Twelve Common Missing Tax Return Items

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Want your tax return filed quickly and without error? Then double-check this handy list of items that are often overlooked.

Hopefully, by knowing these commonly missed pieces of information you can prepare to have your tax filing experience be a smooth one.

Point Review and signing your e-file approval. The sooner you review and approve your tax return, the sooner it can be filed.
Point Having proof of health insurance. Most taxpayers should receive a Form 1095 that confirms you have health insurance for the year. Some employers have received approval to delay sending you this form, but you still must have proof of proper insurance.
Point Missing W-2 or 1099. Using last year’s tax return, make sure all prior W-2s and 1099′s are received and applied to your tax return.
Point Incorrect information on a W-2 or 1099. If you fail to confirm the accuracy of your tax forms, you will be faced with a choice. Either try to get the form corrected or delay filing your tax return.
Point Missing or invalid Social Security Number. E-filed tax returns will come to a screeching halt with a missing or invalid number.
Point Dependent Already Claimed. Your return cannot be filed if there is a conflict in this area.
Point Name mismatch. If recently married or divorced, make sure your last name on your tax return matches the one on file at Social Security.
Point Inconsistent information. Most tax programs will check a tax return for inconsistencies. When one occurs, they must be resolved prior to filing your tax return. An example might be you filing Married Filing Separate, while your ex-spouse files as Married Filing Joint or Single.
Point No information for a common deduction. If you claim a deduction you will need to provide support to document the claim.
Point Missing Cost information for transactions. Brokers will send you a statement of sales transactions. If you do not also provide your cost and purchase information, the tax return cannot be filed.
Point Missing K-1. As an owner of a partnership, Sub Chapter S or LLC, you will need to receive a Form K-1 that reports your share of the profit or loss from the business activity. Without this, you cannot file your tax return.
Point Forms with no explanation. If you receive a tax form, but have no explanation for the form, questions could arise. For instance, if you receive a retirement account distribution form it may be deemed income. If it is part of a qualified rollover, no tax is due. An explanation is required to file your information correctly.

A Dozen IRS Not so Fine Penalties

 

Tax penalties

Over the past few years the IRS has made the use of penalties and fines a more prevalent tool to encourage compliance among taxpayers. This “stick” approach is in direct contrast to the “voluntary” philosophy built within our tax system. Here are a dozen of the more common penalties and fees.

Hopefully, by being aware of these common IRS penalties you can make sure they never apply to you or anyone you know. Sometimes when faced with these penalties you can request an abatement of the fine if you are a first-time offender.

Icon S-Corporation and Partnership late filing fee. This $195 fine is due for any month or partial month you are late in filing this tax return. The fine is due even though no tax is usually owed on these flow-through tax returns.
Icon 1099 or W-2 late filing penalty. You are required to issue a 1099 for any vendor that has $600 or more of activity with your business. The filing due date is the end of February or the end of March if e-filed.
Icon Underpayment of tax. This penalty is applied when a taxpayer does not withhold enough of their pay to cover their tax liability. There is a safe harbor calculation that protects you from this penalty. The safe harbor is usually withholding enough to cover 100% of last year’s tax liability or 90% of the current year’s tax liability. Special rules apply for higher income taxpayers.
Icon Late filing fee for form 1040. The fine is 5% of the unpaid tax per month (or fraction of a month) up to 25%. If over 60 days past due, the penalty is the smaller of $135 or 100% of the unpaid tax.
Icon Failure to file correct information returns. Fine: $50 – $260 per form (usually Form 1099s)
Icon Failure to file a tax return.
Icon Failure to have adequate health insurance for the entire year.
Icon 25% Inaccuracy penalty. This penalty applies to things like inaccurate business mileage deductions for the self-employed or to non-cash contributions that have no documentation. The best defense is to keep an accurate mileage log and record of your donations.
Icon Failure to file foreign information returns. If you own property in a foreign country you must consider the need to file annual reporting to the IRS. The rules in this area are strict and the fines can be high as the IRS continues to crack down on the use of foreign accounts to avoid paying U.S. taxes.
Icon Potential 100% penalty for employer failure to pay withholding taxes. The IRS takes a strong stance on employers that fail to send in their employee’s Social Security, Medicare and Federal tax withholdings.
Icon Retirement Account Penalties. There is a 10% penalty for withdrawing funds from qualified retirement accounts like IRA’s and 401(k)s prior to age 59½. There is also a 6% penalty tax for excess contributions to any of these accounts until the excess amount is corrected.
Icon Fine for not taking Annual Minimum Distribution (AMD) from retirement Accounts. If you are age 70½ or older you must withdraw a minimum amount from your qualified retirement accounts each year. Failure to do so creates a potentially large penalty of 50% of the amount that should have been withdrawn.

IRS Announces Dirty Dozen Tax Scams

IRS Scams

Each year the IRS announces “Dirty Dozen Tax Scams” they encounter regarding frivolous tax arguments and fraud. While six of the “scams” are related to, “don’t cheat we have our eyes on you,” the other six are scams that all of us should be on guard to detect.

Bullet Icon Identity theft. Identity theft tops the list of the dirty dozen this year. This reflects a truly bad year for the IRS. Three times in the past twelve months the IRS has acknowledged the theft of 100,000′s of taxpayer’s private information. Thankfully, the IRS is taking precautionary measures to curtail this huge problem. In addition to limiting the number of direct deposits it will make to any single account, the IRS is working with states and tax preparation software vendors to put more controls in place. This includes some states requiring drivers license numbers on their tax forms, delays in early processing of tax refunds, internal tracking within software programs, and continual checking for heavy filing activity. There are taxpayer single use tax id’s attached to tax returns that have had identity problems. Here is a link to the IRS identity protection page should you wish to know more. IRS Identity Protection: Prevention, Detection and Victim Assistance

Bullet Icon Phone scams. Phone calls from thieves representing themselves as IRS agents continues to get more sophisticated. These thieves often have some of your personal information. The caller ID may show as coming from the IRS and the scam may involve numerous phone calls instead of a single contact. How would you react if someone threatened you with jail time, deportation or license revocation? Remember, never give information over the phone to someone claiming to be from the IRS when they call.
Bullet Icon Phishing. This recurring scam involves receiving fake emails and creating websites that look like the real deal. The IRS will not send you billing information or refund information via email. Do not click on any link from an email received from the IRS unless you requested it. Remember the IRS does not initiate contact through emails.
Icon Return preparer fraud. In conjunction with Identity Theft, many temporary tax preparation offices set up shop and generate fraudulent tax returns. These folks often file a return using stolen information, create refund fraud and other scams that leave you holding the tax obligation when caught.
Bullet Icon Offshore accounts. The IRS has taken many enforcement actions in this area after breaking the long-standing secrecy wall of Swiss bank accounts. If you have money in foreign accounts, you must understand the reporting requirements or you could be subject to substantial fines.
Bullet Icon Fake charities. After major disasters, many charitable givers are scammed into making donations to fake charities. In addition, new IRS charitable organization reporting requirements are not being followed by many organizations. This makes donations to them non-deductible. To protect against this, prior to donating funds make sure the charity is both legitimate and deemed a qualified charity by the IRS.
Icon Other scams. The other six scams that round out the IRS list include; inflated refund claims, falsely padding deductions, excessive business credit claims, falsifying income to claim credits, abusive tax shelters, and frivolous tax arguments.

If you wish to know more, the IRS has posted information on these scams on their web site, www.irs.gov. Simply click on the News and Events tab.

A Dozen Financial Topics High School Students Should Know

High school banking

1 How bank accounts work. Provide your student a basic understanding of checking accounts and savings accounts. Show your new banking customer how to use checks and debit cards to pay for goods with their funds. Teach them how to access their accounts and reconcile their statements each month.
2 How credit cards work. Teach your child how credit cards work. Stress the importance of understanding that credit card spending actually creates a loan. Too many young people create credit card debt that they are unable to pay back. Emphasize the importance of not carrying a balance by paying off credit card debt each month.
3 Tax basics. You do not need to create a tax expert, simply a smart consumer that understands the basics of tax. When your student receives their first paycheck, walk through their paystub to explain Social Security, Medicare, federal tax withholdings, and state tax withholdings.
4 The power of the retirement account. While a tough concept for a young person, let them know the availability of long-term savings tools like a Roth IRA. The wise saver can create a self-made millionaire by starting their retirement savings at a young age.
5 How credit scores work. While no one really knows all the aspects that go into creating a credit score, you still have access to a free credit report each year. Consider walking through your child’s free credit report with your student.
6 Spending within your means. Save first then spend. This is a simple concept that is hard to accomplish. By teaching your student this habit early, you give your child a fighting chance of creating strong financial habits.
7 The art of saving. Part of spending within your means implies that your student has healthy savings habits. Walk your child through the techniques that work for you. Perhaps it is setting up a separate savings account. Perhaps it is putting a set amount away each month.
8 The strength of investing. The most valuable investment a young person can make is in themselves. Whether it is a college degree or a trade school diploma, your student can create tremendous value in skills that will provide a positive financial return each year.
9 Mutual fund and stock understanding. With an understanding of self-investment, next consider teaching your student some of the basic investment alternatives available to them. Stocks and mutual funds are most common, but also consider explaining bonds, CD’s, annuities and other investment tools.
10 Budgeting. Help your student create a basic budget and then help them track their savings and spending against this budget.
11 Cash flow. The hard way to learn the lesson of cash flow is when bill collectors are calling and there simply isn’t money to pay them. When creating an initial budget, show your student the flow of funds each month. An easy example of this is to show the flow of funds that relate to a car. There are everyday expenses like fuel, there are monthly expenses like a car payment, and there are periodic expenses for car insurance.
12 Calculation of net worth. Assets (what you own) minus liabilities (what you owe others) equals net worth. This is the math of banks and businesses. The sooner your student understands this concept, the easier it will be to plan to purchase a car, a house, or any other item of value.
13 The bankers dozen: The value of identity.Perhaps one’s personal identity is the most undervalued asset owned by your student. Online media may seem free, but your student has paid for this access with their identity. With the advent of identity theft, government/employer access to personal online information, and the proliferation of online advertising, consider helping your student understand the value of having a small online footprint. Help them establish healthy habits that will protect their personal information.