Tips to keep in mind on income taxes and selling a home

June 19, 2018

Taxpayers who sell a home may qualify to exclude from their income all or part of any gain from the sale. Below are some things taxpayers should keep in mind when selling a home:

Ownership and use. To claim the exclusion, the homeowner must meet the ownership and use tests. During a five-year period ending on the date of the sale, the homeowner must have:

  • Owned the home for at least two years.
  • Lived in the home as their main home for at least two years.

Gain. Taxpayers who sell their main home and have a gain from the sale may usually be able to exclude up to $250,000 from their income or $500,000 on a joint return. Homeowners who can exclude all of the gain do not need to report the sale on their tax return.

Loss. Taxpayers experience a loss when their main home sells for less than what they paid for it. This loss is not deductible.

Reported sale. Taxpayers who cannot exclude the gain from their income must report the sale of their home on a tax return. Taxpayers who choose not to claim the exclusion must report the gain on a tax return. Taxpayers who receive a Form 1099-S, Proceeds from Real Estate Transactions, as part of the real estate transaction must also report the sale on their tax return.

Mortgage debt. Some taxpayers must report forgiven or canceled debt as income on their tax return. This generally includes people who went through a mortgage workout, foreclosure, or other process in which a lender forgave or canceled mortgage debt on their home. Taxpayers who had a written agreement for the forgiveness of the debt in place before January 1, 2017, might be able to exclude the forgiven amount from income.

Possible exceptions. There are exceptions to these rules for persons with a disability, certain members of the military, intelligence community and Peace Corps workers, among others.

Worksheets. Worksheets included in Publication 523, Selling Your Home, can help taxpayers figure the:

  • Adjusted basis of the home sold.
  • Gain or loss on the sale.
  • Excluded gain on the sale.

Multiple homes. Taxpayers who own more than one home can only exclude the gain on the sale of their main home. They must pay taxes on the gain from selling any other home.

Tax credit. Taxpayers who claimed the first-time homebuyer credit to purchase their home have special rules that apply to the sale. Taxpayers can use the First Time Homebuyer Credit Account Look-up to get account information, such as the total amount of their credit or repayment amount.

More Information:

IRS YouTube Videos:
First Time Homebuyers Credit Account Look-Up Tool – English | Spanish | ASL

Advertisements

IRS now billing those who filed but didn’t pay; Many payment options available

May 29, 2018

IRS YouTube Videos:

Easy Ways to Pay My IRS TaxesEnglish | Spanish | ASL

WASHINGTON — The Internal Revenue Service today advised those now receiving tax bills because they filed on time but didn’t pay in full that there are many easy options for paying what they owe to the IRS.

If a tax return was filed but the balance due remains unpaid, the taxpayer will receive a letter or notice in the mail from the IRS, usually within a few weeks. These notices, including the CP14 and CP501, both of which notify taxpayers that they have a balance due, are frequently mailed in the months of June and July.

How to pay

Taxpayers may pay taxes by electronic funds transfer, credit card, check, money order or cash:

  • Taxpayers can use Direct Pay to pay directly from a checking or savings account. This service is free.
  • Taxpayers can take advantage of the Electronic Federal Tax Payment System (EFTPS) to pay by phone or online. EFTPS® is a free service of the U.S. Department of Treasury.
  • Taxpayers may also initiate a debit or credit card payment. The IRS doesn’t charge a fee for this service but the processing company may. Fees vary by company.
  • Taxpayers may pay by check or money order made payable to the United States Treasury (or U.S. Treasury) either in person or through the mail.
  • Taxpayers should not send cash through the mail. They can pay cash at some IRS offices or at a participating PayNearMe location. Some restrictions apply.

Taxpayers who are unable to pay what they owe should contact the IRS as soon as possible. Several payment options are available including:

  • Online Payment Agreement — Individuals who owe $50,000 or less in combined income tax, penalties and interest and businesses that owe $25,000 or less in payroll tax and have filed all tax returns may qualify for an Online Payment Agreement. Most taxpayers qualify for this option, and an agreement can usually be set up in a matter of minutes. Online applications to establish tax payment plans, like online payment agreements and installment agreements, are available Monday – Friday., 6 a.m. to 12:30 a.m.; Saturday., 6 a.m. to 10 p.m.; Sunday, 6 p.m. to midnight.
  • Installment Agreement — Installment agreements paid by direct deposit from a bank account or a payroll deduction will help taxpayers avoid default on their agreements. It also reduces the burden of mailing payments and saves postage costs. Taxpayers who don’t qualify for a payment agreement may still pay by installment. Certain fees apply.
  • Delaying Collection — If the IRS determines a taxpayer is unable to pay, it may delay collection until the taxpayer’s financial condition improves.
  • Offer in Compromise — Some struggling taxpayers qualify to settle their tax bill for less than the amount they owe by submitting an offer in compromise. To help determine eligibility, use the Offer in Compromise Pre-Qualifier tool.

