Tax Preparation and Filing

Tax season is in full swing. With just about a month until the official tax filing deadline on April 15, if you don’t have a plan to file your taxes, you may want to consider the IRS’ latest digital initiative – Direct File. 

Over the last few weeks, the IRS has piloted Direct File, and it’s now available for eligible taxpayers to use – for free – in 12 states. 

“A team of experts from across the government built and tested the Direct File pilot to give taxpayers an easy, accurate, free way to file their taxes online directly with the IRS,” said IRS commissioner Danny Werfel.

“Our goal with the Direct File pilot is to help people meet their tax obligations as easily and quickly as possible. We developed Direct File from the beginning with taxpayers’ help, and we’ll continue to talk to taxpayers about their experience to learn more about what taxpayers want for future digital services.”

What to know about Direct File

The Direct File system is a step-by-step guide for taxpayers to accurately file their taxes online. There’s no rush to get through the entire return in one sitting – users can save their progress and return to it at any time. 

Direct File also has a chat feature, so taxpayers can talk directly with tax professionals if they have any questions throughout the process. 

“Many taxpayers we’ve heard from filed their taxes in less than 30 minutes using Direct File and praised it as an easy, no cost tax filing experience,” Werfel said. 

To be eligible to use Direct File, taxpayers must fall into these categories: 

• Report income earned from jobs that generate a W2

• Claim Earned Income Tax Credit, Child Tax Credit, and the Credit for Other Dependents

• Claim the standard deduction and deductions for educator expenses and student loan interest

• Lived in the same state for the entire calendar year of 2023

Additionally, Direct File is currently only available in 12 states, including: Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State, and Wyoming. 

Direct File will guide taxpayers through their federal returns. Then, for states that have income tax, taxpayers will be led to a state-sponsored income tax tool. 

Direct File is available to access on computers, tablets, or smartphones, and taxpayers can file in English or Spanish. First-time users will have to verify their identity through ID.me, ensuring a safe and secure tax filing process. 

With just over two months until the official tax filing deadline – Monday, April 15, 2024 – it’s time for taxpayers to make a plan to file their 2023 tax returns. 

For many consumers, that process might just come at no cost. 

The IRS explained that eligible taxpayers can take advantage of several resources designed to eliminate the cost associated with filing taxes – regardless of whether they choose to file on their own or use a tax preparer. 

Free programs

Here’s a look at some of the ways taxpayers can file free this season, including the eligibility requirements: 

• IRS Free File: To utilize this program, taxpayers must have had an adjusted gross income of $79,000 or less in 2023. This resource is one that consumers use on their own – tax preparers have made their programs available online for free, and taxpayers can even use their phones or tablets to file their taxes at no cost. 

• IRS Direct File: This program is currently in its pilot phase, as it’s the IRS’ latest way to file taxes for free. With Direct File, taxpayers will follow a step-by-step guide to learn more about their taxes, and free support from the IRS is available weekdays from 7 a.m. to 10 p.m. Currently, the pilot is only available in a dozen states, and only consumers with simple tax returns are eligible. The IRS plans to expand this program based on the information learned from this tax season. More information on availability can be found here. 

• Volunteer Income Tax Assistance (VITA): This program is for taxpayers with disabilities, limited English-speaking taxpayers, and those who make under $60,000 per year. Typically, consumers can access this program at popular community centers, like malls, libraries, schools, and more. 

• Tax Counseling for the Elderly (TCE): Seniors who utilize this service will meet with tax preparers who specialize in filing for older taxpayers. They’re trained to answer questions about pensions, retirement, and other related areas. 

• MilTax: Military veterans are eligible for free tax filing through MilTax. Through the Department of Defense, vets can file their federal tax returns and up to three state returns at no cost. 

• Free Fillable Forms: This free program is for taxpayers who make an adjusted gross income of $79,000 or higher. However, there is no formal assistance – taxpayers are responsible for choosing and accurately filling out the appropriate forms. This program is also only available for federal tax returns – not state returns, and taxpayers can’t make any changes to their returns once they’re submitted and processed. 

Taxpayers can mark their calendars for the official start of tax season: January 29, 2024.

The Internal Revenue Service (IRS) announced that 2023 tax return filing opens in just a few weeks. Once filing opens, consumers have until April 15, 2024, to get their returns submitted to the IRS or to request an extension. 

“As our transformation efforts continue to take hold, taxpayers will continue to see marked improvement in IRS operations in the upcoming filing season,” said IRS commissioner Danny Werfel. “IRS employees are working hard to make sure that new funding is used to help taxpayers by making the process of preparing and filing taxes easier.” 

Tools and resources from the IRS

The IRS said its main goal this year is to make the filing process easier for consumers. They’ve expanded on some of the most helpful resources and are also introducing new resources this tax season, including: 

• Updates to the “Where’s My Refund?” tool, which will allow taxpayers to get more detailed descriptions of the processing of their refunds. Rather than generic messaging that doesn’t provide much information, the updates will make it possible to see more than just a “check back later” message. The IRS has also updated the resource to work better on mobile devices. 

• The IRS Online Account has been updated to include new features, like scheduling payments, canceling payments, validating bank accounts, a chat for questions, and the ability to revise payment plans. 

• Taxpayer Assistance Centers, which guide taxpayers through the filing process and are open for questions and concerns about filing, are set to have expanded hours this tax season. 

• The IRS’ toll-free helpline has more employees, which will cut down on wait times, making it easier for consumers to get their questions answered faster. 

• Direct File is a new way for taxpayers to file their taxes for free directly through the IRS. Direct File will be available starting in March, and consumers can check their eligibility, including participating states, in the coming weeks. 

• Expanding paperless processing on more tax forms will also make the filing and processing system easier and more streamlined than in years past. 

Important dates for the 2024 tax season

While filing will kick off in a few weeks, consumers can start preparing now by gathering all relevant tax documents, and ensuring everything is in order in time for filing. 

Additionally, the IRS has shared a list of helpful dates to consider as tax season kicks off: 

• January 12: IRS Free File opens 

• January 26: Earned Income Tax Credit Awareness Day

• January 29: Filing season start date for individual tax returns

• April 15: Due date for filing a tax return or requesting an extension 

• April 17: Due date for Maine and Massachusetts

• October 15: Due date for extension filers

Okay, there’s no time to waste. You’ve put off doing your taxes and asking for an extension. But don’t worry, the process for asking for an extension until Oct. 16 is simple and easy.

If you are going to mail your request for an extension, download IRS form 4868 here and print it out.

On the left-hand side enter your full name, address, Social Security number and your spouse’s Social Security number.

On the right side, on line four estimate your total tax liability for 2022. If you have one job and expect a refund, it’s simple. Enter the total federal tax withholdings from you’re W-2.

If you had a side hustle that produced income, add the amount of estimated tax you paid during the year to the amount entered on line four. Enter the same number you put on line four to line five.

On line six, enter $0, since you believe your withholdings and estimated payments will cover your tax liability. Enter $0 on line seven. Check the appropriate boxes on lines eight and nine and you’re ready to mail the form. You can find the correct address for mailing it on page four of form 4868.

If you think you’ll owe additional taxes

While the extension allows you to delay filing your taxes it doesn’t allow you to delay paying your taxes. If you think you will owe taxes you should send a check for the amount of the additional tax. If you overpay, you’ll get a refund.

Line four, the amount of what you expect your tax will be, will be bigger than line five, the amount you’ve already paid. Subtract line five from four and the difference, entered on line six, is what you will send the IRS, along with form 4868.

You can also file for an extension electronically by using Free File at IRS.gov.

While taxpayers have less than a week to file their 2022 taxes, the Internal Revenue Service (IRS) is now asking taxpayers to think about whether they’ve claimed their refunds from 2019. 

According to the IRS, there are roughly $1.5 billion in unclaimed tax refunds from 2019, and time is running out for taxpayers to claim theirs. The deadline to claim the refunds is July 17. 

On top of the potential return, the IRS recommends that taxpayers file their 2019 taxes because they may also be eligible for the Earned Income Tax Credit. In 2019, the max credit was over $6,500. 

“The 2019 tax returns came due during the pandemic, and many people may have overlooked or forgotten about these refunds,” said Danny Werfel, IRS commissioner. “We want taxpayers to claim these refunds, but time is running out. People face a July 17 deadline to file their returns. We recommend taxpayers start soon to make sure they don’t miss out.” 

How to file

Though 2019 was several years ago, taxpayers still have time to file their taxes and claim their refunds. The IRS recommends starting sooner rather than later to avoid missing out on the money. The agency estimates that the midpoint for unclaimed returns from 2019 will reach nearly $900. 

For starters, taxpayers should have all of their tax documents from 2019 on hand and ready to file. These forms are also available by request from banks, employers, and any other sources of income. For those who can’t track down missing W2s, 1099s, or other tax forms necessary to file, you can request a wage and income transcript through the IRS’ website. 

Once those items are secured, taxpayers can follow the same process that they normally would when filing their taxes. 

Why is so much money left unclaimed? 

The IRS explained that because of the COVID-19 pandemic, taxes weren’t exactly top of mind for most Americans. Typically, if taxes aren’t filed within three years, any unclaimed refunds go back to the U.S. government. However, the COVID-19 pandemic extended that three-year deadline, which is now coming up in July. 

“With the pandemic taking place when the 2019 taxes were originally due, people faced extremely unusual situations,” Werfel said. “People may have simply forgotten about tax refunds with the deadline that year postponed all the way into July. We frequently see students, part-time workers, and others with little income overlook filing a tax return and never realize they may be owed a refund. We encourage people to review their records and start gathering records now, so they don’t run the risk of missing the July deadline.” 

The IRS also explained that to be eligible for your 2019 tax refund, you must also file taxes for 2020 and 2021. 

The Internal Revenue Service (IRS) opened the tax filing season back in January, and now the April 18 deadline to file is quickly approaching. 

With just a few days left, it’s crunch time for taxpayers to get all their ducks in a row to make sure their taxes are filed – or take the right steps to file an extension. Below are some tips and resources from the IRS for taxpayers to prepare for the upcoming deadline. 

Preparing for filing

For taxpayers who have already filed their taxes, or those who are still gathering all of their documents, there are a number of resources to keep on hand throughout tax season and beyond. 

• Saturday hours at Taxpayer Assistance Centers: Earlier this tax season, the IRS announced that Taxpayer Assistance Centers would expand to offer services to taxpayers on Saturdays. These special Saturday hours are available to taxpayers free of charge and with no appointment required. There are two remaining Saturdays available for those who may still have questions about filing their taxes: April 8 and May 13 from 9:00 am to 4:00 pm. Taxpayers can come with any questions about their IRS accounts or current filing documents. 

• Interactive Tax Assistant: For those who may not want to go to a Tax Assistance Center, this virtual service allows taxpayers to ask their tax questions to experts virtually. This service can help with everything from finding deductions, determining your filing status, claiming dependents, and more. 

• IRS Free File: This software from the IRS allows taxpayers who qualify to file their federal taxes (and some state taxes) for free. The guided tax prep software takes taxpayers through the paces of filing their taxes, including finding deductions, exemptions, and credits. 

• Online IRS Account: Having an active online account with the IRS can be helpful for consumers to keep track of all of their pertinent tax information – from this year and years past. This will include past payments, full tax return transcripts, and adjusted gross income history. 

• Find a Tax Professional: For taxpayers who may not know where to turn to get their taxes filed by an expert, the IRS website has tools available to help them find a trusted, reliable source. 

• Where’s My Refund: If you’ve filed your 2022 taxes already this year, this tool can help you track down your refund. Taxpayers should give the IRS around 24 hours to process their returns before tracking information is available. 

Do you need to file an extension?

Though the tax filing deadline is quickly approaching, any taxpayer can file an extension with the IRS. The Free File tool also allows taxpayers to electronically fill out the extension request form for free, bumping the deadline to file to October 15. 

Taxpayers in certain states – California, New York, Mississippi, and Arkansas – have exemptions to file later due to storms and other natural disasters. To see which areas specifically qualify for these extensions, taxpayers can visit the Tax Relief in Disaster Situations page. 

It’s also important for taxpayers to know that an extension to file doesn’t equate to an extension to pay taxes. To avoid paying interest or penalty fees, taxpayers should ensure that all payments are made on time. 

To also request extensions for tax payments, the IRS recommends that taxpayers complete Form 4868 or select “extension” as their payment method when going to make an online payment. Taxpayers can also create payment plans with the IRS to make their tax payments in increments over time. 

Earlier in tax season, the Internal Revenue Service (IRS) revealed how victims of storms across the state of California may be eligible for tax relief and filing extensions. 

Now, the agency is reporting that taxpayers in two more states – Mississippi and New York – may be eligible for similar relief programs and filing extensions. 

What taxpayers in New York should know

Following snowstorms between December 23-28, 2022, taxpayers living in Suffolk, Erie, Niagara, Genesee, or St. Lawrence counties, or those who operate businesses in those areas, are eligible for tax relief. 

The IRS is pushing back the filing deadline for taxpayers and business owners in these areas from April 18, 2023, to May 15, 2023. This goes for business returns, personal income tax returns, estimated tax payments, quarterly payroll and excise tax, and penalties on payroll and excise tax deposits. 

Under this relief plan, taxpayers will also have until the new May 15 deadline to contribute to their health savings accounts or IRAs. 

While the IRS has made it clear that extensions to file taxes don’t typically come with an extension to pay taxes, that isn’t the case for storm victims in these areas. Any taxes owed during this period will also now be owed by the May 15 deadline. 

Taxpayers won’t need to take any additional steps to get the extension. Those filing with addresses that fall within the affected areas will automatically receive relief for filing before the May 15 deadline. 

However, for those who may need even more time to file, the IRS recommends that they request an extension. Requesting extra time can be done online before April 18; those requesting an extension after April 18 and before May 15 must do so by mail. 

What Mississippi taxpayers should know

Mississippi taxpayers who experienced severe storms and tornadoes on March 24 and 25 now have until July 31, 2023, to file their 2022 taxes. The affected counties include: Monroe, Carroll, Sharkey, and Humphreys, and the extension is valid for both personal taxpayers and business owners. 

The IRS has granted Mississippi taxpayers many of the same relief options as those affected by storms in New York, except with a later deadline. This means that residents and business owners of the affected areas in Mississippi have until July 31 for filing: 

• Quarterly estimated tax payments

• Quarterly payroll and excise tax returns 

• IRA and health savings account contributions 

• Personal tax returns

• Business tax returns 

• Tax payments originally due during this period 

Similarly, these relief options will be automatically taken into consideration based on taxpayers’ addresses when filing. However, should taxpayers be incorrectly penalized for filing late, the IRS recommends they contact the agency immediately to have the penalty removed. 

Taxpayers in both New York and Mississippi can refer to the Tax Relief in Disaster Situations page to see a full list of locations eligible for these extensions. 

This tax season has been full of scams, and as the April 18 filing deadline is approaching in just a few weeks, the Internal Revenue Service (IRS) is rounding up 12 of the worst ones, known as the “Dirty Dozen.” 

One such scam that taxpayers should be aware of involves identity theft. The IRS is warning taxpayers to be mindful of any offers they receive to help them set up online accounts for the government website; these are almost always scammers trying to steal personal information. 

“Scammers are coming up with new ways all the time to try to steal information from taxpayers,” said Danny Werfel, IRS commissioner. “An online account at IRS.gov can help taxpayers view important details about their tax situation. But scammers are trying to convince people they need help setting up an account. 

“In reality, no help is needed. This is just a scam to obtain valuable and sensitive tax information that scammers will use to try stealing a refund,” he continued. “People should be wary and avoid sharing sensitive personal data over the phone, email, or social media to avoid getting caught up in these scams.” 

Following the same script

As Werfel explained, these scams typically follow the same kind of script. Taxpayers will often see third-party ads, or be contacted directly by a third party – online, over the phone, or through email -- with the goal of “helping” them create an online account on the IRS website. 

For anyone setting up one of these accounts, personal information is necessary: Social Security numbers, email addresses, photo IDs, etc. Once a taxpayer accepts “assistance” from the scammer, the scammer then gets access to all of this personal information. It’s not uncommon in these situations for scammers to sell taxpayers’ personal data to other scammers.  

This is a risk for a few reasons. The scammers can use your personal information to steal your tax refund or steal your identity to open credit cards or apply for loans. 

However, the IRS wants taxpayers to know that creating these online accounts doesn’t require any assistance. The website will automatically direct users to complete the process step-by-step, and taxpayers have all of their own personal data to complete the required fields. 

Report scams

While there has been no shortage of scams this tax season, the IRS is encouraging taxpayers to report any encounters they experience with scammers. 

Phishing activity can be reported to phishing@irs.gov, or to the Treasury Inspector General for Tax Administration at 1-800-366-4844. 

Taxpayers can also complete Form 14242 (Report Suspected Abusive Tax Promotions or Preparers) and mail it to the Internal Revenue Service Lead Distribution Center, Stop MS 5040, 24000 Avila Road, Laguna Niguel, California, 92677.

The Internal Revenue Service (IRS) has worked to make the tax filing process easier and more efficient for consumers this year. Now, the agency announced it will expand its efforts in scanning digital tax forms. 

“This expansion of scanning is another milestone for the IRS as we work to transform the agency,” said Doug O’Donnell, acting IRS commissioner. “We anticipate expanding scanning of more paper returns in the near future, saving time and creating efficiencies for taxpayers, the business community, as well as tax professionals and the IRS.”  

Starting with Form 940, expanding to more

While the 2023 tax season is still ongoing, the IRS has already seen a massive uptick in scanning paper forms since the start of the filing season. The agency reported that it started with Form 940, and scanning was already at a twenty-fold increase from last year in the first week of March. 

The IRS announced it will be undergoing a Digital Intake initiative, which will expand its efforts at scanning tax forms. The agency will soon include scanning Forms 941 and 1040. 

Currently, the IRS works with Lockbox Financial Agents and other industry partners to make these digital efforts possible. These partnerships allow the IRS to take the information from tax forms and process them electronically – which is ultimately a benefit to taxpayers. 

By digitally scanning tax forms, the process becomes easier and more streamlined for taxpayers. Though the majority of forms are submitted electronically each year, the IRS reported that millions are still submitted with hard copies. 

Electronic submissions ensure that taxes are processed faster, there are likely fewer errors, and the entire process is more efficient. 

'Significant progress'

“We are making significant progress in this effort, and we look to expand scanning efforts dramatically in the months ahead and working toward a fully digital future,” said Harrison Smith, enterprise digitalization and case management office co-director. “We’re building a foundation that will enable us to help taxpayers and businesses for years to come.” 

“Technology powers tax administration and we have completed important work over the last year to help get the assistance they need and reduce paper, in addition to improving the agency’s underlying technology infrastructure,” said Nancy Sieger, chief information officer at the IRS. “This is another positive step in the future technology direction for the IRS that includes improving service to taxpayers.” 

There has been no shortage of warnings related to tax scams in the last few months, and the Internal Revenue Service (IRS) has another one – specifically for businesses. 

This scam relates to the Employee Retention Credit (ERC), which was geared towards business owners during the pandemic. For the last few years, business owners who either lost a significant amount of revenue or were paying their employees while closed during the COVID-19 pandemic were eligible to claim this credit on their taxes. 

However, scammers are sending phishing emails and posting on social media encouraging taxpayers to claim this credit even when they’re not eligible to do so anymore. 

“While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continues to be promoters who aggressively mislead people and businesses into thinking they can claim these credits,” said Doug O’Donnell, acting IRS commissioner. 

“Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they’re using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this,” he said. 

Who is eligible for the ERC?

The IRS outlines three primary factors for taxpayers to qualify for the ERC: 

• Qualify as a recovery startup business for the third and fourth quarters of 2021

• Forced closure (either full or partial) due to restrictions from COVID-19 during 2020 or the first three quarters of 2021

• Experienced a significant reduction in revenue in 2020 or the first three quarters of 2021

This is important to keep in mind when thinking about how scammers are targeting business owners this tax season. 

What does the scam look like? 

The IRS explained that scammers are pushing business owners to claim the ERC on their 2022 taxes – even if they don’t qualify. The draw is that doing so will help secure a bigger tax refund. 

While falsely claiming the credit can put taxpayers at risk of penalties, fines, or criminal investigations, many of these scammers are also either asking for incredibly large fees or wait until they see the taxpayer’s refund before they ask for a fee – just for calculating their credit. 

This is the IRS’ third such warning about this scam to taxpayers. While the promise of more money back on taxes sounds great, getting a bigger refund under false pretenses comes with a significant amount of risk. 

For those who may have incorrectly claimed the ERC, the IRS encourages taxpayers to file an amended return with the correct figures. 

The agency is also asking taxpayers to do their part and report any instances of these scams as soon as they encounter them. Phishing activity can be reported to phishing@irs.gov, or to the Treasury Inspector General for Tax Administration at 1-800-366-4484. 

Taxpayers can also complete Form 14242 (Report Suspected Abusive Tax Promotions or Preparers) and mail it to the Internal Revenue Service Lead Distribution Center, Stop MS 5040, 24000 Avila Road, Laguna Niguel, California, 92677. 

Over the course of the tax season, the Internal Revenue Service (IRS) has warned taxpayers of various tax-related scams that are floating around. With just over a month to go until the April 18 filing deadline, the risk of tax fraud and related scams is still ever-present. 

It’s more important than ever for taxpayers to be able to identify the various tax scams, as well as know what to do to protect themselves and their personal information during tax season. 

What do the scams look like? 

Earlier in the tax season, ConsumerAffairs highlighted a few of the biggest scams that pose a threat to taxpayers this time of year. 

One such scam has permeated social media and pushes the idea to taxpayers that falsifying their W2 documents is likely to yield tax returns as high as five figures. Scammers encourage the idea that manually filling out tax returns and filing electronically can help taxpayers secure higher refunds. 

Another tax-related scam involves scammers pretending to be representatives from the IRS to try to get personal information or money from taxpayers on the other end of the phone. In these instances, the agency urges taxpayers to hang up the phone and report the scam. 

“Phishing and scammers are always going to focus on what is top of mind for the public,” Steve Grobman, vice president and chief technology officer at McAfee, told ConsumerAffairs. “Whether it’s the pandemic, the job market, or tax season, we’re seeing bad actors take advantage of these moments for personal gain. 

“Right now, our threats team is seeing an uptick in tax-related scams with tens of thousands of people unknowingly clicking phishing links,” he continued. “This is not new for 2023. Every year, McAfee sees cybercriminals try to lure people with fake tax information that is disguised as reputable tax filing resources and support.” 

How to stay safe during tax season

Grobman, and fellow tax security expert David Putnam, head of Identity Protection Products for LifeLock, had more advice for ConsumerAffairs readers to stay safe in the face of scams this tax season. 

“It sounds simple, but the best way for consumers to protect themselves during tax season is to understand how the IRS works and the types of scams fraudsters use to take advantage of taxpayers,” Putnam said. “For example, IRS impersonation schemes are designed to trick people into believing the IRS has contacted them about their return or refund in order to send phishing links or gather personal information that can be used to steal your identity. It is important to know that the IRS communicates through traditional mail and will never contact you via email, phone, or text.” 

Below are Grobman’s best tips for staying safe during tax season: 

• “Look into purchasing a locking mailbox. Mail and porch theft are still prevalent, and it’s common for thieves to harvest personal and financial information by lifting it from your mailbox.

• Shred paper correspondence that contains personal or financial information, such as bills, medical documents, bank statements and so forth. 

• Lock your smartphones, tablets, and computers with a PIN or password.

• Install comprehensive security solutions on your devices. This will safeguard you in several ways, such as email filters that will protect you from phishing attacks, features that will warn you of sketchy links and downloads, plus further protection for your identity and privacy — in addition to providing overall protection from viruses, malware, and other cyberattacks.”

More tips

Similarly, Putnam shared his best tips for taxpayers to stay safe during tax season: 

• “One of the best ways to avoid IRS scammers looking to steal your refund is by filing your taxes as early as possible. The sooner you submit your tax return, the less likely it will be that someone else can file a fraudulent return in your name. 

• An Identity Protection Personal Identification Number or IP PIN adds a layer of security by assigning a unique PIN to your data. Much like the security code on a credit card, thieves would need this additional number to file a false return in your name. You can get your IP PIN by logging onto the Get an IP PIN tool offered by the IRS. You will have to verify your identity to do this.

• Keep your information private and safe. Following basic cyber safety measures can help protect your personal information from savvy cybercriminals. Install security software on your devices, avoid public Wi-Fi, and use a virtual private network if possible when doing any transactions regarding your finances.

• While the safest way to file is directly through the IRS, it is important to always use a reputable service to file your taxes. Hackers become very good at mimicking major tax prep companies through phishing emails, and ghost preparation services posing as legitimate businesses prey on unknowing taxpayers by stealing returns.”

Tax season is full of deadlines, and now the Internal Revenue Service (IRS) is reminding retired taxpayers of another upcoming one: April 1. 

The agency explained that this is the final day for retirees – particularly those who turned 72 during 2022 – to start receiving payments, or required minimum distributions, from their 401(k), Individual Retirement Agreements (IRAs), or other workplace retirement programs. 

What are required minimum distributions? 

For retirees with certain retirement programs, that money can’t sit in those accounts indefinitely. This is where required minimum distributions (RMDs) come in. 

RMDs are withdrawals that retirees must make from their retirement programs on a yearly basis. While retirees are free to take out more than the minimum requirements, these withdrawals must be included in their taxable income when they file taxes for the year. 

The exact amount of the RMDs will vary from person to person. However, the IRS has several resources available on their website to help taxpayers determine how much they should be withdrawing each year. 

What accounts fall under this rule?

So, which accounts are subject to the RMD rules? Below is the full list: 

• Traditional IRAs

• 401(k) plans

• 457(b) plans

• SEP IRAs

• 403(b) plans

• SIMPLE IRAs

• Roth IRA beneficiaries

• Profit sharing plans

• Other defined contribution plans 

The IRS explained that while these withdrawals typically must happen before the end of the year, for those who turned 72 years old in 2022, the final deadline is April 1, 2023. However, those who take their first withdrawal by April 1 must then make their second withdrawal by December 31, 2023. 

These rules are set to change slightly by the end of this year, though. When it comes time to file 2023 taxes, retirees will be able to wait until they turn 73 to start taking out RMDs. 

More tax resources for seniors

Throughout tax season, the IRS has shared resources that seniors can utilize as they prepare to file their taxes. 

For senior taxpayers who have questions about their retirement plans or pensions, they can reach out to Tax Counseling for the Elderly. This program can help guide taxpayers through the filing process, and clear up any confusion about the filing process. 

IRS’ Free File tool is specifically for those who have made under $73,000 in 2022, and it allows taxpayers to file their federal returns – and some state returns – for free. 

With just over a month until the April 18 tax filing deadline, it’s the perfect time for consumers to make a plan for filing. 

However, what about the plan for those who may not be required by law to file? The Internal Revenue Service (IRS) is suggesting that these Americans may want to consider filing anyway. 

The agency says filing may be beneficial to many people who may not have been planning to do so. To avoid missing out on potential tax credits or a refund, the IRS encourages everyone to file a tax return for 2022. 

How do you know if you should file?

For people who are contemplating whether or not to file this year, the IRS first recommends utilizing the Interactive Tax Assistant. They can input specific information that pertains to their filing situation, and get their questions answered, while also keeping their personal details anonymous. 

Claiming tax credits

The IRS detailed four primary tax credits that consumers may be eligible for – even when they aren’t legally required to file their taxes: Education credits, Child Tax Credit, Earned Income Tax Credit, and Credit for Other Dependents. 

In terms of education credits, you may qualify for either the Lifetime Learning Credits or the American Opportunity Tax Credit. The former can be used to cover tuition and other expenses for any undergraduate, graduate, and professional degree courses, and there is no limit to how many times you can claim this credit; this can equate to a credit that tops out at $2,000. 

The American Opportunity Tax Credit is only available for undergraduate students during their first four years of study. Taxpayers can claim a maximum of $2,500 per year per eligible student. 

You may be eligible for the Child Tax Credit if you have children and make under $200,000 (or $400,000 combined with a spouse on a joint return). The child must be under the age of 17 and can be a child, foster child, sibling, step sibling, half sibling, grandchild, niece, or nephew that is your dependent. 

The Earned Income Tax Credit (EITC) is designed to give a tax break to Americans who earned $59,187 or less in the previous year. This year, the maximum EITC credit is nearly $7,000, and people who have children and are married are likely to get the most back. 

Lastly, the Credit for Other Dependents is for those who have parents or other individuals they support or dependents who are over the age of 18. Filers who don’t qualify for the Child Tax Credit are likely to be eligible for the Credit for Other Dependents. 

Taxpayers can claim the Credit for Other Dependents, in addition to both the Earned Income Tax Credit and the Child and Dependent Care Credit. 

The IRS hopes that consumers consider these various tax credit options before deciding whether or not to file this year. 

The 2023 tax season kicked off on January 23, and many consumers have checked this year’s filing off their to-do lists. Many have even received their refunds already!

However, some taxpayers are left to deal with important tax documents that either never got sent to them, or that have incorrect information. If you’re in this boat, do you know the best way to handle it? 

To help taxpayers make it through the rest of tax season, and ensure that taxes are filed promptly -- at least before the April 18 deadline -- the Internal Revenue Service (IRS) is sharing tips to help remedy this situation for consumers. 

Contact your employer, then the IRS

For taxpayers who are still waiting on their tax documents or received documents with incorrect information, the IRS first suggests reaching out to their employers to try to remedy the situation. If this is unsuccessful, the next step should be contacting the IRS directly. 

Taxpayers should know that when reaching out to the IRS in these instances, they will ask for personal information: Social Security number, address, name, phone number, employer’s name, and dates of employment. From there, the IRS can work to coordinate with the employer to get the correct documents sent as quickly as possible. 

When important tax documents are either missing or incorrect, there are two important things for taxpayers to keep in mind. First, if returns are filed with information that is missing or incorrect, the filing process doesn’t end there. Taxpayers will then have to go on to file an amended return to include any new or updated information once they receive corrected or missing tax documents. 

Secondly, the IRS has two forms – Form 4852 and Form 1099-R – for taxpayers to fill out if they’re still waiting on tax documents or corrected documents. In these instances, either of these forms can help taxpayers get a rough estimate of their income so they can file their taxes on time. 

Resources and tools for tax season 

Whether you’ve already filed your taxes, or have an appointment scheduled in the coming weeks, the IRS has resources for taxpayers to utilize to make the process easier. 

For those who have filed, the “Where’s My Refund” tool can be used to track the progress of the refund. The IRS explained that the service is only updated once a day, and updates are usually available within 24 hours of filing. 

The IRS also has resources available for taxpayers to either find a credible tax professional or have their questions answered with the Interactive Tax Assistant. This tool can help taxpayers who may be struggling with claiming dependents, what kind of income is taxable, eligibility for different tax credits, and more. 

Have you filed your 2022 taxes already? Or, are you part of the more than 30% of taxpayers who wait until the last minute to file? 

A new report from the Chamber of Commerce surveyed taxpayers across the country to get a better idea of their typical filing habits. Experts surveyed 1,000 Americans across the country, and also analyzed data from the U.S. Census and the Internal Revenue Service (IRS). 

The results broke down which states are the most likely to procrastinate filing their taxes, which generations procrastinate filing, how taxpayers are most likely to use their refunds, and more.

Who’s procrastinating the most?

Overall, 31% of taxpayers across the country were likely to procrastinate on filing their taxes. The study highlighted the top 10 cities where residents are the most likely to stall on filing: 

• Atlanta, Georgia

• Orlando, Florida

• Salt Lake City, Utah

• Miami, Florida

• Fort Lauderdale, Florida

• Minneapolis, Minnesota

• Denver, Colorado

• Cincinnati, Ohio

• Seattle, Washington

• Richmond Virginia

Generationally, Baby Boomers were the least likely to procrastinate on their taxes, while Gen Z was the most likely to procrastinate. Over 40% of Gen Z respondents said that they’re likely to wait to file their taxes. 

For nearly 50% of those who procrastinate, the stress and confusion associated with filing taxes is enough to make them wait it out. Additionally, nearly 40% of those surveyed said they wait because they want to be sure their information is correct, while 37% said that the process is too time-consuming. Nearly 30% procrastinate filing because they know they won’t get a refund this year. 

Refunds: saving or spending?

When it comes to tax refunds, just about a quarter of survey respondents believe that their return will be smaller this year than it was last year, while nearly 30% aren’t expecting a return at all. But what do taxpayers plan to do with those refunds? 

Over 35% plan to save any money they get back from the IRS. Just 5% said they’ll use it to plan a vacation, while 8% will use it for a big purchase. A quarter of respondents said that their tax returns will pay off debt, 20% will use it to buy essentials, and 13% will invest it. 

What do the experts say?

So, when is the best time to file taxes? According to experts, the sooner the better. 

“Filing taxes can be a stressful process, so it’s natural for Americans to procrastinate, but there are benefits to filing as early as you can,” Collin Czarnecki, a researcher with LLC.org, told ConsumerAffairs. “For example, if you plan to work with an accountant or CPA this tax season, it’s best to schedule an appointment with them as soon as possible before their calendars fill up. 

“Also, filing as early as possible means that you’ll receive your refund quicker. According to the IRS, the average length of time to receive a refund is about 21 days or three weeks from the date the IRS receives your return. If you wait to file until Tax Day this year, which is April 18, you might not receive your return until May. Whereas if you were to file right now, you could be getting your refund before Tax Day. 

“Depending on the amount of your refund, you can use that extra cash to chip away at debt, such as student loans, car payments, and credit cards,” Czarnecki said. “In fact, 25% of survey respondents say they plan to use their tax refund to pay off debt this year. Filing early can also help you financially prepare if you’re faced with an unexpected amount owed on taxes.” 

As tax season continues to ramp up, the Internal Revenue Service (IRS) is preparing for an influx of calls from taxpayers looking for assistance on their returns. 

The agency explained that President’s Day weekend marks one of the busiest times of the tax season, and to try to get ahead of this, the IRS is encouraging taxpayers to utilize online tax resources – rather than calling the IRS phone lines. 

“The IRS continues to see improvements this tax season compared to previous years, including better phone service,” said Doug O’Donnell, IRS acting commissioner. “But we always see a significant surge in phone traffic around Presidents Day. 

“With the calendar advancing, millions of people turn their attention to taxes during this period. To avoid potential delays, we encourage people to check IRS.gov first, which can provide much of the same information instantly to taxpayers.” 

Some of the online resources available to taxpayers include: 

• The IRS’ frequently asked questions page

• The Tax Withholding Estimator

• The Interactive Tax Assistant

• Where’s My Refund?

• The IRS Services Guide

• IRS Free File 

• The Let Us Help You page 

New online features make the filing process easier

In addition to trying to help taxpayers get assistance with their tax returns as quickly as possible, the IRS also announced that taxpayers will be able to upload more documents to their online accounts. 

Rather than having to send in any of these forms by mail, taxpayers can upload them, and work to get an answer and their problem solved much faster than it would typically take. 

Effective for the 2022 tax season, taxpayers will be able to upload the following documents digitally to their IRS accounts: 

• CP75 and CP75a, relating to the Earned Income Tax Credit

• CP75d, relating to the Earned Income Tax Credit and other credits

• CP09, related to claiming the Earned Income Tax Credit 

• CP06 and C096a, relating to the Premium Tax Credit

• CP04, relating to combat zone status 

• CP05a, information request related to a refund

• CP08, relating to the Child Tax Credit 

When the IRS sends a request for more information, the letter will contain a link and an access code. Once taxpayers open the link, they’ll have to provide the access code and personal information – like their Social Security number or tax identification number – to ensure their identity is legitimate. From there, they’ll be able to upload the necessary documentation. 

“This provides immediate benefit to taxpayers, who have nearly instant confirmation that documents were received by the IRS,” O’Donnell said. “This means people can have their issues resolved much faster, including getting refunds to affected taxpayers faster.” 

As tax season kicks off and consumers prepare for filing, it’s normal for questions and concerns to pop up. 

For taxpayers in 21 states, specific tax state payments related to the COVID-19 pandemic or other disaster relief efforts may have been causing confusion. Now, the Internal Revenue Service (IRS) is clearing up any questions taxpayers may have about this situation. 

“The IRS is aware of questions involving special tax refunds or payments made by certain states related to the pandemic and its associated consequences in 2022,” the IRS wrote in its guidance.

“A variety of state programs distributed these payments in 2022 and the rules surrounding their treatment for federal income tax purposes are complex. While in general payments made by states are includable in income for federal tax purposes, there are exceptions that would apply to many of the payments made by states in 2022.” 

What states are included? 

Ultimately, the IRS determined that any payments made related to disaster relief or general welfare will not be challenged, and taxpayers aren’t required to report them on their 2022 taxes.

The following states will not have to report these special state payments on their taxes: Alaska, California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island. 

However, there are a number of other states with some exceptions. Taxpayers located in Virginia, Georgia, South Carolina, and Massachusetts will also be excluded from claiming these payments as income if the payment was a refund of state taxes that were paid. 

The IRS explained that as of May 2023, the COVID-19 pandemic will no longer be considered an emergency. This means that any state-specific payments related to the pandemic will only affect taxpayers when filing their 2022 taxes. 

While filers would typically be required to include such payments in their taxable income, withholding these payments for 2022 taxes will be permissible. 

A full list of acceptable payments for taxpayers to be aware of can be found here.

Every taxpayer has a unique filing situation. Whether you work in the gig economy or need assistance with retirement plans, tax season can often be a confusing time for many taxpayers. 

While the Internal Revenue Service (IRS) has worked to release resources and tips throughout tax season, the latest bit of advice is geared towards business travel. 

Taxpayers who travel for their jobs are entitled to write off their trips on their taxes, but it’s important to know what is and isn’t eligible for tax deductions this year. 

What can taxpayers write off? 

The IRS has outlined a number of requirements for which parts of business trips are able to be deducted on taxes. These include: 

• Using a personal car for business

• Business calls and communication

• Travel by plane, train, bus, or car between your home and business destination 

• Dry cleaning and laundry

• Tips for services related to any expenses

• Fares for taxi or transportation to or from an airport, train station, hotel, or work location

• Lodging and meals 

• Convention-related expenses (if attendance benefits the business) 

• Shipping of baggage or display materials between regular or temporary work locations 

• Any other related necessary and ordinary expenses related to business travel 

Perhaps the biggest thing for taxpayers to keep in mind is that any personal or extravagant purchases aren’t eligible for tax deductions. Anything claimed on taxes must be necessary to the business trip. 

Taxpayers must also keep in mind that expenses are eligible to be written off for trips that are under one year in length. Additionally, military personnel, self-employed workers, and farmers are all eligible to deduct expenses from business trips. 

Digital assets must be reported on taxes

When filing 2022 taxes, taxpayers will again be responsible for reporting all digital assets, or virtual currencies. This includes: non-fungible tokens (NFTs), cryptocurrency and convertible virtual currency, and stablecoins. 

While this will appear as a yes or no question on the 2022 return, it’s important to note that taxpayers who haven’t completed any transactions related to their digital assets can answer “no.” Simply owning any kind of virtual currency doesn’t count as digital income. 

However, taxpayers who have sold, exchanged, or gifted a digital asset, or those who received a digital asset (either as payment for a service or property, or as a reward or an award), must claim it on their 2022 taxes. 

More information is available here.

While tax season requires taxpayers to get all of their documents in order and ready for filing, it’s also important to be aware of tax withholdings for the 2023 tax year. 

The Internal Revenue Service (IRS) explained that any number of factors can affect how much taxpayers owe in a given year – changing filing status, changing living situation, having a child, changing jobs, etc. However, to avoid penalties and having to make additional tax payments, it’s important for taxpayers to know just how much they’re withholding this year. 

Estimated payments can help taxpayers avoid penalties

Taxpayers have two primary options when it comes to paying taxes: withholding taxes from paychecks, pensions, or government payments like Social Security, or by making estimated tax payments. 

For taxpayers who have experienced a major life change within the last year – changing their filing status (single to married or vice versa), having a child, moving, changing jobs – or for those who are self-employed or work in the gig economy, taxes are likely to look different. The IRS encourages taxpayers to look at their current withholdings and think about how to best approach their taxes for the new year. 

For those who don’t choose to either withhold more taxes or make estimated tax payments, the result is likely going to be a rather large tax bill when it comes time to file. To avoid this, the IRS encourages taxpayers to consider estimated tax payments or increasing withholdings. 

The Tax Withholding Estimator can help taxpayers get a better idea of whether or not they need to up their withholdings or think about incorporating estimated tax payments. 

Utilizing the adoption tax credit

When it comes time to file 2022 taxes this year, taxpayers who have adopted children should be mindful of the adoption tax credit. The maximum credit for 2022 is $14,980 per child, and it is valid for U.S. taxpayers regardless of whether or not the adoption was domestic or foreign. 

Expenses that can be deducted under the credit include: 

• Court costs and attorney fees

• Traveling expenses (including meals and lodging away from home)

• Reasonable and necessary adoption fees

• Other expenses related to the principal purpose of the legal adoption of an eligible child 

More information on income limits, timing rules, and claiming the credit is available here. 

It’s official: tax season will start in just under two weeks. 

The Internal Revenue Service (IRS) announced that taxpayers can begin filing their 2022 taxes beginning on January 23. 

In an effort to handle the over 168 million tax returns that are expected to be filed this year, the IRS has hired more support staff and put resources in place to help make the process easier for taxpayers. 

“This filing season is the first to benefit the IRS and our nation’s tax system from multi-year funding in the Inflation Reduction Act,” said Doug O’Donnell, acting IRS commissioner. “With these new additional resources, taxpayers and tax professionals will see improvements in many areas of the agency this year. 

“We’ve trained thousands of new employees to answer phones and help people. While much work remains after several difficult years, we expect people to experience improvements this tax year. That’s just the start as we work to add new long-term transformation efforts that will make things even smoother in future years. We are very excited to begin to deliver what taxpayers want and our employees know we could do this with funding.” 

What resources are available for taxpayers? 

With just about four months to have all of the proper tax paperwork filed, it’s important for taxpayers to know what resources are available to them and what tips the IRS has for a smooth filing. 

Should any questions come up during the process, the IRS urges taxpayers to first head to its website – IRS.gov. While the agency is taking steps to improve its phone-answering service, experts anticipate that the number of calls will remain higher than normal. To get answers as fast as possible, the website can be accessed at any time without having to wait on hold. 

According to the IRS, the fastest way for taxpayers to receive their refunds is to file electronically with direct deposit. A prepaid debit card, mobile app, or bank account can all be linked to your 2022 return, which will help speed up the refund process. 

The IRS explained that most taxpayers will see their refund hit their account within three weeks – as long as they use direct deposit. To track your refund, the Where’s My Refund feature is available. 

The best way to avoid a delayed refund is to have all of your tax documents (W2s, 1099s, Social Security number, etc.) prepared and ready to go when it comes time to file. Reducing the likelihood that there are any errors on your return will help move the refund process along and avoid any late fees or penalties from the IRS. 

For more tips, resources, and information on preparing for tax season, the IRS has more resources available here.

Photo (c) Phillip Rubino - Getty Images

As taxpayers are preparing to file for the 2022 tax season, the Internal Revenue Service (IRS) is working to amend errors from back in 2020. 

Following the passage of the American Rescue Plan Act in 2021, taxpayers whose annual income was under $150,000 were eligible to exclude $10,200 in unemployment earnings from their 2020 taxes. For married couples filing jointly, each spouse was eligible to exclude that figure. 

For taxpayers who may have overpaid when it comes to unemployment compensation for 2020, the IRS will issue corrections – and even refunds. After reviewing Forms 1040 and 1040-SR, which identified taxpayers who were eligible for this tax credit, the IRS was able to calculate any errors from 2020.  

What taxpayers can expect

So, what should taxpayers expect from this amendment to 2020 taxes? 

Each individual is likely to have a different experience. However, if your account was corrected, you will receive correspondence from the IRS detailing the changes. The correction could mean an additional check from the IRS, or it could translate to a correction on adjusted income on your 2020 tax return. 

Taxpayers should pay close attention to the following tax credits, as the adjusted returns could show up in: the Earned Income Tax Credit, the Recovery Rebate Credit, the Additional Child Tax Credit, the American Opportunity Tax Credit, the Premium Tax Credit, or the Advance Premium Tax Credit. 

What to do if you haven’t received corrections from the IRS

While the IRS reported that 14 million returns were adjusted, and 12 million taxpayers received refunds, the agency has advice for taxpayers if their account hasn’t been updated but they were eligible for the unemployment compensation exclusion. 

The IRS recommends filing an amended tax return for 2020, detailing eligibility for the exclusion, as well as any potentially refundable credits. 

For taxpayers who may not know if they are eligible for a correction to their 2020 taxes, or who may have questions about corrections to their 2020 taxes, more information is available here. 

With the turn of the calendar, many Americans have their sights set on another annual milestone: tax season. 

While this time of year may leave many taxpayers confused, unsure, or with questions, the Internal Revenue Service (IRS) has a resource that can be helpful during this season – the Taxpayer Bill of Rights.

The document was designed to outline taxpayers’ rights – both during tax season and beyond, as well as what it looks like to get refunds, examinations, collections, and appeals. 

What rights do taxpayers have?

The official document from the IRS outlines 10 important rights that taxpayers have when filing their taxes – and throughout the entire year: 

• The Right to Be Informed: This requires clear communication from the IRS to taxpayers in regard to decisions about tax accounts, information on complying with tax laws, as well as clear explanations of all tax laws and IRS procedures on all documentation. 

• The Right to Quality Service: When communicating directly with the IRS, taxpayers are entitled to receive clear, concise communication in a prompt, easy-to-understand manner. Taxpayers are encouraged to reach out to supervisors or higher-ups if this is not the case. 

• The Right to Pay No More Than the Correct Amount of Tax: This includes any accrued interest or penalties. 

• The Right to Challenge the IRS’ Position and Be Heard: Should taxpayers have any objections regarding any actions taken by the IRS, they have the right to object to the agency. Additionally, the IRS is required to respond to such objections. 

• The Right to Appeal an IRS Decision in an Independent Forum: Should taxpayers have any issues with decisions made by the IRS, they have the right to appeal such decisions – and go to court if necessary. Any appeals must be met with a written response from the IRS’ Office of Appeals. 

• The Right to Finality: When waiting on any communication from the IRS regarding an audit, an appeal, or debt collection, taxpayers have the right to know exactly how long these processes should take. 

• The Right to Privacy: Should the IRS require any additional action – including enforcement action, general inquiries, or examinations, it must adhere to all laws and should not involve any extra force or intrusion. 

• The Right to Confidentiality: All information provided by taxpayers to the IRS must remain confidential to the agency – unless permission is explicitly granted to the agency. Tax preparers and IRS employees who mishandle taxpayers’ personal information are subject to legal action. 

• The Right to Retain Representation: In the event of any legal proceedings with the IRS, taxpayers can retain the representation of their choosing – certified public accountant, an enrolled agent, or an attorney. For taxpayers who may not be able to afford representation, the Low Taxpayer Clinic can help provide assistance. 

• The Right to a Fair and Just Tax System: Under this tenet, the IRS is required to consider outside factors in taxpayers’ lives that can affect how quickly they’re able to provide information or make payments. This also applies to compromises when paying back tax debt. Additionally, lower-income individuals can utilize programs such as the Low Income Taxpayer Clinic and the Taxpayer Advocate Service. 

More information on all of these rights is available to consumers here.

While many Americans are preparing to file their 2022 taxes, the Internal Revenue Service (IRS) is announcing new updates for 2023 taxes. 

The agency has released the standard mileage rates that will be eligible for tax deductions for cars, vans, panel trucks, or pickup trucks for charities, moving, business, or medical purposes. These updates will hold up for: diesel-powered cars, gas-powered cars, hybrid vehicles, and electric vehicles. 

What’s new for 2023?

As of January 1, 2023, the following updates will go into effect for the standard mileage rates for the 2023 tax season: 

• 14 cents per mile driven for charities (unchanged from 2022) 

• 65.5 cents per mile driven for businesses (up 3 cents from the second half of 2022)

• 22 cents per mile for medical or moving purposes for active-duty Armed Forces members 

What should taxpayers know?

When deducting the expenses for using a personal vehicle for business, medical, or charitable purposes, taxpayers have the option of either calculating their exact expenses or using the IRS’ standard mileage rate. 

In this announcement, the IRS explained that any leased vehicles must have costs deducted using the standard mileage rate. Additionally, the first year that a vehicle is used for business purposes, taxpayers must utilize the standard mileage rate. After that, taxpayers are free to choose between the standard mileage rate and calculating the exact expenses. 

It’s also important to note that claiming expenses related to moving is now only valid for active members of the Armed Forces who are being stationed at different locations. 

Each year, the IRS utilizes fixed and variable data related to owning and operating a vehicle to set the yearly standard mileage rate. 

To read the full 2023 standard mileage rates report, click here. 

As tax season approaches, new guidance from the Internal Revenue Service (IRS) may benefit consumers’ wallets for this year and into the future. The organization is promoting the Saver’s Credit, or the Retirement Savings Contribution Credit, just in time for Americans to start preparing to file their taxes. 

The program is designed to help low- and middle-income earners who contribute to 401(k) plans, Individual Retirement Agreements (IRA), or other retirement programs. The credit can also benefit individuals who contribute to Achieving a Better Life Experience (ABLE) accounts for those with disabilities. 

The Saver’s Credit can help increase consumers’ tax refunds or help reduce what’s owed to the IRS. This year, the credit can be as much as $1,000 ($2,000 for married couples), though that amount isn’t guaranteed. 

Applying for the Saver’s Credit

To be eligible for the Saver’s Credit, the IRS accounts for consumers’ income, marital (and tax filing) status, and the amount they’ve contributed to retirement plans or ABLE accounts. However, because of inflation, the agency has reported that the income limits are likely to be higher than they have been in the past – and continue to increase for next year, too. 

Below are the current criteria to qualify for the Saver’s Credit: 

• Married couples filing separately or singles filing individually with incomes up to $34,000 in 2022 or $36,500 in 2023

• Married couples filing jointly with incomes up to $68,000 in 2022 or $73,000 in 2023

• Heads of household with incomes up to $51,000 in 2022 or $54,750 in 2023

There are also a few limitations for who is eligible to qualify for the Saver's Credit. These include: 

• A student – anyone enrolled in school full-time for at least five months of the calendar year – is ineligible for the Saver’s Credit. 

• Taxpayers under the age of 18 are not eligible for the Saver’s Credit. 

• Any individual who is a dependent on someone else’s tax return is ineligible for the Saver’s Credit. 

The IRA reported that in the 2020 tax year, the average return from the Saver’s Credit was around $186 per qualifying return. In total, nearly $2 billion were claimed on nearly 9.5 million tax returns across the country. 

It’s also important to note that the credits are likely to be less for consumers who have taken money from an ABLE account or retirement plan between 2019 and the official filing deadline for 2022 taxes (April 18, 2023). 

Planning for tax season

It’s not too late for consumers with eligible retirement plans or ABLE accounts to take advantage of the Saver’s Credit for the 2022 tax season. Taxpayers have until the official filing deadline – April 18, 2023 – to contribute money into their Roth or traditional IRAs. Any new retirement plans set up between now and the deadline will also be eligible for the Saver’s Credit for 2022. 

However, for traditional workplace retirement plans, all contributions must be made before the end of the year. This includes: 401(k) plans, 403(b) plans for public school employees and tax-exempt organizations, Governmental 457 plans for state and local employees, and Thrift Savings Plans for federal employees. 

The IRS recommends that employees start planning with their employers for their 2023 contributions. In the meantime, a full list of retirement accounts that are eligible for the Saver’s Credit is available here. 

As Americans prepare to file their 2022 taxes in the coming months, staying on top of the latest changes and updates can help make the process easier. 

The Internal Revenue Service (IRS) has now released a frequently asked questions (FAQ) list to help guide consumers through two of the biggest changes this year: energy efficient home improvements and residential clean energy property credits. 

The agency explained that following the passing of the Inflation Reduction Act, many of the tax credits, credit limitations, and eligible expenditures have changed since consumers last filed taxes. 

What to expect

While the new FAQ breaks down the changes related to energy-efficient home improvements and clean energy property credits, the document first provides this general overview of the Residential Clean Energy Property Credit: 

“The residential clean energy property credit is a 30% credit for certain qualified expenditures made by a taxpayer for residential energy efficient property. The IRA extended the residential clean energy property credit through 2034, modified the applicable credit percentage rates, and added battery storage technology as an eligible expenditure. The credit applies for property placed in service after December 31, 2021, and before January 1, 2023. The credit percentage rate phases down to 26% for property placed in service in 2033, 22% for property placed in service in 2034, and no credit available for property placed in service after December 31, 2034.” 

From there, users can explore the document in-depth to learn more about: 

• Energy Efficient Home Improvement Credit: Qualifying Expenditures and Credit Amount

• Residential Clean Energy Property Credit: Qualifying Expenditures and Credit Amount

• Energy Efficiency Requirements

• Qualifying Residence

• Labor Costs

• Timing of Credits

• General Questions

• Examples 

Deeper dive

Each section dives deeper into these topics to help consumers get detailed insights into what to expect when filing taxes. This includes:

• Which home improvements are eligible for the Energy Efficient Home Improvement Credit
• What residential clean energy expenditures are eligible for a Residential Clean Energy Property Credit
• What energy efficiency requirements must be met to qualify for the Energy Efficient Home Improvement Credit, what type of residence qualifies for the credit
• Whether existing homes are eligible for the credit
• Whether residences used as businesses are eligible for the credit
• Whether taxpayers can include the cost of labor, and more. 

The IRS utilizes FAQs as a way to quickly share new information with taxpayers that is widely asked about and applicable throughout tax season. While these documents are subject to change, they serve to be beneficial guides for consumers. 

To access the full FAQ on energy efficiency home improvements and clean energy credits, click here. 

The Inflation Reduction Act, recently signed into law, contains $85 billion in new funding for the Internal Revenue Service (IRS). In addition to hiring additional agents to perform more audits, the money may be targeted for projects designed to improve the taxpayer experience.

Morris Armstrong, founder and owner of Morris Armstrong EA LLC, says the new funding is supposed to be earmarked for increasing staff and improving technology at the tax collection agency. 

“The IRS loves data, and they need to have people who can understand the data and manipulate it as they examine more complex returns,” Armstrong told ConsumerAffairs. 

He says many of the new hires will be focused on returns from pass-through entities such as trusts, partnerships, and S corporations, especially those affiliated with higher-earning taxpayers. 

“While, personally, I think that the administration is mistaken in saying that those making (under) $400,000 will not be impacted, I do think that the very high earners will face more scrutiny. Audit rates for each segment will increase,” Armstrong said.

Phone calls may get answered

Jeremy Babener, member of the Legal Committee at the National Structured Settlements Trade Association, said the additional money could improve the taxpayer experience. For example, he says phone calls to the agency may have a better chance of being answered. The IRS Taxpayer Advocate has found that currently, the IRS only answers about 10% of the phone calls it receives from taxpayers.

"Many have expressed concern of a wave of new audits, (but) they may be forgetting that the IRS is operating with fewer employees today than in the early 1990s, and a significantly larger population," Babener told us.

Babener says the IRS’s recent reduced funding has probably resulted in more audits of lower and middle-income taxpayers because their returns are less complex. But he says those audits also bring in less money.

Smoother process

Armine Alajian, a CPA and founder of the Alajian Group, tells us the increase in IRS funding should make dealing with the tax agency a smoother process. She says both taxpayers and tax preparers have encountered frustrations because the agency has been short-staffed and underfunded.

“We’ve seen a steep decline in IRS employees over the past few years, so if this increased budget stops this decline, we may see much-needed changes in the taxpayer experience,” Alajian told us. “Because the IRS has been severely underfunded for so long, it’s difficult to say if this infusion of money alone will truly bring the improvements we're looking for."

About $15 million of the new funding has been earmarked for a study of the IRS’s FreeFile system and how to simplify and improve it.

“It’s a big project and there are a lot of hurdles, said Yvonne Cort, tax compliance officer at Capell Barnett Matalon & Schoenfeld. “I can’t say whether the program is likely to be put in place. For taxpayers with simple returns, it would be beneficial to have an easy, online way to file.”

Armstrong notes the new law allocates about $5 billion to update the IRS business systems, which he says are out of date. There’s about $3 billion for taxpayer services and about $25 billion for taxpayer support. 

“However, there is $46 billion allocated towards enforcement and it is this number that is making people think that they are in trouble,” Armstrong said. “In my opinion, the IRS does a good job of collecting taxes and that funds the government. They should be funded adequately.”

TurboTax has become one of the dominant do-it-yourself tax preparation platforms, helping taxpayers prepare their federal and state tax returns. Recently, however, some users have objected to what they say is a “hidden fee” – a $40 charge when the customer chooses to pay for the service by using a portion of their federal refund.

“Even though I was using the free version, TurboTax hit me with several surprise fees at the end,” Luke, of Salt Lake City, wrote in a ConsumerAffairs review. “There was a state fee that came out of nowhere at the end that I did not have to pay for last year. TurboTax is easy to use, but, in the end, they used me.”

Other users posting on ConsumerAffairs and on other forums like Reddit have also complained about the $40 fee. The company, however, disputes claims that the fee is “hidden.” 

TurboTax, which is owned by Intuit, says it has been upfront about what it calls a “refund transfer fee.” The company allows customers who file their taxes online to have TurboTax’s charges deducted from the refund, but it imposes a charge for doing that. Customers’ other alternative is to pay with a credit card or debit card.

“The Refund Processing Service is an option for paying your TurboTax fee by deducting it from your federal tax refund. It's a convenient way to pay for TurboTax if you don't have (or don't want to use) your credit or debit card,” the company explains on its Help page. “You don't need Refund Processing Service to e-file and process your refund, and refund processing won't slow down or speed up your refund.”

How transparent?

The point of contention is whether TurboTax is transparent about the refund transfer fee when users electronically file their taxes. Some customers have said they were not aware of the fee before they selected the option to pay with part of their refund. David, of Hanover, Mass., is one of them.

“I just completed my taxes (basic return), refund both state and federal. I was automatically upgraded to $90 federal fee and $50 state fee. I can live with the fees. But the $39.99 fee to pay the $140 fees is a money grab,” David wrote in his review.

TurboTax points out that the page with information about its fees gives users the option to pay with a credit card or pay with their federal refund. Below the federal refund option, it says, “Don’t worry about pulling out your wallet. We’ll simply deduct the $39.99 fee from your federal refund and send the balance to your bank account.” 

One user pointed out that the fee is mentioned, but they said “it is not crystal clear” what the fee is and what it is for.

TurboTax is not the only company to trigger complaints about “hidden fees.” Earlier this year, DoorDash found itself as the defendant in a proposed class-action lawsuit alleging that it charged hidden fees during the pandemic. In March, competitor GrubHub was also slapped with a suit by the District of Columbia Attorney General’s office that leveled similar charges.

‘All-in pricing’

Brett Goldberg, the co-founder and co-CEO of TickPick, has been an advocate of “all-in pricing” – which relies on telling consumers the bottom line cost in all advertising. Because of competition, he says businesses often want to advertise the lowest possible price. It’s why an airline will advertise a low fare but disclose later that there are fees to check bags. An Airbnb host can also charge a large “cleaning fee” so that they can advertise a lower nightly rate than their competitors.

“Businesses know that consumers who are price shopping are looking to compare that upfront price,” Goldberg told ConsumerAffairs. “So to maximize conversions, the lower the price they can display, the higher their conversion value will be.”

It’s not surprising that consumers would get angry when they choose a service for what appears to be a low price but wind up paying more because of a fee or two that wasn’t included in the advertised price.

“Furthermore, businesses will say that they want to be transparent and show the all-in price. But without regulations, very few businesses are going to put themselves at a disadvantage,” Goldberg said. 

The pressure to hide the true cost of a service, product, or experience may only get more intense in this inflationary environment. Right now, Goldberg says “consumer deception is extreme” for live events, airline tickets, hotels, and rental homes.

The solution, he says, is for regulators to set concrete rules that govern fee disclosures and advertised prices so that they are transparent. With regulation, Goldberg says consumers would have better price information and businesses would be competing on a more level playing field.

If you need a copy of a previous tax return from the IRS, you may be out of luck. According to a recently released report from the Treasury Inspector General for Tax Administration (IG), the U.S. income tax agency laid waste to data belonging to an estimated 30 million filers in March 2021.

The IG called it a “management decision” stemming from the IRS’ “continued inability to process backlogs of paper-filed tax returns.” The IRS made another decision to cut back on its handling of paper earlier this year when it decided to suspend the mailing of additional letters, such as balance due notices and unfiled tax return notices, to taxpayers.

The push to e-file

While the agency didn’t come right out and say it would rather have taxpayers file electronically, the report spent considerable ink promoting e-filed tax returns as the preference. 

“[E-filings] are sent through a number of upfront validations that check for more than 1,000 possible errors before the IRS accepts an e-filed tax return for processing,” the report said.

The agency says filing electronically comes with other benefits, including: 

• No need to mail paper tax returns

• Greater tax return accuracy

• Confirmation that the IRS received the tax return

• Secure and confidential submission of highly personal tax return information, and

• E-filing substantially reduces IRS processing costs.

The IG stated that the error rates are a lot lower for e-filed returns when compared to paper-filed tax returns. For example, the paper-filed tax return error rate was almost 10 times greater than the e-filed tax return error rate during the 2020 tax year.

Despite what might be a push towards e-filing, the public may have a different preference when it comes to filing taxes. Earlier this year, a separate study by tax preparation company Jackson Hewitt suggested that taxpayers aren’t all that smitten with going the e-file route because of added costs and the difficulty it takes to correct a mistake. 

Tax preparers give the move a thumbs-down

Tax professionals were aghast at the IRS' decision to delete tax data. Paul Miller, Managing Partner & CPA of Miller & Co., LLP, told ConsumerAffairs that the IRS needs to be upfront with what data it's deleting.

"Of course this can cause more delays in processing returns, getting refunds, clearing notices etc. Taxpayers are totally frustrated, as calling the IRS is an impossible task. As professionals, we have a dedicated line and we still have to wait. This is going to increase the nightmare that already exists," he said.

Miller went on to note that the IRS eroded its reputation even further recently over an "enormous amount of fraud" that the agency has encountered. He said a number of his clients are getting letters to verify their identity because the IRS doesn’t know if the return filed is actually the return of the taxpayer. To combat that fraud, the IRS is now using ID Me to verify taxpayers. It is also requesting that taxpayers get an ID Protection PIN number.

ConsumerAffairs reached out to the IRS for comment, but the agency did not immediately respond to a request for comment.

---

Update

The IRS has issued a statement that clarifies which tax forms were destroyed and why the agency took that step:

"In 2020, the IRS prioritized the processing of backlogged tax returns to get taxpayers their refunds and support other COVID-related relief over inputting the less than 1% of information documents – mostly Form 1099s –  that were submitted on paper," the agency told ConsumerAffairs.

"System constraints require IRS to process these paper forms by the end of the calendar year in which they were received. This meant that these returns could no longer be processed once filing season 2021 began. Not processing these information returns did not impact original return filing by taxpayers in any way as taxpayers received their own copy to use in filing an accurate return. The IRS is planning to process all paper information returns received in 2021 and 2022."

TurboTax’s parent company Intuit has ended its effort to fight all 50 U.S. states over supposedly steering low-income Americans away from free tax-filing services and towards its retail tax filing services.

In announcing the settlement, New York Attorney General Letitia James said the company will pay $141 million in restitution to 4.4 million consumers across the country who were unfairly charged. 

And that’s just half of Intuit’s concession. The company has also agreed to end TurboTax’s “free, free, free” ad campaign, which critics say led consumers to pay for services that they thought were free.

“Intuit cheated millions of low-income Americans out of free tax filing services they were entitled to,” said Attorney General James. “For years, Intuit misled the most vulnerable among us to make a profit. Today, every state in the nation is holding Intuit accountable for scamming millions of taxpayers, and we’re putting millions of dollars back into the pockets of impacted Americans. This agreement should serve as a reminder to companies large and small that engaging in these deceptive marketing ploys is illegal.”

Intuit has lots to do

All 50 states and the District of Columbia may have signed onto the agreement, but Intuit’s courtroom appearances aren’t over yet. Just a month ago, the Federal Trade Commission (FTC) also sued the company for falsely claiming TurboTax was free. 

Intuit claimed it "admitted no wrongdoing" as part of its agreement with the individual states, and it expects "minimal impact to its business" from the changes demanded in the future. Nonetheless, Intuit agreed to reform its business practices by following these provisions:

• Refraining from making misrepresentations in connection with promoting or offering any online tax preparation products;

• Enhancing disclosures in its advertising and marketing of free products;

• Designing its products to better inform users whether they will be eligible to file their taxes for free; and

• Refraining from requiring consumers to start their tax filing over if they exit one of Intuit’s paid products to use a free product instead.

Tax filers who feel they were duped by Intuit’s advertising and used TurboTax's Free Edition for tax years 2016 through 2018 are supposed to receive a direct payment of approximately $30 for each year that they were deceived into paying for filing services, James’ office stated. Impacted consumers will automatically receive notices and a check by mail.

Time is getting tight for taxpayers who haven’t yet filed their 2021 federal tax returns. The Internal Revenue Service (IRS) is sending out one last reminder that the deadline to file and pay taxes owed for most individual income tax returns is Monday, April 18.

The agency also wants late filers to know that if they need help or feel they need to request an extension, they can contact the agency 24 hours a day on IRS.gov.

Electronic filing is the way to go

The IRS said filing tax returns electronically is currently the preferred method since we're so close to the filing deadline. The agency said currently available tax software can do all the calculations, catch common errors, and prevent mistakes by prompting taxpayers for any missing information. Filing electronically is also the fastest way to receive a refund, and using direct deposit is the quickest way to get a refund into a taxpayer’s bank account.

There’s also IRS Free File, which is available to any individual or family that had an adjusted gross income of $73,000 or less in 2021. IRS makes Free File Fillable Forms available to anyone who is comfortable preparing their own tax return.

Accuracy also counts, especially for taxpayers who have things like Advance Child Tax Credits and Economic Impact Payments to deal with. Consumers who are in that sort of situation should use the IRS’ Online Account service. Going that route provides all the information to help file an accurate return.

Need more time?

If you’re up against the clock and don’t think you can make the April 18 deadline, you’re not alone. The IRS estimates that 15 million taxpayers will also request an extension.

“In a matter of minutes, anyone can request an extension until October 17, using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return,” the agency said. “An extension of time to file is not an extension of time to pay, however, and taxpayers must estimate their tax liability on this form and pay any amount due by the April 18 filing deadline to avoid penalties and interest.”

The agency said it would be wise for taxpayers who are requesting more time to pay all or part of their estimated income tax due and indicate that the payment is for an extension. There are three ways to do that electronically: Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or by paying with a debit card, credit card, or digital wallet.

“This way they don't have to file a separate extension form and will receive a confirmation number for their records,” the agency said.

For taxpayers who prefer to go the old fashion mail-in route, they need to download IRS Form 4868 from Forms, Instructions & Publications. They will need to complete and send that form to the correct IRS office by the April 18 filing deadline.

Don't forget to answer the cryptocurrency question

One of the most glaring gaffes taxpayers are making this year is not filing out the cryptocurrency question on the front page of their tax return.

On the front page of Form 1040, Form 1040-SR, and Form 1040-NR is a checkbox regarding “virtual currency” – meaning Bitcoin, Ethereum, and all other cryptocurrencies. The question on the return asks, "At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?"

The IRS says the question “must” be answered by every single taxpayer, not just the ones who bought or sold cryptocurrencies in 2021.

An increasing number of taxpayers are completing their tax returns themselves and turning to online software packages to do so. The appeal is faster speed and lower cost.

But a study by tax preparation company Jackson Hewitt suggests that some taxpayers are often presented with an unpleasant surprise. Among online tax filers, nearly 30% of respondents in the study reported that they paid more for online tax preparation services last year than they expected. 

The study further makes the case that many free or reduced-price filing options come with unexpected charges. The study found that once a filer starts the process, they find that the cost may steadily increase based on the complexity of the return or other factors, making the total price once completed higher than they originally anticipated.

It might be partly explained by the difference between a human tax preparer and a software package. Jackson Hewitt and competitor H&R Block built their businesses around human tax preparers, but both also offer an online do-it-yourself software option. And it’s not always unexpected costs that give consumers heartburn.

No way to change a mistake

Stephen, of Tuscaloosa, Ala., told us he switched to H&R Block’s software a few years ago with good results – until last year when the software told him he owed thousands of dollars.

“It was counting a Roth IRA as income, but I couldn't find any way to change it,” Stephen wrote in a ConsumerAffairs review. “The online site has gone too far at shielding you from forms so that I couldn't just check a box to check it.”

Patricia, of Springfield, Va., also hit a speed bump last year when preparing her tax return using Intuit TurboTax.

“The online service made errors in my federal tax return for 2020,” they wrote in a review. “My refund was withheld for two months and then when I received it, it was only $147, much smaller than the refund amount that Turbo Tax reported. I received a letter from the IRS a week later, stating that a miscalculation was made on my 1040SR which affected recovery rebate credit.”

Flat price

Jackson Hewitt says it eliminates surprise charges by offering a no-frills, $25 flat price for filing federal and state taxes, regardless of the tax return's complexity.

“Despite the rising cost of living due to inflationary pressures, we're committed to providing a flat price for all online filers," said Zachary Cohen, head of Digital Products at Jackson Hewitt.

Some taxpayers have another free but often-overlooked option. Internal Revenue Service (IRS) Free File is a partnership between the tax agency and several commercial tax preparation software companies.

By registering at Free File, taxpayers can use the same software they would otherwise pay to use to complete their returns. It’s available at no charge to taxpayers with adjusted gross incomes (AGI) of $73,000 or less. The IRS explains how it works here.

The Internal Revenue Service (IRS) has decided that it may have been a little overzealous in the letter-sending department and is suspending more than a dozen additional letters, including balance due notices and unfiled tax return notices.

The agency is backing off on mailing notices because the COVID-19 pandemic caused it to be backed up with original and amended returns from both individuals and businesses that have yet to be processed. It feels that taking this step can help avoid some confusion for both taxpayers and tax professionals.

“IRS employees are committed to doing everything possible with our limited resources to help people during this period,” said IRS Commissioner Chuck Rettig.

“We are working hard, long hours pushing creative paths forward in an effort to be part of the solution, rather than the problem. Our employees continue to expend every effort to balance a confluence of multiple, unprecedented demands − including successfully starting the filing season, working our inventory of unprocessed tax returns as well as looking for additional ways to minimize burden for taxpayers, tax professionals and businesses.”

The agency left the door slightly ajar for the automatic notices it is shelving to return. It said once the current backlog is worked through, it will reassess the situation and try to determine if and when those notices should return. 

Consumers still need to pay attention to letters 

The IRS says it’s possible that some of the letters it’s putting on hold are in the mail already, and those letters still need to be heeded if a taxpayer or tax professional believes a notice is accurate.

In those situations, the agency says the taxpayer or preparer should act to rectify the situation as soon as possible. As an example, the IRS cautions people with a balance due that interest and penalties can continue to accrue.

Consumers can visit the IRS website for payment options.

The Internal Revenue Service (IRS) reports that all of the payments in the third round of its Economic Impact program have been issued. Now, it's reminding Americans not to forget that they can claim any remaining stimulus payment they’re entitled to on their 2021 income tax return as part of the 2021 Recovery Rebate Credit.

For those who haven’t received their payment yet, the IRS says not to worry because some of the payments may still be in the mail.

Tax return implications

The agency reminds taxpayers – specifically, families and eligible parents of children born in 2021  – that anyone added as a dependent in 2021 has the right to claim the 2021 Recovery Rebate Credit on their next tax return. However, the size of the deduction depends on the income and number of dependents listed on an individual’s 2021 income tax return.

The IRS says another caveat exists for families and individuals who did not receive the full amount of their third-round Economic Impact Payment because their circumstances in 2021 were different than they were in 2020. In that situation, those families may be eligible to receive additional money by claiming the 2021 Recovery Rebate Credit on their 2021 income tax return.

The IRS makes it clear that anyone who wants to claim money from the program must claim the 2021 Recovery Rebate Credit on their 2021 income tax return. The agency says the process will not happen automatically and that consumers must apply to receive compensation.

Get the paperwork done ASAP

Because of the limited time that consumers have to file their 2021 tax returns, the IRS urges people to start collecting all the information they need to file an accurate return and avoid processing delays. If the agency finds errors in a return or considers it incomplete, it said correcting those issues only complicates matters and that tax refunds could possibly be delayed until the issues are resolved. 

In an email to ConsumerAffairs, the IRS stated that filing electronically allows tax software to calculate credits and deductions, including the 2021 Recovery Rebate Credit. The 2021 Recovery Rebate Credit Worksheet on Form 1040 and Form 1040-SR instructions can also help, as can a list of FAQs that the agency has prepared to help taxpayers through the process.

The fastest and most secure way for eligible individuals to get their 2021 tax refund that will include their allowable 2021 Recovery Rebate Credit is by filing electronically and choosing direct deposit.

It’s tax season. Forms are in the mail, and soon it will be time to file 2021 tax returns. 

Most Americans turn to a professional for help. Of the national tax preparation services, Intuit-TurboTax, Jackson Hewitt, and H&R Block are among the most widely used.

But which is the best? An analysis of ConsumerAffairs reviews of these three companies shows remarkable parity. In our 5-star system, all three are rated 3.8 stars.

We decided to do a deeper dive to see what sets the companies apart and what customers like and don’t like about them.

Intuit-TurboTax

TurboTax is an online software that allows taxpayers to prepare their returns themselves. It offers a 100% accuracy guarantee and promises to help users get the fastest refund possible.

Randall, of Porter, Texas, used TurboTax last year, but then he decided to have a CPA redo his filing because it was more complicated than in previous years.

“While TurboTax would have been $40.00 to complete and electronically send in, this CPA charged me $897.00 for the exact same outcome that Turbo Tax figured my taxes would have been,” Randall wrote in a ConsumerAffairs review. “Needless to say I won't be back to a CPA. Also took a month to get back from the CPA while Turbo Tax I was done in 2 hours.” 

