refund.

March 26 2018

Putting your tax refund into a retirement account?

Money Management, Tax Tips IRA, IRS, refund

Image courtesy of Stuart Miles at freedigitalphotos.net

If you plan on having the IRS deposit your tax refund into one or more individual retirement accounts (IRAs), most of the hard part is already done: You’ve already decided that you want to save the money instead of spending it on new patio furniture or a trip to Jamaica.

Still, you’re not in the clear yet. Here are a handful of possible obstacles that might mess up your tax refund on its way through the direct deposit process:

Wrong account number. If you accidentally use the wrong account number and it belongs to another customer, that mistake could take weeks or even months to correct. The IRS maintains that correct input of financial information on the tax return is the taxpayer’s responsibility, so make sure you check and recheck the account numbers you are using for your refund.

Manual revisions. If the IRS gets your tax return and finds that the routing numbers have been manually revised, your direct deposit request has a higher chance of being rejected. You may get an old-fashioned refund check in the mail.

Wrong type of account. It’s up to you to verify that your financial institution will accept direct deposits into an IRA. Some banks, for example, will reject direct deposits to anything other than a savings account.

Refund adjustments. Sometimes the IRS corrects a taxpayer’s math or makes other adjustments that can affect the refund amount. In some cases, these adjustments may result in a direct deposit that exceeds the allowable IRA contribution amount. If so, you could be stuck with a penalty for excess contributions.

Putting your tax refund into an IRA can be a great idea, but remember: Double-check your return and be aware of the rules your bank or credit union has about IRA direct deposits.

December 19 2017

New Year, New Job- 5 Tax Tips for Job Changers

Business Tips, Individual Taxes expenses, income taxes, Job Change Tax Tips, New job and taxes, refund, tax returns

There are a lot of new things to get used to when you change jobs, from new responsibilities to adjusting to a new company culture. You may not have considered the tax issues created when you change jobs. Here are tips to reduce any potential tax problems related to making a job change this coming year.

Don’t forget about in-between pay. It is easy to forget to account for pay received while you’re between jobs. This includes severance and accrued vacation or sick pay from your former employer. It also includes unemployment benefits. All are taxable but may not have had taxes withheld, causing a surprise at tax time.

Adjust your withholdings. A new job requires you to fill out a new Form W- 4, which directs your employer how much to withhold from each paycheck. It may not be best to go with the default withholding schedule, which assumes you have been making the salary of your new job all year. You may need to make special adjustments to avoid having too much or too little taken from your paycheck. This is especially true if there is a significant salary change or you have a period of low-or-no income. Keep in mind you’ll have to fill out a new W-4 in the next year to rebalance your withholding for a full year of your new salary.

Rollover your 401(k). While you can leave your 401(k) in your old employer’s plan, you may wish to roll it over into your new employer’s 401(k) or into an IRA. The best way is to get your retirement funds transferred directly between investment companies. If you take a direct check, you’ll have to deposit it into the new account within 60 days, or you may be assessed a 10 percent penalty and pay income tax on the withdrawal. Deduct job-hunting expenses. Tally up your job-seeking expenses. If they and other miscellaneous deductible expenses total more than 2 percent of your adjusted gross income for the year, you can deduct them on an itemized return. This includes things like costs for job-search tools, placement agencies and recruiters, and printing, mailing and travel costs. A couple caveats: you can only use these deductions if your expenses were to search for a job in the same industry as your previous job, and you were not reimbursed for them by your new employer.

Deduct moving and home sale expenses. If you moved to take a new job that is at least 50 miles farther from your previous home than your old job was, you can also deduct your moving expenses. There’s another benefit for movers, too. Typically, you can only use the $250,000 capital-gain exclusion for home sales if you lived in your primary residence for two of the last five years before you sold it. But there is an exception to the rule if you sold your home to take a new job.

Finding a new job can be an exciting experience, and one that can create tax consequences if not handled correctly. Feel free to call for a discussion of your situation.

April 15 2017

Apply for an extension if you can’t file by April 18

Individual Taxes, IRS Rules, Tax Law, Tax Planning filing deadlines, income taxes, IRS, refund, Tax Filing, Tax Planning, tax returns

Tax time can be stressful, but don’t panic if you can’t file your tax return on time. There’s still time to get an automatic six-month deadline extension.

There are four ways to obtain an extension:

1. File a paper copy of Form 4868 with the IRS and enclose your payment of estimated tax due.

2. File for an extension electronically using the IRS e-file system on your computer.

3. Using Direct Pay, the Electronic Federal Tax Payment System, pay all or part of your estimated income tax due and indicate that the payment is for an extension.

4. Have your tax preparer e-file for an extension on your behalf.

Remember that even if you file for an extension, you are still required to pay any taxes you owe by the April 18 filing deadline. An extension gives you more time to file your tax return, but not more time to pay the taxes you owe. You will be charged interest on any taxes you owe and do not pay by the filing deadline. If you are unable to pay on time, contact the IRS to set up a payment agreement.

Special extension rules apply to members of the military serving in combat zones and to certain others who live outside the U.S. Give us a call so we can discuss whether or not an extension is right for your situation.

