Tax time is always a bit unnerving, but when you’re hit with a large, unexpected tax bill, it can be shattering. There are few people who have the resources to simply pull out their checkbook and write a check for thousands of dollars, yet it can feel like that’s your only choice.

The truth is that even people who owe significant amounts of money have several options available to them, including taking advantage of the IRS’ Fresh Start Initiative, which was specifically created for this purpose back in 2011. Though the lien program won’t make your tax obligation go away, it does offer solutions to make things a bit easier, including offering expanded installment plan options, the ability under a program called Offers in Compromise to negotiate a lower tax bill under severe circumstances, and even the opportunity to avoid having to pay some assessed penalties.

Start by Checking the Math

Though it’s a relief to know that these options exist, your very first step when faced with an overwhelming and unexpected tax bill is to check the math. It’s unlikely that you’ll have big changes to your tax obligation unless there’s been another significant shift in your life. Unless you’ve sold a business or property, or no longer can claim a child as a dependent, there’s a very good chance that there’s a math error that needs to be fixed, so start by comparing this year’s return to last year’s, and contact the tax professional who prepared your latest return to enlist their help both in understanding the big bill and to help you determine the best way to address it if it is correct.

What If the Math is Right?
If the math is right and you really do owe the amount that set off those alarms, your choices are really limited to figuring out the best way to pay it. It may be tempting to simply skip sending in the return, but doing so is not going to help – the IRS will quickly figure out that you haven’t filed and the amount that you owe, and that will land you in big trouble – and owing even more money because of penalties and interest. It is much better to take control of your situation rather than let the IRS take the lead and contact your employer to garnish wages or file a lien on your home or other property. Many people make the mistake of filing for an extension and thinking that will delay the need to pay; unfortunately, an extension does not negate the obligation to make your payment – it just extends the time for your paperwork.

Some people submit a small amount of the amount owed along with an indication that more will be forthcoming when you can afford it. Though this can serve as a stopgap to a problematic situation, the truth is that the best way to approach this situation is to find a way to pay your debt immediately, no matter how painful doing so may be.

Ways to Pay

If you decide to pay in full without having the funds immediately available, there are really only a few options. These include:

• Charge your tax debt on a credit card – Though you may be able to earn whatever points your credit card entitles you to by charging your tax debt, that bonus will likely be negated by the fact that the IRS charges a 2% fee for that service, and of course you’ll have to pay whatever interest rates your credit card is charging. Still, if you can get a credit card with zero percent interest for a limited period, or even one that offers a cash bonus for charging a certain amount, this may be the smartest way to go (as long as you actually find a way to pay the debt).
• Ask the IRS about an installment plan – This option is available to taxpayers who owe less than $50,000 and who can pledge to pay their debt in full within six years by making payments online. This option carries a fee and a variable interest rate that can be excessive, especially because the interest compounds daily, and the risk of having a lien placed on your property or your wages garnished remains very real should you fail to make a scheduled payment.
• Take out a home equity loan – If you have the time to apply and enough equity in your home, you may want to apply for a low interest rate home equity loan for which you can deduct any interest that you pay on future tax returns.

What You Should Never Do

It can be frightening to be in debt to the government and tempting to withdraw money from your retirement accounts. Though this might seem like the easiest way to eliminate the problem, doing so can be a very big mistake, as it not only severely limits the amount of money that you will have available once you stop working, but also puts you in a position of having to pay additional fees for early withdrawals.

Thinking Ahead

At the same time that you are dealing with a surprise tax bill from last year’s tax return, you are already several months into this year’s earnings, and may unwittingly be furthering your fiscal problems. Take the time to learn how you got into the position you’re in and then take steps to ensure that you are setting aside money for next year or have the proper amount of withholding being taken out by your employer.

Self-employed individuals who are required to pay quarterly estimated taxes are strongly encouraged to set up a special tax savings account so that they don’t find themselves at a loss when their tax payments are due. The IRS provides a withholding calculator to help with this. Contact our offices so we can help you determine the best steps going forward.

You may think we harp on you a lot about protecting yourself against identity theft and tax scams. You are right… but we do it because having your identity stolen becomes an absolute financial nightmare, sometimes taking years to straighten out. Identity thieves are clever and relentless, and they are always coming up with new schemes to trick you. And all you have to do is slip up just once to compromise your identity, and your nightmare will begin.

What they try to do is trick you into divulging personal information such as your bank account numbers, passwords, credit card numbers, or Social Security number.

One of the most popular methods these unscrupulous people use is requesting your personal information by e-mail. They are pretty good at making their e-mails look as if they came from a legitimate source such as the IRS, your credit card company, or your bank.

You need to be very careful when responding to e-mails asking you to update things such as your account information, personal identification number (PIN), or password. First and foremost, you should be aware that no legitimate company would make such a request by e-mail. If one does, the e-mail should be deleted and ignored, just like spam e-mails.

We have seen bogus e-mails that looked like they were from the IRS, well-known banks, credit card companies, and other pseudo-legitimate enterprises. The intent is to trick you and have you click through to a website that also appears legitimate, where they have you enter your secure information. Here are some examples:

• E-mails that appear to be from the IRS indicating you have a refund coming and claiming that additional information is needed to process the refund. The IRS never initiates communication via e-mail! If you receive this type of e-mail, right away, you should know that it is bogus. If you are concerned, please free to call this office.
• E-mails from a bank indicating that it is holding a wire transfer and needs your bank routing information and account number. Don’t respond; if in doubt, call your bank.
• E-mails saying you have a foreign inheritance and that the sender needs your bank info to wire the funds. The funds that will get wired are yours going the other way. Remember: if it seems too good to be true, it generally is.