TurboTax offers four plans, including one that’s free. The top-tier plan is for self-employed individuals and costs $120.

Jackson Hewitt

Jackson Hewitt is a nationwide tax service company with offices in most cities. It specializes in tax preparation, tax filing, and debt resolution. 

Taxpayers can use the company to file taxes online, but they can opt to have one of the company’s tax preparers fill out the return. Jessica, of Douglasville, Ga., says she had a good experience.

“It was a fast and pleasant experience she (the tax preparer) was very friendly and professional and made sure I got every tax credit I could and made my experience very nice,” Jessica wrote in a ConsumerAffairs review. “I will most definitely be back in the near future.”

Jackson Hewitt has three plans for taxpayers. Like TurboTax, it has a free plan and two plans that include filing state returns.

H&R Block

H&R Block operates on a similar basis as Jackson Hewitt. It may have an office nearby, but it also offers plenty of self-service features online. William,  of Ooltewah, Tenn., tells us he has used H&R Block the last five tax seasons.

“I opt to pay the extra $29.95 and have access to my last seven years' tax filings,” William wrote in his review. “I always get confirmations when my tax filing is accepted by the IRS and I do not get an excessive amount of email solicitations from them. Very professional and respectful company.”

H&R Block offers customers several different options. Fees for working with the company’s tax professionals using the document upload option start at $49, while the drop-off and in-office services start at $69. Additional fees may apply, including a $44.99 fee for filing state taxes.

If you’re one of the millions of American families who receive Child Tax Credit checks, there’s another one coming in the mail. But if you’re not signed up and think you qualify, the clock is ticking fast. 

The Internal Revenue Service (IRS) says you have to sign up for the payments on its website by 11:59 p.m. Eastern Time on Monday, Nov. 15 to qualify. Eligible families will receive up to $300 per month for each child under age six and up to $250 per month for each child between the ages of six and 17.

Families who sign up by the Nov. 15 deadline will normally receive half of their total Child Tax Credit on Dec. 15. This means a payment of up to $1,800 for each child under age six and up to $1,500 for each child aged six to 17. This is the same total amount that most other families have been receiving in up to six monthly payments that began in July.

Payment timelines for families who’ve already signed up

For those who have already qualified and are one of the 36 million families in the system, they can count on their checks coming on Nov. 15 and Dec. 15. The majority of payments are being made by direct deposit. For those receiving payments by paper check or via USPS, the agency said it could take as long as the end of November.

If waiting for a check in the mail is too much, families who’d like to receive their Dec. 15 check by direct deposit can request that change using the Child Tax Credit Update Portal, available only at the IRS’ site here. That change needs to be made by 11:59 p.m. Eastern Time on Nov. 29. at the latest.

The IRS also noted that there may be a bit of confusion for families who did not get a July, August, September, or October payment and are getting their first monthly payment in November. The agency notes that those families will still receive their total advance payment amount for the year (which is half of their total Child Tax Credit), meaning that the total payment will be spread over two months, rather than six, making each monthly payment larger.

Any family receiving a Child Tax Credit check who has moved or changed bank accounts should let the IRS know what those changes are. The agency is asking that any family that has had “significant changes” in income to let them know that too. With that information, the IRS could possibly raise or lower the monthly payments.

What about 2022?

Families who received advance payments of their Child Tax Credit during 2021 can claim the rest of the credit when they file their 2021 Federal income tax return. To help them do that, the IRS will be sending out “Letter 6419” in early 2022. In that letter, the agency says it will lay out the procedures for any advance payments issued to families during 2021 and the number of qualifying children used to calculate the advance payments.

It’s possible that families might have other questions about eligibility, forms, and dates. In those situations, the IRS asks that they visit its special Child Tax Credit website. 

If you’re doing some year-end financial planning for next year, here’s something to consider: The Internal Revenue Service (IRS) is raising the minimum 401(k) retirement account contribution by $1,000 in 2022.

The changes are part of a cost-of-living adjustment. Individuals will be able to contribute up to $20,500 to their employer-sponsored plans, up from $19,500 for 2021 and 2020. However, the changes do not apply to individual retirement accounts (IRA).

The contribution limit for employees also extends to most 457 plans, and contributions to the federal government's Thrift Savings Plan are increasing to $20,500, up from $19,500. There will also be changes to traditional and Roth IRAs, but the contribution limits are not increasing. The limit for 2022 stays at $6,000 -- $7,000 for those aged 50 or older. There is also no increase in catch-up contributions for people over 50. 

Taxpayers will be able to make contributions based on specific income levels. Other conditions may also apply. For example, if the taxpayer or the taxpayer's spouse was covered by a retirement plan at work during the year, then the allowable IRA deduction may be reduced or phased out until it is eliminated, depending on filing status and income. 

New income ranges

Here are the new income ranges for IRA contributions:

For single taxpayers covered by a workplace retirement plan, the phase-out range is going up by $2,000 to a maximum of $78,000 in annual income. For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to $109,000 to $129,000, up from $105,000 to $125,000.

For taxpayers contributing to an IRA who is not covered by a workplace retirement plan but is married to someone who is covered, the phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000.

For a married person filing separately who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Roth IRA income limits will also rise

People contributing to a Roth IRA will be able to earn more next year. The income phase-out range is now $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. 

Married couples filing jointly will be able to earn $204,000 to $214,000, up from $198,000 to $208,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment.

The Saver’s Credit program, used primarily by low- and moderate-income workers, will increase the income limit to $68,000 for married couples filing jointly, up from $66,000. Other income limits are $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000.

Starting Thursday, many American families with children under 18 will begin receiving monthly payments as part of the American Rescue Plan.

Ninety percent of families are expected to qualify for at least a partial credit, and those who are eligible will get payments every month through December -- either through direct deposit, paper checks, or preloaded debit cards that come in the mail. Who are the other 10%? The child tax credit zeroes out at $240,000 for single taxpayers and $440,000 for joint filers.

By the time 2021 ends, these payments will add up to half the child tax credit that families should be entitled to for the year, but families will be able to claim the rest next year when they file their 2021 tax return.

“This is one of those times when parents need to pay extra attention and do what's needed to take care of their families,” Teresa Murray, Consumer Watchdog with the U.S. Public Interest Research Group Education Fund, told ConsumerAffairs. “Families may receive up to $300 per month for the rest of this year for each child 5 and under, or $250 per month for each child between ages 6 and 17. That's a lot of money!”

Not the same as a stimulus check

It’s important to note that checks from the American Rescue Plan are completely different from the stimulus payments that the government issued earlier in the COVID-19 pandemic. 

The big difference that people need to understand is that while the stimulus checks didn’t count as income or affect future tax returns, the American Rescue Plan payments that start on Thursday are advances on what would be included in your tax return in April 2022.

Expert tips

Murray offered a variety of tips that people should keep in mind to make things easier when tax time rolls around.

• To see how much money you’ll receive and check whether you qualify, go to the Internal Revenue Service (IRS) website. You can contact the agency to see if it has your bank account information; if it doesn’t have that information, you can provide it in time for the August 15 payment. If you don’t already have an online account with the IRS, you may need your photo ID. 

• Regarding taxes, Murray suggests that parents keep track of their payments so they know how much they can still claim when they file their tax return next year. If they don't get the July 15 payment by direct deposit or mail, they should check their status on the IRS tax credit website. When they get notices from the IRS -- probably early next year -- they need to make sure the information on payments actually matches how much they received.

• If you’re supposed to receive a payment and it doesn’t show up by direct deposit in your bank account, don’t fret -- you may get a paper check or debit card, even if the IRS has your current bank information. 

• If you don’t want to get the advance payments, you can unenroll through the same site. 

Murray says consumers do not need to pay fees to receive these payments. If someone contacts you claiming as much, then there’s a good chance that you’re being targeted by scammers.

“I can't stress how important it is for consumers to avoid scams,” Murray said. “They're out there. Don't be so eager to get your money that you let your guard down and click on a link in your email or give out information in a social media message. The IRS is not going to message you on Facebook or Instagram. They're not.”

A word to the wise

While some families may look at these payments as a reason to celebrate and go on a shopping spree, Murray says consumers shouldn’t be too quick to splurge.

"Families should use this money wisely. Virtually all of us either experienced a drop in income last year or know someone close to us who was hit financially by the pandemic,” she told ConsumerAffairs.

“These payments are an advance on the credit you would normally get next year. So you'll get only half of the child tax credit next year. You're essentially borrowing from yourself. We would hope people would use the money to get caught up on bills or save for the next rainy day."

Have you received your 2019 tax refund or your stimulus check on time? If not, then you’re not alone. In fact, a new report given to Congress by the Internal Revenue Service’s (IRS) Taxpayer Advocate division says you’re one of millions who experienced that setback. Unfortunately, you may also be one of the many who felt like they were being left in the dark.

The report gave the IRS kudos for managing the 2020 filing season and accurately paying the significant majority of Economic Impact Payments (EIPs), but it also noted that some taxpayers experienced major problems and that the agency didn’t do everything it could have done when it came to being transparent about its struggles. 

One of those struggles was operating during the COVID-19 pandemic. As a result of the coronavirus, paper tax returns and correspondence from taxpayers sat unopened in trailers for months. Taxpayers had a difficult time getting through to the IRS by phone, and they couldn’t get in-person assistance at Taxpayer Assistance Centers.

The bad news

The Taxpayer Advocate Division said the IRS was unable to open and process roughly 16 million 2020 paper tax returns in a timely manner. Its report found that the majority of those taxpayers likely were entitled to refunds, yet they had to wait longer than usual to receive them.

According to an update posted on the IRS website, there were still 7.1 million unprocessed individual returns and 2.3 million unprocessed business returns as of November 24, 2020, with some dated as early as April 15.

The second major issue stemmed from the IRS’ fraud detection filters. The report noted that the IRS’ fraud filters have been generating high false-positive rates for many years, leading to refund delays. Overall, the IRS’ fraud filters flagged 5.2 million returns claiming refunds, many of which took as long as 120 days to verify identity or income.

Adding to the IRS’ challenges was the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which put the responsibility of delivering more than 160 million stimulus checks squarely on the agency’s shoulders. 

“This was no easy task. Eligibility was subject to an income phaseout based on filed tax returns, yet millions of individuals who did not file tax returns were also eligible to receive EIPs,” the report said. 

The good news 

Not all taxpayers were affected by the slowdown. The report stated that taxpayers who filed returns electronically had a much easier time securing refunds and stimulus payments.

“Despite these unprecedented challenges, the IRS generally performed well. In most cases, the IRS can effectively handle whatever it can automate, and this year was no exception. As of November 20, 2020, the IRS had received about 169 million individual income tax returns, and of those, about 153 million (91 percent) had been e-filed,” the report said.

“For taxpayers who e-filed, the IRS processed the overwhelming majority of returns timely and issued the resulting refunds timely. The same was generally true of EIPs — most eligible individuals received their stimulus payments timely and in the correct amounts. The IRS deserves much credit for its overall performance in 2020.”

In a speech delivered online to the U.S. Chamber of Commerce on Tuesday, Treasury Secretary Janet Yellen pushed for corporate leaders to pay higher taxes to support President Joe Biden's multi-trillion dollar infrastructure plan.

The funds, she said, would help reduce worker pay inequality and rebuild the country's infrastructure. She said the country's corporate income tax needs to be raised to 28% from its current rate of 21%. 

“With corporate taxes at a historical low of one percent of GDP, we believe the corporate sector can contribute to this effort by bearing its fair share: we propose simply to return the corporate tax toward historical norms,” Yellen said in prepared remarks for the Chamber’s Global Forum on Economic Recovery.

Improving profitability and welcoming competition

Yellen said President Biden's $2.2 trillion corporate tax hike and infrastructure plans will improve the profitability and competitiveness of American businesses and benefit the American people. 

"We are confident that the investments and tax proposals in the Jobs Plan, taken as a package, will enhance the net profitability of our corporations and improve their global competitiveness. We hope that business leaders will see it this way and support the Jobs Plan," she said.

She then pitched the idea of lowering barriers to global competition in an effort to welcome it. 

“Let others innovate and advance. Let us seek to advance faster and further. We ultimately benefit from the positive spillovers of innovation wherever it occurs,” she said. “As in any competition, if you lose one contest, you work harder to win the next. The better the competition, the stronger you will get. That has been the American way.”

Some 39 million Americans are about to get something nice in the mail. The Internal Revenue Service (|RS) and the U.S. Department of the Treasury announced Monday that the first monthly Child Tax Credit payment made possible by the American Rescue Plan will be made on July 15. 

“The American Rescue Plan is delivering critical tax relief to middle class and hard-pressed working families with children. With today’s announcement, about 90% of families with children will get this new tax relief automatically, starting in July,” President Joe Biden said in his support of the Child Tax Credit.

“While the American Rescue Plan provides for this vital tax relief to hard working families for this year, Congress must pass the American Families Plan to ensure that working families will be able to count on this relief for years to come. For working families with children, this tax cut sends a clear message: help is here.”

What recipients can expect and when

The checks — $300 per month for each child under age 6 and up to $250 per month for each child age 6 and older — will cover 88% of children in the U.S. Federal officials said recipients could count on receiving their payments on the 15th day of each month (unless the 15th falls on a weekend or holiday like in August 2021) to help families better plan their budgets.

The payments will come in one of three ways: direct deposit, paper check, or debit cards. Both the IRS and Treasury said they’re especially committed to maximizing the use of direct deposit to make sure recipients get their payments quickly and securely. Most taxpayers won’t have to do a thing to start receiving their payments. The agencies said they are also partnering with organizations to make sure the word gets out to everyone who might be eligible so they can get help gaining access to the program. 

While Biden’s 90% number sounds like just about everyone will receive this benefit, the truth is that not everyone will get the same level of support. “The increased amounts are reduced (phased out), for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers,” the IRS explained.

Additional information for taxpayers on how they can access the Child Tax Credit will be available soon at IRS.gov/childtaxcredit2021.

The Internal Revenue Service (IRS) gave Americans an extra month to file their federal income taxes, and that deadline has finally arrived. Returns must be postmarked with today’s date in order to be filed on time.

The extra time was granted because of the pandemic, and many people needed it. If even more time is needed, taxpayers can file Form 4868 for an automatic extension. The extension gives you until October 15 to file your federal return. However, it does not give you more time to pay any taxes you owe. 

When you file Form 4868 for an extension, you are required to send the IRS an estimated amount of the taxes you owe by using the information available to you. Failure to send the required money will result in penalties and interest charges.

There are some exceptions to today’s deadline. The IRS announced last week that victims of spring storms in Tennessee will have until August 2 to file their returns. Residents of Lousiana, Texas, and Oklahoma will also have until June 15 to file their taxes because of winter storms these states suffered earlier this year.

Taxes paid on unemployment benefits are being refunded

Meanwhile, the IRS this week could be sending you some money. The agency said it will begin sending out refunds on unemployment insurance taxes that millions of Americans paid last year.

Under current tax law, you have to pay taxes on unemployment benefits. Normally, people estimate and pay those taxes on a quarterly basis. But the latest stimulus law, the American Rescue Plan (ARP) that was enacted in March, did more than just send most Americans $1,400. It excluded the first $10,200 in unemployment benefits received in 2020 from federal taxes. About 10 million taxpayers fall into that category.

Starting this week, the IRS will begin sending out the refunds. The agency says single taxpayers will probably be the first to receive a refund, while married couples filing jointly will get their money later. The agency says it expects to complete the process by the end of the summer.

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Editor's Note: This story has been updated to include information on tax filing extensions for consumers in Texas, Louisiana, and Oklahoma.

Bitcoin values tumbled by 7.9% early Friday over fears that the government will increase taxes in the near future, putting it at $47,525 per coin. 

It was the first time the world’s largest cryptocurrency fell below the $50,000 level since early March. Smaller cryptocurrencies like Ether and XRP fell 3.5% and 6.7%, respectively. Experts anticipate more downslide in the days ahead. 

President Biden recently proposed increasing capital gains taxes for the wealthy (those earning more than $1 million per year) to 39.6 percent. Concern about the potential impact of higher taxes was mirrored in the market this week. Investors in Bitcoin already face a capital gains tax if they sell the cryptocurrency after holding it for more than a year.

"With a high growth rate in the bitcoin price, crypto holders that have accrued gains will be subjected to this tax increment," said Nick Spanos, founder at Bitcoin Center NYC. He sees bitcoin dropping further in the coming days.

Also contributing to Bitcoin’s Friday slump were regulatory concerns, fears over valuation, and “bullish exuberance at overbought levels,” according to Fawad Razaqzada, a market analyst at ThinkMarkets. Industry analysts say investors may want to brace for the possibility of more volatility ahead. 

“People have been talking about the capital gains tax and U.S. stock-market selloff being the catalyst of this,” Todd Morakis, co-founder of digital-finance product and service provider JST Capital, told Bloomberg. “If it is true we’ve moved too much -- but once Bitcoin gets a head of steam it is tough to stop unless you are at a technical area.”

Are you thinking about claiming the 2020 Recovery Rebate Credit on your federal tax return this year? If you already have, the Internal Revenue Service wants you to know that you might be getting a different amount than originally expected.

The sticky wicket that most taxpayers don’t know about is that the first and second Economic Impact Payments were actually advance payments of the 2020 credit. The IRS says that people who have already received the first and second payments shouldn't or don't need to include this information on their 2020 tax return -- the one due May 17.

However, U.S. citizens who didn't receive a first or second EIP -- or received less than the full amounts -- may be eligible for the 2020 RRC. If that is you, then you must file a 2020 tax return to claim the credit, even if you don't usually file a tax return.

The Recovery Rebate Credit process

The IRS probably didn’t count on this can of worms, but it wants to make sure it explains the RRC process to those who want to take advantage of it. Just about everything you need to know rests on line 30 of your 2020 Form 1040 or 1040-SR. On that line, you need to list the difference between what you are owed and what you received.

For those who claim the credit on their 2020 return, the IRS takes the return and looks at the amount of the taxpayer's credit based on the 2020 tax return information and the amounts of any EIP previously issued. Then, if a taxpayer is eligible, it will be reduced by the amount of any EIPs already issued to them.

However, if the IRS finds a mistake with the credit amount on Line 30 of the 1040 or 1040-SR, the agency will calculate the correct amount, make the necessary correction, and continue processing the return. If a correction is necessary, then that’s where the letter from the IRS comes in -- one they send to the taxpayer explaining any change. The IRS notes that there may be a slight delay in processing the return because of the extra work.

If you haven’t filed your 2020 tax return yet, the agency says the simplest way to calculate any credit due is to start with the amount of any EIPs received. Consumers can then use the RRC Worksheet that came in the 2020 filing instructions.

Reasons why the IRS will correct credit 

There are several reasons why the IRS might correct a Recovery Rebate Credit, but it says these are the most common:

• The individual was claimed as a dependent on another person's 2020 tax return.

• The individual did not provide a Social Security number valid for employment.

• The qualifying child was age 17 or older on January 1, 2020.

• Math errors relating to calculating adjusted gross income and any EIPs already received.

If you get a letter from the IRS

Taxpayers who receive a letter from the IRS saying that it changed the amount of their 2020 credit should read the notice that comes with the letter. At that point, the IRS asks that they review their 2020 tax return, the requirements, and the worksheet in the Form 1040 and Form 1040-SR instructions.

If a taxpayer doesn’t agree with the IRS’ calculation, they have the right to ask the agency for clarification. The only thing the IRS asks is that the taxpayer have the information that the letter requests handy before they contact an agency official.

The IRS has put together a special guide called “Correcting Recovery Rebate Credit issues after the 2020 tax return is filed” to help taxpayers gain a better understanding of what errors may have occurred. That guide is available online here.

As we head into the home stretch of tax season, some taxpayers may be surprised to hear that the state they live in is not offering a tax break on unemployment benefits, leaving those people on the hook to pay state tax on benefits they received in 2020.

Taxing unemployment benefits is fairly standard in most states, but a lot of people may need to pay even more this year because of the relief funds they received from the government. While the federal government waived federal tax on up to $10,200 of unemployment aid per person under the American Rescue Plane (ARPA), only some states are allowing exceptions.

The states not offering tax breaks

According to data from tax preparer H&R Block and Kiplinger, the states that aren’t excluding unemployment compensation from taxes as of March 30, 2021, are:

• Colorado

• Georgia

• Hawaii*

• Idaho

• Kentucky

• Massachusetts*

• Minnesota*

• Mississippi

• North Carolina

• New York*

• Rhode Island

• South Carolina

• West Virginia*

It’s important to note that states marked with an asterisk could change their tax laws and reverse their position. In ConsumerAffairs’ research of the situation, there are several state legislatures with bills trying to make their way through the channels to offer tax breaks on unemployment benefits. During a recent briefing, West Virginia’s Gov. Jim Justice announced that he has submitted just such a bill.  

“Some other states are requiring their people to pay taxes on the unemployment they received as a result of the pandemic,” Justice said. “We’re not going to do that in West Virginia. We need to stand rock solid with all of our fellow West Virginians who had to endure some really tough times over the past year.”

If you reside in one of those asterisked states, you would be wise to double-check with the state’s unemployment or tax office before doing your taxes to figure out what you may owe. To help, the U.S. Department of Labor has a complete list of individual state unemployment offices. The Federation of Tax Administrators also offers a comprehensive list of state tax agencies, available here. 

The Internal Revenue Service (IRS) sent out a reminder to taxpayers on Friday that any money spent on personal protective equipment (PPE) such as masks, hand sanitizer, and sanitizing wipes to prevent COVID-19 are “treated as amounts paid for medical care (under Section 213(d) of the Internal Revenue Code)”.

Any amount paid for personal protective equipment is also eligible to be paid or reimbursed under health flexible spending arrangements (health FSAs), Archer medical savings accounts (Archer MSAs), health reimbursement arrangements (HRAs), or health savings accounts (HSAs).

What to know and how to get started

As with most tax deductions, there are caveats that consumers will need to keep in mind. The IRS says that amounts paid by an individual taxpayer for COVID-19 PPE must meet two important criteria to be eligible for deduction:

• The products must have been for use by the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent(s) that are not compensated for by insurance or otherwise are deductible under Section 213(a); and

• The taxpayer’s total medical expenses must exceed 7.5 percent of adjusted gross income.

For more information on determining what is deductible, the IRS offers an interactive tax assistant that will walk you through a set of questions to help you determine if you can deduct specific medical and dental expenses. The process takes about 15 minutes and you’ll need to know the following things:

• Filing status.

• Type and amount of expenses paid.

• The year in which the expenses were paid.

• Your adjusted gross income.

• If you were reimbursed or if expenses were paid out of a Health Savings Account or an Archer Medical Savings Account.

ConsumerAffairs is keeping a running update on everything tax-related -- new deadlines, IRS scams, taxes related to student loans, etc. Those updates are available here.

The Internal Revenue Service (IRS) is granting taxpayers a short reprieve when it comes to filing 2020 tax returns. Instead of the traditional April 15th deadline, federal returns will not have to be filed until May 17.

The tax agency said it is granting additional time for taxpayers, as well as tax preparers, because of issues surrounding the coronavirus (COVID-19).

"This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities," said IRS Commissioner Chuck Rettig. 

Despite the additional time, Rettig says taxpayers who are able should file their federal returns as soon as possible, especially if they are owed a refund.

"Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to," Rettig said.

Estimated payments and state taxes not affected

Taxpayers who make quarterly estimated tax payments to the IRS are not affected by the deadline extension. Estimated tax payments for the first quarter of 2021 should be paid by April 15.

The IRS extension does not affect taxpayers’ obligation to state governments. Those deadlines remain the same unless state authorities announce changes. Taxpayers should check with their state tax agencies to confirm filing deadlines.

Taxpayers in Texas, Oklahoma, and Louisiana have even more time to file their federal returns. After February ice storms in those states, the IRS extended the deadline until June 15. The deadline extension applies automatically, so taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. 

People who need even more time to file can, as always, file for an extension until October 15. The extension can be requested using Form 4868, but it does not extend the time to pay any additional taxes that are due. The IRS says taxpayers should pay their federal income tax due by May 17 to avoid interest and penalties.

Millions of Americans are busy working on their 2020 federal income tax return, hoping for a nice refund. If you signed up for a rewards credit card last year, you may have some easy-to-overlook income that needs to be reported.

In most cases, the rewards you earn on your credit card are not taxable income, but in a few cases they are. The cashback you get through the normal use of your credit card is not taxable. The Internal Revenue Service (IRS) considers that a rebate -- a discount on the price you paid.

But sometimes credit card companies give new account holders some points upfront just for opening a new account. Since you didn’t have to spend any money to receive those points, the experts at CardRatings.com say that is income that should be reported.

Alternatively, you might not be getting a refund -- maybe you owe the government some money. What about paying your taxes with a rewards credit card? Is that ever a good idea? The experts at CardRatings say it can be, though the practice has pros and cons.

On one hand, paying a hefty tax bill with a cashback credit card can earn a nice reward, but there can be a downside. Industry specialists say the payment to the IRS can carry fees that could easily offset any rewards you might gain.

Look out for transaction fees

"Paying taxes with a credit card will incur a transaction fee and in 2021 that fee ranges from 1.96 to 1.99 percent of the amount paid, depending on the service that is used," said Brooklyn Lowery, CardRatings' senior managing editor and credit card expert. "Paying that fee to earn just 1 percent back likely isn't wise, but paying the bill and earning a good-sized signup bonus that will be worth more than the fee when redeeming the rewards is perhaps worth considering."

Using the right credit card to pay the IRS is a key consideration. For example, if you’ve just signed up for the Chase Sapphire Preferred card, you need to spend $4,000 in the first three months in order to qualify for the sign-up bonus. A large tax bill could help you get there under the deadline.

If the Discover It Cash Back card is a new addition to your wallet, keep in mind that Discover matches all the cash-back earned during the first year as a cardholder. Again, a significant tax bill could generate substantial cashback that will be matched at the end of the first year.

If you have a Capital One Venture Rewards card, it may also be a good choice for paying taxes. The card gives account holders two miles for every $1 spent on all purchases, meaning at least 2 percent back on the tax bill. If you’re a new customer, you can earn a welcome bonus by spending $3,000 in the first three months the account is open.

Using the right credit card could make paying taxes a little less painful and a little more rewarding.

April 15 may be more than a month away, but tax identity thieves and imposters are ready for tax season whether you are or not. The Federal Trade Commission (FTC), Internal Revenue Service (IRS), and email security companies are warning everyone that this year’s tax season has a different look thanks to the coronavirus pandemic. 

What to be on the lookout for in emails

At the top of everyone’s watch list are emails relating to anything and everything that deals with taxes: especially deadline extensions and any emails that specifically address the COVID-19 pandemic.

Tim Sadler, CEO and co-founder of email security company Tessian, told ConsumerAffairs that there are five things worth remembering when looking at a tax-related email:

Check the sender: Do the names and email addresses match up? Does the name and email address look believable? 

“Attackers will frequently take advantage of the fact that mobile email only shows a display name – as opposed to the full email address – and will change the display name to someone that the victim is familiar with,” Sadler said.

Don't open attachments: Tax season or not, email attachments are a scammer’s go-to weapon of choice. They often use them to infect a victim’s device with malware or code that allows them to gain unauthorized access to your computer. Sadler suggests taking this cautionary step even further. 

“Be wary of even opening emails that are unfamiliar let alone attachments. Attackers have started using social engineering techniques such as hiding keywords in raw HTML or sending invisible pixels. From there, bad actors can lure someone into entering their credentials online and then steal sensitive identity information or wire money to fraudulent accounts,” he said.

Check for errors and tone: Spelling mistakes and poor grammar are always red flags and not something the IRS would likely ever let out of the building. A poorly constructed email or graphic can be one of the easiest ways to spot fraud.

Don't rush into anything: Sadler adds that on top of those warning signs, taxpayers should be wary of any unusual or unprofessional sense of urgency in the email. “If you're unsure, you can verify the legitimacy of the sender by calling the organization directly,” he offered. 

The executive also gave some sage advice that can help verify the authenticity of an email sender. He said you can search for the sending domain in your inbox -- e.g., “@irs.gov.” If you’ve received legitimate emails from the sender over the past few years, it’s generally a good sign that the new email is a legitimate request.

Be skeptical: Ask yourself what are the chances that the sender of a particular email would send you a message about a particular subject -- in this case, taxes. 

“If not, question whether the sender is legitimate. If there is a URL within the email, hover over the link but don’t click. If the URL domain doesn’t match the sending domain, this could be a sign of a scam,” Sadler suggested.

IRS imposters are looking for victims

The FTC reminds Americans that “government” imposters are good at their game -- very good. They might call you on the phone pretending to be from the IRS or even show up on your doorstep claiming you owe taxes and demand that you pay them right then and there.

The agency reminds citizens that the key element of those payment demands are usually gift cards or prepaid debit cards. To help everyone understand the particulars of this scam, the FTC has produced a video explaining how it works.

“They threaten you’ll be arrested or face other bad consequences if you don’t pay. But it’s all a lie. If you send the money, it’s gone,” the agency warned. 

Beware of identity theft

In addition to curious emails, the FTC warns taxpayers that scammers are also trying to find ways to steal a person’s tax identity. Here’s the agency’s to-do list on that subject:

Protect your Social Security number (SSN): Whether it’s tax season or the December holidays, the FTC says that you should never give out your SSN unless there’s a) a good reason and, b) you’re absolutely sure who it is you’re giving it to.

File early: When it comes to being scammed, procrastination is not your friend. 

“Once you file your tax return, you limit the opportunity for someone else to have stolen your identity and do it. It’s like the perfect storm we’re dealing with right now,” Howard Silverstone, a forensic accountant and a member of the American Institute of Certified Public Accountants’ fraud task force, told CNBC.

Mail your return directly from the post office: The FTC says those who mail their tax return directly from the post office are limiting the chances that their return will be snatched by someone who can steal and reuse personal information.

Research a tax preparer thoroughly: Before handing over personal information to anyone the first time, do your homework. 

“Most tax return preparers provide outstanding and professional tax service. However, each year, some taxpayers are hurt financially because they choose the wrong tax return preparer,” the IRS suggests. The agency offers a list of things to consider when choosing a tax preparer and how to avoid unethical "ghost" return preparers.

Check your credit report

While it doesn’t directly relate to tax returns, the FTC says there’s one extra step everyone can take to ensure that their identity hasn’t been stolen or an account hasn’t been opened in their name by someone else -- a credit report. 

Normally, U.S. citizens can get a free credit report from each of the three credit reporting agencies, but online reports are being offered every single week through April, 2021 by Equifax, Experian, and TransUnion because of the COVID-19 pandemic. 

People with student loans may make an unpleasant discovery when they start to prepare their 2020 federal income tax return. A deduction that many may have enjoyed in past years will be missing.

The deduction is the interest paid on student loan balances. The Internal Revenue Service (IRS) allows student loan borrowers to deduct up to $2,500 in interest charges on their loans. That can amount to significant tax savings.

But the deduction won’t be available for most of 2020 because almost all student loan borrowers didn’t pay the usual interest last year. Last March, Congress suspended interest payments until March 2021, and the Biden administration has just extended the break until September.

“You can claim the student loan interest deduction based only on amounts actually paid,” author and higher education expert Mark Kantrowitz told CNBC.

Widely-used deduction

In past years, interest payments have been a widely used deduction. By some estimates, as many as 12 million taxpayers claimed the deduction in 2018, the last year for which there is data. Some borrowers who have been unaffected economically by the pandemic may have continued to make student loan payments through all of last year, but they won’t be able to claim the deduction because the government paused all interest payments. 

If consumers continued to make payments, then the entire amount went to pay down their loan balance and none went toward interest, which is a pretty good deal that offsets some of the deduction loss.

The interest payment pause didn’t take effect until mid-March last year, so borrowers will still be able to deduct around two months of interest payments.

What student loan borrowers should know

If you are making payments on a student loan and have never heard about the deduction, you should be able to claim it next year -- at least for the last three months of the year. The IRS says you can claim the deduction if all of the following apply:

• You paid interest on a qualified student loan in tax year 2020;

• You're legally obligated to pay interest on a qualified student loan;

• Your filing status isn't married filing separately;

• Your MAGI is less than a specified amount which is set annually; and

• Neither you nor your spouse, if filing jointly, can be claimed as dependents on someone else's return.

The IRS has more information about the student loan interest deduction here.

While the coronavirus hasn’t given Americans much in the way of something nice, the Internal Revenue Service (IRS) wants taxpayers to know it actually does have something worth checking out.

Within the Coronavirus Aid, Relief and Economic Security (CARES) Act -- the government legislation that made the first round of stimulus checks possible -- the IRS is offering expanded tax benefits that can help individuals who want to make a charitable donation before 2020 ends.

Tax changes to lessen some of the economic impact of COVID-19

The CARES Act includes temporary tax modifications that can lessen at least some of the pain when it comes to paying the 2020 tax bill next year. All told, there are two changes for individual taxpayers:

New deduction for people who don't itemize. Heading the list is a change that the IRS says nearly 90 percent of taxpayers potentially qualify for. Typically, taxpayers who opt to take the standard deduction can’t claim a deduction for their charitable contributions. However, those individuals can claim a limited deduction on their 2020 federal income tax returns if they make a cash contribution* to a charity and still claim the standard deduction. 

*Note: A cash contribution includes those made by check, credit, or debit card; or amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with the individual's volunteer services to a qualifying charitable organization. Cash contributions do not include the value of things like volunteer services or contributions of household items like you would take to an organization like Goodwill.

The all-important caveat in this deduction says that individuals can claim an "above-the-line" deduction of up to $300 for cash contributions made to “qualifying charities” during 2020. The maximum above-the-line deduction is $150 for married individuals filing separate returns. 

Itemizers can get as high as a 100 percent limit on cash contributions. Although there are certain limits, taxpayers who itemize have the OK to claim a deduction for charitable contributions if they’re made to qualifying charitable organizations. These limits run from 20-60 percent of an individual's adjusted gross income ("AGI") and vary by the type of contribution and type of charitable organization the money is donated to. 

Where this change really comes in handy is the clause in the CARES Act that permits individuals to apply for an increased limit, up to 100 percent of their AGI, for qualified contributions. That election is made on a contribution-by-contribution basis and has to be a “cash” contribution made during the calendar year 2020 to a qualifying charitable organization.

Like any change from the IRS, there are fine points to consider. The agency offers a complete list of those on its website.

Keep good records

Despite the upsides of these changes, the IRS reminds taxpayers that there are forms to be filled out and special recordkeeping to provide if a taxpayer wants to claim a charitable contribution deduction. 

“Usually, this includes obtaining a receipt or acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt. For donations of property, additional recordkeeping rules may apply, including filing a Form 8283 and obtaining a qualified appraisal,” the IRS says.

Does this apply to the new round of stimulus checks?

With Congress preparing to provide another round of stimulus checks, it’s unknown if any of the original CARES Act tax benefits will be expanded upon, but anything’s possible. 

To keep up-to-date on everything that may impact coronavirus-related tax changes, be sure to check in at IRS.gov/Coronavirus before going headlong into filling out forms and organizing copies of things like charitable contributions.

It’s still 2020 and there’s plenty of time before the next April 15 Tax Day, but the Internal Revenue Service (IRS) is encouraging taxpayers to take necessary actions now to facilitate a timely and accurate filing of federal tax returns in 2021.

The IRS knows what a crazy year 2020 has been because of the pandemic, and it’s certainly been a part of that craziness due to changing tax deadlines and extensions. Its basic reason for urging taxpayers to move ahead now is that there are several changes in forms that many filers will have to address. 

The agency says it may also help people discover potentially overlooked deductions or credits.

Changes to start preparing for

Unemployment, gig economy, or refund interest income: On top of the standard documents such as Forms W-2 from employers, Forms 1099 from banks and other payers, and records of virtual currencies, the IRS reminds taxpayers that “income” also includes unemployment income, refund interest, and any income from the gig economy. For example, this could include if an unemployed person started driving for Uber to try and keep their lives afloat during the COVID-19 intermission.

Miscellaneous Income form has changed: Also beginning in 2020, some individuals will receive Form 1099-NEC, Nonemployee Compensation, instead of Form 1099-MISC, Miscellaneous Income, if they performed certain services for and received payments from a business. The IRS suggests that anyone in that position refer to the Instructions for Form 1099-MISC -- for miscellaneous income like from a rental property -- and Form 1099-NEC to ensure they’re filing the appropriate form and are aware of this change.

The IRS also wants taxpayers who have received substantial amounts of non-wage income like self-employment income, investment income, taxable Social Security benefits, and, in some instances, pension and annuity income to consider making quarterly estimated tax payments. The last payment for 2020 is due on Jan. 15, 2021. Payment options can be found at IRS.gov/payments.

Stimulus check recipients: Taxpayers may also need Notice 1444, Economic Impact Payment (aka the stimulus check), which shows how much of a payment they received in 2020. The IRS says this particular amount is needed to calculate any Recovery Rebate Credit a taxpayer may be eligible for when they file their federal income tax return in 2021. Conversely, people who didn’t receive an Economic Impact Payment in 2020 may qualify for the Recovery Rebate Credit when they file their 2020 taxes in 2021.

Did you move during the pandemic? It may come as a surprise to those who hunkered down in their own homes since the coronavirus outbreak, but nearly 16 million people moved according to USPS data. Those taxpayers should update their records to avoid delays in tax return processing.

