Eight Facts about Penalties for Filing and Paying Late

By Bill

Eight Facts about Penalties for Filing and Paying Late

April 15 is the tax day deadline for most people. If you’re due a refund there’s no penalty if you file a late tax return. But if you owe taxes and you fail to file and pay on time, you’ll usually owe interest and penalties on the taxes you pay late. Here are eight facts that you should know about these penalties.

1. If you file late and owe federal taxes, two penalties may apply. The first is a failure-to-file penalty for late filing. The second is a failure-to-pay penalty for paying late.

2. The failure-to-file penalty is usually much more than the failure-to-pay penalty. In most cases, it’s 10 times more, so if you can’t pay what you owe by the due date, you should still file your tax return on time and pay as much as you can. You should try other options to pay, such as getting a loan or paying by credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up a payment plan with the IRS using the Online Payment Agreement tool on IRS.gov.

3. The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.

4. If you file your return more than 60 days after the due date or extended due date, the minimum penalty for late filing is the smaller of $135 or 100 percent of the unpaid tax.

5. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.

6. If the 5 percent failure-to-file penalty and the 0.5 percent failure-to-pay penalty both apply in any month, the maximum penalty amount charged for that month is 5 percent.

7. If you requested an extension of time to file your income tax return by the tax due date and paid at least 90 percent of the taxes you owe, you may not face a failure-to-pay penalty. However, you must pay the remaining balance by the extended due date. You will owe interest on any taxes you pay after the April 15 due date.

8. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show reasonable cause for not filing or paying on time.

IRS Renews Phone Scam Warning

By Bill

IRS Renews Phone Scam Warning

The IRS today renewed its Oct. 2013 warning about a pervasive phone scam that continues to target people across the nation, including recent immigrants. The Treasury Inspector General for Tax Administration called it the largest scam of its kind. As of March 20, TIGTA reported that it has received reports of over 20,000 contacts related to this scam. TIGTA also stated that thousands of victims have paid over $1 million to fraudsters claiming to be from the IRS.

In this scam, the thief poses as the IRS and makes an unsolicited call to their target. The caller tells the victim they owe taxes to the IRS. They demand that the victim pay the money immediately with a pre-loaded debit card or wire transfer. The caller often threatens the victim with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting. Thieves who run this scam often:

• Use common names and fake IRS badge numbers.
• Know the last four digits of the victim’s Social Security Number.
• Make caller ID appear as if the IRS is calling.
• Send bogus IRS e-mails to support the bogus calls.
• Call a second time claiming to be the police or department of motor vehicles. The caller ID again appears to support their claim.

If you get a call from someone who claims to be with the IRS asking you to pay back taxes, here’s what you should do:

• If you owe, or think you might owe federal taxes, hang up and call the IRS at 800-829-1040. IRS workers can help you with your payment questions.
• If you don’t owe taxes, call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484.
• You can also file a complaint with the Federal Trade Commission at FTC.gov. Add “IRS Telephone Scam” to the comments in your complaint.

Here are a few warning signs so you can protect yourself and avoid becoming a victim of these crimes:

• Be wary of any unexpected phone or email communication allegedly from the IRS.
• Don’t fall for phone and phishing email scams that use the IRS as a lure. Thieves often pose as the IRS using a bogus refund or warnings to pay past-due taxes.
• The IRS usually first contacts people by mail – not by phone – about unpaid taxes.
• The IRS won’t ask for payment using a pre-paid debit card or wire transfer. The IRS also won’t ask for a credit card number over the phone.
• The IRS doesn’t initiate contact with taxpayers by email to request personal or financial information. This includes any type of e-communication, such as text messages and social media channels.
• The IRS doesn’t ask for PINs, passwords or similar confidential information for credit card, bank or other accounts.

The IRS urges you to be vigilant against the many different types of tax scams. Their common goal is to steal your money, and often to steal your identity. Visit the genuine IRS website, IRS.gov, for more on what you should do to avoid becoming a victim.

Energy-Efficient Home Improvements Can Lower Your Taxes

By Bill

Energy-Efficient Home Improvements Can Lower Your Taxes

You may be able to reduce your taxes if you made certain energy-efficient home improvements last year. Here are some key facts that you should know about home energy tax credits.

Non-Business Energy Property Credit

• This credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This includes items such as insulation, windows, doors and roofs.
• You may also be able to claim the credit for the actual cost of certain property. This may include items such as water heaters and heating and air conditioning systems. Each type of property has a different dollar limit.
• This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
• Your main home must be located in the U.S. to qualify for the credit.
• Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. You can rely on it to claim the credit, but do not attach it to your return. Keep it with your tax records.
• This credit expired at the end of 2013. You may still claim the credit on your 2013 tax return if you didn’t reach the lifetime limit in prior years.

Residential Energy Efficient Property Credit

• This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
• Qualified equipment includes solar hot water heaters, solar electric equipment and wind turbines.
• There is no dollar limit on the credit for most types of property. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return.
• The home must be in the U.S. It does not have to be your main home.
• This credit is available through 2016.

Use Form 5695, Residential Energy Credits, to claim these credits. For more on this topic refer to the form’s instructions. You can get it on IRS.gov or order it by mail by calling 800-TAX-FORM (800-829-3676).