Taxes

10 Million Taxpayers Face an Estimated Tax Penalty Each Year; Act Now to Reduce or Avoid it for 2017; New Web Page Can Help

WASHINGTON — The Internal Revenue Service today reminded taxpayers assessed an estimated tax penalty for tax year 2016 that they still have time to take steps to reduce or eliminate the penalty for 2017 and future years.
To help raise awareness about the growing number of estimated tax penalties, the IRS has launched a new “Pay as You Go, So You Don’t Owe” web page. The IRS.gov page has tips and resources designed to help taxpayers, including those involved in the sharing economy, better understand tax withholding, making estimated tax payments and avoiding an unexpected penalty.
Each year, about 10 million taxpayers are assessed the estimated tax penalty. The average penalty was about $130 in 2015, but the IRS has seen the number of taxpayers assessed this penalty increase in recent years. The number jumped about 40 percent from 7.2 million in 2010 to 10 million in 2015.
Most of those affected taxpayers can easily reduce or, in some cases, eliminate the penalty by increasing their withholding or adjusting estimated tax payments for the rest of the year. With a little planning, taxpayers can avoid the penalty altogether.
By law, the estimated tax penalty usually applies when a taxpayer pays too little of their total tax during the year. The penalty is calculated based on the interest rate charged by the IRS on unpaid tax.
How to Avoid the Penalty
For most people, avoiding the penalty means ensuring that at least 90 percent of their total tax liability is paid in during the year, either through income-tax withholding or by making quarterly estimated tax payments. Keep in mind exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishers, casualty and disaster victims, those who recently became disabled, recent retirees, those who base their payments on last year’s tax and those who receive income unevenly during the year. For details, see Form 2210 and its instructions.
Taxpayers may want to consider increasing their tax withholding in 2017, especially if they had a large balance due when they filed their 2016 return earlier this year. Employees can do this by filling out a new Form W-4 and giving it to their employer. Similarly, recipients of pensions and annuities can make this change by filling out Form W-4P and giving it to their payer.
In either case, taxpayers can typically increase their withholding by claiming fewer allowances on their withholding form. If that’s not enough, they can also ask employers or payers to withhold an additional flat dollar amount each pay period. For help determining the right amount to withhold, check out the Withholding Calculator on IRS.gov.
Taxpayers who receive Social Security benefits, unemployment compensation and certain other government payments can also choose to have federal tax taken out by filling out Form W-4V and giving it to their payer. But some restrictions apply. See the form and its instructions for details.
For taxpayers whose income is normally not subject to withholding, starting or increasing withholding is not an option. Instead, they can avoid the estimated tax penalty by making quarterly estimated tax payments to the IRS. In general, this includes investment income —such as interest, dividends, rents, royalties and capital gains —alimony and self-employment income. Those involved in the sharing economy may also need to make these payments.
Tips to Make Estimated Tax Payments
Estimated tax payments are normally due on April 15, June 15, Sept. 15 and Jan. 15 of the following year. Any time one of these deadlines falls on a weekend or holiday, taxpayers have until the next business day to make the payment. Thus, the next estimated tax payment for the fourth quarter of 2017 is due Tuesday, Jan. 16, 2018.
The fastest and easiest way to make estimated tax payments is to do so electronically using IRS Direct Pay or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). For information on other payment options, visit IRS.gov/payments. Taxpayers may also use Form 1040-ES to figure these payments. IRS Publication 505, Tax Withholding and Estimated Tax, is a resource on withholding and estimated payments.

Gifts to Charity: Six Facts About Written Acknowledgements

Throughout the year, many taxpayers contribute money or gifts to qualified organizations eligible to receive tax-deductible charitable contributions. Taxpayers who plan to claim a charitable deduction on their tax return must do two things:
• Have a bank record or written communication from a charity for any monetary contributions.
• Get a written acknowledgment from the charity for any single donation of $250 or more.
Here are six things for taxpayers to remember about these donations and written acknowledgements:
• Taxpayers who make single donations of $250 or more to a charity must have one of the following:
o A separate acknowledgment from the organization for each donation of $250 or more.
o One acknowledgment from the organization listing the amount and date of each contribution of $250 or more.
• The $250 threshold doesn’t mean a taxpayer adds up separate contributions of less than $250 throughout the year.
o For example, if someone gave a $25 offering to their church each week, they don’t need an acknowledgement from the church, even though their contributions for the year are more than $250.
• Contributions made by payroll deduction are treated as separate contributions for each pay period.
• If a taxpayer makes a payment that is partly for goods and services, their deductible contribution is the amount of the payment that is more than the value of those goods and services.
• A taxpayer must get the acknowledgement on or before the earlier of these two dates:
o The date they file their return for the year in which they make the contribution.
o The due date, including extensions, for filing the return.
• If the acknowledgment doesn’t show the date of the contribution, the taxpayers must also have a bank record or receipt that does show the date.
More Information:
• Can I Deduct My Charitable Contributions?
• Publication 526, Charitable Contributions
• Tax Topic 506, Charitable Contributions
• Publication 1771, Charitable Contributions Substantiation and Disclosure Requirements