Double-check tax ID numbers: Taxpayers with an Individual Tax Identification Number (ITIN) should ensure it hasn’t expired before filing a tax return in 2021. For example, ITINs not used on a federal tax return at least once in the last three years will expire on Dec. 31, 2020. If the ITIN has expired, the IRS recommends taxpayers submit Form W-7, Application for IRS Individual Taxpayer Identification Number, now to renew it. Taxpayers who fail to renew ITINs before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits.

Consider having more tax withheld from paychecks: It’s not a mandatory requirement, but the IRS encourages everyone to do a “paycheck checkup” by using its Tax Withholding Estimator. This will help you make sure you have the right amount of tax withheld from your paycheck and, if not, you can adjust accordingly before 2020 ends.

The Internal Revenue Service (IRS) has announced changes that it says will offer relief to taxpayers impacted by COVID-19. 

The IRS said the changes should make it easier for consumers to set up payment agreements, as well as help people affected by the pandemic more easily resolve balances owed to the agency.

"The IRS understands that many taxpayers face challenges, and we're working hard to help people facing issues paying their tax bills," IRS Commissioner Chuck Rettig said in a statement. "Following up on our People First Initiative earlier this year, this next phase of our efforts will help with further taxpayer relief efforts."

Adjusted operations due to COVID-19

Under the new IRS Taxpayer Relief Initiative, changes to collection procedures are as follows:

• Payment plan extensions. “Taxpayers who qualify for a short-term payment plan option may now have up to 180 days to resolve their tax liabilities instead of 120 days,” the IRS said.

• Less documentation required. Certain qualified individual taxpayers who owe less than $250,000 may set up installment agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient. 

• Tax liabilities automatically added. The IRS will automatically add certain new tax balances to existing installment agreements. The agency says this new “taxpayer-friendly approach” will help some taxpayers avoid defaulting the agreement.

• More flexibility. In cases where taxpayers are temporarily unable to meet the payment terms of an accepted Offer in Compromise, the IRS says it will be “offering additional flexibility.” 

• Option to make changes online. Instead of having to talk to the IRS about having changes made to an existing installment agreement, qualified taxpayers with installment agreements paid by direct debit will now be able to make changes online. The IRS said, for example, that taxpayers could “propose lower monthly payment amounts and change their payment due dates.”

The IRS encourages consumers to “be responsive” when they receive a balance due notice.

“If you’re having a tax issue, don’t go silent. Please don’t ignore the notice arriving in your mailbox,” said Darren Guillot, the IRS Small Business/Self-Employed Deputy Commissioner for Collection and Operations Support. “These problems don’t get better with time. We understand tax issues and know that dealing with the IRS can be intimidating, but our employees really are here to help.”

Guillot said the IRS is continuing to “assess the wide-ranging impacts of COVID-19 and other difficulties people are experiencing” as it pertains to matters of tax compliance. 

The Internal Revenue Service (IRS) has released its 2021 inflation adjustments that affect more than 60 federal income tax provisions. They don’t affect what you’ll pay next year, but rather they impact your tax liability in 2022.

In 2021, the standard deduction for married couples filing jointly for the tax year 2021 will rise to $25,100, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction will rise to $12,550 for 2021, up $150, and for heads of households, the standard deduction will be $18,800 for the tax year 2021, up $150.

The personal exemption for the tax year 2021 remains at 0, as it was for 2020. The elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act. 

While the Nov. 3 election could change what you’ll pay in future taxes, currently for the 2021 tax year the top federal tax rate remains 37 percent for individual single taxpayers with incomes greater than $523,600 or $628,300 for married couples filing jointly.

The rates for people earning less than that are:

• 35 percent, for incomes over $209,425 ($418,850 for married couples filing jointly);

• 32 percent for incomes over $164,925 ($329,850 for married couples filing jointly);

• 24 percent for incomes over $86,375 ($172,750 for married couples filing jointly)

• 22 percent for incomes over $40,525 ($81,050 for married couples filing jointly)

• 12 percent for incomes over $9,950 ($19,900 for married couples filing jointly)

• The lowest rate is 10 percent for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly)

No limits on itemized deductions

For 2021 -- as in 2020, 2019, and 2018 -- there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act. However, Democrats have said they plan to reconsider that law should they regain the White House.

The Alternative Minimum Tax (AMT) exemption amount for the tax year 2021 is $73,600 and begins to phase out at $523,600 -- $114,600 for married couples filing jointly for whom the exemption begins to phase out at $1,047,200.

The 2020 exemption amount was $72,900 and began to phase out at $518,400, or $113,400 for married couples filing jointly for whom the exemption began to phase out at $1,036,800.

The IRS also clarified what consumers can contribute to tax-deferred retirement accounts. Employees can still put away $19,500, or $26,000 if they are aged 50 or older, thanks to the catch-up contribution limit, unchanged at $6,500. 

Individual retirement account contribution limits are also the same for 2021 — $6,000 with an additional catch-up contribution of $1,000 for people 50 and older. SIMPLE retirement accounts still have the limit at $13,500 for next year. 

Income tax filing has been a topsy turvy mess in the Year of COVID-19. But now that things seem to be settling into place, the Internal Revenue Service (IRS) is reminding taxpayers that October 15 is the deadline for most people who requested tax filing extensions.

We say “most” because some taxpayers may have more time. They include:

• Members of the U.S. military and others who are serving in a combat zone. Typically, they have 180 days after they leave the combat zone to file returns and pay any taxes due.

• Taxpayers in federally declared disaster areas who already had valid extensions. For details, see the disaster relief page on IRS.gov. Examples would be those affected by California wildfires or victims of Hurricanes Dorian, Michael, or Florence..

Things to remember

The IRS reminds taxpayers that while the deadline looms near, there are things that they should take into account to avoid problems down the line. Those include:

Pay ASAP to reduce penalties and interest. Like in a normal tax season, the IRS allows the same conveniences for this extension. Electronic filing options, including IRS Free File, are available to everyone. If a taxpayer uses a tax professional, the IRS reminds them to make sure the preparer uses electronic options to support social distancing and speed the processing of tax returns, refunds, and payments.

Choose direct deposit for refunds. “The safest and fastest way for taxpayers to get their refund is to have it electronically deposited into their bank or other financial account,” the IRS said. “Taxpayers can use direct deposit to deposit their refund into one, two or even three accounts. Direct deposit is much faster than waiting for a paper check to arrive in the mail.”

Track your refund. Once a tax return has been filed, the IRS prefers for taxpayers to use the agency’s Where's My Refund? tool on IRS.gov or download the IRS2Go mobile app to track the status of a refund. Contacting the IRS directly may take more time.

Pay federal taxes electronically. Another neat nuance for modern day taxpayers is the ability to make their federal tax payments online, by phone, or even with their smartphone and the IRS2Go app. However, the IRS says there are a few things that taxpayers who are paying federal taxes electronically should remember:

• Electronic payment options are the absolute best way to make a tax payment.

• Taxpayers can pay when they file electronically using online tax software. If using a tax preparer, taxpayers should ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account.

• IRS Direct Pay allows taxpayers to pay online directly from their checking or savings account at no cost, and to schedule payments up to a year in advance.

• Credit cards, debit cards, or digital wallet options through a payment processor are all accepted and no fees go to the IRS.

• One neat advantage ConsumerAffairs sees for taxpayers is the ability to enroll in the Electronic Federal Tax Payment System (EFTPS), which gives people a choice of paying online or by phone by using the EFTPS Voice Response System.

• If anyone needs to check on the specifics of what they owe, review payment history, access historical tax records, etc., they can go to IRS.gov/account to securely access all of that information.

Can't pay the full amount?

The IRS knows full well that the pandemic has put many taxpayers in a difficult financial position. It’s reminding those who are in that situation that there are a variety of payment options available on IRS.gov/payments. Some caveats consumers should know include the following:

• Despite the fact that interest and late-payment penalties will accrue on any unpaid taxes after the original July 15 due date, the failure to pay tax penalty rate is cut in half while an installment agreement is in effect.

• The usual penalty rate of 0.5 percent per month is reduced to 0.25 percent per month. For the calendar quarter beginning Oct. 1, 2020, the interest rate for underpayment has been set at 3 percent.

Non-Filers can still get an Economic Impact Payment

Most people -- 160 million to be precise -- have already received their Economic Impact Payments (aka stimulus check). The IRS says that those who haven’t and have little to no income can still get this payment.

“People can qualify for a payment, even if they don't work or have no earned income. But low- and moderate-income workers and working families eligible to receive special tax benefits, such as the Earned Income Tax Credit or Child Tax Credit, cannot use this tool,” the agency said. “They will need to file a regular return as soon as possible. The IRS will use their tax return information to determine and issue any EIP for which they are eligible.”

In situations where incomes are typically below $24,400 for married couples, and $12,200 for singles, they must enter their information by Nov. 21 to get a payment this year. As far as ConsumerAffairs could tell, the only way to apply for a payment is the Non-Filers tool on IRS.gov.

A good news/bad news story for taxpayers from the Internal Revenue Service (IRS) came Tuesday, the first day of President Trump’s payroll tax deferral.

The good news is that American workers who signed up and took part in the program will see a temporary bump up in their take-home pay. 

The bad news is that they’ll probably see smaller paychecks in early 2021.

Who’s affected?

Under the order, affected workers would be:

• Employees who will be compensated for any work between September 1, 2020 and December 31, 2020; and 

• Employees whose pretax, bi-weekly paycheck is less than $4,000.

Those workers have an obligation to pay a 6.2 percent Social Security tax on each paycheck, with their employers picking up the responsibility for a separate 6.2 percent. Both workers and employers will also split a 2.9 percent tax to support the Medicare program. 

Get ready for the rollercoaster

Experts had previously criticized the deferral as being vague, but there are some salient points every applicable taxpayer needs to know because this deferral could also be called a rollercoaster ride.

Until the end of the year, employees who take part in the deferral can count on an interim boost in their take-home pay, but they may be shocked come January when they see that bump headed the other way. 

The simple reason is that employers have to start paying the payroll tax effective January 1, 2021. Those employers have until April 30, 2021 to pay the “applicable taxes” or interest and penalties will begin to pile on. 

And that might create a sticky wicket that taxpayers may not like. According to the order, to fulfill the obligatory taxes, the employer “may make arrangements to otherwise collect the total Applicable Taxes from the employee.” 

There’s cause for celebration for some 50,000 Americans whose portion of the economic impact payments (EIP) -- aka the stimulus check -- was rerouted to pay their spouse's past-due child support. 

The Internal Revenue Service (IRS) says that the catch-up payments are scheduled to be issued sometime in early-to-mid-September. The checks will be mailed to any eligible spouse who submitted Form 8379, Injured Spouse Allocation when they submitted their 2019 (and, in some situations, their 2018) federal income tax return. The IRS said that it will automatically issue the portion of the EIP that was applied to the other spouse's debt.

Didn’t file a Form 8379?

The IRS says that there were some taxpayers who failed to file a Form 8379, and because of that, they did not receive their portion of the EIP. 

“These individuals also do not need to take any action and do not need to submit a Form 8379,” the IRS said. The agency noted that it “does not yet have a timeframe but will automatically issue the portion of the EIP that was applied to the other spouse's debt at a later date.”

Taxpayers who were affected by the mistake can keep tabs on where their check is in the IRS’ pipeline by using the agency’s Get My Payment tool. For more information, the IRS suggests reading the Receiving My Payment section of the Frequently Asked Questions in the Economic Payment Information Center on IRS.gov.

Those $600 unemployment checks might have been a welcome relief to those whose jobs are impacted by the COVID-19 pandemic, but the Internal Revenue Service (IRS) is reminding recipients that unemployment compensation is taxable. The agency advises that these consumers might want to have some tax withheld now and avoid a tax-time surprise come April 15, 2021.

Unemployment compensation is taxable under United States law, even if it comes from the unemployment compensation authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

What to consider other than just unemployment

The IRS suggests that taxpayers take a look at more than just their unemployment compensation from the state and federal governments. Other types of payments taxpayers should check their withholding on include:

• Railroad unemployment compensation benefits;

• Disability benefits paid as a substitute for unemployment compensation;

• Trade readjustment allowances under the Trade Act of 1974;

• Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974; and

• Unemployment assistance under the Airline Deregulation Act of 1978 program.

The decision is up to the taxpayer

Withholding is completely voluntary, and some consumers might be banking on a return to work at some point and could use the unemployment benefits in the meantime.

However, if a taxpayer can afford to use $60 out of a hypothetical $600 unemployment check to cover their tax liability, then the IRS says that’s a smart thing to do. It may pinch a bit now, but it could save having to write a bigger check in the long run or help consumers avoid the necessity of a smaller return.

Unemployment compensation recipients who return to work before the end of 2020 should use the IRS Tax Withholding Estimator to make sure they’re having enough tax dollars taken out of their pay and won’t be facing a bill to the IRS in 2021.

To go in that direction, the steps are pretty simple: 

• Fill out  Form W-4V, Voluntary Withholding Request (PDF), and 

• Give it to the agency paying the benefits, rather than sending it to the IRS. 

• If the payor has its own withholding request form, use it instead.

For recipients who don’t choose withholding -- or if withholding is not enough -- they can opt to make quarterly estimated tax payments instead. The payment for the first two quarters of 2020 was due on July 15, but it’s possible that the IRS won’t penalize you given the situation with the pandemic. 

Third and fourth quarter payments are due on Sept. 15, 2020 and Jan. 15, 2021, respectively. For more information, including some helpful worksheets, see Form 1040-ES and Publication 505, available on IRS.gov.

President Trump’s executive order on deferring payroll taxes has left many logistical questions for businesses and workers alike. But tax policy experts say the order likely won’t result in much, if anything, being added to workers’ paychecks. 

Over the weekend, Trump signed executive orders to provide some COVID-19 financial relief after Congress was unable to agree on a package before leaving on a month-long vacation. The order addressed last month’s expiration of a $600 a week federal unemployment bonus, as well as student loan relief and help for renters. 

Regarding payroll taxes, Trump said people would be getting a little more money thanks to the deferral of payroll taxes from employees through the end of the year.

“This modest, targeted action will put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most,” he said. 

Essentially a loan

Under the order, which experts have described as “vague,” employees’ obligation to pay a 6.2 percent Social Security tax on each paycheck would be deferred -- not waived. The order applies to people who “generally” make less than $4,000 every two weeks. 

Urban-Brookings Tax Policy Center senior fellow Janet Holtzblatt told CNBC Make It that the deferral is essentially a “payroll tax loan.” 

“It’s a loan, and if people understand it, they would know that they or their employer would have to repay it eventually,” Holzblatt told CNBC. 

Questions remain

Garrett Watson, senior policy analyst at the Tax Foundation, added that it’s “unclear” whether workers will have to rectify the deferral payment on tax form 1040 next year. He said employees may not even see the extra money added to their paychecks.

“It’s actually not clear that firms would be required to necessarily pass along the deferred savings to employees,” Watson says. “It’s very possible that firms would be able to take the deferred savings and withhold from employees.”

Stephen Stanley, chief economist at Amherst Pierpont, agreed that businesses may not be inclined to give the extra money to workers in light of the circumstances. 

“It is highly questionable whether firms would actually pass the money along to their workers, because it is the businesses that are on the hook for the taxes,” Stanley told MarketWatch.

Now that most of America has gotten their July 15 tax deadline out of the way, the Internal Revenue Service (IRS) wants to remind taxpayers that there is no secret formula they can use to find out when their refund will show up in the mail or in their bank account.

Actually, there are several myths that the IRS would like to debunk, with each one representing a heading shown below.

Getting a refund this year means there's no need to adjust withholding for 2020

Not true. To help avoid being surprised next year, the IRS says taxpayers should make changes now. One suggestion consumers can follow is to adjust their tax withholding with their employer to help guarantee that neither too much nor too little tax is withheld from their paycheck. 

There’s also a tool called the Tax Withholding Estimator which will help taxpayers figure out the right amount.

Calling the IRS or a tax professional will provide a better refund date

Again, not true. You can call the IRS or a tax professional all you want, but that will not expedite getting a refund. If someone tells you they know someone on the inside at the IRS or their tax preparer can get you a refund faster, don’t take the bait. 

Sure, you can call the IRS’s automated refund hotline at 800-829-1954, but you’ll get the same information from the "Where's My Refund?" widget on the IRS’ website. If the IRS needs a taxpayer to call them, they will be notified via that same widget.

Ordering a tax transcript is a secret way to get a refund date

Another no. Ordering a tax transcript does nothing -- zero, zilch, nada -- to help taxpayers find out when they will get their refund, and it does not accelerate the issue date of a refund. 

The “Where's My Refund?” tool is wrong because there's no deposit date yet

Straight from the horse’s mouth, the IRS says this about that: 

“When Where's My Refund? shows the tax return status is received it means that we have received the tax return and are processing it. Some returns may take longer to process than others and needs further review. This includes when a return:

• Includes errors

• Is incomplete

• Is affected by identity theft or fraud

• Includes a Form 8379, Injured Spouse Allocation, which could take up to 14 weeks to process”

If the IRS needs more information to process a tax return, they will contact the taxpayer by mail, not phone or email.

Something is wrong when the refund amount is less than expected

There are instances when a taxpayer gets a refund that is smaller than what they think it should be. The IRS says that happens, but the agency has these reasons why:

• Taxpayer math errors or mistakes

• Owing federal or state taxes, child support, student loans, or other federal non-tax obligations

• A portion of the refund is held while IRS reviews an item claimed on the return

If and when this situation happens, the IRS will mail a letter explaining why adjustments were made. Some taxpayers may also receive a letter from the Department of Treasury's Bureau of the Fiscal Service if their refund was reduced to offset certain financial obligations. If you’re curious about what those “financial obligations” are, the Treasury has a complete rundown here.

The Internal Revenue Service (IRS) is extending the tax filing deadline to victims of the April storms and tornadoes.

The extension applies to certain counties in Mississippi, South Carolina, and Tennessee and gives residents in those impacted areas until October 15, 2020, to file various individual and business tax returns and make tax payments.

The IRS is using areas designated by the Federal Emergency Management Agency (FEMA) as its basis for qualifying for the extension. At present, those counties include:

• Mississippi: Clarke, Covington, Grenada, Jasper, Jefferson Davis, Jones, Lawrence, Panola and Walthall counties.

• South Carolina: Aiken, Barnwell, Berkeley, Colleton, Hampton, Marlboro, Oconee, Orangeburg and Pickens counties.

• Tennessee: Bradley and Hamilton counties.

If any county or locality is added to the disaster area list, the IRS says those residents will automatically receive the same filing and payment relief. If you live in South Carolina, Mississippi, or Tennessee, you should make a note to check the list of eligible localities on the disaster relief page on IRS.gov, weekly.

The fine print

The IRS notes that there are some specific items taxpayers should pay attention to, including:

• Dates: Any individual or business affected by the storms and lives in the approved locales still have to file returns and pay any taxes that were originally due on April 15. This includes 2019 individual and business returns that, due to COVID-19, were due on July 15. 

• IRA contributions: The extension also means that affected taxpayers will have until October 15 to make 2019 IRA contributions.

• Estimated tax payments: The October 15 deadline also applies to estimated tax payments for the first two quarters of 2020 that were due on July 15 and the third quarter estimated tax payment normally due on September 15. This also includes any quarterly payroll and excise tax returns normally due on April 30 and July 31.

• Penalties due: If you had penalties on payroll and excise tax deposits due on or after April 12 and before April 27, they will be abated as long as the deposits were made by April 27.

• Uninsured or unreimbursed disaster-related losses: For any individual or business in a federally declared disaster area that suffered uninsured or unreimbursed disaster-related losses, they can choose to claim them on either the return for the year the loss occurred (in this instance, the 2020 return normally filed next year) or the return for the prior year. 

• Do not contact the disaster agencies: The IRS says it automatically provides filing and payment relief to any taxpayer with an IRS address of record located in the disaster area. The agency says taxpayers in those areas do not need to contact the agency to get this relief. However, there is one hitch. If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment, or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty decreased.

• Put a note on any return claiming a loss: The IRS asks people in affected areas to write the appropriate FEMA declaration number on any return claiming a loss. The numbers are 4536 for Mississippi, 4541 for Tennessee, and 4542 for South Carolina. See Publication 547 for details.

• Living outside affected areas but doing business within them: There are certain instances where a taxpayer may live outside the affected area but does business in one of the disaster zones. In those cases, the IRS says it will work with taxpayers in extending the deadline. Those taxpayers who want to qualify for relief should contact the IRS at 866-562-5227. 

The hits keep on comin'! On Friday, the Bureau of Labor Statistics announced that the economy lost 20.5 million jobs in April, with the unemployment rate at 14.7 percent.

Thank you, COVID-19.

All told, upwards of 22 million Americans have lost their jobs during the pandemic, forcing many to collect unemployment to make ends meet. For some, a bonus of $600 each week in coronavirus relief is being added on. 

All that is fine and dandy for now, but most of those check recipients are unaware that they're going to have to pay taxes on that money because the IRS views it as "taxable income." Note: the "economic impact payment" Americans received is NOT taxable.

"Most people don't realize it. They're thinking in the moment. They don't have much savings, credit is not great and then come April 15, 2021, you have a big tax bill you're not expecting," Ken Lin, the CEO of Credit Karma, told CNBC.

Is there a way around this?

Isn't there some crafty way to avoid paying taxes on unemployment and checks? The short answer is no.

Unlike Medicare and Social Security benefits, both the U.S. government and almost every single individual state taxes unemployment benefits. The states that don't tax unemployment benefits include California, Montana, New Jersey, Pennsylvania, and Virginia. Wisconsin residents get a slight break on a portion of their unemployment benefits, but according to U.S. News' homework on the matter, it appears to be a rather complicated formula.

The best way around this

Lin told CNBC that, back in the early 2000s, he received unemployment benefits after losing his job at a tech company. He admitted that he was clueless that his compensation would be taxed. "Planning is what really matters. You can avoid all of that by putting dollars aside today," he said. 

Taking part of the unemployment check and setting it aside like Lin suggests -- or asking the state unemployment agency to have a portion (say 10 percent) of the check withheld to cover federal income tax when April 15 rolls around next year -- are the simplest, smartest things to do.

This whole pandemic is forcing almost everyone to rethink how they can manage life without collapsing. For some taxpayers, stowing away part of the benefits is impossible with the necessities that have to be paid for while unemployed.

The 2020 tax year is far from typical, and many consumers will be learning on the fly as they try to stay on good terms with Uncle Sam. If you're in need of assistance for tax relief, visit ConsumerAffairs guide here.

ConsumerAffairs has already covered exactly how much consumers can expect from the CARES ACT stimulus bill and when those checks should arrive, but there are still lots of questions coming in about how the money will be regarded by the Internal Revenue Service (IRS) come tax time. 

To help consumers plan accordingly, ConsumerAffairs has put together a list of FAQs to get help clear up any confusion.

Is the money tax-free?

Essentially yes, but there appears to be one small wrinkle that may impact a handful of taxpayers. 

“If the tax credit amount you qualify based on 2020 (adjusted gross income -- see below) is less than what you qualify for based on your 2019 tax return, it does not have to be paid back,” explains eFile. “On the other hand, if a taxpayer's 2020 (adjusted gross income) is substantially higher than the 2018 or 2019 adjusted gross income, the taxpayer might have to pay back some or all of the money after April 15, 2021. This pay back might only apply to a very small number of taxpayers.”

Do I have to apply or file a tax return to get the CARES ACT stimulus money?

No, you do not have to apply, but you must have either a 2018 or 2019 IRS Income Tax Return on record with the IRS. 

According to eFile, eligibility for the stimulus money depends on Adjusted Gross Income (AGI) and not “taxable income.” Note: On IRS form 1040, the amount you receive goes on line 8(b), the field for AGI.

“We do not know which return will be considered, the one with the lower or higher AGI or the most recent return over prior returns,” eFile says. “If your 2019 AGI or Adjusted Gross income was very low, you are encouraged to file a 2019 tax return ... even if you don't owe taxes to also take advantage of the refundable Earned Income Tax Credit - EITC - and Child Tax Credit and the COVID-19 Recovery Rebate.”

Will this affect any refund I was expecting to get from my 2019 tax return?

Nope. Your 2019 refund check won’t be affected in any way by the stimulus check.

I haven’t filed a 2018 or 2019 tax return. What do I do?

If you haven’t filed a tax return, all is not lost. The bill allows the Treasury Department to use the information on your 2019 Form SSA-1099, Social Security Benefit Statement, Form RRB-1099, Social Security Equivalent Benefit Statement.

I owe the IRS some money. Are they still going to send me the stimulus check?

Normally, the IRS would deduct any refund due from a tax amount owed, but if everything goes as planned in this situation, anyone who owes money to the IRS is not SUPPOSED to have anything withheld.

I’m not used to filing a refundable tax credit. Can you explain what that is?

A refundable tax credit is simply a credit which allows certain taxpayers to subtract the amount of the credit they have accrued from the total they owe. A perfect example of a refundable tax credit some consumers may remember is the first-time homebuyer tax credit when they purchased their first home. 

I’ve got a question that’s not answered here. Is there someone I can talk to?

There is. The IRS not only has a constantly-updated web page devoted to taxes as they relate to the coronavirus, but the agency also has a phone number taxpayers can call to get other questions answered: 1-800-829-1040, open 7 a.m. to 7 p.m. local time. A quick heads-up: As you can imagine, the agency is pretty busy, but it’s dedicated to making a consumer’s life as easy as possible.

While the stimulus money may help some consumers cover day-to-day expenses that have become more problematic during the coronavirus crisis, there are still many people who may have trouble with taxes this year.

Keeping up with what’s changing on Capitol Hill during the coronavirus pandemic has become our charge at ConsumerAffairs, particularly when it’s something that impacts the consumer.

One thing that is in constant motion as a result of the outbreak is what’s happening at the IRS in the way of tax returns -- filing deadlines, refunds, forms… well, darn near everything.

On Wednesday, the IRS clued ConsumerAffairs into a new set of questions and answers related to income tax return filing and payment relief that every taxpayer should take five minutes to absorb. 

Note that for any form listed, the IRS provides a compilation of those forms along with instructions available here.

Payment Relief

Who qualifies for payment relief?

“Any person with a Federal income tax return or payment due on April 15, 2020, is eligible for relief under the Notice. ‘Person’ includes any type of taxpayer, such as an individual, a trust, an estate, a corporation, or any type of unincorporated business entity.” 

“The payment due refers to both 2019 Federal income tax payments (including payments of tax on self-employment income) and 2020 estimated Federal income tax payments (including payments of tax on self-employment income), regardless of the amount owed.” 

“The return or payment must be due on April 15, 2020 – this relief does not apply to Federal income tax returns and payments due on any other date.”

Do I have to actually be sick, or quarantined, or have any other impact from COVID-19 to qualify for payment relief?

“No, you do not have to be sick, or quarantined, or have any other impact from COVID-19 to qualify for relief. You only need to have a Federal income tax return or payment due on April 15, 2020, as described above.”

What are the form numbers of the specific Federal income tax returns whose filing deadlines have been postponed, from April 15 to July 15, under the Notice?

According to the IRS’ update, the Notice postpones the filing and payment of Federal income taxes reported on the following forms:  

• Form 1040, 1040-SR, 1040-NR, 1040-NR-EZ, 1040-PR, 1040-SS

• Form 1041, 1041-N, 1041-QFT

• Form 1120, 1120-C, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-SF

• Form 8960

• Form 8991

“With respect to Form 990-T, if that Form is due to be filed on April 15, then it has been postponed to July 15 under the Notice. For taxpayers whose Form 990-T is due on May 15, that due date has not been postponed under the Notice.”

“With respect to returns due on March 16, 2020, which include Form 1065, Form 1065-B, Form 1066, and Form 1120-S for calendar year taxpayers, the filing of those returns has not been postponed.”

I am a fiscal year filer. My Federal income tax return for fiscal year 2019 is due on April 15, 2020. Am I an “Affected Taxpayer” eligible for relief under the Notice? 

“Yes, the relief provided in the Notice applies to Federal income tax returns and payments in respect of an Affected Taxpayer’s 2019 taxable year, and postpones those 2019 return filings and payments due on April 15, 2020 until July 15, 2020.”  

“If your Federal income tax return for your fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the due date on extension, your due date is postponed to July 15, 2020.”

What about businesses or other entities that have filing due dates on May 15, June 15, or some other date besides April 15. Have their filing and payment deadlines been postponed?

“No, any taxpayers who have filing or payment due dates other than April 15 have not been granted relief at this time.”

Does the relief provided in the Notice apply to payroll or excise taxes?

“No, under the Notice, normal filing, payment, and deposit due dates continue to apply to both payroll and excise taxes.”

Does the relief provided in the Notice apply to estate and gift taxes?

“No, normal filing and payment due dates continue to apply to estate and gift taxes.”

Does the relief provided in the Notice apply to section 965(h) installment payments due on April 15, 2020?

The IRS says the answer to this question is a definite “yes.” 

“The relief applies to section 965 installment payments due on April 15, 2020. Although the section 965(h) installment payment is generally made in respect of a taxpayer’s 2017 or 2018 tax year, under section 965(h)(2), the due date of the installment payment associated with a 2019 tax return is the due date of the taxpayer’s 2019 Federal income tax return.”

“For any taxpayer whose Federal income tax return filing due date has been postponed from April 15 to July 15, 2020, the due date of that taxpayer’s section 965 installment payment has also been postponed to July 15, 2020.”

Does the relief provided in the Notice apply to estimated payments for a corporation required to make payments under section 59A (Basis Erosion and Anti-Abuse Tax, or BEAT)? 

“Yes, for any taxpayer whose Federal income tax return filing deadline has been postponed from April 15 to July 15, 2020, the due date for Form 8991 and the BEAT payment has been postponed to July 15, 2020.”

Does the relief provided in the Notice apply to the filing of information returns?

“No, the relief only applies to the filing of Federal income tax returns due on April 15, 2020.”

Does this relief apply to state tax liabilities?

“No, this relief applies only to Federal income tax payments. State filing and payment deadlines vary and are not always the same as the Federal filing and payment deadline. We urge you to check with your state tax agencies for those details.”

More information is available at https://www.taxadmin.org/state-tax-agencies.

Filing and paying your 2019 Federal income taxes and your first quarter 2020 Federal estimated income taxes

I haven’t filed my 2019 income tax return that would have been due on April 15 yet, but I expect to file it by July 15. What do I need to do?

“Nothing, except file and pay any tax due with your return by July 15. You don’t need to file any additional forms or call the IRS to qualify for this automatic Federal tax filing and payment relief. If you expect a refund, you are encouraged to file your return as soon as you can so that you can receive your refund.”

“Filing electronically with direct deposit is the quickest way to get refunds. If you need more time beyond July 15 to file your return, request an automatic extension of time to file as described next.”

What if I am unable to file my 2019 income tax return that would have been due on April 15 by July 15, 2020?

“If you are an individual, you can request an automatic extension to file your Federal income tax return if you can’t file by the July 15 deadline. The easiest and fastest way to request a filing extension is to electronically file Form 4868 through your tax professional, tax software, or using the Free File link on IRS.gov. Businesses, including trusts, must file Form 7004.” 

“You must request the automatic extension by July 15, 2020. If you properly estimate your 2019 tax liability using the information available to you and file an extension form by July 15, 2020, your tax return will be due on October 15, 2020. To avoid interest and penalties when filing your tax return after July 15, 2020, pay the tax you estimate as due with your extension request.”

I already filed my 2019 income tax return that would have been due on April 15 and I owe taxes, but I haven’t paid yet. What do I need to do to avoid interest and penalties?

“To avoid interest and penalties, pay your taxes in full by July 15, 2020. If you filed Form 1040 or Form 1040-SR, the tax payment amount can be found on line 23. If you filed Form 1040-NR, the tax payment amount can be found on line 75. For a corporation filing a Form 1120, the tax payment amount can be found on line 35.”

The IRS adds that Interest and penalties will begin to be charged after July 15 for any amount remaining unpaid by that date.

I already filed my 2019 income tax return that would have been due on April 15 and scheduled a payment of taxes for April 15, 2020. Will this payment be automatically rescheduled to July 15, 2020?

“No,” the IRS says. “the payment will not be automatically rescheduled to July 15. If you do nothing, the payment will be made on the date you chose. Here is information on how to cancel and reschedule your payment:

• If you scheduled a payment through IRS Direct Pay, you can use your confirmation number from the payment to access the Look Up a Payment feature. You can modify or cancel a scheduled payment until two business days before the payment date. The email notification you received when you scheduled the payment will contain the confirmation number.

• If you scheduled a payment through Electronic Federal Tax Payment System (EFTPS), click on Payments from the EFTPS home page, login, then click Cancel a Tax Payment from the left menu and follow the instructions. You must do so at least two business days before the scheduled payment date.

• If you scheduled a payment as part of filing your tax return (authorizing an electronic funds withdrawal), you may revoke (cancel) your payment by contacting the U.S. Treasury Financial Agent at 888-353-4537. You must call to make a payment cancellation request no later than 11:59 p.m. ET two business days prior to the scheduled payment date.

• If you scheduled a payment by credit card or debit card, contact the card processor to cancel the card payment.”

The Notice postpones the deadline for first quarter 2020 estimated income tax payments due on April 15, 2020. What about second quarter estimated tax payments due on June 15? Have they been postponed as well?

“No, second quarter 2020 estimated income tax payments are still due on June 15, 2020. First quarter 2020 estimated income tax payments are postponed from April 15 to July 15, 2020.”

Individual Retirement Accounts (IRAs) and workplace-based retirement plans

Does this relief provide me more time to contribute money to my IRA for 2019?

“Yes. Contributions can be made to your IRA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020.”

For more details on IRA contributions, see Publication 590-A, Contributions to Individual “Retirement Arrangements (IRAs).”

If I owe the 10 percent additional tax on amounts includible in gross income from a distribution that I took from my IRA or workplace-based retirement plan in 2019, is the due date for paying that additional tax also extended to July 15, 2020 on account of this relief?

If you're hoping for a yes on this, you’ve got it. And the reason? 

“Because the 10 percent additional tax is calculated, reported, and paid at the same time as the income tax owed on the amounts includible in gross income on the distribution, the reporting and payment of the 10 percent additional tax also has been extended to July 15, 2020 as a result of this relief.” 

I made excess elective deferrals to my workplace-based retirement plan in 2019.  Do I have to take those excess deferrals (and income) out of the retirement plan no later than April 15, 2020, in order to exclude the distributions from income?

“Yes, because that date is not also extended as a result of this relief.”

For employers with a federal income tax return due date of April 15, 2020, is the end of the grace period under section 404(a)(6) to make contributions to their qualified retirement plans on account of 2019 also July 15, 2020 as a result of this relief?

Another emphatic yes. Why? “Because these employers are Affected Taxpayers under Notice 2020-18 for whom the due date for filing Federal income tax returns and making Federal income tax payments that would be due April 15, 2020, is now July 15, 2020, the end of the grace period for these employers is also July 15, 2020 under this relief,” the IRS says in its new update. 

“So, for example, if an employer is a corporation with an April 15, 2020 due date for filing the Form 1120, then the grace period under section 404(a)(6) for the employer to make contributions to its workplace-based retirement plan that are treated as made on account of 2019 ends on July 15, 2020.”

Health Savings Accounts (HSAs) and Archer Medical Savings Accounts (MSAs) 

Does this relief provide me more time to contribute money to my HSA or Archer MSA for 2019?

“Yes. Contributions may be made to your HSA or Archer MSA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns is now July 15, 2020, under this relief, you may make contributions to your HSA or Archer MSA for 2019 at any time up to July 15, 2020.”  

“For more details on HSA or Archer MSA contributions, see Publication 969, Health Savings Accounts and other Tax-Favored Health Plans.”

Refunds for older claims

I want to file a claim for a refund for 2016, which must be filed by April 15, 2020 to be timely. Does this relief give me more time to claim my 2016 refund?

“No, the relief provided for filing Federal income tax returns applies only to Federal income tax returns for the 2019 taxable year. The Notice does not extend relief to any filings or payments for the taxable year 2016.”

Overpayment of estimated tax

Does this relief postpone the time for filing Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax?

“No, the time for filing Form 4466 is not postponed. However, you may request your refund by filing your income tax return.”

Failure to make required estimated taxes for 2019

I failed to make the required installments of estimated tax in the required amounts during 2019 for my 2019 taxable year. Does this relief apply to an estimated tax penalty for 2019?

“No, the relief does not change the estimated tax requirements or estimated tax penalty for 2019. Relief from the penalty may be available under the normal rules. See Form 2210 (for individuals) or Form 2220 (for corporations) and the instructions for either form for details.”

Taxpayers got an extra reprieve on Friday as U.S. Treasury Secretary Steven Mnuchin announced that Tax Day was officially moving from April 15 to July 15.

“At [President Trump’s] direction, we are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payments without interest or penalties,” Mnuchin said.

In response to the COVID-19 pandemic, Mnuchin had already moved the date when citizens had to pay taxes, but his latest move includes when filing is due as well.

“This deferment allows those who owe a payment to the IRS to defer the payment until July 15 without interest or penalties,” Mnuchin previously wrote. “The Treasury and IRS are ensuring that hard working Americans and businesses have additional liquidity for the next several months.” 

Mnuchin estimates that those liquid assets will be nearly $300 billion over the coming year.  

Got a refund due? Don’t delay.

While consumers now have extra time to get their taxes done, Mnuchin said anyone who’s due a refund should file now rather than waiting until mid-July. 

"I encourage all taxpayers who may have tax refunds to file now to get your money," he said.

However, taxpayers who need even more time can ask for a six-month extension to file returns, just like they normally could.

States are still working out their own changes

Some states had already moved filing deadlines and, with Mnuchin’s latest move, it’s possible that others will follow accordingly.

Staying on top of that is a lot like herding cats, but ConsumerAffairs search for a good guide on the situation turned up the state-by-state filing guidance from the American Institute of CPAs. That guide also has links to each individual state’s updates as they become available.

Individuals and businesses who owe additional income tax for 2019 got a reprieve on Tuesday. Treasury Secretary Steven Mnuchin moved the deadline to pay from April 15 to Tuesday, July 14, 2020. However, the date on filing tax returns did not change. Those are still due on April 15. Filers should also keep in mind that this change is for Federal taxes only.

"We encourage those Americans who can file their taxes, to continue to file their taxes on April 15 because for many Americans you will get tax refunds. We don't want you to lose out on those tax refunds," Mnuchin said.

Deferments and extensions

As part of the coronavirus recovery package the U.S. has put into place, individual and small business filers have the added option of deferring owed taxes up to $1 million. The good news is that they won’t have to take on the sweat of added interest or penalties. Corporations are given even more headroom, with deferments of up to $10 million. 

U.S. citizens who can’t get their paperwork together by April 15 still have the ol’ faithful filing extension to fall back on. Nothing’s changed as far as that goes -- it’s still six months and not a day longer. 

And state taxes?

Keep in mind that what the Federal government modifies regarding tax returns is separate from what the state where you live may offer. 

ConsumerAffairs found that the tax-related changes states are doing on their own are in a constant state of flux. Alabama, for example, has moved its filing deadline from April 15 to April 30, while others have simply reduced support services consumers would otherwise have access to. 

The American Institute of Certified Professional Accountants is keeping a running record of state-to-state changes. You can find that information here.

Taxpayers won’t have to pay taxes they owe by the April 15th deadline, thanks to an emergency declaration from the White House.

President Trump announced the reprieve, saying the delay in payment would keep more money in Americans’ pockets at a time when they’re coping with the economic fallout from the coronavirus (COVID-19). It wasn’t immediately clear whether taxpayers would still have to file their tax returns by the deadline.

The announcement came Wednesday night in an Oval Office address in which the president said he would use his emergency authority to give individuals and some businesses more time to pay the taxes they owe if they have suffered “adverse effects” from the coronavirus.

However, when he addressed a House committee earlier in the day, Treasury Secretary Steven Mnuchin said the reprieve would apply to nearly everyone, except for large corporations and the “super-rich.”

Mnuchin also said the delay would keep about $200 billion in consumers’ pockets and company coffers to deal with the economic hardships the virus may cause. He told lawmakers the administration could act without having to get Congress’ approval, though there is evidence that the approval might have been granted anyway.

Democrats on board

Two Democratic senators -- Patty Murray from Washington and Bob Menendez from New Jersey -- urged the White House to take the action, saying Americans shouldn’t have to worry about filing their taxes during a health crisis.

“Given the growing nationwide concerns regarding the potential spread and the resulting economic and public health impact of such an outbreak, we urge you to act quickly and remove one source of stress that individuals face during the crisis,” the lawmakers wrote.

At the same time, taxpayers who are owed a tax refund should go ahead and file a return to get their money. Presumably, the Internal Revenue Service (IRS) will process returns normally.

The president is also taking emergency action to provide financial aid to people who have not been able to work because they have either become ill or are under quarantine. Trump said he would work with Congress to appropriate additional money for that use.

If you’re part of the gig economy, run a side hustle, or are used to claiming business expense deductions, a word to the wise: the Internal Revenue Service (IRS) has a suggestion for you. It says consumers fitting the above description would be smart to review its proposed regulations on business-related deductions, especially the ones for meals and entertainment.

In short, what used to be allowed is pretty much a thing of the past. 

Clarifying what is eligible for a deduction

The 2017 Tax Cuts and Job Act (TCJA) essentially wiped out the deduction for all expenses related to what taxpayers were about to qualify as entertainment, amusement, or recreation. On top of that, it also limited the deduction for food- and beverage-related expenses that employers provided to their employees.

But, apparently, some of what TCJA laid out was open to interpretation. Now, the IRS is making a new effort to take all remaining iffyness out of business expenses to make things more cut and dried.

The IRS offered some nitty-gritty examples of what it’s proposing going forward versus what’s been allowed in the past.

In the good ‘ol days, taxpayers were granted an exception to the disallowance if a taxpayer established that the item was directly related to the active conduct of the their trade or business ... or there was an expense related to a “substantial and bona fide business discussion” like a business meeting at a convention. No more.

Social, athletic, sporting club, and organization dues will now raise the IRS’ eyebrow, too. Previously, taxpayers were allowed to deduct 50 percent of entertainment expenditures if they met “the directly related or business discussion exception.” That perk has gone bye-bye.

And travel meal expenses? The IRS says it didn’t specifically amend the rules for travel expenses, but the proposed regulations “are intended to provide comprehensive rules for food and beverage expenses,” meaning it’s smart to confer with a tax preparation expert before you go writing off that steak dinner you bought for a client the last time you were on the road.

"Proposed" changes not yet in effect

These tax changes are not official…yet. If you, as a taxpayer, are affected by any of these changes, you can submit comments on the proposed regulations. The IRS will hold a public hearing on these proposed regulations on April 7, 2020.

In the meantime? If you’re getting everything ready to do your taxes before these changes are approved and you’re feeling queasy about, for example, travel meal expenses, the IRS recommends you follow Notice 2018-76 (PDF) (issued on October 15, 2018). Those regulations offer “transitional guidance on the deductibility” of certain items and are a better-safe-than-sorry route to take.

As taxpayers start pulling all their year-end statements, invoices, and 1040 forms together so they can file their 2019 returns, the Internal Revenue Service (IRS) says to be prudent about the legitimacy of whoever you use to do your taxes. Why? “Ghost” tax return preparers.

Ghost preparers do not sign tax returns they prepare. Rather, they simply print out the return and tell the taxpayer to sign it and mail it in themselves. If it’s an e-filed return, the ghost still doesn’t follow protocol and refuses not to digitally sign as the paid preparer.

When that happens, the IRS’ perception is that the return was self-prepared, which keeps the preparer flying under the radar. Tax preparers will sometimes go as far as promising a large refund and charge the taxpayer a preparation fee based on a cut of that return, and that angle is illegal.

Sniffing out the ghosts

The first thing any taxpayer should ask a tax preparer is what their Preparer Tax Identification Number (PTIN) is. A PTIN is the IRS’ way of knowing the preparer is legit. When the IRS doesn’t see a PTIN, they typically flag the return, which could open up a whole other can of worms for the taxpayer.

Here are some other things that ghost tax return preparers may do:

• They ask to be paid in cash and will not offer a receipt.

• They cook the books a little, coming up with some faux income so the client qualifies for a tax credit.

• They claim fake deductions as a way to pump up the amount of the refund.

• They direct the tax refund to go to their bank account instead of the client’s -- the IRS says some taxpayers gloss over the bank routing number and miss that faux pas altogether.

The IRS and state tax agencies have shown little to no sympathy for taxpayers when they’re ghosted. “‘We can't talk to you, get a POA,’ instead of "What you're doing isn't legal’” is the pushback one ghosted taxpayer wrote about on Reddit when they went to the state asking for help.

Who ‘ya gonna call?

Wanting a larger tax refund is only human nature. But “real” tax preparers know how to find those cherries as much as the “I know a guy” types, and the legit preparers probably know new, Trump-era wrinkles in the tax code that could benefit a taxpayer -- ones that the ghosts are clueless about.

The IRS’ Choosing a Tax Professional has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers is a quick and easy tool to find tax preparers close to you. Having the satisfaction of knowing the preparer is the real deal can save a taxpayer from the hoops they might have to jump through if things go wrong or if a rogue preparer doesn’t do their due diligence.

Whether it’s being done by Aunt Betty, the guy next door who has an MBA, or a tax preparer that has an office in the mall, review your tax return carefully. If there’s anything there you don’t understand, ask for a clarification -- and what the preparer will do if the IRS (or state) finds issue with a certain entry. As some consumers who have been stung by ghost preparers know, ghosts can be difficult to re-engage with when a return goes wrong.

ConsumerAffairs has prepared a guide on tax preparation companies that are legit and reviewed by more than 8,000 ConsumerAffairs readers. It’s one of those ounce-of-prevention things that could save you from the heartbreak of ghost preparer mistakes and everything else that falls apart when the preparer’s return gets flagged. The guide is available here.

Do you remember the first time you had to file a tax return? For most first-timers, it was a daunting array of too many boxes and what-exactly-are-they-asking-for numbers to track down.

Maybe -- just maybe -- the Internal Revenue Service (IRS) has turned a sympathetic ear to the demographic it’s going to have to deal with for the next 50+ years. As an entry point, the agency has upped its promotion of IRS Free File, a tax return specifically designed for first-time filers and part-time workers. 

The IRS says Free File might be the perfect thing for people looking to save money on federal tax preparation or trusting Uncle Sal to work his magic. It also means free electronic filing and free direct deposit, which the agency says is the fastest way to get a refund.

"Doing your taxes may seem a bit overwhelming, but it's not. Free File does the hard work for you. The software finds the right forms, finds any tax benefits and does all the math," said Ken Corbin, commissioner of the IRS' Wage and Investment division. "Here's a key tip: have all your income records like your Form W-2 ready before you start."

Step-by-step

Free File is best-suited to users under age of 30 with modest incomes and a limited list of deductions. For 2020, the Free File adjusted gross income limit is $69,000. Here's how it works:

1. On a computer or mobile device (yes, the IRS has made things mobile- and tablet-friendly) go to IRS.gov/freefile to see all Free File options.

2. You can use the Lookup Tool to help choose a Free File offer to file your taxes for free online. All that takes is a couple of minutes to answer a handful of simple questions about income, age, any applicable military pay, and state residence to find out which offers are available for you.

3. You may notice offers from tax prep services like H&R Block or TurboTax -- partners that, according to the IRS, set their own eligibility standards generally based on income, age and state residency. As an added plus, two products are in Spanish. 

As a side note, it may be helpful to do some extra homework about the tax prep services the IRS is partnered with. A good place to start might be ConsumerAffairs “Best Tax Software and Services” guide. If you search for “free file” on each company’s listing, you might find other consumer reviews or input from ConsumerAffairs’ Tax Software team.

4. Next, you’ll pick a provider and follow the links to their site to begin filling out your tax return.

And, like that, you’re done!

Getting ready

Yes, there’s some work involved in getting File Free-ready, but it’s generally simple stuff. Here’s what you should have ready:

• Before anything else, check with your parents to make sure they are not claiming you as a dependent. If they are, then you can’t claim yourself as a dependent, too. 

• Social Security number.

• Wage and income information (i.e. Form W-2 or Form 1099.) The IRS reminds filers that parts of college scholarships or grants may be taxable income.

• Documentation for all tax credits and deductions. That stuff is shifting sand territory at the IRS, so while some of what worked last year might be good-to-go in 2020, it would be a smart move to call the IRS and confirm what is and isn’t.

• For any and all electronic tax returns, filers are required to use their prior-year adjusted gross income as part of their electronic signature. “If you are a first-time filer over the age of 16, simply enter 0 (zero) as your prior-year income for signature purposes. If you filed before, your prior-year tax return will show your adjusted gross income,” advises the agency.

• And, by all means, get your bank account and routing number. The fastest way to get a refund is through direct deposit to a financial account.

And, remember…

The IRS isn’t the vulture it used to be portrayed as. It’s actually very accommodating and ready to help where it can. Consumers can get a list of phone numbers and times the IRS takes calls here. 

Keep in mind that the IRS has gone through a long, protracted cutback, and there’s fewer agents to help than there were in the past. Given that, there can be a wait depending on when you file, so if you’re reading this in late March, you might want to grab a snack.

With the arrival of a new year, many consumers will already be preparing to file their 2019 federal tax return. But it could pay to be aware of tax changes that have just gone into effect for 2020.

Even if you haven’t gotten a raise or added a dependent to your family, you might find yourself in a different tax bracket this year. The Internal Revenue Service (IRS) makes slight adjustments to the tax brackets every year to account for inflation.

Here are the tax brackets and income limits for the 2020 tax year for a married couple filing jointly:

• 10 percent - $19,750 or less

• 12 percent - $19,750 - $80,250

• 22 percent - $80,250 - $171,050

• 24 percent - $171,050 - $326,600

• 32 percent - $326,600 - $414,700

• 35 percent - $414,700 - $622,050

• 37 percent - $622,050 and above

Standard deduction

The 2018 tax law significantly increased the standard deduction, raising it to the point that most taxpayers are now better off claiming it than itemizing deductions. For 2020, the standard deduction is increasing between $200 and $400. Other changes include the following:

• Single taxpayers can deduct $12,400, a $200 increase over 2019.

• Married filing jointly taxpayers can deduct $24,800, $400 more than last year.

• A head of household filing can deduct $18,650, $300 more than 2019.

• Married filing separately can deduct $12,400, an increase of $200.

Among the many tax credits consumers may be eligible for, the earned income tax credit might be the most beneficial for the low-income workers for which it is designed. The amount of the credit -- which is a direct payment from the Treasury Department -- varies by family size, though some single workers may also be eligible. 

To claim the credit, filers are limited to these incomes:

• Single, head of household, or widowed - $15,270 (if no children)

• Married filing jointly - $20,950 (if no children)

Income limits for the earned income tax credit rise where there are children in the household.

Retirement accounts

The recently enacted SECURE Act makes a number of changes to retirement accounts, but there are other, smaller changes that may affect retirement savers in 2020. The IRS makes annual adjustments to the amounts savers can contribute to IRAs, 401(k)s, and other retirement accounts.

Contributions to IRAs will remain the same. Workers under 50 can contribute and deduct up to $6,000. Workers 50 and older can contribute up to $7,000.

But the IRS has increased 401(k) contribution limits for 2020. Workers under 50 can contribute as much as $19,500 -- an increase of $500 from 2019. The limit jumps to $26,000 for workers 50 and older.

With the tax laws getting increasingly complex, it may pay to use a software or tax preparation service to file your returns. You can see thousands of reviews of some of the best services here.

Since we’re in the middle of open season on healthcare, the Internal Revenue Service (IRS) wants to remind consumers that, as an “eligible employee,” they can use tax-free dollars for medical expenses and should give that option some consideration when deciding on healthcare plans.

Dating back to a promise the Trump administration made in 2016, employees of companies that offer healthcare “flexible spending arrangements” (FSAs), are eligible to use tax-free dollars to pay medical expenses not covered by other health plans. People who are considered “self-employed” aren’t eligible for this particular benefit.

“An employee who chooses to participate can contribute up to $2,750 through payroll deductions during the 2020 plan year,” the IRS said in a news release. The agency notes that “amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax.”

Plan particulars

Below are some points that consumers will want to keep in mind if they plan on taking advantage of an FSA. 

• If an employee’s plan allows it, their employer can also contribute to an employee's FSA.

• Throughout the plan year, employees have the option to use FSA funds for qualified medical expenses that are not covered by their health plan. Healthcare.gov defines a “plan year” as “a 12-month period of benefits coverage under a group health plan. This 12-month period may not be the same as the calendar year. To find out when your plan year begins, you can check your plan documents or ask your employer. (Note: For individual health insurance policies, this 12-month period is called a ‘policy year.’)”

• What is and what is not a “qualified medical expense” can change from insurer to insurer. Typically, those expenses are basics like copays and deductibles. After that, things start to vary with options like dental, vision, and hearing aids.

• The FSA has a “use-or-lose” provision that forces participants to either use eligible expenses by the end of the plan year or forfeit any unspent benefits. The IRS notes that there’s a small silver lining inside that provision, though. If an employer is so inclined, they can offer participating employees two options: 1) additional time -- usually no more than 2 ½ months; or, 2) the ability to carry over up to $500 of FSA-related funds to the following plan year.

To help consumers who need additional help getting through this maze, the IRS offers a guide on its website.

FSAs call for patience

While the upside of an FSA can be rosy, the downside calls for patience and understanding. In particular, ConsumerAffairs reviewers have raised issues with the time it takes for a claim to be processed.  

“I have a flexible spending account for childcare with Cigna and it is terrible,” wrote Joey, a reviewer from South Carolina. “They take more than 30 days to process a reimbursement request! ... And then once it is processed, it takes another 4-5 business days for the direct deposit to go through. I am pulling out of this during our next open enrollment. I will just claim the deduction on my tax return at the end of the year. Who would have thought the IRS is more efficient than a private company.”

And, if another reviewer’s experience is typical, FSA users should file claims as early as possible.

“When you roll over from one plan year to the next, you have 90 days to submit a reimbursement request for dates of service that apply to the prior year's FSA,” said reviewer Meg from Wisconsin. 

“I have been trying to submit a claim to this prior FSA for over a month now, which has been repeatedly misplaced. When it finally got through after talking to the third Customer Service Rep, the Claims Adjustment department determined that they received the request "one day too late," even though I had been trying to submit it for at least three weeks prior.”

Having an FSA is a nice perk, but whether a person has access to it or not is dependent solely on the employer. “Employers are not required to offer FSAs,” the IRS reminds consumers. Officials emphasize that interested employees “should check with their employer to see if they offer an FSA.”

Throughout the month of August, the IRS will be sending out warning letters to roughly 10,000 taxpayers reminding them that earnings from cryptocurrency trades must be reported in federal tax filings.

The agency said it found the names of taxpayers known to have a cryptocurrency trading account “through various ongoing IRS compliance efforts.” 

"Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest and penalties,” IRS Commissioner Chuck Rettig said in a press release about the letters. 

“The IRS is expanding our efforts involving virtual currency, including increased use of data analytics,” Rettig added. “We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations."

Enhancing compliance efforts 

Cryptocurrency investors who receive a letter aren’t necessarily slated to be audited; the letters mainly serve as a reminder to pay taxes on any cryptocurrency sold. However, one of the three types of letters being sent out does require a response or the recipient will be audited. 

Those who receive a letter and have not accurately reported virtual currency transactions from the past few years are “urged to correct their returns as soon as practical.” Failure to accurately report earnings through cryptocurrency trading can result in penalties including jail time and a fine of up to $250,000. 

“The IRS will remain actively engaged in addressing non-compliance related to virtual currency transactions through a variety of efforts, ranging from taxpayer education to audits to criminal investigations,” the agency said.

Democrats and Republicans in Congress find little they can agree on these days, but a bill to modernize federal income tax filing passed easily in the House with bipartisan support.

The Hill reports the outlook for the bill appears solid in the Senate when that chamber takes up the measure.

The bill is designed to make it easier for people to file their taxes, according to Rep. John Lewis (D-Ga.), who authored the bill. Among its provisions is an improvement in taxpayer services, beefed up identity theft protection, protection of taxpayers’ rights when they are involved in an enforcement action, and overall improvements to the Internal Revenue Service’s (IRS) information technology and electronic systems.

Point of contention

But the bill also solidifies the IRS’s relationship with commercial tax preparation software companies, making them the official tool for online tax filing. But ProPublica reports it goes farther, blocking the IRS from offering its own tax filing portal.

“Companies like Intuit, the maker of TurboTax, and H&R Block have lobbied for years to block the IRS from creating such a system,” ProPublica reports. “If the tax agency created its own program, which would be similar to programs other developed countries have, it would threaten the industry’s profits.”

‘Final nail in the coffin’

Mandi Matlock, a tax attorney who does work for the National Consumer Law Center, told the group the law could be the “final nail in the coffin” for the IRS ever launching its own tax filing system.

Most of the “no” votes against the measure came from freshmen members elected last November. Some suggested the measure benefitted the “corporate tax lobby” at the expense of taxpayers.

Even some who voiced concerns about codifying the participation of commercial tax preparation services ended up voting for the measure, saying the benefits of the entire measure outweighed their concerns.

Taxpayers can still use the IRS’s Free File service if their income is $66,000 or less. For those with incomes above $66,000 the IRS provides free fillable tax forms.

The Free File service provides free tax preparation software with available free state return options. Consumers can use the Free File Software Lookup Tool to find free federal and free state return options.

Tax filing day is less than two weeks away, and another red flag has been raised about the importance of consumers keeping their personal data away from prying eyes.

In Shred-it’s just released 2019 Tax Season and Fraud Prevention Report, it caught our attention at ConsumerAffairs that more than one third (38 percent) of taxpayers say they’re sweating that they could become a victim of identity theft during tax season, yet nearly half of all taxpayers (45 percent) confess that they stash their tax documents in an unsecure location like a storage box, desk drawer, or unlocked file cabinet at home or work.

Here are some key takeaways from Shred-it’s survey of 1,800 taxpayers:  

• More than a quarter (26 percent) of taxpayers say they know someone who has been a victim of tax fraud or tax identity theft.

• More than a third (35 percent) of U.S. taxpayers think using tax preparation software and filing their return directly online puts them at a greater risk of tax fraud or tax identity theft than if they used a certified tax preparer (10 percent), a family member or friend (26 percent).

• Nearly half (46 percent) of the taxpayers that file with a tax preparer are unsure how their tax preparers store/dispose of their tax documents.

• 47 percent of taxpayers say they don’t know how long they’re supposed to keep tax documents before disposing of them. By the way, the Internal Revenue Service (IRS) says that 3 years is the minimum but the length is dependent on a variety of factors.

• More than half of the Gen Zers (56 percent) are the least confident in their abilities to detect fraudulent tax emails compared to Millennials (69 percent) and Baby Boomers (60 percent).

• Millennials (43 percent) are the most worried about becoming victims of tax fraud or tax identity theft compared to Baby Boomers (34 percent) and Gen Z (33 percent).

• Men (9 percent) are more likely than women (5 percent) to say they have been a victim of tax fraud or tax identity theft, but both sexes are almost equally as worried that they could become a victim of tax fraud or tax identity theft.

Steps consumers can take to protect themselves

“Tax season can be a stressful time for consumers -- between all of the paperwork you need to receive and compile to then scheduling an appointment with a tax preparer or making time to do your taxes yourself, there’s a lot of moving parts and information to consider,” Shred-it’s SVP, Ann Nickolas told ConsumerAffairs.

Nickolas said it’s important that taxpayers keep their information security top of mind -- especially since there tends to be a resurgence of scams and fraud attempts each year. With tax day approaching, Nickolas shared three tips and best practices to help consumers keep their information safe this tax season:

1. Question disposal and storage methods. If you’re not doing your taxes yourself, and instead have tapped the assistance of a friend, family member or a certified tax preparer, one of the most important questions you should ask is how this person or organization is storing your highly sensitive information and also, how are they disposing of the tax paperwork. Do they use the services of a professional information destruction and disposal company that securely shreds your tax paperwork? Are they storing your files in a locked cabinet? Who has access to this paperwork? Your tax paperwork (think student loan information, mortgage and business documents, your SSN and more) are extremely sensitive documents. You want to ensure that when you hand over this information that the person is protecting it securely.

2. Upgrade your own disposal and storage methods. Since it’s recommended to keep your tax returns for a number of years it’s time to rethink how you’re storing and, then, disposing of your own information. Taxpayers should upgrade their information security habits at home by investing in a locked file cabinet, and professionally shredding all paperwork before disposing of it.

3. Maintain a clean desk policy at home. Whether you have a dedicated office space in your home or if your tax paperwork tends to sit on the counter, table or on the entryway shelf, consumers should avoid letting any information, let alone tax paperwork, pile up. This is especially important if you have visitors entering your home. Keeping your information out of sight, and in a locked cabinet will help to safeguard you from potential risk.

Haven’t filed your tax return yet?

If the new tax laws puzzle you or if you just need some extra time to file, the IRS is hosting a free webinar regarding tax returns on Thursday, April 4.

The webinar, called “Filing is the Thing to Do, Even if You Have a Balance Due,” is slated for 2 p.m. Eastern time. The hour-long webinar will include a Q&A session and, of particular note for taxpayers who need more time to prepare their taxes, the IRS will provide information on how to apply for an extension of time to file during this session.

Millions of taxpayers who count on a tax refund to pay bills or fund a special purchase have been in for a shock so far this year. Not only have many consumers learned that they aren’t getting a refund, but many owe additional taxes.

It’s all part of miscalculations associated with the 2017 tax cut bill. Many taxpayers have discovered their employers failed to withhold enough taxes.

A Harris Poll survey conducted for personal finance site NerdWallet found nearly one-third of the taxpayers who owe extra taxes this year got a refund last year.

The effects of this could be far-reaching. Consumers often use their tax refund to make a down payment on a car or truck. Others use it to pay down credit card balances. Still others need it just to get caught up on bills that have piled up over the last 12 months.

18 percent owe additional taxes

The survey found that 18 percent of taxpayers who had filed their 2018 federal tax return owed additional money, beyond what had been withheld during the year. The survey suggests that as many as 7.9 million taxpayers expecting a refund had to pay additional taxes instead.

Personal finance experts are quick to tell you that a federal income tax refund is actually your money that the U.S. government has been using for months, without paying a bit of interest. But NerdWallet tax specialist Andrea Coombes says many people don’t look at it that way.

“Many people think of their tax refund as a sort of year-end bonus,” Coombes said. “Finding out you actually owe money can be an upsetting surprise.

Coombes says this tax-filing season has been marked by increased uncertainty -- not just because of the new tax law but due to the government shutdown that delayed the start of return processing. Despite that, the survey shows a large number of consumers filed as quickly as possible in hopes of getting their refund faster.

Good and bad surprises

“While it’s great to see a majority of Americans have filed their taxes and many have been receiving their refunds quickly, there’s still some uncertainty,” she said. “Our study shows that taxpayers are facing surprises — both good and bad.”

One of the good surprises is the size of the refund. When pollsters queried taxpayers, it found 60 percent are getting a refund averaging $2.697. Last year the average expected refund was $1,861. At the same time, about one-third of taxpayers getting a refund say it’s smaller than last year.

Wait times for refunds are about the same. Of those getting a refund this year, 41 percent said they got their money in two weeks or less.

Taxpayers were supposed to pay less in taxes in 2018 under the latest overhaul of the tax system. But so far, federal income tax refunds don’t reflect that.

New data from the IRS show that returns are lagging the pace of last year’s filing -- not surprising given the government shutdown. But the refunds that have been sent out so far are about 8 percent less than at a similar point last year.

Refunds to date have averaged $1,865 compared to $2,035 for 2017 returns. On the surface it would seem to suggest that the tax cuts passed by Congress in late 2017 aren’t helping the average consumer. But there could be another explanation. Many taxpayers may have adjusted their withholding and didn’t pay into the system as much as they did in previous years.

We’re also early in the tax-filing season because of the government shutdown. At this point in 2018 the IRS had processed nearly 18 million tax returns. To date, the agency has processed just over 13 million.

Significant changes

There were significant changes to the tax law for 2018, many of them affecting middle-income earners. First, the new tax law lowered most tax rates. More importantly, it nearly doubled the standard deduction, shielding more income from taxation.

Many workers saw an increase in their paychecks after their employers made adjustments, but it is possible many employers slightly under-withheld, resulting in smaller refunds.

According to the IRS data there have been 4.6 million refunds so far this year, but that is running well behind the 6.1 million refunds that had been sent out at this time last year. The IRS has distributed $8.7 billion in refunds so far compared to $12.5 billion in refunds at this time last year.

The dance the Trump administration has been doing with Internal Revenue Service (IRS) employees may have blown up in its face.

Despite the White House calling 30,000 furloughed IRS employees back into work to process tax refunds, many of those who were recalled are reportedly skipping work, which could exasperate things even further.

The Washington Post’s account of the situation says that hundreds of IRS employees have asked for -- and have been granted -- time off from work thanks to the financial hardship the shutdown is having on them. Add to that the backing of their union, which sounded a warning that an organized protest could result in even more workers staying away from work.

President Tony Reardon of the National Treasury Employees Union (NTEU) -- which represents 150,000 employees at 33 federal agencies and departments --  called out the the government to find a way out of the mess.

“We’ve said all along that it is grossly unfair that federal employees are the pawns in someone else’s fight, and now the situation is dire,” Reardon said in a statement. “Take our nation’s civil servants out of the crossfire and pay them, period.”

Don’t hold your breath

If you use the 2013 government shutdown as a measuring stick in regards to tax refunds, 2019 is not a pretty picture. The 2013 shutdown lasted 16 days and resulted in delays of more than $2 billion in tax refunds, which means that we’re well over the $4 billion mark already for this year’s shutdown.

If your tax return has already been filed, the IRS is tied to the hip to the shutdown and doesn’t have a good idea of when those refunds might get processed. With IRS employees demonstrating some defiance on top of the agency being closed, it may be a while -- much longer than the typical 21 days -- before those refunds are distributed.

If you haven’t done your taxes yet, don’t think you’ll get a break however. The IRS reminds taxpayers that the underlying tax laws remain in effect during the shutdown, so all taxpayers should continue to meet their tax obligations as they normally would.

In the midst of all of the Trump administration’s tugs-of-war that have consumed 2019 so far, the White House has released the final rules for a new business tax deduction -- one it’s had in the works for nearly two years.

The final regulations were a key component of the Tax Cuts and Jobs Act -- one which allows owners of sole proprietorships, partnerships, trusts, and S corporations to deduct up to 20 percent of their qualified business income.

The Treasury crows that “the final regulations ensure that this historic tax cut will be available to the broadest spectrum of American businesses,” but as tax plans go, there are always winners and losers.

On the winning side of the new plan are rental real estate owners, assisted living facilities, and employment staffing companies. On the losing side are real-estate settlement agents, major league sports team owners, physical therapists, and writers -- all given the thumbs-down from the Treasury Department.

But the big winner are small and medium-size business owners who will enjoy a new 20 percent tax deduction plum. Administration officials said the new rules give the green light to millions of businesses to file their 2018 taxes with the confidence they’re eligible for the break.

“Small and mid-size businesses are the engines of growth for the U.S. economy,” said Secretary Steven T. Mnuchin. “The pass-through deduction will drive more investment in U.S. companies and higher wages for American workers. This provision will reduce pass-through business tax rates to their lowest rate in more than 80 years.”

17-40 million will enjoy the deduction

The Treasury Department estimates that the number of U.S. business owners lucky enough to get the 20 percent break runs somewhere between 17 and 40 million. As things stand now, the deduction is available to small business owners with income below $315,000 for married couples filing jointly and $157,500 for single filers without limitations.

For business owners above those income thresholds, the regulations are a bit tighter. However, the architects of the plan have built in some flexibility for those who can “provide certainty and flexibility by clarifying the definitions of ‘specified service trade or business’ and ‘unadjusted basis immediately after acquisition’ of qualified property, and by including ‘aggregation rules’ for filers with pass-through income from multiple sources.”

That’s a mouthful -- and a confusing one at that. ConsumerAffairs asked Nicole Kaeding, director of federal projects at the Tax Foundation, for an easier-to-understand version.

“Because the deduction is so generous, the Treasury is simply putting ‘guardrails’ on them so individuals don’t abuse the privilege,” Keading said.

How those “guardrails” shake out could be a problem, though. Keading told the New York Times that the regulations would likely lead to lawsuits that force courts to determine whether many individual businesses qualify.

Many consumers rely on income tax refunds each year to get caught up on expenses, but with the government still shut down and IRS employees idled, it may be a while before those refunds are distributed.

That could result in more taxpayers taking out expensive advance loans from their tax preparers. Nearly every national tax preparation company offers these loans, which are highly profitable.

For the lender, there is no chance the loan will not be repaid. A consumer filing a return gets the refund amount immediately from the tax preparer in the form of a loan. When the actual refund is received from the IRS, the loan is repaid, plus interest and fees.

These loans, also called refund anticipation loans, carry fees and interest for the three to four weeks the consumer has borrowed the money. The IRS points out that in normal years, a consumer can receive a refund within three weeks of filing a return. But with IRS employees furloughed during the government shutdown, all bets are off.

“Obtaining a refund anticipation loan is an affordable way to speed up the process of getting your money from your tax refund,” the IRS says on its website. “By getting refund anticipation loan, you won't be left asking ‘where's my refund?’ weeks after you file your return. Tax refund advance loans provide cash equal to the amount of your actual tax refund, and they do so in a very short amount of time.”

Taking a bite out of refunds

That said, the fees and interest will take a bite out of the average consumer’s tax refund, especially this year since there is no guarantee that returns will be processed in a timely manner.

Families that file under the Earned Income Tax Credit (EITC) may be especially hard hit this year. The EITC pays the working poor a refund even though they don’t pay taxes. The average refund was over $2,400 in 2017.

According to a report by CityLab, 18 percent of all taxpayers claimed the EITC in 2017. EITC filers are usually among the first to file their returns. If they are unable to file their taxes early and get speedy payments, these consumers could have serious economic hardships.

Tax-related identity theft

A prolonged government shutdown, extending the time it takes for the IRS to process your return, could have another negative consequence. It could make taxpayers more vulnerable to tax-related identity theft.

That occurs when someone uses your stolen Social Security number to file a tax phony return claiming a fraudulent refund. You won’t know it has happened until you file and the IRS tells you that your return -- filed by the scammer -- has already been processed.

The best way to protect yourself against that happening is to file your return as early as possible. The IRS also says it has taken steps with tax preparers to put in additional safeguards.

Consumers who prepare their own returns using tax preparation software will see new login standards to enhance security. Some states have also taken steps to prevent identity fraud.

Charities are worried that they may receive fewer donations this holiday season as a result of the Tax Cuts and Jobs Act passed by Congress last year.

The new law, which went into effect in January, nearly doubled the value of the standard deduction for both individuals and married couples, thereby reducing the tax payoff for donations. Under the tax law change, many taxpayers who used to itemize deductions may find it less necessary to include charitable donations.

The number of people who claim the deduction for charitable giving is expected to fall to 16 million this year from 37 million last year, according to estimates from the Tax Policy Center.

Donor numbers already declining

Charities have already noticed a drop in the number of donors this year.

“Compared with last year, the number of donors dropped 4.3% while the value of donations increased 2.6% through Sept. 30, according to a study released Tuesday by the Association of Fundraising Professionals,” the Wall Street Journal reported.

The American Red Cross is among the nonprofits bracing for the impact of the new tax law. The organization said it’s concerned that fewer taxpayers will be taking advantage of the charitable deduction due to the increase in the standard deduction.

“The American Red Cross is disappointed that the new tax law did not contain a universal charitable deduction available to all taxpayers, whether they itemize or not,” said Greta Gustafson, a spokesperson for the organization. “At this point, it’s too early to assess the full impact of the law, but it is certainly an issue we will raise next year with the new Congress.”

It could take several years to see the implications of the new law in regards to the number of charitable donations, since many people make donations for reasons other than financial benefit.

“It’s a very individual basis, and we’re not going to know the answer to this until 2020 or 2021,” Robert Sharpe, a consultant who works for nonprofits, told the Journal. “Right now, only the most sophisticated people have talked to their advisers about the impact.”

Cryptocurrency regained some of its lustre on Monday, as the state of Ohio announced that it’s permitting businesses to pay their tax bills using the digital currency.

With that move, Ohio becomes the first U.S. state to accept Bitcoin as payment for taxes and has built a special website -- www.OhioCrypto.com -- to manage the effort.

Ohio’s state treasurer, Josh Mandel, crafted the blueprint so that it works for everyone -- “from mom and pop coffee shops to Fortune 100 companies.”

“[I] believe in leveraging cutting-edge technology to provide Ohioans more options and ease while interfacing with state government,” he said.

Why cryptocurrency?

While it might take time for the initiative to gain some traction and get businesses comfortable with using cryptocurrency, Mandel’s office sees these advantages for Ohio businesses:

• Quick and easy – Businesses can pay their taxes in three quick steps using the cryptocurrency tax payment portal.

• Real-time tracking – Payments on the blockchain can be tracked on an instantaneous basis.

• Secure payments – Cryptocurrencies cannot be transferred to third parties without user initiation.

• Low fees – A minimal fee is charged to confirm transactions on the blockchain network.

• Transparency – Anyone can view all transactions on the blockchain network.

• Mobile options – Consumers can easily make tax payments on their mobile phone or tablet.

Who’s eligible?

Any business operating in Ohio -- whether it’s headquartered in Ohio or not -- is eligible to pay taxes in cryptocurrency via OhioCrypto.com. All told, Ohio’s new system will accept payments for 23 different taxes ranging from Sales Tax to Motor Vehicle Use tax.

To become eligible, all a business has to do is:

1. Register online at OhioCrypto.com

2. Enter in the tax amount due, enter business tax payment amount, and select the tax period date.

3. Use the business’ cryptocurrency wallet to pay the invoice with Bitcoin. All payments are processed by the Ohio Treasurer’s office third party cryptocurrency payment processor, BitPay.

While Bitcoin is the only accepted cryptocurrency to start, the Treasurer’s office says it’s looking forward to adding more cryptocurrencies in the future.