January 25 2017

Some federal income tax refunds may be temporarily delayed

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In general, you can expect your federal refund to be issued approximately 21 days after your electronically filed tax return has been accepted. However, identity theft is still a major problem, and the IRS continues to implement new strategies to protect taxpayer data. For example, if you claim the Earned Income Tax Credit or Additional Child Tax Credit on your 2016 individual federal income tax return, your refund will be held until February 15.

April 21 2015

Are you able to benefit from an ABLE account?

Bankruptcy, Exclusions, Federal, refund

The “tax extenders” legislation that became law in December included the “Achieving a Better Life Experience Act” (also called the ABLE Act). This law provides for tax-exempt accounts that can help you or a family member with disabilities pay for qualified expenses related to the disability. These “ABLE accounts” are exempt from income tax although contributions to an account are not deductible on your federal income tax return. ABLE accounts are generally not means tested and some can provide limited bankruptcy protection. You or a family member are eligible to open an ABLE account if:

You’re entitled to social security disability benefits due to blindness or other disability, and that blindness or disability occurred before age 26; or
You file a disability certification with the IRS for the tax year. Annual contributions to an ABLE account are limited to the amount of the annual gift tax exclusion ($14,000 for 2015). Distributions are tax-free as long as they are less than your qualified disability expenses for the year. The list of qualified disability expenses includes housing, education, employment training/support, health prevention/wellness services, financial management, legal fees, and funeral expenses. Other expenses are also approved under the regulations. Distributions exceeding qualified disability expenses are included in taxable income and are generally subject to a 10% penalty tax. Distributions can be rolled over to another ABLE account for another qualified beneficiary and beneficiaries can be changed between family members. Funds in the account can earn interest or dividends and are not subject to federal income tax as long as distributions are used for qualified disability expenses. ABLE accounts do not have a “use it or lose it” feature and funds can carry over to future years. The balance remaining in the account after the beneficiary passes away can be used to reimburse state Medicaid payments made on behalf of the beneficiary after the account was established. The remainder goes to the deceased’s estate or to another qualified designated beneficiary. After-death distributions that are not used for qualified disability purposes are subject to income taxes, but not the 10% penalty. If you are thinking many of these rules sound familiar, you’re correct. ABLE accounts are modeled on 529 college savings accounts and can be as powerful and beneficial. Give us a call so we can help you make the most of this new opportunity.

Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.

February 3 2015

Inflated Refund Claims Remain on the IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

Fraudulent Refunds, Inflated Tax Refund, refund, Scam, Tax Credits

WASHINGTON — The Internal Revenue Service today warned taxpayers to be on the lookout for unscrupulous tax return preparers pushing inflated tax refund claims. This scam remains on the annual list of tax scams known as the “Dirty Dozen” for the 2015 filing season.

“Every filing season, scam artists lure victims in by promising outlandish refunds,” said IRS Commissioner John Koskinen. “Taxpayers should be wary of anyone who asks them to sign a blank return, promise a big refund before looking at their records, or charge fees based on a percentage of the refund.”

Compiled annually, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter any time but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes.

Illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice (DOJ) to shutdown scams and prosecute the criminals behind them.

Don’t Fall Victim to Promises of Outlandish Refunds

Scam artists routinely pose as tax preparers during tax time, luring victims in by promising large federal tax refunds or refunds that people never dreamed they were due in the first place.

Scam artists use flyers, advertisements, phony store fronts and even word of mouth to throw out a wide net for victims. They may even spread the word through community groups or churches where trust is high. Scammers prey on people who do not have a filing requirement, such as low-income individuals or the elderly. They also prey on non-English speakers, who may or may not have a filing requirement.

Scammers build false hope by duping people into making claims for fictitious rebates, benefits or tax credits. They charge good money for very bad advice. Or worse, they file a false return in a person’s name and that person never knows that a refund was paid.

Scam artists also victimize people with a filing requirement and due a refund by promising inflated refunds based on fictitious Social Security benefits and false claims for education credits, the Earned Income Tax Credit (EITC), or the American Opportunity Tax Credit, among others.

The IRS sometimes hears about scams from victims complaining about losing their federal benefits, such as Social Security benefits, certain veteran’s benefits or low-income housing benefits. The loss of benefits was the result of false claims being filed with the IRS that provided false income amounts.

While honest tax preparers provide their customers a copy of the tax return they’ve prepared, victims of scam frequently are not given a copy of what was filed. Victims also report that the fraudulent refund is deposited into the scammer’s bank account. The scammers deduct a large “fee” before paying victims, a practice not used by legitimate tax preparers.

The IRS reminds all taxpayers that they are legally responsible for what’s on their returns even if it was prepared by someone else. Taxpayers who buy into such schemes can end up being penalized for filing false claims or receiving fraudulent refunds.

Gilliland & Associates, PC is a full-service CPA firm specializing in tax planning for individuals and businesses in the Northern Virginia area. We are based in Falls Church, VA and also service clients in the McLean and Tysons Corner, VA. Gilliland & Associates specializes known for our superior knowledge and aggressive interpretation and application of tax laws, we help you keep more of your earnings by finding you the lowest possible tax on your business or personal tax return. You can connect with us on Google+, LinkedIn, Facebook, and Twitter.