In addition, taxpayers can consider other options for payment, including getting a loan to pay the amount due. In many cases, loan costs may be lower than the combination of interest and penalties the IRS must charge under federal law.

Even if a taxpayer works out a payment solution with the IRS, the agency may still need to file a Notice of Federal Tax Lien to secure the government’s interest. Federal law requires the lien to establish priority as a creditor in competition with other creditors in certain situations, such as bankruptcy proceedings or sales of real estate. Once the IRS files a lien, it may appear on a taxpayer’s credit report and harm their credit rating. Therefore, it’s important that they work to resolve a tax liability as quickly as possible before lien filing becomes necessary. Once the IRS files a lien, the agency generally cannot issue a Certificate of Release of Federal Tax Lien until the taxpayer pays taxes, penalties, interest and recording fees in full.

Stay current

Taxpayers can take steps now to make sure they don’t fall behind on their taxes in the future. The IRS encourages several key groups of taxpayers to perform a “paycheck checkup” to check if they are having the right amount of tax withholding following recent tax-law changes.

Employees can increase their tax withholding by filling out a new Form W-4, Employee’s Withholding Allowance Certificate, and giving it to their employer. To have more tax withheld, claim fewer withholding allowances or ask the employer to take out a fixed amount of additional tax each pay period. To help figure the right amount to withhold, use the IRS Withholding Calculator  on IRS.gov.

The Tax Cuts and Jobs Act, enacted in December 2017, changed the way tax is calculated for most taxpayers, including those with substantial income not subject to withholding. Among other things, the new law changed the tax rates and brackets, revised business expense deductions, increased the standard deduction, removed personal exemptions, increased the child tax credit and limited or discontinued certain deductions. As a result, many taxpayers may need to raise or lower the amount of tax they pay each quarter through the estimated tax system.

The newly revised estimated tax package, Form 1040-ES, now available on IRS.gov, is designed to help taxpayers figure these payments correctly. Among other things, the package includes a quick rundown of key tax changes, income tax rate schedules for 2018 and a useful worksheet for figuring the right amount to pay. The IRS also mailed 1 million Form 1040-ES vouchers with instructions in late March to taxpayers who used the Form 1040-ES last year.

For more information, see Publication 505, Tax Withholding and Estimated Tax.


Tips for Taxpayers Who Need to Amend a Return

May 17, 2018

Taxpayers who discover they made a mistake on their tax returns after filing can file an amended tax return to correct it. This includes changing the filing status and dependents, or correcting income, credits or deductions. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend a return. Taxpayers should not file an amended return to fix math errors, because the IRS will correct those.

Here are some tips on how a taxpayer amends a tax return. Taxpayers should:

  • Complete and mail the paper Form 1040X, Amended U.S. Individual Income Tax Return, to correct errors to an original tax return the taxpayer has already filed. Taxpayers can’t file amended returns electronically and should mail the Form 1040X to the address listed in the form’s instructions. However, taxpayers filing Form 1040X in response to a notice received from the IRS, should mail it to the address shown on the notice.
  • Prepare Form 1040X. Many taxpayers find the easiest way to figure the entries for Form 1040X is to make the changes in the margin of the original tax return and then transfer the numbers to their Form 1040X indicating the year they are amending.  Use the second page of Form 1040X in Part III to explain the changes.
  • Know when not to amend. Aside from math errors, taxpayers also do not need to amend their return if they forgot to include a required form or schedule. The IRS will mail a request to the taxpayer, if needed.
  • Use separate forms for each tax year. Taxpayers amending tax returns for more than one year will need a separate 1040X for each tax year. Mail each tax year’s Form 1040X in separate envelopes.
  • Wait to file for corrected refund for tax year 2017. Taxpayers should wait for the refund from their original tax return before filing an amended return. It is okay to cash the refund check from the original return before receiving any additional refund.
  • Pay additional tax. Taxpayers filing an amended return because they owe more tax should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
  • File within three-year time limit. Generally, to claim a refund, taxpayers must file a Form 1040X within three years from the date they timely filed their original tax return or within two years from the date the person pays the tax – usually April 15 – whichever is later.
  • Track an amended return. Taxpayers can track the status of an amended return three weeks after mailing using “Where’s My Amended Return?” Processing can take up to 16 weeks.

IRS systems are back up and running

April 18, 2018

IRS systems are back up and running

Taxpayers have until midnight Wednesday to file their taxes

IR-2018-101, April 18, 2018

WASHINGTON – The Internal Revenue Service said today the agency’s processing systems are fully back up and running.

As of 9 a.m. today, the IRS has accepted more than 14 million tax submissions since processing systems reopened following a Tuesday morning system outage caused by a hardware issue.

“IRS teams worked hard throughout the night,” Acting Commissioner David Kautter said. “We are back up and running. The overnight performance means that the IRS is current with all of the tax submissions, and no backlog remains.”