So… good move or bad move?

Only time and the market will tell if Mandel’s plan will hold water.

According to various tweets regarding Ohio’s digital move, Mandel has been a fan of Bitcoin for some time and was “initiated in order to draw attention to the state’s tech enthusiasm.” Still others raise the question of the move being “too speculative” and that paying by Bitcoin “does not make the state tech-friendly [but] makes it financially irresponsible.”

While Ohio is alone in working the pay-taxes-with-crypto angle, other states such as Wyoming and Florida are warming up to digital currencies, with Florida’s focus squarely on the consumer.

“Other states have identified and are taking action against bad actors in the cryptocurrency industry. Florida must also protect our residents,” remarked Jimmy Patronis, the Sunshine State’s Chief Financial Officer.

The crush of last-minute tax filers crashed an Internal Revenue Service (IRS) computer network, so the tax agency is extending the tax deadline through today.

“Individuals and businesses with a filing or payment due date of April 17 will now have until midnight on Wednesday, April 18,” the IRS said in a statement. “Taxpayers do not need to do anything to receive this extra time.”

According to the announcement, the IRS encountered system issues Tuesday morning. Taxpayers were still able to file their tax returns electronically if they were using software and the IRS's Free File. Taxpayers using paper to file and pay their taxes at the deadline were not affected by the system issue.

What failed was the part of the IRS network that allows taxpayers to pay their taxes electronically. Direct Pay failed early in the day – reportedly from the large number of people trying to access it – and wasn't restored until late in the afternoon.

The part of the network that allows taxpayers to pay their taxes in installments was also affected, but it has since been restored.

Busiest tax day of the year

“This is the busiest tax day of the year, and the IRS apologizes for the inconvenience this system issue caused for taxpayers,” said Acting IRS Commissioner David Kautter. “The IRS appreciates everyone’s patience during this period. The extra time will help taxpayers affected by this situation.”

Consumers who used commercial tax preparation services were also affected by the outage. A spokesperson for Intuit told CNBC that consumers using the company's service should continue filing their taxes normally. She said that returns filed while the IRS system was down were held until it was working again.

The extension moves the tax-filing deadline two days beyond its traditional date. The normal April 15 deadline was extended to April 16 this year because of a District of Columbia holiday on Monday.

Last minute tax filers aren't always that choosy about who prepares their tax return -- but they should be.

They might see a hand-painted sign in their neighborhood, or respond to a flier they see on a bulletin board. If they're unlucky, they could end up with a "rogue" tax preparer.

A rogue tax preparer is someone who might scam you, stealing your refund, or even your identity. Or it might be someone with a rudimentary knowledge of tax preparation who will collect a fee but not do a very good job of preparing your tax return.

The California Tax Education Council says there are five red flags that indicate you are dealing with a rogue tax preparer.

Claims they are endorsed by the IRS

The Internal Revenue Service does not endorse tax preparers. However, it does recognize credentials, such as certified public accountant (CPA), enrolled agent, and attorney. Those professionals are allowed to represent clients before the IRS.

Tax preparers who are not one of these professionals may be allowed to prepare returns in some states, but they usually must complete a state license examination. In any case, taxpayers should check to make sure any paid tax preparer is permitted to prepare returns.

Doesn't have a PTIN

This is a big tip-off. If you charge a fee to prepare a federal tax return, you are required by the IRS to have a Preparer Tax Identification Number (PTIN). If the preparer works in a tax preparation practice, they must have their own PTIN and not use one for the entire office.

Doesn't sign their name to the return

There's a line on your tax return for the paid preparer to sign. It's common for a rogue tax preparer to sign with the name of a business -- or, if they're really bold, write "self prepared" instead of writing their name. That won't fly with the IRS.

Legitimate tax preparers will sign their name to your state and federal tax returns and include their PTIN on all federal tax returns.

Takes a percentage of your refund

Professional tax preparers have set fees for their services and disclose them ahead of time. Beware of tax preparers who base the fee on a percentage of your refund or claim they can obtain larger refunds than their competitors.

Generally, tax preparation fees are based on the complexity of your tax return. The amount of your refund is not relevant.

Suggests you direct deposit your refund to their account

Watch out for this one. The IRS prefers to direct deposit tax refunds rather than send out checks, but it's never a good idea to let your refund go to someone else's account. In fact, it's against IRS regulations.

If you don't have a bank account, you can have the refund deposited to a money card.

If you were one of the fortunate investors who made a killing on Bitcoin in 2017, or maybe just earned a few bucks on a digital currency transaction, the Internal Revenue Service (IRS) is reminding you to report it on your tax return.

The tax agency says a profit from a cryptocurrency transaction is no different than a capital gain on a stock or real estate transaction. Using a virtual currency to pay for goods and services can also have tax consequences, the IRS says.

The IRS outlines some of the issues a taxpayer must consider here. In some instances, the tax issues raised by cryptocurrencies can be somewhat complicated.

For example, a taxpayer who receives virtual currency as payment for goods or services must, in computing gross income, include the fair market value of the virtual currency, measured in U.S. dollars, as of the date that the virtual currency was received.

Big profits in 2017

The IRS reminder may have been prompted, in part, by the fact that some taxpayers who purchased Bitcoins early in 2017 and sold late in the year reaped enormous profits. At the start of 2017, one Bitcoin was worth less than $1,000. By mid-December it was worth almost $20,000.

The IRS says taxpayers who do not properly report the income tax consequences of cryptocurrency currency transactions can be subject to audit and be liable for penalties and interest. But should you neglect to report thousands of dollars in Bitcoin profits, things could get a lot stickier.

"Taxpayers could be subject to criminal prosecution for failing to properly report the income tax consequences of virtual currency transactions," the IRS warns. "Criminal charges could include tax evasion and filing a false tax return."

A tax evasion conviction could result in a prison sentence of up to five years and a fine of up to $250,000.

With the passage of landmark tax legislation this week, Internal Revenue Service (IRS) staff and tax preparers are scrambling to catch up with new policies in time for filing 2017 taxes.

The new law coming at the end of year leaves tax collectors and tax preparers little time to digest significant changes; changes that could make it best for some taxpayers to file immediately.

"Some popular tax breaks will remain intact under the new law, but there are also some significant changes that warrant new end-of-year tax planning strategies," said Dave Du Val, an executive at TaxAudit, a company that helps clients avoid tax audits. "Even though we're coming down to the wire, it isn't too late to take action and make some changes before 2017 ends and the new bill comes into effect."

Take action now

Cindy Hockenberry, EA, Director of Tax Research and Government Relations at the National Association of Tax Professionals (NATP), says the new tax law has made it advisable for some taxpayers to take action before 2017 draws to a close.

"If their property taxes are assessed and they have the bill, they should pay it before the end of the year," Hockenberry told ConsumerAffairs.

That's because the state and local tax deduction will be capped at $10,000 starting in 2018. Taxpayers in high tax states often pay a lot more than that, but will only be able to deduct the first $10,000 next year. By paying 2018's property taxes before the end of the year, all of next year's state and local taxes can be deducted on this year's tax return.

"Make charitable contributions before the end of the year," Hockenberry said.

Charitable contributions are still tax deductible under the new law, but she says the new higher standard deduction means millions of taxpayers who normally itemize will find it more profitable not to, starting in 2018. By making 2018's charitable contributions this year, you can write them off one last time.

Tax withholding may change

The bill nearly doubling the standard deduction has another effect that taxpayers need to plan for. That, and the shifting tax brackets, mean millions of people are going to see their tax withholding change.

"The IRS is working on revising the withholding tables now," Hockenberry said. "Taxpayers should see more take home pay as early as February."

For independent contractors and self-employed taxpayers, the change will also affect the amount of quarterly estimated tax payments they make. Consulting with a tax professional now can ensure you're withholding the correct amount.

As for other tax changes, Hockenberry says couples without children may not see the tax savings that taxpayers with children get. She says the new law also eliminates personal exemptions for most taxpayers.

Du Val urges consumers considering the purchase of a vehicle next year to do it before December 31, especially if they live in a high-tax state. The sales tax will be fully deductible in 2017, but it might not be next year.

Congress has finally approved a sweeping tax bill that will change what millions of consumers pay in federal income taxes and how they pay it.

The Senate passed it Tuesday night after stripping out three minor provisions that violated Senate rules, which required the House to re-vote on the legislation today. The bill next heads to the White House where President Trump is expected to quickly sign it, making it effective for the 2018 tax year.

Here are some of the changes that most affect consumers:

Standard deduction

Taxpayers have two options when they fill out their federal tax return. They may itemize deductions, such as home mortgage interest and charitable donations, or they can take what's called the standard deduction.

For 2017 the standard deduction is $6,500 for individuals and $13,000 for married couples. For 2018, it nearly doubles to $12,000 for individuals and $24,000 for couples. That amount is deducted from income and typically reduces the amount paid in taxes.

Economists say that will likely mean that millions of consumers who normally itemize deductions will simply claim the standard deduction because it will be higher than the total amount of their itemized deductions and result in a lower tax bill. It will also be easier to fill out their return since fewer forms will be required.

State and local taxes

Under current law, taxpayers may deduct the taxes they pay to state and local governments, including the property taxes they pay on their homes. The bill does not eliminate this deduction, but caps it at $10,000.

For most consumers this will have little effect. However, for consumers who live in high tax states like New York, New Jersey, and California, this could end up increasing their taxes. If someone pays a total of $20,000 a year in state and local taxes, they will only be allowed to deduct $10,000 of that amount starting next year.

Mortgage interest deduction

Under current law, homeowners may deduct mortgage interest on homes. That provision, along with the state and local tax deduction, has been a big benefit to homeowners, essentially lowering the cost of home ownership.

For most homeowners, the new law will have little effect. It caps mortgage interest on homes to those valued at $750,000. Again, it will likely have the most adverse impact on homeowners in the Northeast and California, where home values are highest.

Tax brackets

The new tax law will keep the same number of tax brackets but will assign different levels for them. In 2018, the brackets will be 10, 12, 22, 24, 32, 35, and 37 percent.

Income levels for these brackets also shift, usually to the downside. A couple earning $76,000 would move from the 25 percent bracket down to the 12 percent bracket.

Small business owners

The tax bill lowers the corporate tax rate from 35 to 21 percent. Advocates say that puts the U.S. corporate tax rate more in line with other nations.

But the measure also contains a tax break for small businesses that are not corporations -- many owned by individual consumers. Starting next year there will be a 20 percent business income deduction for sole proprietors -- individuals who own a so-called "pass through" business, whose profit and loss is reported on their personal income tax return.

'Wrong bill at the wrong time'

"I think the simplest and most direct way to describe this bill is with a phrase that many of us are using: It is the wrong bill at the wrong time," economist Joel Naroff, of Naroff Economic Advisors, told ConsumerAffairs.

He describes the measure as the kind of policy that should be implemented when the economy needs a boost, not when the nation is near or at full employment and growth is good. He says it is the wrong time in the cycle for expansionary fiscal policy.

Naroff's main complaint is that the legislation continues what he sees as a redistribution of wealth to upper income households, noting they stand to gain the most because they pay the most in taxes.

"The middle class gets a tax cut that is significantly less than higher income households and lower income households get almost nothing," Naroff said.

The social implications of that, he says, are “scary.”

The White House and Congressional Republicans have unveiled a plan to cut the corporate tax rate and reduce the number of individual tax brackets to three.

The principal objective is to make U.S. businesses more competitive and boost the economy, but the plan, if enacted as written, would also have a big impact on individual consumers.

One of the biggest changes would affect homeowners who are able to deduct state and local taxes, reducing their taxable income. Without these deductions, these consumers would likely pay a little more in federal tax; some could pay significantly more.

Would hit California consumers hard

In its analysis, the Los Angeles Times notes the changes would hit California consumers especially hard because Californians pay a lot in state taxes, which they deduct from their federal tax bill. The Times cites figures showing California taxpayers used this deduction to reduce their tax bills by $101 billion in 2014.

Democrats in Congress point out that the states where consumers would see their taxes go up the most happen to be states that usually vote Democratic in elections -- states like California, New York, Massachusetts, and New Jersey. Sen. Dianne Feinstein (D-Calif.) told the newspaper that axing this deduction is a "non-starter" for her.

While a portion of taxpayers would likely see some increase in their federal tax bill, millions more who do not itemize would probably see their taxes go down. The plan would nearly double the standard taxable income deduction from $6,300 per person to $12,000.

From seven tax brackets to three

But the savings might not be that straightforward.

Under current tax law, there are seven individual tax brackets, establishing the percentage of taxable income that must be paid. The GOP proposal reduces that to three brackets -- 12 percent, 25 percent, and a top rate of 35 percent. Consumers might end up being able to reduce their taxable income more, but still wind up with a higher tax rate.

Two major deductions -- for home mortgage interest and charitable donations -- remain intact. However, some GOP lawmakers have suggested capping the amount of mortgage interest that can be deducted at $500,000 -- which would affect mostly affluent taxpayers.

The plan also doesn't touch tax benefits for retirement savings accounts and for college tuition expenses -- tax advantages that favor mostly middle income consumers.

Lawmakers would also cut the corporate tax rate from 35 percent to 20 percent. That move is aimed at making U.S. businesses more competitive with those in other nations, where rates are lower. The plan's backers argue that U.S. corporations with billions of dollars in foreign profits deposited in overseas banks would "repatriate" those funds, stimulating the economy.

The plan's backers are counting on strong economic growth to pay for the tax cuts. As written, the plan slashes nearly $6 billion in taxes the government now receives, increasing its $20 trillion deficit.

Taxpayers in Florida who were hit by Hurricane Irma have more time to file certain individual and business tax returns and make certain tax payments.

The Internal Revenue Service (IRS) says this includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, as well as businesses with extensions that ran out on Sept. 15.

Any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for either individual assistance or public assistance in Florida is covered by the extension.

What it means

The tax relief postpones various tax filing and payment deadlines that occurred starting on September 4, 2017 in Florida. Affected taxpayers will now have until January 31, 2018 to file returns and pay any taxes that were originally due during this period.

This includes the September 15, 2017 and January 16, 2018 deadlines for making quarterly estimated tax payments. It also includes 2016 income tax returns for individual tax filers who received a tax-filing extension until October 16, 2017.

However, because tax payments related to these 2016 returns were originally due on April 18, 2017, the IRS says those payments are not eligible for this relief.

A break for businesses

A variety of business tax deadlines are also affected by the decision, including the October 31 deadline for making quarterly payroll and excise tax returns.

Several other groups will also benefit from the extended deadlines, including calendar-year partnerships whose 2016 extensions run out on September 15, 2017 and calendar-year tax-exempt organizations whose 2016 extensions run out on November 15, 2017. The disaster relief page has details on other returns, payments, and tax-related actions qualifying for the additional time.

The IRS is also waiving late-deposit penalties for federal payroll and excise tax deposits normally due during the first 15 days of the disaster period. Check out the disaster relief page for the time periods that apply to each jurisdiction.

What to do

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief.

However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment, or deposit due date falling within the postponement period, they should call the number on the notice to have the penalty abated.

The IRS says it will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area.

Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Those who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year), or the return for the prior year (2016). See Publication 547 for details.

The Internal Revenue Service is extending the filing deadline for Hurricane Harvey victims who had earlier filed for an extension. 

This includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, and businesses with extensions that run out on Sept. 15.

"This has been a devastating storm, and the IRS will move quickly to provide tax relief to hurricane victims," said IRS Commissioner John Koskinen. "The IRS will continue to closely monitor the storm's aftermath, and we anticipate providing additional relief for other affected areas in the near future."

The IRS is now offering this expanded relief to any area designated by the Federal Emergency Management Agency (FEMA), as qualifying for individual assistance. Currently, 18 counties are eligible, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 23, 2017. As a result, affected individuals and businesses will have until Jan. 31, 2018 to file returns and pay any taxes that were originally due during this period. This includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments.

For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until Oct. 16, 2017. The IRS noted, however, that because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.

Illinois and New Jersey have been in the news lately as they struggle to regain fiscal solvency. But they aren't alone. A number of states are struggling to stem the flow of red ink.

As a resident, it's something you need to know since taxes may be raised, services reduced, or a combination of the two. The Mercatus Center at George Mason University has checked the books and put together a ranking of states that are flush and those that are not.

It turns out some states are doing very well with their finances while others face budget problems. When it comes to a lack of cash, New Jersey and Illinois are one and two. They're followed by Massachusetts, Kentucky, and Maryland.

On the other end of the scale, George Mason ranks Florida number one in fiscal health. It's followed by North Dakota and South Dakota, which are reaping the benefits of the shale revolution, then Utah and Wyoming. You can find where your state ranks here.

The rankings

The George Mason researchers ranked the states by consulting a state’s comprehensive annual financial report (CAFR).

The things the researchers look for include a state’s ability to attract new businesses and how much it taxes both businesses and citizens. The researchers also look for state services and how well a state keeps its promises to public-sector employees. They also look for solvency in a number of areas, including cash, budget, services, and trust funds.

States with large populations tend to be ranked lower and states with small populations tend to be ranked higher, although there are exceptions in both groups. Kentucky has a relatively small population but finds itself among the five states with the worst finances. Florida is a large state but comes out on top in the rankings.

Fiscal discipline

The researchers say the top five states show fiscal discipline, helped by low debt and a strong cash position. The bottom five states all suffer from similar problems, mainly a lack of cash and rising debt. New York moved out of the bottom five year year, thanks to improvements in budget solvency.

Other large states to keep an eye on are Pennsylvania, at number 45 on the list; California, at 43; Connecticut at 36; and Michigan at 37.

"The lessons from this year’s study demonstrate that policymakers should take stock of both their short and long term fiscal health before making public policy decisions," the researchers conclude.

Last October, a class action suit was filed against Comcast in which plaintiffs said they were charged $10 extra per month for “broadcast TV” and “regional sports” fees that put their monthly bills over what they agreed to pay in their contracts. The class said that the charges were disguised as government-imposed taxes.

In its defense, Comcast said that the fees simply covered the cost of transmitting associated programs and that Congress had “encouraged” it to list those costs on subscribers’ bills under the Cable Television Consumer Protection and Competition Act, which was passed in 1992. The company moved to dismiss the case, and things looked promising after presiding U.S. District Judge Vince Chhabria called the claims “sketchy.”

Still, as they say, it’s not over ‘til the fat lady sings. Courthouse News reports that Chhabria granted Comcast’s motion to the dismiss the case on Tuesday but gave two groups of claimants a leave to amend – basically a period of time to revise their suit and resubmit it.

“It appears possible that the complaint could be amended to state a claim with respect to at least some of the counts,” Chhabria said in his ruling.

Leave to amend

Chhabria stated that out-of-state plaintiffs failed to establish personal jurisdiction over Comcast in stating their case, but he granted leave to amend because “the law regarding personal jurisdiction over the claims brought by the out-of-state plaintiffs is in flux.”The decision affects two classes of consumers designated in the case – one group representing consumers from California and one group representing out-of-state plaintiffs. California plaintiffs will have 21 days to amend their suit and clearly explain how Comcast tricked them over the additional fees.

He points to a separate Supreme Court case that will be decided in June that will set a precedent of whether out-of-state plaintiffs can sue an out-of-state company for injuries suffered in another state. If the Supreme Court decides with the out-of-state plaintiffs in that case, then Chhabria said that the out-of-state plaintiffs in the Comcast case will have 30 days to amend their suit after the decision.

Despite the dismissal, representatives of the class called the decision a positive one that may have rattled Comcast.

“Judge Chhabria’s order was very positive for plaintiffs; no claims were dismissed without leave to amend, and Judge Chhabria indicated that a repleaded complaint would survive a motion to dismiss. Comcast’s high-power attorneys left the courtroom in a huff, very clearly upset with the ruling,” said class counsel Dan Hattis.

President Trump has vowed to reduce income taxes and perhaps he will, but it's unlikely that every taxpayer will benefit equally. That's not surprising since the tax burden currently falls so unevenly on different types of taxpayers.

High-income consumers, for example, are taxed at a higher rate than lower-income workers, which makes perfect sense. What perhaps doesn't make as much sense is that childless single people are taxed at a much higher rate than married people.

You can argue that this is intended to encourage raising families and so forth, but critics say it amounts to a harsh tax on those who, for whatever reason, remain single and childless.

How bad is it? Pretty bad. According to the Organization for Economic Cooperation and Development (OECD), the United States' tax on singles, at 16.9%, is the eighth highest of the 35 OECD member countries. It's nearly three times the average 6% rate paid by an American family with one breadwinner and two children. 

What to do

So what's a single taxpayer to do? Yes, you could run out and get married, but there are other steps you can take that are not quite as drastic and will still reduce the tax bite while helping you build your net worth. Switching to a Roth 401(k) and making IRA contributions sooner rather than later will put you on the road to building a healthy nest egg while reducing the tax man's share.

Whether married or single, you should be sure to take advantage of every possible deduction. Since the singleton's tax rate is so much higher, the value of even mundane deductions is also multiplied, so don't overlook any of these:

Student loan interest. Everyone is currently complaining about student loan debt, but every penny you pay in interest can be deducted from your income taxes in most cases, so don't overlook it. And if at all possible, stay current on your loans, since penalties imposed for past-due payment may not be deductible.

Job-related expenses. The money you spend on job-related expenses is deductible in most cases. If your employer reimburses you for some or all, that amount will be reported to the IRS as income so it's essential you deduct all of the expenses to avoid paying taxes on the reimbursement and get the deduction for expenses that aren't reimbursed. 

Job-hunting expenses. If you're trying to find a better job, many of the expenses you incur may be deductible. Keep track of the money you spend traveling to interviews, sending out resumes, and paying fees to online sites and other venues. 

Job-related moves. If you live in Des Moines and you land a new job in Chicago, the moving-related costs will likely be deductible. Be sure to keep track of them. 

Reservist expenses. Are you in the military reserves? Many of the expenses you incur are deductible.

Health expenses. If you contribute to a health savings account or if you have unusually high medical bills that are not picked up by insurance, you may be looking at a healthy deduction.

How to do it

Taking advantage of all these deductions is fine, but doing it yourself can be tricky. The IRS forms are not exactly intuitive and it's easy to overlook a deduction or, worse yet, claim something you're not entitled to. So unless you're a tax nerd, you'll want to hire an accountant or use one of the many online tax prep services.

Many online services now provide answers to most basic questions and can help you find and claim the deductions to which you're entitled. You'll find a complete run-down, including consumer and expert reviews, in our Tax Software Buyers Guide. 

Tax season is upon us, and consumers across the country are getting ready to file their federal income tax return if they haven't aleady. Or, maybe they’re not.

The IRS released a statement yesterday saying that it’s holding onto $1 billion in refunds for an estimated 1 million people who haven’t filed a 2013 return. The agency warns that consumers have until Tuesday, April 18 to file a return for 2013 before that money goes to the U.S. Treasury.

"We’re trying to connect a million people with their share of $1 billion in unclaimed refunds for the 2013 tax year. People across the nation haven’t filed tax returns to claim these refunds, and their window of opportunity is closing soon. Students and many others may not realize they’re due a tax refund. Remember, there’s no penalty for filing a late return if you’re due a refund,” said IRS Commissioner John Koskinen.

Low-income workers hurt most by not filing

Many consumers may be under the misconception that tax returns need to be filed right away, but the law actually allows for a three-year window in which refunds are still claimable. That deadline is quickly coming to a close, though – so consumers will need to act quickly.

Consumers who want to receive a refund will have to properly address mail and postmark their 2013 tax return by April 18, 2017 in order to receive any money. However, the IRS states that checks may be withheld if tax returns have not been filed for the 2014 and 2015 tax years.

Low- and moderate-income workers may be hit hardest by not filing a tax return, the IRS states, because they may also be eligible for the Earned Income Tax Credit (EITC) for 2013. The EITC provides aid for families who earn below a certain income threshold, and it was worth $6,044 for the 2013 tax year. The income thresholds are:

• $46,227 ($51,567 if married filing jointly) for those with three or more qualifying children;
• $43,038 ($48,378 if married filing jointly) for people with two qualifying children;
• $37,870 ($43,210 if married filing jointly) for those with one qualifying child, and;
• $14,340 ($19,680 if married filing jointly) for people without qualifying children.

Refunds by state

Estimates indicate that the median potential refund for the 2013 tax year is $763, with half of returns being higher than that number and half being lower. However, the IRS says that there is a large disparity in the number of returns owed to consumers in each state.

The states with the most individuals owed a refund include Tennessee (104,700), California (97,200), and Florida (66,900). The total potential refunds in these states, excluding the EITC and other credits, stand at $115,580,000, $93,406,000, and $67,758,000, respectively.

The full list of states with their potential refunds can be found here.

What to do

Instructions for filling out current and prior year tax forms, such as the 1040, 1040A, and 1040EZ, can be found here. Consumers can also call toll-free at 800-829-3676. Consumers who are missing forms like their W-2, 1098, 1099, or 5498, should contact their employer, bank, or other payer to request them.

If you’re unable to get these missing forms, go to IRS.gov and use the “Get Transcript Online” tool to receive a Wage and Income transcript. It will provide data and information that can be used to file your tax return.

For more information, visit the IRS site here.

The federal income deadline is closing in fast, but you still have time to make a contribution to your tax-deferred retirement account and have it count on your 2016 return.

This year, there's an added bonus many taxpayers can receive. It's called the Retirement Savings Contributions Credit.

Notice that it's a tax credit, not a simple deduction. A deduction is subtracted from your gross income. A credit is subtracted from the tax that you owe. Huge difference.

"Eligible taxpayers may be able to reduce their federal income tax by claiming the Saver's Credit, making it an important incentive to save for retirement in a 401(k), 403(b), IRA, or new myRA," said Catherine Collinson, president of the Transamerica Center for Retirement Studies. "Unfortunately, millions of Americans may be missing out on the Saver's Credit simply because they don't know that it exists."

In fact, a survey by the Transamerica Center found only a third of U.S. taxpayers are aware of the tax credit. Here's how it works:

How it works

The tax credit is applied to the first $2,000 of voluntary contributions an eligible worker makes to any eligible retirement funds, which can include a 401(k) at work or a simple IRA or even the new myRA.

A single taxpayer can get a maximum tax credit of $1,000 while it's $2,000 for married couples.

"The Saver's Credit is a tax credit above and beyond the advantage of tax-deferred savings," said Collinson. "Because this double benefit sounds too good to be true, many eligible savers may be actually confusing the two incentives."

Income eligibility

Only taxpayers whose Adjusted Gross Income (AGI) is below a certain level will qualify. For singles, the AGI ceiling is $30,750. It's $61,500 for those married and filing jointly.

You also have to file with the correct form. You can't use Form 1040EZ, also called "the short form." It has to be Form 1040, Form 1040A, or Form 1040NR. With that form you also need to fill out Form 8880.

You can figure out exactly how much of a credit you might receive by filling out Form 8880. You can download it here.

Taxpayers eager to get their refunds can take steps now to prepare their returns. The Internal Revenue Service (IRS) says it will begin accepting 2016 tax returns Jan. 23.

For yet another year, the tax filing deadline has been extended to Tuesday, April 18 because of the Emancipation Day holiday in Washington, D.C.

"There are a number of important changes this year involving refunds and tax law changes that we encourage people to keep in mind," said IRS Commissioner John Koskinen. “We encourage taxpayers to plan ahead and take a few minutes to review these changes.”

If you are e-filing your return, one of the things you can do in advance is to submit the return to your software provider. It will hold the return until the IRS is ready to receive it. To speed the process, the IRS says taxpayers should not wait until Jan. 23 to contact their tax preparer.

70% of taxpayers expecting a refund

Last year the tax agency sent out 111 million individual tax refunds. This year it said it expects more than 70% of taxpayers to get a refund. If you are claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC), remember that the IRS will hold refunds until Feb. 15.

"We encourage taxpayers to file as they normally would, including returns claiming the EITC or ACTC” Koskinen said. “The IRS and the nation's tax community are committed to making this another smooth filing season."

Electronic filing is becoming the preferred system, with 80% of this years returns expected to be filed that way. Taxpayers who are doing their own taxes are urged to plan ahead and take advantage of the online resources found at IRS.gov.

E-file and direct deposit

The IRS says the combination of e-file and direct deposit for refunds is the fastest and safest way to get your money back. Using that combination, the agency says, nine out of 10 refunds should find their way to taxpayers in less than three weeks after filing.

The Free File program, available at the IRS website, opens Friday, Jan. 13. About 100 million individuals and families with incomes of less than $64,000 may use commercial tax-filing software at no charge.

Meanwhile, all taxpayers will have free access to online fillable forms on the IRS website.

While the deadline for filing your 2016 federal income return is still several months off, there are some things you should be doing now in preparation.

The Internal Revenue Service (IRS) notes that for most of us, December 31 is the last day to take actions that will affect our tax returns.

What to do

• Charitable contributions are deductible in the year made. Donations charged to a credit card before the end of 2016 count for the 2016 tax year, even if the bill isn’t paid until 2017. Checks to a charity count for 2016 as long as they are mailed by the last day of the year.
• If you're over age 70 ½ you are generally required to receive payments from your IRAs and workplace retirement plans by the end of the year. However, a special rule allows those who reached 70 ½ in 2016 to wait until April 1, 2017 to receive them.
• Most workplace retirement account contributions should be made by the end of the year, but taxpayers can make 2016 IRA contributions until April 18, 2017. For 2016, the limit for a 401(k) is $18,000. For traditional and Roth IRAs, the limit is $6,500 if age 50 or older and up to $15,500 for a Simple IRA for age 50 or older.
• Taxpayers who have moved should tell the U.S. Postal Service, their employers, and the IRS. To notify the IRS, mail IRS Form 8822, Change of Address, to the address listed on the form’s instructions. Taxpayers who buy health insurance through the Health Insurance Marketplace should also notify the Marketplace when they move out of the area covered by their current Marketplace plan.
• If you changed your name due to marriage or divorce, notify the Social Security Administration (SSA) so the new name will match IRS and SSA records. Also notify the SSA if a dependent’s name changed. A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.
• Starting January 1, 2017, any Individual Taxpayer Identification Number (ITIN) not used at least once on a tax return in the past three years will no longer be valid for use on a return. In addition, an ITIN with middle digits 78 or 79 will also expire on Jan. 1. Those with expiring ITINs who need to file a return in 2017 must renew their ITIN. Affected ITIN holders can avoid delays by starting the renewal process now.
• Be sure to allow seven weeks from January 1, 2017, or the mailing date of the Form W-7, whichever is later, for the IRS to notify you of your ITIN application status -- nine to 11 weeks if you wait to submit Form W-7 during the peak filing season, or send it from overseas. Those who fail to renew before filing a return could face a delayed refund and may be ineligible for some important tax credits. For more information, including answers to frequently-asked questions, visit the ITIN information page on IRS.gov.
• Keeping copies of tax returns is important as the IRS makes changes to protect taxpayers and authenticate their identity. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income amount from a prior tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign their tax return at Validating Your Electronically Filed Tax Return.

A class action lawsuit has been filed in New Jersey against Costco, who allegedly tacked a 7% sales tax on toilet paper it sold, according to a NJ.com report. The suit holds water in the state because sales of disposable household paper – such as toilet paper and paper towels – are exempt from sales tax in New Jersey.

Complainant Robert Arnold said that he and his wife bought toilet paper from two separate Costco wholesalers on two occasions in July, 2015. He stated that each time he was unknowingly charged sales tax on the items; he later discovered the charge after going over his receipts. When he went back to the wholesalers to dispute the charges, employees allegedly told him that they couldn’t reimburse the money and that he would have to file paperwork with Costco’s corporate offices.

The notion didn’t sit well with Arnold, who asked employees why he should take time out of his day to file paperwork when he shouldn’t have been charged in the first place. Instead, he filed suit in order to recoup his losses.

The suit accuses Costco of unjust enrichment, fraud, and negligence, as well as violations of the New Jersey Consumer Protection Act, the Truth-In-Consumer Contract Warranty and Notice Act, and New Jersey Common law. It seeks to reimburse plaintiffs joining in the suit who were also forced to pay a similar sales tax, as well as punitive damages.

“Hundreds of thousands of New Jersey residents have paid a 7% surcharge in the guise of a sales tax when purchasing toilet tissue,” the complaint alleges.

When asked about the suit, a corporate spokesperson stated that Costco could not provide a comment at this time.

Many years ago, my accountant looked at me sadly as he finished my tax return. "You are really getting hit this year," he said. "You need some dependents. My daughter is a lovely girl with three beautiful children. That's four deductions right there."

"What are you suggesting?" I asked. "I've never even met your daughter."

"You don't have to," he said. "It would just be for tax purposes."

He wound up in prison and all of his former clients, including me, were ruthlessly audited by the IRS. Another accountant once tried to rent me his house in the Bahamas and said I could write off the travel and rent as a business deduction, claiming I had attended a professional conference. 

The world is, of course, full of con men, scam artists, and chiselers of all stripes, never more so than at this time of year when the iron boot of the state falls upon us all, demanding its fair share of our income for the year.

While you are no doubt honest and forthright, not all tax preparers are and some, like my former CPAs, may make suggestions that sound attractive but in reality are paths that can lead straight to the federal penitentiary. It's your name on the tax return and if you let your preparer pull any funny business, you may be held equally responsible.

2.1 million

The IRS and the Justice Department are onto just about any clever little tax dodge you can think of and the chances of getting caught are actually pretty high. Of the 150 million returns filed in 2014, the IRS identified more than 2.1 million as claiming fraudulent refunds totaling more than $15.7 billion. In 2015, 35 fraudulent tax preparers were shut down and many were prosecuted on criminal charges. 

“Every year, thousands of federal income tax returns are prepared by people who care much more about making a quick buck than about preparing accurate returns,” said Acting Assistant U.S. Attorney General Caroline D. Ciraolo.  “Most tax return preparers are honest.  But some preparers who charge clients a percentage of their tax refund intentionally prepare false returns to increase their clients’ refund, and thus their own fees."

Ciraolo said also that some preparers who charge by the form will intentionally prepare incorrect forms that their clients don’t need in order to increase their compensation. 

"Taxpayers might think that they’re getting a good deal on their taxes, or that as long as someone else prepares the return, they’re not responsible.  They’re wrong.  Taxpayers who have their return prepared incorrectly are required to pay the tax they owe, or pay back the refund they weren’t entitled to get.  These clients might also owe interest and penalties, which can be substantial," she said.

Red flags

Ciraolo lists some red flags you can watch for when choosing a tax preparer:

Your refund should never be deposited directly into a preparer’s bank account. To be sure your payment goes where it is supposed to go, it must be made directly to the IRS and your state tax collector. 

Never sign a blank return or a blank form, or sign a return or a form without reading it first. By law, a return preparer must provide a client with a completed copy of the return no later than the time the customer is asked to sign the return. Failing to review it carefully can land you in hot water.

Don’t use a preparer who mischaracterizes your expenses. Remember that trip to the Bahamas? The IRS nabbed a preparer who pulled a similar stunt, deducting purchases at Tiffany & Co., Louis Vuitton, and Royal Caribbean Cruise Lines as “medical expenses.” 

Don't set up phony businesses. One of the most common dishonest return-preparation practices is to prepare returns that include non-existent businesses, sometimes based on a client’s hobbies. Collecting trout lures is fine but don't call it a business if it isn't. 

Some other fraudulent schemes and practices that have been stopped by federal courts include:

• Fabricating fake Form W-2 (Wage and Tax Statement) information;
• Claiming bogus education and first-time homebuyer credits;
• Claiming phony child and dependent care credits or residential energy credits;
• Claiming fraudulent fuel tax credits;
• Falsely exempting foreign earned income;
• Inflating unreimbursed employee business expense deductions; and
• Fraudulently inflating or decreasing a client’s income or deductions to maximize the Earned Income Tax Credit.

The IRS advises taxpayers who ask a tax professional to prepare their return to be careful in the professional they select. The IRS offers some basic tips and guidelines and even a number of instructional YouTube videos. They're worth checking out.

No less a public figure than Donald Trump freely admits to doing everything legal to minimize his annual tax payment. There's nothing wrong with that but the key word is "legal." When presented with an option that sounds too good to be true, chances are it is. 

Because the traditional tax deadline of April 15 is a holiday this year, the deadline for filing your 2015 federal income tax return has been extended to April 18.

That's all well and good to have an extra weekend, but you shouldn't procrastinate any longer. Waiting until the last minute to fill out your return could lead to more mistakes and missed deductions. It also gives scammers more time to steal your identity and your return.

The Internal Revenue Service (IRS) reminds taxpayers that it can help with last minute assistance, even though its budget for customer support has been slashed in recent years. It says there are a number of interactive tools at IRS.gov that can help.

Interactive Tax Assistant

Among them is Interactive Tax Assistant, which the IRS says can answer most taxpayer questions and point taxpayers in the right direction for help. Tax preparation software has taken a lot of the guesswork out of filing, as well as reducing the number of errors.

If you earned $62,000 or less in 2015 you can use the IRS Free File program, choosing from one of the 13 commercial tax-prepartion software packages that participate. You just have to answer a few general questions and the software does the calculations. It's the same software others pay to use.

Self-employed taxpayers have a bit more at stake, since there are many business deductions available that, if not claimed, can leave money on the table. Dara Luber, Senior Manager of Retirement at TD Ameritrade, emailed us a list of five business deductions she says are often overlooked.