We have seen cases where elderly individuals have been duped out of hundreds of thousands of dollars, and sometimes their entire life savings. The scammers primarily rely on individuals’ fear of the IRS, coupled with a phony urgent need to make a payment to avoid arrest, foreclosure, or property seizure.

We could go on and on with examples. The key here is for you to be highly suspect of any e-mail requesting personal or financial information or requesting an immediate tax payment. Scammers will generally request payment be made by gift card, which should be an immediate RED FLAG!

A good rule of thumb is to STOP – THINK – DELETE.

If you receive electronic correspondence from the IRS, your state taxing agency, a credit card company, or a financial institution and feel uncomfortable ignoring it, call this office to check so you won’t need to worry.
Knowing that this is the time of year when the IRS sends correspondence to taxpayers, scammers will send fake letters to trick people into making payments on bogus tax liabilities. As a result, taxpayers need to be very careful to avoid being hoodwinked by these thieves. The best practice is to have a tax professional review any letter that you receive before you take any action. If the letter is real, then it will require a timely response, but if it is fake, it should be ignored.

Scammers have also been known to call individuals and threaten immediate arrest if a payment related to a phony liability is not immediately made. Just the threat of arrest is enough to know that the call is from a scammer, and you should immediately hang up.

Bottom line: you must be on guard against these scammers at all times. Your life can become a nightmare if your identity is stolen. Identity thieves will even file tax returns under your Social Security number, claiming huge refunds and leaving you with a horrendous mess to clean up with the IRS. Don’t be a victim. Please contact us if you believe your tax ID has been compromised.

This is a question many taxpayers ask during this time of year, and the question is far more complicated than people believe. To fully understand, we need to consider that there are times when individuals are REQUIRED to file a tax return, and then there are times when it is to the individuals’ BENEFIT to file a return even if they are not required to file.

When individuals are required to file:

• Generally, individuals are required to file a return if their income exceeds their filing threshold, as shown in the table below. The filing thresholds generally are the same amount as the standard deduction for individual(s).
• Taxpayers are required to file if they have net self-employment income in excess of $400, since they are required to file self-employment taxes (the equivalent to payroll taxes for an employee) when their net self-employment income exceeds $400.
• Taxpayers are also required to file when they are required to repay a credit or benefit. For example, taxpayers who underestimated their income when signing up for health insurance through a government Marketplace and received a higher advance premium tax credit (APTC) than they were entitled to, are required to repay part of it. Therefore, all individuals who received an APTC must file a return to reconcile the advance payments with the actual credit amount, even if their income is less than the filing threshold amount and even if they don’t need to repay any of the advance credit.
• Filing is also required when a taxpayer owes a penalty, even though the taxpayer’s income is below the filing threshold. This can occur, for example, when a taxpayer has an IRA 6% early withdrawal penalty or the 50% penalty for not taking a required IRA distribution.

2019 – Filing Thresholds

Filing Status	Age	Threshold
Single	Under Age 65 Age 65 or Older	$12,200 $13,850
Married Filing Jointly	Both Spouses Under 65 One Spouse 65 or Older Both Spouses 65 or Older	$24,400 $25,700 $27,000
Married Filing Separate	Any Age	$5
Head of Household	Under 65 65 or Older	$18,350 $20,000
Qualifying Widow(er) with Dependent Child	Under 65 65 or Older	$24,400 $25,700

When it is beneficial for individuals to file:
There are a number of benefits available when filing a tax return that can produce refunds even for a taxpayer who is not required to file:

• Withholding refund – A substantial number of taxpayers fail to file their return even when the tax they owe is less than their prepayments, such as payroll withholding, estimates, or a prior overpayment. The only way to recover the excess is to file a return.
• Earned Income Tax Credit (EITC) – If you worked and did not make a lot of money, you may qualify for the EITC. The EITC is a refundable tax credit, which means you could qualify for a tax refund. The refund could be as high as several thousand dollars even when you are not required to file.
• Child Tax Credit – This is a $2,000 credit for each qualifying child, a portion of which may be refundable for lower income taxpayers, and phases out for higher income taxpayers.
• American Opportunity Credit – The maximum for this credit for college tuition paid per student is $2,500, and the first four years of postsecondary education qualify. Up to 40% of the credit is refundable when you have no tax liability, even if you are not required to file.
• Premium Tax Credit – Lower-income families are entitled to a refundable tax credit to supplement the cost of health insurance purchased through a government Marketplace. To the extent the credit is greater than the supplement provided by the Marketplace, it is refundable even if there is no other reason to file.

DON’T PROCRASTINATE! There is a three-year statute of limitations on refunds, and after it runs out, any refund due is forfeited. The statute is three years from the due date of the tax return. So, the refund period expires for 2019 returns, which were due in April of 2020, on April 15, 2023.

For more information about filing requirements and your eligibility to receive tax credits, please contact our office.

This article discusses 30 family business truths that may be hard to swallow but can change the way your business operates on a day to day basis. For example, a high trust culture can be imperative when dealing with sticky situations in the workplace. In addition, focusing on what different members of the family have in common can build a positive work environment and create more efficiency.

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