What Taxpayers Can Do Now Before Filing Their Return in 2018

While taxpayers will not start filing their tax returns for a few months, there are a few things they can do to make the process easier next year. Here are two things that could affect the 2017 returns they will file in 2018.
1. Report name changes. Recently married or divorced taxpayers who change their name should notify the Social Security Administration. They should also notify the SSA if a dependent’s name changed. Taxpayers need to do this so that when the taxpayer files next year, the new name on the tax return matches A mismatch between the name shown on their tax return and the SSA records can cause problems in the processing of their tax return and may even delay their tax refund.
2. Renew Individual Taxpayer Identification Numbers. Taxpayers who use an Individual Taxpayer Identification Number should check to see if their number expired in 2016 or will expire this year. If so, and they need to file a return in 2018, they should apply now to renew their ITIN to avoid certain disallowed tax credits and processing delays next year. Taxpayers who have not used their ITIN to file a federal return at least once in the last three years will see their number expire Dec. 31, 2017. Additionally, ITINs with middle digits 70, 71, 72 or 80 will also expire at the end of the year. Only taxpayers with expiring ITINs need to take any action. To renew an ITIN, a taxpayer must complete a Form W-7 and submit required documentation. No tax return is required when submitting an application to renew.

Taxpayers Should Be Wary of Unsolicited Calls from the IRS

Taxpayers who get an unexpected or unsolicited phone call from the IRS should be wary – it’s probably a scam. Phone calls continue to be one of the most common ways that thieves try to get taxpayers to provide personal information. These scammers then use that information to gain access to the victim’s bank or other account.
When a taxpayer answers the phone, it might be a recording or an actual person claiming to be from the IRS. Sometimes the scammer tells the taxpayer they owe money and must pay right away. They might also say the person has a refund waiting, and then they ask for bank account information over the phone.
Taxpayers should not take the bait and fall for this trick. Here are several tips that will help taxpayers avoid becoming a scam victim.
The real IRS will not:
• Call to demand immediate payment
• Call someone if they owe taxes without first sending a bill in the mail
• Demand tax payment and not allow the taxpayer to question or appeal the amount owed
• Require that someone pay their taxes a certain way, such as with a prepaid debit card
• Ask for credit or debit card numbers over the phone
• Threaten to bring in local police or other agencies to arrest a taxpayer who doesn’t pay
• Threaten a lawsuit
Taxpayers who don’t owe taxes or who have no reason to think they do should follow these steps:
• Use the Treasury Inspector General for Tax Administration’s IRS Impersonation Scam Reporting web page to report the incident.
• Report it to the Federal Trade Commission with the FTC Complaint Assistant on FTC.gov.
• Taxpayers who think they might actually owe taxes should follow these steps:
• Ask for a call back number and an employee badge number.
• Call the IRS at 1-800-829-1040.

IRS Reminds Partnerships that Received Extensions: Returns Due Sept. 15 Tax Relief Available for those Affected by Hurricane Harvey

The IRS Monitoring Hurricane Irma, Upcoming Deadline
WASHINGTON — The Internal Revenue Service continues to monitor Hurricane Irma, but reminds calendar-year partnerships that the due date for filing a return after receiving an extension remains Sept. 15 following a recent change in the tax law.
The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 changed the date by which a partnership must file its annual return, Form 1065 or Form 1065-B. For calendar year partnerships, the due date for filing the annual return or request for an extension changed from April 15 (April 18 in 2017) to March 15. The due date for filing the return after receiving an extension of time to file was Sept. 15 when the due date was April 15, because the duration of the extension was five months. Under the new law, the due date for filing the return after receiving an extension of time to file is still Sept. 15, because the duration of the extension of time to file is now six months.
The IRS issued guidance, Notice 2017-47, providing penalty relief for certain partnerships that did not file the required returns by the new due date for their tax year that began in 2016, but filed their returns or their extension requests for that year by the15th day of the fourth month after the end of their taxable year (April 18 for calendar-year filers). If not for the Surface Transportation Act, these returns and requests for extension of time to file would have been on time.
The new deadlines are included in the instructions for Form 7004, instructions for Form 1065 and the instructions for Form 1065-B.
The IRS provided tax relief to taxpayers affected by Hurricane Harvey, including partnerships; affected taxpayers (as defined in the news release providing relief) have until Jan. 31, 2018, to file their returns. Calendar-year partnerships that are affected taxpayers that also receive relief from penalties under Notice 2017-47 if they file a return on or before Sept. 15, 2017, will receive relief from the failure-to-file penalty if they file the return by Jan. 31, 2018.
As Hurricane Irma approaches, the IRS is closely monitoring the storm and will be assessing next steps that will be needed for areas declared a federal disaster area.
The IRS projected that corporations and partnerships would file almost 6.9 million extension requests during 2017. The IRS expects to receive more than 4 million partnership returns during 2017.

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