Overlooked deductions

• Retirement plan expenses: Individual/Solo 401k, SEP IPA, SIMPLE IRA, and profit-sharing plans may provide tax benefits.
• Travel expenses: Mileage, hotel, meals, and baggage fees can all be deducted for associated business travel.
• Medical insurance: A small business owner can write off medical insurance costs.
• Home office expenses: It must be space solely dedicated to business, but you can deduct a portion of your utilities and mortgage.
• Subscriptions, supplies, or membership expenses: Expenses associated with a professional organization, a trade publication aimed at helping you grow your business, can be deducted.

Meanwhile, if you've already filed your return and are wondering when you will get your refund, the IRS has a tool for that. Where's My Refund tracks the progress of your payment, much like you would track the progress of a package you're having shipped.

Crooks have been using stolen Social Security numbers to try to get information that could be used to steal tax refunds, the Internal Revenue Service said.

Most of the automated attacks were aimed at generating E-file PINs, the IRS said. The PINs would then be used to generate phony returns or to waylay refunds.

The Social Security numbers were used in abot 464,000 automated attacks, of which about 101,000 successfully generated a PIN, the IRS said.

The agency, which is no stranger to hacking, said that no personal taxpayer information was disclosed in this incident and said that affected taxpayers would be notified by mail.

You may have mail

Consumers should note that the official notification will come via the U.S. Postal Service. Scam artists will soon be out in force, sending emails and calling taxpayers claiming to be the IRS. 

Last May, the IRS admitted that hackers had stolen the personal data of as many as 334,000 taxpayers after initially saying only 100,000 had been affected.

Senate Finance Committee Chairman Orrin Hatch (R-Utah) says he will question IRS Commissioner John Koskinen about the attack at a hearing today, the Wall Street Journal reported.

“While it appears that the IRS was able to successfully block this attempted breach this time around, it’s past time we fundamentally rethink our approach in authenticating taxpayers and processing tax returns,” Mr. Hatch said, according to the Journal.

When you're ready to fill your federal income tax return for 2015, you have plenty of options – some of them you pay for, but some are free.

The Internal Revenue Service (IRS) encourages electronic filing and offers several resources to help.

You may be eligible for free help preparing your tax return from Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs listed here.

Volunteer assistance available

The VITA program offers free tax help to people who meet income requirements – generally $54,000 or less, persons with disabilities, the elderly, and limited English speaking taxpayers who need assistance in preparing their own tax returns. The volunteers are certified by the IRS and provide free basic income tax return preparation with electronic filing.

The TCE program provides free tax help for all taxpayers, focusing on those who are 60 years of age and older. It specializes in dealing with questions about pensions and retirement-related issues unique to seniors. The volunteers are IRS-certified and are often retired people associated with non-profit organizations that receive grants from the IRS.

The IRS also provides help for low-income taxpayers who have tax issues with the agency and can't afford representation. This program is called the Low Income Taxpayer Clinic (LITC) and you can find details about it here.

Hiring a tax professional

If you are hiring a tax professional to help you with your return, the IRS reminds you that people offering these services have different levels of skills, education, and expertise. Something else to remember – not all tax professionals have the standing to represent taxpayers before the IRS, like in the event of an audit. Check out credentials, qualifications, and services before selecting someone to do your taxes.

The IRS provides a searchable feature on its website to help you find a tax professional in your area.

If you are preparing your own return and earned less than $62,000, the IRS offers Free File software. If you make above $62,000, you can use Free File fillable forms. The forms will do the math for you, but the IRS says you need to pretty much know how to fill out a tax form, since the program provides only basic assistance.

However you plan to do your taxes, the IRS says filing electronically and having your refund direct-deposited will make the process go much faster than filing a paper form and requesting a check.

The refund check is no longer in the mail -- it’s already in the bank. That's the way it is for some 57 million taxpayers so far this year.

According to the Internal Revenue Service (IRS), more than $170 billion in income tax refunds have bee, deposited directly into taxpayers' bank accounts as a growing number of people choose speed and convenience over receiving a paper check. So far this year, almost 85% of all refunds have been directly deposited.

And it doesn't matter if you e-file or snail-mail a paper tax return. If you choose the latter, just make sure you include your account information.

Take your pick

Direct deposit is not limited to banks. Mutual funds, brokerage firms and credit unions are all eligible to receive direct deposits. Before making this choice, however, taxpayers should make sure the financial institution accepts direct deposits for the type of account chosen.

Taxpayers also have ability to split refund deposits among two or three different accounts or financial institutions. For instance, a refund could be split among a savings account, a checking account and an Individual Retirement Arrangement (IRA). Refunds may be split when a taxpayer e-files or by filing Form 8888, Direct Deposit of Refund to More Than One Account.

A refund should be deposited directly only into accounts that are in the taxpayer's own name, the taxpayer's spouse's name or both if it's a joint account.

Those who choose direct deposit get their refunds at least a week sooner, and direct deposit eliminates the chance of a lost, stolen or undeliverable refund.

The tax season to date

Here are the latest 2014 filing season statistics:

The Internal Revenue Service (IRS) has its hands full this year. The recent report by the Taxpayer Advocate Service shows the tax collection agency has increasing responsibilities to meet with fewer resources.

The report expressed concern that taxpayers who call the IRS for help, or walk in to IRS offices, are faced with long wait times.

“The requirement to pay taxes is generally the most significant burden a government imposes on its citizens,” the report said. “The National Taxpayer Advocate believes the government has a practical and moral obligation to make compliance as simple and painless as possible.”

Money is part of the problem. Added responsibilities is another. Because government subsidies under the Affordable Care Act are awarded in the form of tax credits, the IRS is deeply involved in the implementation of this very complex law.

Taxpayer identity theft

What hasn't gotten as much attention, however, is the amount of time and effort the tax agency has to devote to dealing with fraud – in particular, identity theft. Last month, when the IRS issued its “Dirty Dozen” tax scams for 2014, identity theft was at the top of the list.

While identity theft is nothing new, criminals are increasingly targeting the IRS because it is so easy. All they have to do is steal someone's name and Social Security number. They file a bogus tax return, showing a large refund. By the time the real taxpayer gets around to filing, the IRS has already sent out a check to the impostor.

Explosive growth

In Fiscal Year 2010 the IRS reported just 147 identity theft prosecutions. By Fiscal Year 2012 the number had grown to 544. In the first half of Fiscal Year 2013 there were 441.

The IRS says its work on identity theft and related refund fraud now touches nearly every part of the agency. To combat the problem the IRS has had to devote more of its resources to identity potential fraud and try to stop it before it occurs.

In some cases this may slow down your direct deposit refund. Banks have also been enlisted to help prevent fraudulent refunds from being sent out. Stephanie, of Queens, N.Y., encountered a delay when she tried to have her tax refund direct deposited to her RushCard.

“I got a message from RushCard asking for my 1040 form and without the form they cannot release my tax refund that is due to me,” she wrote in a ConsumerAffairs post.

Slowing refunds

Banks are sometimes freezing refunds like Stephanie's if the return is even suspected of being bogus. Since pre-paid cards are a favorite tool of tax identity thieves, the verification burden can be even greater. It results in placing a burden on the taxpayer, who understandably wants to get their hands on their refund as soon as possible.

Things are worse, of course, for taxpayers who actually have had their identity stolen. The IRS has had to devote resources to trying to help these people, as well as trying to prevent future identity theft.

All of this not only slows the bureaucracy but costs money. As Taxpayer Advocate Nina Olson noted in her January report, last year's sequestration substantially cut the IRS’s funding. Calling IRS funding “inadequate,” she says cuts designed to reduce the budget deficit can have the opposite effect when applied to the revenue collection agency.

If you used TurboTax Online over the last five years and had fees deducted from your tax refund, you may be eligible to share in a $6.55 million class action settlement approved by a federal judge this week.

The case began when Tasha and Fredierick Smith, of Arkansas, complained about the fees charged by Intuit, which publishes TurboTax. The Smiths said they used TurboTax in 2009, 2010 and 2011.

Each time they deferred paying the $86.90 fee for using TurboTax, opting to have it deducted from their tax refund. Intuit did so but added a $29.95 "refund processing option" charge, more than 34 percent of the original fee. The couple got their refund in two weeks.

"Plaintiffs paid $29.95 for an approximate 14-day loan of $86.90," their complaint stated. "The APR, properly calculated in accordance with TILA [the Truth in Lending Act], was an exorbitant quadruple-digit interest rate. Such interest rates also violated California's usury laws."

The couple argued that Intuit's fee should be considered a refund anticipation loan and therefore subject to interest rate and finance charge disclosure rules.

U.S. District Judge Edward Davila initially disagreed and dismissed the action, writing that the RPO did not qualify as a loan because customers never received any money from Intuit. But after allowing the Smiths to amend their complaint twice, Davila ordered the parties into mediation.

Earlier this year, both sides announced they had reached a preliminary $6.55 million agreement. Davila signed off on the settlement Tuesday, Courthouse News Service reported.

What to do

To find out if you qualify for a payment under the settlement, see the official settlement administrator site. The site outlines your rights and options. There is no fee for those covered by the settlement. Be sure to use the official claim form on the site. Do not give personal information to anyone who calls or emails you.  

Popular conception of a trust fund beneficiary is the heir to a fortune. Plenty of them do, in fact, have trust funds but you don't have to be rich to set one up.

The main reason to establish a trust is to ensure assets are transferred to someone else in keeping with your wishes. While a will can do the same thing, a trust can actually do the transfer while you are still living, if the conditions you set out are met.

Even if you aren't rich, if you are contemplating a trust fund you most likely have been able to save some money or produce some significant assets. You may want to set up a trust because the beneficiary isn't quite as financially savvy as you are. You may have made the judgment that it would be a mistake to give them a large sum of money all at once.

People also set up trusts for tax reasons. In some cases, the assets in the trust can grow but the growth does not result in higher taxes for you.

Revocable and irrevocable

There are revocable trusts and irrevocable trusts. With a revocable trust, you can change the terms once it has been established. With an irrevocable trust, once it's set up you can't change it. The assets in the trust fall outside your control.

Why would you agree to that? You might because the assets that are in an irrevocable trust are no longer part of your estate. That might be important when you die and your estate is over the now-lower limit for the death tax.

Assets you place in a revocable trust still belong to you and, as such, are part of your estate. If their value nudges you over the limit of a tax-free estate, your heirs will owe death taxes.

But if your estate is well under the limit, you don't have that concern an a revocable trust might be a good option.

Estate tax uncertainty

Attorney John O. McManus, founding principal at McManus & Associates, says there was a rush to create trusts before the end of 2012 because of uncertainly over tax laws. It turned out changes were mostly minor, but McManus says people considering a trust shouldn't delay.

"Less than six months ago, many of our clients put assets into trust and have enjoyed appreciation in the trust assets of 20 percent in cases where they chose the most aggressive portion of their personal portfolio to deposit into trust,” he said. “Now those who funded the trust with $5 million have $6 million, an additional $1 million free of state and federal estate tax."

Naturally, there are costs associated with setting up any kind of trust. The legal assistance required to properly do it is specialized and tends to be expensive. Before heading down that road, it might be wise to first have a conversation with your accountant about whether its needed or not.

Trustees and beneficiaries

As the name implies, a trust is administered by a trustee. A trustee may be an individual or a company. It controls the assets and has a fiduciary responsibility to the beneficiary.

The beneficiary, the person or entity that will eventually receive the assets, may be entitled to income from the trust for a period of time before they receive all the trust's assets.

If estate taxes are not a concern, a revocable trust gives the grantor the most flexibility. With a revocable trust, you can even cancel the entire arrangement if circumstances change. If you aren't among the super rich but think you could benefit from a trust, this could be the way to go.

If you converted amounts to a Roth IRA or designated Roth account in 2010, the Internal Revenue Service (IRS) reminds you that -- in most cases -- you must report half of the resulting taxable income on your 2012 return.

Normally, Roth conversions are taxable in the year the conversion occurs. For example, the taxable amount from a 2012 conversion must be included in full on a 2012 return. But under a special rule that applied only to 2010 conversions, taxpayers generally include half the taxable amount in their income for 2011 and half for 2012, unless they chose to include all of it in income on their 2010 return.

Roth conversions in 2010 from traditional IRAs are shown on 2012 Form 1040, Line 15b, or Form 1040A, Line 11b. Conversions from workplace retirement plans, including in-plan rollovers to designated Roth accounts, are reported on Form 1040, Line 16b, or Form 1040A, Line 12b.

Reporting distributions

Taxpayers who also received Roth distributions in either 2010 or 2011 may be able to report a smaller taxable amount for 2012. For details, see the discussion under 2012 Reporting of 2010 Roth Rollovers and Conversions. In addition, worksheets and examples can be found in Publication 590 for Roth IRA conversions and Publication 575 for conversions to designated Roth accounts.

Taxpayers who made Roth conversions in 2012 or are planning to do so in 2013 or later years must file Form 8606 to report the conversion.

As in 2010 and 2011, income limits no longer apply to Roth IRA conversions.

In its first action against a tax relief company, the Federal Trade Commission has won a settlement order that requires American Tax Relief and its founders to pay $15 million and to get out of the business of selling tax relief services.

Alexander Seung Hahn and his wife, Joo Hyun Park, and their company were charged in 2010 with bilking consumers out of more than $100 million by falsely claiming they could reduce their tax debts.

"I am very angry," said Bettie of Vanceboro, N.C., who wrote to ConsumerAffairs about her experience with the company. "They got $4,800.00 of my money and then would not answer the phone. I just settled with the IRS myself."

"They stole my $6000 and won't return it," said Rick of Fox Point, Wis. 

It was even worse for Abdul of Rio Rancho, N.M.: "I contacted American Tax Relief in 2004. I had $4,500.00 pulled out of my bank account in less than one hour. Within 24 hours they needed $4,500.00 more to send out the complete contract. Within 72 hours they had taken another $4,500.00 from my account without my knowledge and never heard from them again."

Assets frozen

A court subsequently halted the allegedly illegal practices, froze the defendants’ assets, and appointed a receiver to manage the company pending resolution of the case.

In August 2012, the court entered partial summary judgment in favor of the FTC, finding that the defendants falsely claimed they already had significantly reduced the tax debts of thousands of people and falsely told individual consumers they qualified for tax relief programs that would significantly reduce their tax debts.  The court found Hahn personally liable for the challenged practices.

For those of you sitting around worrying -- you can now file your 2012 federal income tax return

The Internal Revenue Service (IRS) has opened the 2013 filing season with the announcement of a variety of enhanced products and services to help taxpayers prepare and file their tax returns by the April 15 deadline.

New and expanded services for taxpayers this year include a redesigned IRS Website that’s easier to navigate and improved service options, including more video-conferencing assistance sites and additional social media tools. In addition, the IRS has stepped up its enforcement efforts to protect taxpayers from refund fraud and identity theft.

Send them in

The IRS is accepting and processing most individual tax returns after updating forms and completing programming and testing of its processing systems to reflect the American Taxpayer Relief Act (ATRA) that Congress enacted on Jan. 2. The vast majority of taxpayers can file now, but the agency is continuing to update its systems for some tax filers.

The IRS will begin accepting tax returns from people claiming education credits in mid-February while taxpayers claiming depreciation deductions, energy credits and many business credits will be able to file in late February or early March. A full list of the affected forms is available here.

This year, taxpayers have until Monday, April 15, to file their 2012 tax returns and pay any tax due. The IRS expects to receive more than 147 million individual tax returns this year, with about 75 percent projected to receive a refund.

Last year for the first time, 80 percent of all individual returns were filed electronically. E-file, when combined with direct deposit, is the fastest way to get a refund. Last year, about three out of four refund filers selected direct deposit.

Assistance options, virtual service availability

The best way for taxpayers to get answers to their questions is by visiting IRS.gov. Last year, the Website received a record 340 million visits, a 17 percent increase over 2011.

This year, the redesigned Website makes it easier than ever for taxpayers to get to key forms and vital information. The front page also has links to redesigned pages to help with everything from refunds to specific tax issues as well as easy access to taxpayer-friendly videos on the IRS YouTube channel.

Taxpayers can access Free File, which provides options for free brand-name tax software or online Fillable Forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $57,000 or less can choose from about 15 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms.

People making $51,000 or less usually qualify for the Volunteer Income Tax Assistance program for free tax preparation and electronic filing. Tax Counseling for the Elderly, a similar community-based volunteer program, offers free tax help with priority assistance to people age 60 and older, specializing in questions about pensions and retirement issues. Information on these programs can be found at IRS.gov.

This year, the IRS is doubling the number of sites where taxpayers can get assistance through two-way video conferencing. During 2012, the program’s first year, about 14,000 taxpayers received assistance at 13 locations. Following a strong response to the virtual assistance program, the IRS plans to roll out 14 new sites. A list of the 27 available locations can be found here.

For tax law questions or account inquiries, taxpayers can also call the IRS toll-free number 800-829-1040 (7 a.m. to 7 p.m. local time) or visit a taxpayer assistance center http://www.irs.gov/uac/Contact-Your-Local-IRS-Office-1 . Taxpayers should check IRS.gov for the hours and services offered at the location they intend to visit.

Apps and social media

For the third year, the IRS will offer IRS2Go, its smartphone application, which enables taxpayers to check on the status of their tax refund and obtain helpful tax information. The IRS2Go app, available for Apple and Android users, has been downloaded more than 800,000 times and used by taxpayers millions of times.

More helpful information is available through IRS social media platforms, including:

• YouTube, where viewers can watch more than 100 short, informative videos. They are available in English, Spanish, American Sign Language and other languages.
• The IRS also has several twitter feeds available for taxpayers in English and Spanish at @IRSnews or @IRSenEspanol. And @IRStaxpros covers news for tax professionals.
• For the 2013 filing season, the IRS has added Tumblr to its list of social media platforms. People who want tax information now have another way of accessing and sharing helpful tax tips, videos, podcasts and other information.

The IRS only uses social media tools to share public information, not to answer personal tax or account questions. And the IRS reminds taxpayers to never post confidential information, such as a Social Security Number, on social media sites.

Check for a refund

Even with the late opening of the tax season, the IRS expects to issue refunds within the usual timeframes. Last year, the IRS issued more than nine out of 10 refunds to taxpayers in less than 21 days, and it expects the same results in 2013.

After taxpayers file a return, they can track the status of the refund with the “Where’s My Refund?” tool available here. New this year, instead of an estimated date, “Where’s My Refund?” will give people an actual personalized refund date after the IRS processes the tax return and approves the refund.

Here are some tips for using "Where's My Refund?":

• Initial information will generally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after mailing a paper return.
• The system updates every 24 hours, usually overnight. There’s no need to check more than once a day.
• “Where’s My Refund?” provides the most accurate and complete information that the IRS has about the refund, so there is no need to call the IRS unless the web tool says to do so.
• To use the “Where’s My Refund?” tool, taxpayers need to have a copy of their tax return for reference. Taxpayers will need their Social Security Number, filing status and the exact dollar amount of the refund they are expecting.

Taxpayers should remember that while most tax refunds are issued within 21 days, some tax returns need additional time to be reviewed. As part of that effort, the IRS has put in place stronger security filters this filing season to protect against refund fraud and identity theft.

If you have a home-based business or work from home, this will likely make you sit up and take notice.

The Internal Revenue Service is implementing a simplified option that you may be able to use to figure the deduction for the business use of your home.

In tax year 2010 -- the most recent year for which figures are available -- nearly 3.4 million taxpayers claimed deductions for business use of a home, commonly referred to as the home office deduction.

The new optional deduction, capped at $1,500 per year based on $5 a square foot for up to 300 square feet, will reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

"This is a common-sense rule to provide taxpayers an easier way to calculate and claim the home office deduction," said Acting IRS Commissioner Steven T. Miller. "The IRS continues to look for similar ways to combat complexity and encourages people to look at this option as they consider tax planning in 2013."

An easier path

The new option gives eligible taxpayers an easier path to claiming the home office deduction. Currently, they are generally required to fill out a 43-line form (Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.

Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method.

Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.

Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the new option.

Kicks in with next year's filing

The new simplified option is available starting with the 2013 return most taxpayers file early in 2014. Further details on the new option can be found in Revenue Procedure 2013-13, which is effective for taxable years beginning on or after January 1, 2013. The IRS welcomes public comment on this new option to improve it for tax year 2014 and later years. There are three ways to submit comments.

• E-mail to: Notice.Comments@irscounsel.treas.gov. Include “Rev. Proc. 2013-13” in the subject line.
• Mail to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
• Hand deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8 a.m. and 4 p.m., Monday through Friday.

The deadline for comment is April 15, 2013.

The Internal Revenue Service has made a number of changes for tax year 2013 -- including the tax rate schedules – as a result of the recently-passed American Taxpayer Relief Act (ATRA) of 2012.

The tax items for 2013 of greatest interest to most taxpayers include the following changes:

• Beginning in tax year 2013 (generally for tax returns you will file a year from now), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates -- 10, 15, 25, 28, 33 and 35 percent -- remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.
• The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.
• The ATRA of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
• The personal exemption rises to $3,900, up $100 from the 2012 exemption. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the ATRA of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have three (3) or more qualifying children; the total is $5,891 for tax year 2012.
• Estates of those who die during 2013 have a basic exclusion amount of $5,250,000, up $150,000 from the 2012 amount.
• For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up $5 from tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).

The complexity of the tax code was named the “most serious” problem facing taxpayers in the 2012 annual report to Congress by National Taxpayer Advocate Nina E. Olson. And she's recommending that lawmakers take significant steps to simplify it.

In her report, Olson also found that the Internal Revenue Service (IRS) is not doing enough to assist victims of tax-related identity theft and return preparer fraud. She also expressed concern that the IRS is not adequately funded to serve taxpayers and collect tax, and identified ways in which this chronic underfunding harms taxpayers. She also found that the IRS is not doing enough to assist victims of tax-related identity theft and return preparer fraud.

Crushing burden

“The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns,” Olson wrote. “It obscures comprehension, leaving many taxpayers unaware how their taxes are computed and what rate of tax they pay; it facilitates tax avoidance by enabling sophisticated taxpayers to reduce their tax liabilities and provides criminals with opportunities to commit tax fraud; and it undermines trust in the system by creating an impression that many taxpayers are not compliant, thereby reducing the incentives that honest taxpayers feel to comply.”

The report states that the tax code imposes a “significant, even unconscionable, burden on taxpayers.” Since 2001, Congress has made nearly 5,000 changes to the tax code, an average of more than one a day, and the number of words in the code appears to have reached nearly four million.

An analysis of IRS data by the Taxpayer Advocate Service (TAS) shows that individuals and businesses spend about 6.1 billion hours a year complying with tax-filing requirements. “If tax compliance were an industry, it would be one of the largest in the United States,” the report says. “To consume 6.1 billion hours, the ‘tax industry’ requires the equivalent of more than three million full-time workers.”

Individual taxpayers find return preparation so overwhelming that few do it on their own. Nearly 60 percent of taxpayers hire paid preparers, and another 30 percent rely on commercial software, with leading software packages costing $50 or more. In other words, taxpayers must spend money just to figure out how much money they owe.

Simplification urged

To reduce taxpayer burden and enhance public confidence in the integrity of the tax system, the report urges Congress to greatly simplify the tax code. In general, this means Congress should reassess the need for existing income exclusions, exemptions, deductions and credits (generally known as “tax expenditures”).

For fiscal year (FY) 2013, the Joint Committee on Taxation has projected that tax expenditures will come to about $1.09 trillion, while individual income tax revenue is projected to be about $1.36 trillion. To put these numbers in perspective, if Congress were to eliminate all tax expenditures, straight math indicates it could cut individual income tax rates by 44 percent and still generate the same amount of revenue it collects under current rules.

Tax-related identity theft

The number of tax-related identity theft incidents has increased substantially in recent years. Within TAS, identity theft case receipts increased by more than 650 percent from FY 2008 to FY 2012. At the end of FY 2012, the IRS had almost 650,000 identity-theft cases in its inventory service-wide. The problem has grown worse as organized criminal actors have found ways to steal the Social Security numbers (SSNs) of taxpayers, file tax returns using those taxpayers’ names and SSNs, and obtain fraudulent tax refunds.

Then, when the real taxpayer files a return claiming the refund, that return is rejected. The impact on victims is significant. More than 75 percent of taxpayers filing returns are due refunds, which average some $3,000 and are not paid until the IRS fully resolves a case.

The report says the IRS has created numerous task forces and other teams in recent years in an attempt to improve its identity theft processes, yet victims still face the same “labyrinth of procedures and drawn-out time frames for resolution” that they faced five years ago. The IRS is instructing its employees to advise identity theft victims that it will take 180 days -- half a year -- to resolve their cases. Complicated cases inevitably will take longer. Thus, the IRS’s procedural changes are not providing faster relief.

IRS funding

The IRS budget has been reduced in each of the last two fiscal years, and appears likely to face further cuts in coming years. Although these cuts reflect across-the-board reductions in federal discretionary spending, underfunding the IRS makes no sense, Olson said.

“The IRS is materially different from other discretionary programs in that it serves as the de facto Accounts Receivable Department of the federal government. Each dollar appropriated for the IRS generates substantially more than one dollar in additional revenue. It is therefore ironic and counterproductive that concerns about the deficit are leading to cuts in the IRS budget, when those cuts are making the deficit larger.” Olson added: “The plain truth is that the IRS’s mission trumps all other agencies’ missions, because without an effective revenue collector, you can’t fund those other agencies.”

Having digested the changes in the tax law made by Congress's New Year's Day fiscal cliff legislation and sent the form changes to the printer, the Internal Revenue Service (IRS) says it will be ready to receive and process your tax return Jan. 30.

That shortens the tax preparation window by a month, but since most taxpayers don't get started until they receive their w-2 forms, it might not make a lot of difference to most people. Then again, early filers who want to get their hands on their refund as quickly as possible might be frustrated.

Some filers must wait longer

The announcement means the vast majority of tax filers -- more than 120 million households -- should be able to start filing tax returns starting Jan 30. But not everyone.

The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension, the IRS said.

Takes time to update and test systems

“We have worked hard to open tax season as soon as possible,” IRS Acting Commissioner Steven T. Miller said. “This date ensures we have the time we need to update and test our processing systems.”

The IRS will not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.

“The best option for taxpayers is to file electronically,” Miller said.

This is the second straight year the IRS has delayed the opening of tax season. In 2012 the agency said it made extensive changes to its systems in an effort to thwart identity theft, which it said is a growing problem.

If identity thieves get access to your Social Security number, they can file a fake return in your name, receiving a refund they aren't entitled to. Changes to the IRS systems are designed to help the agency identify fraudulent returns more easily.

Because of the threat of identity theft, it's beneficial to file early. If you file early and receive your rightful refund, an identity thief can be easily spotted if he files a fake return, using your Social Security number.

Who Can File Starting Jan. 30?

The IRS anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late Alternative Minimum Tax (AMT) patch as well as the three major “extender” provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

Who Can’t File Until Later?

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

If you use an off-the-shelf tax preparation software, keep in mind these changes will affect it as well. Check with your vendor as to when updates for the 2012 tax year will be available.

The statement from the Internal Revenue Service (IRS) last week was short and to the point.

“The IRS is currently reviewing the details of this week's tax legislation and assessing what impact it will have on this year's filing season,” the statement read. “The IRS will soon make available additional information on when taxpayers can start filing 2012 tax returns.”

The last-minute fiscal cliff legislation did more than keep world financial markets on the edge of their seats; it's also held up the IRS as it prepares to start receiving 2012.

But how could tax legislation that affects the future have any bearing on 2012 taxes? Because a few other items were slipped into the fiscal cliff bill. Some of those items have a retroactive start date, meaning they will affect the 2012 tax year.

AMT reform

For example, if you were unfortunate enough in 2011 to pay the alternative minimum tax (AMT) there's a chance you can avoid it in 2012. The tax, which was devised to make sure high income earners paid at least some tax, was never indexed for inflation. Each year more and more people found themselves paying it.

Included in the January 1 tax bill is a fix to the AMT law, raising the threshold. Millions of people who would have paid it now will not. For the IRS, that means reprinting some tax forms.

Another retroactive tax break is a broadening of the tax break for people who ride mass transit. The measure increases the tax break for commuters and makes it retroactive for 2012. That, too, requires some form changes.

Some expired tax deductions have been brought back to life and made retroactive to last year. If you are a teacher and spend some of your own money for school supplies, that deduction is returning, allowing you to write off up to $250. Tuition and fee deductions will also be available to 2012 filers.

Now is the time to prepare

While the IRS gets its duck in a row, tax filers should as well. You probably won't receive W-2 or 1099 forms until the end of January but you can spend the time gathering receipts and putting together an income statement.

If you don't already have someone to do your taxes you can begin looking around for a tax preparer. Ask relatives and friends for a referral and try to find someone who has been working in your community for a while and will probably be around for a few more years. The more familiar your preparer becomes with your situation the better job she can do for you. In this case, consistency can work in your favor.

If you are eager to get your hands on your refunds, bypass the refund anticipation loans (RAL) and instead file early and electronically. Those who do stand a good chance of getting their refunds within two weeks.

Regardless of what does, or does not happen with the “fiscal cliff,” some consumers will see some tax increases in 2013, part of the Affordable Care Act.

And while Republicans and Democrats spent the last two months arguing over whether families earning $250,000 or more a year should pay a higher income tax rate, it's already been decided that that group will face a higher tax on investments in 2013.

It's called the Net Investment Income Tax. It imposes an extra 3.8 percent tax on investment income earned by individuals, estates and trusts that have certain investment income above certain threshold amounts. That group will also pay more in Medicare tax.

The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers.

An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.

Medical device tax

An excise tax on medical devices, such as artificial hips, goes into effect in 2013 as a way to help pay the cost of expanding health care coverage. Most consumers won't feel the tax directly but could eventually see higher health care premiums as the costs of these devices go up.

One potential tax increase many consumers could face in 2013 is a change in the way the Internal Revenue Service (IRS) treats employer-paid health benefits. Currently, this benefit is not taxed, providing a huge financial benefit to consumers who have it. It's the biggest middle-class tax break on currently on the books – even bigger than the mortgage interest deduction.

For example, if your employer pays $1000 a month for its share of your health coverage, you would have to report that $12,000 as income on your taxes. Many economists believe Congress will have to consider that change in 2013, although there will be strong bipartisan opposition.

Payroll tax

There's another tax increase, unrelated to health care, that all workers will feel in 2013. The payroll tax, used to finance Social Security and Medicare, will revert to its normal level. For the past two years the government reduced the employee share by two percentage points, as part of an effort to stimulate the economy. Since neither Republicans nor Democrats have suggested extending the tax holiday another year, it seems certain that consumers' paychecks will be a little smaller in 2013.

Even though we haven't been through the holidays yet, it's not too early to start thinking about the bite the Internal Revenue Service (IRS) will be taking from this year's earnings.

If you have made contributions to charity, you should know some key tax provisions have taken effect in recent year affecting donations of clothing, household items and money.

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, the IRS offers the following additional reminders:

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2012 count for 2012. This is true even if the credit card bill isn’t paid until 2013. Also, checks count for 2012 as long as they are mailed in 2012.
• Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. Exempt Organization Select Check lists most organizations that are qualified to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in the database.
• 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 2012 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.

Additional information

Here is some additional information from the IRS on charitable giving including:

Charities & Non-Profits

Publication 526, Charitable Contributions

Another penny from Uncle Sam.

The Internal Revenue Service has announced the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. It works out to an additional penny-per-mile.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

Fixing the rate

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Exceptions

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Believe it or not, tax-filing season is right around the corner. While Congress and the president wrestle over the “fiscal cliff” and the future of taxes, consumers need to be focused on the 2012 tax year.

To get a speedier refund it helps to file as early as possible. Filing early, in turn, is aided by taking a few steps between now and December 31 to get ready. Here are five things you can do now to get ready:

1. Think about any life changes you had in 2012 and how these may affect your tax return. Many common events, like having a baby or buying a home, can trigger tax credits or deductions. Start planning for your income tax return by putting together an action timeline and to-do list.
2. Choose a professional tax preparer, if you need help completing your return. You'll want someone who has been around for a while and who will be around later. If you don't already have a tax preparer, ask friends and family for a referral.
3. Start now gathering documents you'll need to complete your return. Keep in mind your W-2 and 1099 forms won't be available until the end of January but there are other documents that will prove helpful, like a copy of last year's tax return. If you have a part-time business you can begin now to organize and gather receipts.
4. Consider year-end tax moves that will reduce your taxable income, such as giving to charity, prepaying your January mortgage payment or increasing your retirement plan contributions.
5. Create a plan with your tax preparer that includes a list of things to do to get your taxes done this year. Start a shoebox for your tax documents, review your year for life changes and put a target date on the calendar to file.

Significant season

“The coming tax filing season is shaping up to be like no other in recent years,” said Mark Steber, chief tax officer, Jackson Hewitt Tax Service Inc. “The combination of expiring tax laws and tax policy changes, possible renewed retroactive provisions and last-minute legislative action calls for taxpayers to be extra careful when managing their taxes in order to ensure that there is no money left on the table."

Steber suggests keeping an eye out for late year legislative changes that can impact your future taxes. For example, Extender Provisions, which include the deductions for state and local sales tax, the mortgage insurance premium, deductions for out-of-pocket classroom expenses for teachers, deductions for college tuition and fees, as well as the $500 credit for making energy-efficient home improvements, could all be on the table.

That means paying attention to the news out of Washington over the next few weeks. What happens there could affect you tax-wise in the coming years.

A planned power outage around the Labor Day weekend will affect a number of Internal Revenue Service (IRS) systems and limit the availability of several services between Thursday, Aug. 30 and Tuesday, Sept. 4. 

The systems will be unavailable due to maintenance and upgrading an electrical system. 

Detailed information describing what systems are affected by the temporary outage can be found below: 

Toll-free services 

• Assistors who support the main toll-free lines can only provide limited service beginning early Thursday morning, Aug. 30 through 4 p.m. ET Friday, Aug. 31. During this time, help will be available for tax law issues, but the system will be unable to access or update tax account information.
• The main toll-free system will be completely unavailable after 4 p.m. ET Friday until noon ET on Tuesday, September 4. For the tax practitioner community, the e-help desk toll-free service and the Practitioner Priority Service will be available during the dates and times indicated above. 

Taxpayer Assistance Centers 

• The Taxpayer Assistance Centers (TACs) will remain open for their regular hours during the outage period. They will be able to answer your tax law questions, prepare your returns and perform limited service to your tax account. If you need to make a tax payment, the TACs can accept most forms of payment, including checks and money orders, but cannot accept cash payments during the outage period. 

Taxpayer notice information 

• If you have questions on a CP2000 notice, you received in the mail and you need to call the IRS, assistors will be available at the toll-free number included in the notice throughout the maintenance period.
• Help will be available on other notices associated with a balance due or an open correspondence exam issue through 4 p.m. ET Friday, Aug. 31 and after noon ET on Tuesday Sept. 4.
• Help on notices related to levies or liens will be unavailable Thursday, Aug. 30 until noon ET on Tuesday, Sept. 4. 

Information for business filers 

• If you are a business filer and in need of an Employee Identification Number or need to make a Federal Tax Deposit, it's best to do so before Friday, Aug. 31 at 4 p.m. Those services will not be available until the outage period ends and the systems are restored around noon ET on Tuesday, Sept. 4. 

Information for student aid applicants 

• If you need to file the Federal Application for Student Aid form, the FAFSA will be available electronically, but the fields requiring tax return information will not automatically populate during the outage. Keep these outage dates in mind as you or your student(s) need to submit this form, particularly if you don’t have access to previous year’s tax returns. 

Interactive tax assistant availability 

• The Interactive Tax Assistant will be available on IRS.gov throughout the outage period. 

Electronic federal tax payment system 

• You will be able to make payments through the EFTPS. Your account will be updated after the outage period and will reflect the date you made the payment.

While most people are aware they must include wages, salaries, interest, dividends, tips and commissions as income on their tax returns, many don’t realize that they must also report "outside," or miscellaneous income.

With a tough economy and raises few and far between, more people are doing work on the side to earn extra money, so the reporting requirements affect a lot more taxpayers than before. In addition to income from side jobs, the Internal Revenue Service (IRS) also requires you to report:

• barter exchanges of goods or services,
• awards, prizes, contest winnings and
• gambling proceeds

Taxpayers must report all income from any source and any country unless it is specifically exempt under the U.S. tax code. There may be taxable income from certain transactions even if no money changes hands.

You report this income using Form 1099-MISC, which you should receive from the person paying you. It is a common misconception that if a taxpayer does not receive a Form 1099-MISC or if the income is under $600 per payer, the income is not taxable. However, the IRS says there is no minimum amount that a taxpayer may exclude from gross income. If you earn it, you must report it.

All income earned through the taxpayer’s business, as an independent contractor or from informal side jobs is self-employment income, which is fully taxable and must be reported on Form 1040.

Use Form 1040, Schedule C, Profit or Loss from Business, or Form 1040, Schedule C-EZ, Net Profit from Business (Sole Proprietorship) to report income and expenses. Taxpayers will also need to prepare Form 1040 Schedule SE for self-employment taxes if the net profit exceeds $400 for a year. Do not report this income on Form 1040 Line 21 as Other Income.

Independent contractors must report all income as taxable, even if it is less than $600. Even if the client does not issue a Form 1099-MISC, the income, whatever the amount, is still reportable by the taxpayer.

Fees received for babysitting, housecleaning and lawn cutting are all examples of taxable income, even if each client paid less than $600 for the year. Someone who repairs computers in his or her spare time needs to report all monies earned as self-employment income even if no one person paid more than $600 for repairs.

Bartering

Bartering is an exchange of property or services and oftentimes this slips through the tax-reporting cracks. But the IRS says even bartering is subject to taxation.

The fair market value of goods and services exchanged is fully taxable and must be included on Form 1040 in the income of both parties. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. Income from bartering is taxable in the year in which the taxpayer received the goods or services.

Gambling winnings

In most places, gambling is against the law. Even so, gambling winnings are fully taxable and must be reported on Form 1040.

Gambling income includes, among other things, winnings from lotteries, raffles, horse races, poker tournaments and casinos. It includes cash winnings as well as the fair market value of prizes such as cars and trips.

Even if a W-2G is not issued, all gambling winnings must be reported as taxable income regardless of whether any portion is subject to withholding. In addition, taxpayers may be required to pay an estimated tax on the gambling winnings.

Losses may be deducted only if the taxpayer itemizes deductions and only if he or she also has gambling winnings. The losses deducted may not be more than the gambling income reported on the return.

Prizes and awards

In most cases the cash value of prizes or awards won in a drawing, quiz show program, beauty contest, or other event, must be included on the tax return as taxable income. Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income. For example, both a $500 cash prize and the fair market value of a new range won in a baking contest must be reported as other income on Form 1040, Line 21.

For more information about miscellaneous income reporting requirements, check out IRS Publication 525 - Taxable and Non-Taxable Income.

A federal class action lawsuit says Intuit charges usurious "quadruple-digit interest rates" as fees for using the "free" online edition of its TurboTax software.

Tasha and Frederick Smith say they used Intuit's online tax preparation software in 2009, 2010, and 2011. Each time, they say, they deferred paying the $86.90 fee to use the software, and chose to have it deducted from their tax refund, Courthouse News Service reported.

Intuit charged them another $29.95 for this, more than 34 percent of the $86.90 fee, the Smiths say. Their suit alleges that Intuit violates the Truth in Lending Act, and California business and usury laws.

The Smiths, who live in Arkansas, say that each year they received their refund from the IRS in about two weeks.

"Plaintiffs paid $29.95 for an approximate 14-day loan of $86.90," the complaint states. "The APR, properly calculated in accordance with TILA, was an exorbitant quadruple-digit interest rate. Such interest rates also violated California's usury laws."

Service fee

Intuit calls the $29.95 charge a Refund Processing Service Fee. The Smiths call it "a ruse and merely a device through which usurious interest would be exacted".

The Smiths may be onto something but, considering how distasteful the subject of taxes is, most consumers seem fairly satisfied with TurboTax.  We analyzed 74,000 consumer comments on Twitter, Facebook and other social media and found positive sentiment running high:

Most of the complaints we hear at ConsumerAffairs.com have to do with alleged errors and billing problems.

"D" of Mineola, Teas, for example, said that he used TurboTax Premier 2010. Software and that it allowed a passive loss on rental property even though his family's income was above $150,000.  The result was an IRS audit and $5,000 or so of additional taxes, penalties, interest and expense.

"T" of Deerfield Beach, Fla., also found himself in trouble with the IRS after using TurboTax.

"In 2010 I used a free version of Turbo Tax online," he said. "At that time of completing the taxes, I was only able to retrieve a cover page ... indicating the refund due me and four other lines. The 1040EZ was not attached. I saved what was available to my computer and was grateful I was receiving a refund."

But T's gratitude was short-lived: "Now, a year later I am being contacted by Internal Revenue citing I owe them as the witholding amount was different than that indicated on my W2."

If you own a business that accepts credit or debit cards, you will receive a new form – 1099-K – from your credit card processor by January 31. You'll file that with your tax return, as a statement of income.

The form must be generated to show the following transactions:

• All payments made in settlement of payment card transactions (e.g., credit card); 
• Payments in settlement of third party network transactions IF:
• Gross payments to a participating payee exceed $20,000; AND
• There are more than 200 transactions with the participating payee.

 That means if your business generated less than 20,000 in credit or debit card sales last year, or fewer than 200 credit or debt card transactions, you won't be getting a form and it isn't required as part of your return.

Filing deadlines and procedures

1099-Ks are due to merchants by January 31, 2012. Electronically filed 1099-Ks are due to the IRS April 2, 2012 (normally March 31), while paper 1099-Ks are due February 28, 2012.

It's not just banks and credit card companies that have to issue the new form. So do third party networks such as PayPal and Google. That's where some consumers could find themselves caught up in the new reporting requirements.

The IRS generally isn't interested in what you make at your annual yard sale. But if you have a booming business selling other people's unwanted junk on eBay, and you made more than 200 PayPal transactions totalling over $20,000, then you'll be getting a form and you have to file.

The new requirement is part of a law Congress passed in 2008 in an effort to help the IRS collect more revenue.

Walmart is offering new services that it says will help consumers save money on their income tax preparation and it's offering to cash their refund checks for $3 if the check is under $1,000 and $6 for checks up to $7,500.

Last year more than 60 million Americans didn’t have access to traditional banking services – such as credit cards and checking accounts – adding up to billions of dollars in fees paid by Americans who can least afford them, Walmart noted.

The average refund is $2,902 and many taxpayers spend up to $90 just to cash the check.

“We believe Americans shouldn’t have to pay exorbitant prices on their everyday financial needs,” said Daniel Eckert, vice president of Walmart Financial Services. “It’s their money and we want to make sure they can cash checks, pay bills and transfer money at a low price.”

Leading up to the biggest tax filing week of the year, January 16 through 22, Walmart said it has worked with Jackson Hewitt and H&R Block to double its in-store tax kiosks and lower the cost for tax preparation services.

Jackson Hewitt will offer free federal Form 1040EZ filing at its Walmart kiosks throughout the tax season and H&R Block will offer a free federal Form 1040EZ until February 29 for simple returns. H&R Block will have 250 kiosks in Walmart stores, while Jackson Hewitt is adding approximately 800 kiosks bringing their Walmart footprint to 2,800.  

“Customers need to make every dollar count in this tough economy, and that’s why we’re committed to helping customers pay less for their financial services during tax season and throughout the year,” said Eckert. “With more than 3,000 tax preparation kiosks in Walmart stores across the U.S. and low flat-fee check cashing services, our customers can conveniently make their refund dollars stretch farther by simply taking care of their tax needs at Walmart.”

We don't want to be the cause of any wedding bell blues but all the gay newlyweds in New York State need to keep in mind that the state's new same-sex marriage law doesn't cut much wedding cake come tax time.

While New York and a growing number of smaller states now recognize gay marriage, the Internal Revenue Service does not, thanks to the 1996 Defense of Marriage Act, which prohibits all federal agencies from recognizing same-sex marriages.

That means that same-sex couples are likely to face higher tax bills for health care, harsher estate-tax treatment and higher tax preparation costs.

This apparent inequity drew little attention when only a handful of relatively small states allowed gay marriage. But New York is not only the nation's third-most-populous state, it's also home to many of the richest, most influential and most litigious gay Americans.

After all, in a time when most state legislatures can't agree on whether or not to turn the lights on when it gets dark, New York's lawmakers and governor put up little resistance to legalizing same-sex marriage, thanks to a well-organized and very well-financed lobbying effort by the gay community.

This influential group is not likely to return meekly to the closet when it's time to cough up the annual tax payment. Count on some skillful use of the GOP's anti-tax rhetoric when New York's gay community takes the tax fight to Capitol Hill – and when the Obama Campaign's fundraisers come calling.

Health care

Perhaps the biggest inequity gay couples currently face involves company-paid health benefits. With many large employers paying for family health insurance for all married employees, those in same-sex marriages find themselves having to pay additional income tax on the benefits provided to their same-sex partners.

Some businesses now offer to reimburse employees for the additional tax they incur on such benefits but that raises the question of whether the reimbursement is taxable as income.

Of particular interest to affluent gay couples is the estate tax – or the "death tax," as the Tea Party and GOP call it. Currently, a heterosexual spouse can inherit money and property from a deceased marriage partner without tax penalties if the estate is under $5 million. Any amount over that is taxed at up to the top rate of 35 percent.  

Gay couples receive no such benefits and any assets left by one homosexual partner to another are subject to full taxation.  The "taxation without representation" argument is older than the United States and -- except for its feudal treatment of the District of Columbia -- is one that Congress finds difficult to resist.  

Before you make a tax-deductible gift to your favorite charity, make sure it's still a charity.  The Internal Revenue Service has announced that about 275,000 organizations have automatically lost their tax-exempt status because they did not file legally required annual reports for three consecutive years.

Consumer protection officials around the country have been warning consumers that contributions to these organizations will no longer be deductible and taxpayers could face penalties if they mistakenly claim deductions.

“Ohioans are very generous and support a wide variety of charitable organizations and causes,” said Ohio Attorney General DeWine. “It is important that Ohio charitable donors check if a non-profit has lost its tax-exempt status to know for sure if their gift will be tax deductible or not.”

The IRS said it believes the vast majority of these organizations are defunct, but it also announced special steps to help any existing organizations to apply for reinstatement of their tax-exempt status.

Congress passed the Pension Protection Act (PPA) in 2006, requiring most tax-exempt organizations to file an annual information return or notice with the IRS. For small organizations, the law imposed a filing requirement for the first time in 2007. In addition, the law automatically revokes the tax-exempt status of any organization that does not file required returns or notices for three consecutive years.

For several years, the IRS has made an extensive effort to inform organizations of the changes in the law through multiple outreach and education avenues, including mailing more than 1 million notices to organizations that had not filed.

In addition, last year the IRS published a list of at-risk groups and gave smaller organizations an additional five months to file required notices and come into compliance. About 50,000 organizations filed during this extension period.

Most are in compliance

Overall, the IRS believes the vast majority of small tax-exempt organizations are now in compliance with the 2006 law.

“During the past several years, the IRS has gone the extra mile to help make tax-exempt groups aware of their legal filing requirement and allow them additional time to file,” IRS Commissioner Doug Shulman said. “Still, we realize there may be some legitimate organizations, especially very small ones, that were unaware of their new filing requirement. We are taking additional steps for these groups to maintain their tax-exempt status without jeopardizing their operations or harming their donors.”

The list of organizations whose tax-exempt status has been revoked for failing to meet their filing requirement, available on the IRS website at www.IRS.gov, includes each organization’s name, Employer Identification Number (EIN) and last known address. It is searchable by state. It also includes the effective date of the automatic revocation and the date it was posted to the list. The IRS will update the list monthly to include additional organizations that lose their tax-exempt status.

This listing should have little, if any, impact on donors who previously made deductible contributions to auto-revoked organizations because donations made prior to the publication of an organization’s name on the list remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions, and any income they receive may be taxable.

The Internal Revenue Service has a Valentine's Day gift for nursing mothers: breast pumps and lactation supplies may now be taken as a medical deduction on your tax return, or can be reimbursed under flexible-spending accounts or health-savings accounts.

The ruling is effective immediately and documented expenses can be taken on 2010 returns.

(Read consumer complaints about tax preparation companies.)

Previously, the IRS had ruled that breast-feeding wasn't a health benefit. But now the agency has decided that, like obstetric care, breast pumps and related nursing supplies may be eligible.

In a classic bit of bureaucratic hair-splitting, the IRS cautions taxpayers that before claiming a deduction, taxpayers should be certain the item in question is used “primary for extracting milk or for other purposes.” What other purposes might those be? Good question.

Keep in mind that medical expenses are not deductible until they exceed 7.5 percent of adjusted gross income.

The American Academy of Pediatrics praised the ruling, saying it makes breast-feeding “a more practical option for new and working mothers.”

Consumers should consult their tax advisor for more information.

If you have a high-deductible health plan, or no plan at all, it's possible you spent money on health care in 2010. Keep in mind the Internal Revenue Service (IRS) allows you to deduct some of those expenses, if you meet certain criteria.

Qualifying expenses include those spent on yourself, your spouse and your dependents, and include both medical and dental expenses. The test by which you can determine whether you have a medical expense tax deduction has to do with the total amount of your expenses and how much you earned last year.

You may deduct only the amount by which your total medical care expenses for the year exceed 7.5% of your adjusted gross income (AGI). You do this calculation on Form 1040, Schedule A in computing the amount deductible.

For example, let's assume your AGI is $40,000. If you mulltiply that amount by 7.5% you get $3,000. If you paid $5,000 in medical expenses in 2010, which get to write off the amount that exceeds $3,000, which is $2,000. However, if you paid medical expenses totalled $2,500, you may not deduct any of your medical expenses because they are not more than 7.5% of your AGI.

What counts as medical expense?

A deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body.

These expenses include payments for legal medical services rendered by any medical practitioner and the cost of equipment, supplies, and diagnostic devices used for medical care purposes.

Medical expenses include insurance premiums paid for medical care or qualified long-term care insurance. The deduction for a qualified long-term care insurance policy's premium is limited. If you are self-employed and have a net profit for the year, you may be able to deduct (as an adjustment to income) amounts paid for medical insurance for yourself and your spouse and dependents.

You cannot take this deduction for any month in which you were eligible to participate in any subsidized health plan maintained by your employer or your spouse's employer. If you do not claim 100 percent of you self-employed health insurance deduction, you can include the remaining premiums with your other medical expenses as an itemized deduction on Form 1040, Schedule A. You may not deduct insurance premiums paid by an employer-sponsored health insurance plan (cafeteria plan) unless the premiums are included in Box 1 of your Form W-2.

Medical expenses may include:

• Fees paid to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and Christian Science practitioners for medical care expenses
• Payments for hospital services, qualified long-term care services, nursing services, and laboratory fees including the incidental cost of meals and lodging charged by a hospital or similar institution if your principal reason for being there is to receive medical care
• Payments for acupuncture treatments or inpatient treatment at a center for alcohol or drug addiction are also deductible medical expenses. You may include amounts you paid for participating in a smoking-cessation program and for drugs prescribed to alleviate nicotine withdrawal
• The cost of participating in a weight-loss program for a specific disease or diseases, including obesity, diagnosed by a physician. In general, you may not deduct the cost of purchasing diet food items or the cost of health club dues
• The cost of drugs is deductible only for drugs that require a prescription, except for insulin
• Admission and transportation to a medical conference relating to the chronic disease of yourself, your spouse, or your dependent (if the costs are primarily for and essential to the medical care). However, you may not deduct the costs for meals and lodging while attending the medical conference
• The cost of items such as false teeth, prescription eyeglasses or contact lenses, laser eye surgery, hearing aids, crutches, wheelchairs, and guide dogs for the blind or deaf, and
• Transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance can be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees

 The medical care deduction is fully explained in IRS Publication 502.

With rising unemployed, it's a safe bet that more people who lost a job last year decided to give up the rat race and start their own business and work from home. If so, you'll probably be writing off the business use of your dwelling.

While the Internal Revenue Service (IRS) provides many tax breaks for the business use of a home, there are many specific rules and requirements that must be followed. Perhaps most important, there must be a solid wall, figuratively at least, between personal and business uses. The two cannot mix.

If you have started a business, chances are you have already retained the services of an accountant. If not, it is highly advisable, especially to help you find your way through this part of the tax code. For starters, we'll provide an overview of what you can, and cannot, write off.

Home sweet home

When the IRS uses the term "home," it includes many types of dwellings. It can be a house, apartment, condominium, mobile home, boat, or similar property which provides basic living accommodations. It also includes structures on the property, such as an unattached garage, studio, barn, or greenhouse. You may take the deduction whether your own the property or rent it.

Generally, you cannot deduct items such as mortgage interest and real estate taxes as business expenses (they're already deductible on your personal return). However, you may be able to deduct expenses related to the business use of part of your home if you meet specific requirements.

Even then, your deduction may be limited.

To qualify to deduct expenses for business use of your home, you must use part of your home:

• Exclusively and regularly as your principal place of business,

• Exclusively and regularly as a place where you meet or deal with patients, clients, or customers in the normal course of your trade or business,

• In the case of a separate structure which is not attached to your home, in connection with your trade or business,

• On a regular basis for certain storage use,

• For rental use (see Publication 527), or

• As a daycare facility

Exclusive use

To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.

You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Even if you use a personal area of your home occasionally for business purposes, it does not qualify as a business use deduction.

Regular Use

You must also use the business portion of your home on a regular basis. Incidental or occasional business use is not regular use. You must consider all facts and circumstances in determining whether your use is on a regular basis.

To qualify under the trade-or-business-use-test, you must use part of your home in connection with a trade or business. If you use your home for a profit-seeking activity that is not a trade or business, you cannot take a deduction for its business use.

You can have more than one business location, including your home, for a single trade or business. To qualify to deduct the expenses for the business use of your home under the principal place of business test, your home must be your principal place of business for that trade or business.

Principal place of business

To determine whether your home is your principal place of business, you must consider the relative importance of the activities performed at each place where you conduct business, and the amount of time spent at each place where you conduct business.

Your home office will qualify as your principal place of business if you use it exclusively and regularly for administrative or management activities of your trade or business, or if you have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses.

After you determine that you meet the tests under Qualifying for a Deduction, you can begin to figure how much you can deduct. You will need to figure the percentage of your home used for business and the limit on the deduction. This is where you probably need some accounting help.

If you decide to go it alone, or just want to better understand the process, IRS Publication 587 covers it in detail.

The Justice Department DOJ) has reached a comprehensive settlement agreement under the Americans with Disabilities Act (ADA) with HRB Tax Group Inc., H&R Block Tax Services LLC and HRB Advance LLC (H&R Block).

As part of the agreement, Block will strive to ensure effective communication with individuals who are deaf or hard of hearing in the provision of income tax preparation services and courses at more than 11,000 owned and franchised offices nationwide.

Sign language provision

The settlement agreement, which resolves an ADA complaint filed by an individual who is deaf, requires, among other things, that H&R Block furnish appropriate auxiliary aids and services -- including sign language interpreter services -- when necessary to afford a person who is deaf or hard of hearing equal access to the goods, services and accommodations made available to others.

"By signing this agreement, H&R Block has affirmed its commitment to providing effective communication with people who are deaf and hard of hearing not only at their tax preparation offices in San Antonio, where the complaint originated, but at their locations across the country," said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. "The agreement will ensure that individuals who are deaf or hard of hearing have equal access to tax preparation services at more than 11,000 offices nationwide."

Provisions

The agreement requires that H&R Block:

• Provide auxiliary aids and services, including qualified sign language interpreters, to persons who are deaf or hard of hearing when necessary to ensure effective communication of its tax preparation services, programs and courses;
• Adopt and enforce a policy on effective communication with individuals who are deaf or hard of hearing for all H&R Block offices nationwide, post the policy on its websites and in its employee manuals, and distribute the policy to current and new employees and contractors;
• Establish and maintain a list of sign language interpreter providers;
• Post and maintain in a conspicuous location in all reception areas of H&R Block offices a notice stating that individuals who are deaf or hard of hearing have a right under the ADA to request a sign language or oral interpreter or other form of auxiliary aid or service if needed;
• Provide staff training on the ADA and H&R Block’s obligations to provide effective communication to individuals with disabilities;
• Monitor franchisees' compliance with this requirement consistent with monitoring of compliance with the franchise agreements and other requirements of federal, state or local laws; and
• Pay $5,000 damages to the individual who filed an ADA complaint and a $20,000 civil penalty.

ADA requirements

The ADA prohibits discrimination against customers with disabilities by businesses that serve the public. Among other things, the act requires tax preparation services, accountants, lawyers, doctors and other businesses to provide equal access to customers who are deaf or hard of hearing.

When services such as tax preparation involve important, lengthy or complex oral communications with customers, businesses are generally required to provide qualified sign language interpreters and other auxiliary aids, free of charge, to individuals who are deaf, are hard of hearing or have speech disabilities.

Other auxiliary aids may include the use of relay services for telephone communication, exchanging notes for brief and uncomplicated communications, providing assistive listening systems and receivers in classes for attendees who are hard of hearing, and providing captioned videos.

The appropriate auxiliary aid to be provided depends on a variety of factors including the nature, length and importance of the communication; the communication skills and knowledge of the individual who is deaf or hard of hearing; and the individual’s stated need for a particular type of auxiliary aid.

Auxiliary aids must also be provided for individuals who are blind or have low vision, such as materials in Braille, large print or accessible electronic formats such as email or HTML, qualified readers and assistance in filling out forms.

As you may know, a tax credit is much better than a tax deduction, and Treasury Secretary Tim Geithener is reminding college students to take advantage of a significant tax credit for tuition expenses.

The tax benefit is provided under the American Opportunity Tax Credit (AOTC), which allows parents and students to receive a tax credit of up to $2,500 for college expenses. Geithener says it can help make postsecondary education a reality for many students and families.

A recent Treasury Department analysis shows that 9.4 million families with college students are expected to benefit from the credit in 2011.  The AOTC is expected to provide $18.2 billion in tax relief to make college more affordable next year, and families are expected to benefit from an average credit of $1,900.

"America's prosperity depends on the economic policies we pursue to strengthen our nation's competitiveness," Geithener said.  "And the strength and competitiveness of our nation will depend largely on continuing to have the best educated students in the world."

Tax credit is expanded

The Obama Administration extended the AOTC, which was initially created under the Recovery Act, for an additional two years as part of the year-end tax cut package the President signed last month.  The AOTC replaced the Hope credit for 2009 and 2010 and with this extension will continue to do so for 2011 and 2012.

While the AOTC will provide greater benefits in the future, it's also helping students who have qualified education expenses in 2009 and 2010. Taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year, according to the Internal Revenue Service (IRS).

For students claiming the maximum credit for these four years, the AOTC will provide up to $10,000 to help pay for the cost of college. The maximum available credit this year would cover about 80 percent of tuition and fees at the average two-year public institution, or about a third of tuition and fees at the average four-year public institution in 2011, according to a new Treasury analysis.

Improving on Hope

Geithener says The AOTC improves on its predecessor, the Hope credit, by providing larger tax cut for almost all students, applying to the first four rather than two years of college, and covering text books, a substantial cost to the typical college student, while the Hope credit did not. 

In addition, the AOTC is partially refundable, meaning that families with no federal income tax liability can receive the credit. These families are expected to receive more than $4 billion in refunds from the AOTC in 2011.  In addition, more families are eligible for larger credits because the income limits were expanded compared to the Hope credit.

Along with the tax credit, Secretaries Geithner and Duncan highlighted several other initiatives the Administration has undertaken to make college more affordable and accessible, including simplifying the Free Application for Federal Student Aid and increasing Pell grants, which are the main source of federal aid for low-income students enrolled in institutions of higher education.

A taxpayer who pays qualified tuition and related expenses and whose federal income tax return has a modified adjusted gross income of $80,000 or less ($160,000 or less for joint filers) is eligible for the credit. The credit is reduced ratably if a taxpayer's modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot benefit from this credit.

Homeowners have, for many years, been allowed to deduct the mortgage interest on loans securing a principle residence and one second home. But the Internal Revenue Service (IRS) says there are limits to this deduction.

There is one limit for loans used to buy, build, or substantially improve a residence -- called home acquisition debt. There is another limit for loans secured by a qualified residence but used for other purposes -- called home equity debt.

Internal Revenue Code Section 163(h) (3) provides guidance for the limitations on the home mortgage interest deduction. IRS Publication 936 also provides useful information on the subject.

Most homeowners probably aren’t affected much by the first set of limits. Under the law, taxpayers may deduct interest on the loan balance of up to $1 million of home acquisition debt secured by a qualified primary or secondary residence. Most people -- especially now -- spend a lot less than that for a house.

Home equity debt

Home equity debt is where some taxpayers could get into trouble. Home equity debt is any loan secured by a qualified residence whose purpose is other than to acquire, construct or substantially improve a qualified home. For example, if you borrow against the equity in your home to buy a boat or take a vacation, or even pay off credit cards, that’s what’s known as home equity debt.

You can deduct some of this interest, but the IRS says the amount is not unlimited.

Taxpayers can generally deduct interest paid on the first $100,000 of a home equity loan. The home equity debt limit is reduced to $50,000 for taxpayers who are married filing separately.

If the home equity loan was used to improve the taxpayer’s first or second home -- or to purchase a second home -- the taxpayer may be eligible for a deduction on an amount up to $1 million or the value of the home. However, the deduction for home equity interest may be reduced even below the $100,000 limit if the indebtedness exceeds the fair market value of your home.

Example

For example, taxpayer B borrows $250,000 in a home equity line of credit, and the amount he borrows does not exceed the fair market value of his house. He used $100,000 to add a new kitchen to the house.

The remaining $150,000 pays for college tuition. The amount used to substantially improve the home -- $100,000 -- is treated as home acquisition debt as long as the taxpayer has not exceeded the $1,000,000 balance limitation.

The other $150,000 is treated as home equity debt because it was not used to improve the home. Taxpayer B would be able to deduct interest only up to the $100,000 limit on the home equity debt portion of the loan.

“While tax software packages may include an alert to remind taxpayers and tax return preparers that home mortgage interest deductions are limited, taxpayers need to keep good records to be able to consider these limitations when calculating their home mortgage deductions,” the tax agency says.

Recent loans might not be a problem

A bank lending you more than your home’s fair market value may now seem a quaint notion, but it wasn’t that long ago that banks were handing out loans for 125 percent or more of a home’s value, and that home's value is less today. If you took advantage of one of those deals several years ago and have been writing off all the interest, you may need to discuss that with a tax professional.

For most taxpayers, figuring out the home mortgage interest deduction is straight-forward. Report the interest paid from Form 1098, on Schedule A.

Taxpayers who disregard the home mortgage interest deduction limitations may be liable for the increase in tax, plus interest and penalties, computed back to the due date of the return, the IRS warns.   

May 14, 2010
A company that purports to help consumers who are having tax problems has problems of its own in Texas.

Houston-based TaxMasters, Inc., and its chief executive officer, Patrick Cox, are facing multiple violations of the state's Deceptive Trade Practices Act and Debt Collection Act.

According to the enforcement action filed by Attorney General Greg Abbott, the defendants unlawfully misled customers about their service contract terms, failed to disclose its no-refunds policy, and falsely claimed that the firm's employees would immediately begin work on a case -- despite the fact that TaxMasters did not actually start to work on a case until its customers paid in full for services, even if that delayed response meant taxpayers missed significant IRS deadlines.

"In the midst of a national economic downturn, TaxMasters used a nationwide marketing campaign to offer services for distressed taxpayers who needed help dealing with the IRS," Abbott said. "A state investigation and nearly 1,000 customer complaints indicate that the defendants routinely misled customers about the nature of their tax resolution service agreements -- and worse, attempted to enforce those improper agreements through unlawful debt collection tactics. The state's enforcement action seeks to prohibit the defendants from continuing to violate the law and seeks restitution for the financially struggling taxpayers who were harmed by the defendants' unlawful conduct."

TaxMasters advertises a tax resolution service for federal taxpayers who have received notice from the IRS of an audit, garnishment, lien, levy or tax deficiency. Citing a self-styled "national advertising campaign" and high-profile "endorsements," the company claims to have "one of the most effective tax relief teams in the tax representation business."

However, a state investigation -- and nearly 1,000 complaints submitted to the Office of the Attorney General and the Better Business Bureau of Houston -- indicate the defendants have unlawfully misled their customers and failed to disclose material facts about their service agreements.

'Free' coonsultation

TaxMasters' ads encourage taxpayers to call its toll-free number for a "free consultation" with a "tax consultant." Court documents indicate callers are not connected to an employee qualified to give tax advice, but rather with a TaxMasters sales representative who recommends a "solution" for between $1,500 and $9,000 or more.

According to court documents, many callers were offered an installment plan so that they could pay the defendants' fee over a specified period of time. However, callers who asked to see written terms and conditions prior to making a payment were informed that a credit card or bank account number is necessary to generate a written TaxMasters service contract.

As a result, TaxMasters customers were unaware -- and the defendants' personnel did not have a practice of disclosing -- multiple aspects of the TaxMasters service agreement that were harmful to taxpayers.

For example, the company did not disclose that all customer payments submitted to TaxMasters are non-refundable. Because customers were not provided written contracts and sales personnel did not reveal the no-refunds policy, customers did not know that they would not be able to recover any installment payments they submitted to TaxMasters -- even if they ultimately decide to cancel before TaxMasters actually did any work on their tax case.

The state's enforcement action also cites TaxMasters for failing to reveal that it would not begin work on a case until all installment payments had been remitted and the entire fee was paid. Multiple complaints indicate that customers entered into an installment agreement with the understanding that TaxMasters would immediately begin work on their case -- only to discover later that no action was taken.

Customers often learned there was a problem when they received a notice from the IRS indicating that an important deadline had been missed or that additional fees and penalties had accrued.

Court documents also indicate the defendants failed to disclose TaxMasters' requirement that customers pay the entire service fee -- even if they opt to cancel their contract. Because customers are not provided a written contract, they were not properly informed that agreeing to make a single payment over the telephone obligated them to pay the entire fee quoted by sales personnel.

Further, not only did TaxMasters attempt to obligate its customers to a fee in the absence of a signed contract, the defendants used unlawful debt collection tactics to enforce the unauthorized obligation.

Failure to disclose

According to the state's enforcement action, the defendants not only failed to disclose material terms and conditions governing its services, but also failed to properly provide the "tax resolution" services that were advertised.

Customer complaints obtained by the AG's office cite TaxMasters for failing to contact and consult with the IRS on the client's behalf; failing to appear on the client's behalf at an IRS audit or hearing; failing to postpone or stop a wage or bank account garnishment; and failing to stop a levy or lien against a client's property.

When customers who were unhappy with the defendants' services sought refunds, TaxMasters refused to return the customers' money. Court documents indicate TaxMasters not only refused to honor refund requests, it also pursued debt collection efforts against clients who cancelled their contracts.

The state's enforcement action also charges TaxMasters with unlawfully threatening to pursue customers in Harris County courts, even if those customers did not reside in the county. Under Texas law, entities seeking to enforce a consumer contract can only do so in a county where the agreement was executed or where the consumer resides.

The AG is seeking restitution for each TaxMasters customer who was financially harmed by the defendants' unlawful conduct. In addition, it is asking for civil penalties of up to $20,000 for each violation of the Texas Deceptive Trade Practices Act.

The Federal Bureau of Investigation (FBI) today warned taxpayers that scam artists are contacting consumers at home and claiming to be with the Internal Revenue Service (IRS). The con artists tell consumers they need their Social Security and bank account numbers to send their rebate checks.

But this is simply a ploy to steal consumers' identity, FBI officials said.

"They're calling people on the phone and asking for their personal information, and the people are thinking they're going to get some money quicker than they normally would," Special Agent Jeff Lanza, spokesman with the FBI Bureau in Kansas City, told WDAF-TV.

Lanza said four Kansas City consumers have received these calls and his office is worried some unsuspecting taxpayers might fall for this scam.

"It's got credibility because it's been in the news," Lanza told reporters. "Everyone is talking about the rebate. They'll probably get more people to respond because of that."

Lanza, however, said the IRS would never ask consumers for such personal information over the phone or through e-mail. Neither would any other governmental agency.

And Congress has not yet approved the tax-rebate plan.

Consumers who receive these calls should immediately hang up, FBI officials said.

More Scam Alerts ...

If youre supporting your elderly mother (or father), to get a tax deduction, youll need to claim her or him as a dependent on your tax return. For the 2007 tax year, claiming an additional personal exemption would reduce your taxable income by $3,400. But to get this tax break, youll need to pass two tests:

• Income test: To qualify as a dependent, your parents 2007 income must be less than $3,400. Her income from Social Security does not count towards that total (disability payments dont count either). But if your parent receives more than $3,400 from other sources, such as pension benefits, interest and dividends from investments, or withdrawals from retirement savings plans, you cant claim him or her as a dependent.

• Support test: In addition to the income test, you must provide more than half of your parents costs for housing, food, medical care, transportation and other necessities. Even if all your mother's or dad's income is from Social Security, you cant claim him or her as a dependent unless you pay more than half your parent's living expenses.

Note: Your parent doesnt have to live with you to qualify as a dependent, as long as she meets the income test and you provide more than half her financial support.

If your mother lives with you, you can include a percentage of your mortgage, utilities and other expenses in calculating how much you contribute to her support. IRS Publication 501 has a worksheet that can help you with this.

Shared support

If you share the financial responsibility for your mother with other siblings, you may be eligible for the IRS multiple-support declaration.

Heres how it works. If one sibling is providing more than half the parents financial support, only that sibling can claim the parent. But if each sibling provides less than 50 percent support, but their combined assistance exceeds half the parents support.

In that case, any sibling who provides more than 10 percent can claim the parent as a dependent. But only one sibling can claim the tax break in any given year. Siblings can rotate the tax break, with one claiming the parent one year and another the next. The sibling who claims the parent as a dependent will need to fill out IRS Form 2120 and file it with his or her tax return.

Medical deductions

If you cant claim your mom as a dependent, you may still get a tax break for helping pay her medical costs. The IRS lets taxpayers deduct money spent on a parents health care and qualified long-term care services, even if the parent doesnt qualify as a dependent.

To claim this deduction, you still must provide more than half your moms support, but your mom doesnt have to meet the income test. And the deduction is limited to medical, dental and long-term care expenses that exceed 7.5 percent of your adjusted gross income. You can include your own medical expenses in calculating the total. See the IRS publication 502 Medical and Dental Expenses, for details.

Savvy Tips: You can access, download and print any of the IRS publications and forms mentioned in this column at www.irs.gov. Or call 800-829-3676 and they will mail them to you.

And for help preparing your taxes, dont forget about AARPs Tax-Aide program. A free tax preparation and counseling service available to all taxpayers, middle and low income, with special attention to those 60 years and older and you dont have to be an AARP member to get help. To locate a Tax-Aide site near you, call 888-227-7669 or visit www.aarp.org/taxaide.

Jim Miller is a contributor to the NBC Today show and author of The Savvy Senior books.

Though the convenience and added perks may sound like a great deal, the Association of Independent Consumer Credit Counseling Agencies (AICCCA) suggests consumers take a second look before charging their taxes.

"Consumers would be wise to consider all payment options and avoid charging their tax bills if other payment arrangements are available," said AICCCA President David Jones. "With some 50 percent of credit card users revolving a balance monthly, adding to those balances is not a good idea."

AICCCA advises consumers consider the following before charging their tax bills:

• You will pay more than the amount owed the IRS. The convenience of charging your tax obligation comes with a 2.49 percent fee assessed by the third-party company that processes the transaction. If your tax liability were $3,000, your total charge would be $3,074.70.

• A reward from your card issuer may not be cost effective. For those consumers that want to cash in on double air miles or other incentives, check the math and determine if the reward outweighs the processing fee to use your credit card.

• Revolving the tax charge on your credit card will increase your total tax bill. Consumers who will be charging to a credit card account would be wise to determine how long it will take to pay off the charge. Interest charges add up quickly and your tax bill could end up costing you much more than the original amount if the balance will not be paid within 90 days or so. A $3,000 balance at the average annual interest rate of 13 percent is up to an additional $32.50 per month in interest charges.

• Adding tax bill to a credit card with an existing balance could spell disaster. With the universal default clause that is buried in the fine print of many consumers' credit card agreements, a missed payment on any account could mean an automatic increase in annual interest rate charges to 30 percent or more. The last thing you want to do is pay a 30 percent surcharge on your tax liability until the entire balance of your card is paid off.

A Pennsylvania appeals court has ruled that lawsuits accusing H&R Block Inc. of charging unnecessary fees for filing tax forms electronically can be treated as class actions and don't have to be arbitrated.

Erin McNulty and Brian Erzar sued block, claiming the company charged clients millions of dollars in unnecessary e-filing fees. The plaintiffs alleged that Block did not adequately indicate that customers could avoid the fees by filing traditional paper returns.

Block's lawyers argued that a provision in a separate contract that the clients signed with Household Bank requires any claims to be settled through arbitration, not a class action. The agreement with Household Bank was for refund anticipation loans related to the clients' tax returns.

But in the court's opinion, Pennsylvania Superior Court Judge Richard Klein held that an e-filing fee was a separate and distinct transaction from the application for the loan and wasn't covered by the arbitration clause.

"The trial court found that charging a fee to push the 'send' button (basically the equivalent of putting a stamp on an envelope) was too attenuated to the loan application process and so was exempt from the arbitration case," Klein wrote.

"We believe the court's decision runs counter to the weight of state and federal law, and are considering an appeal of the decision to the Pennsylvania Supreme Court," Block said in a statement.

The case now returns to the Lackawanna County, Pa., Court of Common Pleas for trial.

Block has faced consumer class actions and criticism dating to the mid-1990s for how it hss marketed its high-interest refund anticipation loans.

The company settled a Texas lawsuit in June that called for it to distribute $26 million in cash, as well as tax preparation and software coupons, to 700,000 tax service customers. In April, a federal judge in Chicago rejected Block's proposed settlement in a similar class-action suit. That suit is pending.