The IRS reminds taxpayers they have until Wednesday night to file and pay their taxes. As the midnight April 18 deadline approaches, the IRS reminds taxpayers that help is available at IRS.gov, including automatic six-month extensions to file.

“The IRS appreciates the patience from taxpayers as well as the help and support of the nation’s tax professionals and software transmitters during this period


What Taxpayers Should do When They Need More Time to Pay 

April 17, 2018

All taxpayers should file their taxes on time, even if they can’t pay what they owe. This saves them from a potential failure-to-file penalty. While taxes are due by the original due date of the return, some taxpayers are unable to pay them by the deadline.

Here are some tips for those who can’t pay their taxes in full by the April 17 deadline:

  • File on Time and Pay as Much as Possible. Taxpayers can pay online, by phone, by check or money order, or with their mobile device using the IRS2Go app.
  • Get a Loan or Use a Credit Card to Pay the Tax. The interest and fees charged by a bank or credit card company may be less than IRS interest and penalties.
  • Use the Online Payment Agreement tool. Taxpayers should not wait for the IRS to send a bill before setting up a payment plan. The best way to do this is to use the Online Payment Agreement tool. Taxpayers can also file an Installment Agreement Request with their return and set up a direct debit agreement, eliminating the need to send a check each month.
  • Don’t Ignore a Tax Bill. The IRS may take collection action against taxpayers who don’t respond to notices. Taxpayers should contact the IRS right away by calling the phone number on their bills to talk about options. The IRS will work with taxpayers suffering financial hardship.

Tax Time Guide: ‘Where’s My Refund?’

April 10, 2018

Answers to commonly asked questions

WASHINGTON — The Internal Revenue Service today said that most tax refunds are issued in less than 21 days, although some may take longer. As of March 16, the IRS had already issued more than 61 million refunds averaging $2,960. Taxpayers can check the status of their refund online at IRS.gov by visiting the “Where’s My Refund?” tool or through the IRS2Go mobile app.

This is the last in a series of nine IRS tips called the Tax Time Guide. The guide is designed to help taxpayers as they near the April 17 tax filing deadline.

There are many factors that can affect the timing of a tax refund. Some tax returns take longer to process because the return includes errors or is incomplete, is affected by identity theft or fraud or, in general, needs further review. The IRS will contact taxpayers by mail if more information is needed to process a return. Once a refund has been approved the time it takes a bank to post the refund to an account can also have an impact. If requesting a paper refund check, taxpayers should also take into consideration the time it takes for it to arrive in the mail.

Taxpayers can use “Where’s My Refund?” to start checking on the status of their return within 24 hours after the IRS receives an e-filed return or four weeks after the taxpayers mailed a paper return. The tool has a tracker that displays progress through three phases: (1) Return Received; (2) Refund Approved; and (3) Refund Sent.

Those who use “Where’s My Refund?” on IRS.gov or the IRS2Go app must have information from their current tax return to access their information.

The IRS updates “Where’s My Refund?” once a day, usually overnight. Rather than calling the IRS and waiting on hold or ordering a tax transcript, taxpayers are encouraged to visit the website and use the tool. The information available online is the same information available to IRS telephone assistors.

Some taxpayers believe they can learn about the status of their refund by ordering a tax transcript. The IRS notes that the information on a transcript does not necessarily reflect the amount or timing of a refund. While taxpayers can use a transcript for help with tax preparation and to validate past income and tax filing status for certain loan applications, they should use the “Where’s My Refund?” tool to check the status of their refund.

The use of e-file and direct deposit continue to be the fastest and safest way to file an accurate return and receive a tax refund. More than four out of five tax returns are expected to be filed electronically, with a similar proportion of refunds issued through direct deposit.


Tips for Using the Withholding Calculator

March 27, 2018

The IRS recommends that taxpayers use the Withholding Calculator on IRS.gov to do a “paycheck checkup” to check that their employers withhold the correct amount of income tax from their paychecks.

The Withholding Calculator can help prevent employees from having too little or too much withheld from their paycheck. Having too little tax withheld can mean an unexpected tax bill or potentially a penalty at tax time in 2019. And with the average refund topping $2,800, some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks.

Here are some tips for using the Withholding Calculator. Taxpayers should:

  • Use their most recent pay stubs and federal income tax return to help estimate income and other items for 2018. Keep in mind the new tax law made significant changes to itemized deductions.
  • Fill in all information that applies to their situations.
  • Make estimates when necessary, but keep in mind the results are only as accurate as the information entered.
  • Check the information links embedded in the program whenever ttaxpayers have questions.
  • Print the final screen that summarizes their entries and the results. Use the results from the Withholding Calculator to determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate.

Remember, the Withholding Calculator does not ask the user for personally identifiable information, such as name, social security number, address, or bank account numbers. The IRS does not save or record the information the taxpayer enters in the calculator.


%d bloggers like this: