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File on Time Even if You Can’t Pay
Generally, taxpayers should file their tax returns by the deadline even if they cannot pay the total amount due, but if you can’t, there are several options. Let’s take a look at a few scenarios:
1. An individual taxpayer owes taxes but can’t pay in full by the deadline. If this is the case, file a tax return or request an extension of time to file by the April 18 deadline. If tax is owed and a return is not filed on time – or an extension is not requested – the taxpayer may face a failure-to-file penalty for not filing on time.
2. File an extension. Taxpayers should remember that an extension of time to file is not an extension of time to pay. An extension gives taxpayers until October 17, 2022, to file their 2021 tax return, but taxes owed are still due April 18, 2022 (April 19 if you live in Maine or Massachusetts).
To file an extension, taxpayers must do one of the following:
- File Form 4868, Application for Automatic Extension of Time, through their tax professional
- Submit an electronic payment with Direct Pay, Electronic Federal Tax Payment System or by debit, credit card or digital wallet and select Form 4868 or extension as the payment type.
3. Set up a payment plan as soon as possible. Taxpayers who owe money but cannot pay in full by April 18 (April 19 if you live in Maine or Massachusetts) don’t have to wait for a tax bill to set up a payment plan. Instead, they can:
- Apply for a payment plan on IRS.gov; or
- Submit a payment plan request using Form 9465, Installment Agreement Request
4. Pay as much as possible by the April 18 (or 19) due date. Whether filing a return or requesting an extension, taxpayers must pay their tax bill in full by the May deadline to avoid interest and penalties. People who do not pay their taxes on time will face a failure-to-pay penalty. The IRS has options for taxpayers who can’t afford to pay taxes they owe.
Don’t wait. If you need assistance filing a tax return or an extension for 2021, please call the office as soon as possible.
What To Do if You’re Missing Important Tax Documents
As the April 18th tax deadline quickly approaches, last-minute tax filers should make sure they have all their documents before filing a tax return. You should have received a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your federal tax return. Employers must furnish this record of 2021 earnings and withheld taxes no later than January 31, 2022. As such, most taxpayers should have received their documents near the end of January, including:
- Forms W-2, Wage and Tax Statement
- Form 1099-MISC, Miscellaneous Income
- Form 1099-INT, Interest Income
- Form 1099-NEC, Nonemployee Compensation
- Form 1099-G, Certain Government Payments; like unemployment compensation or state tax refund
Taxpayers who haven’t received a W-2 or Form 1099 should contact the employer, payer, or issuing agency and request the missing documents. This also applies to those who received an incorrect W-2 or Form 1099.
If they can’t get the forms, they must still file their tax return on time or get an extension to file. To avoid filing an incomplete or amended return, they may need to use Form 4852, Substitute for Form W-2, Wage and Tax Statement or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc.
If a taxpayer doesn’t receive the missing or corrected form in time to file their tax return, they can estimate the wages or payments made to them and any taxes withheld. They can use Form 4852 to report this information on their federal tax return.
If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their previous estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return.
Incorrect Form 1099-G for unemployment benefits
Many people received unemployment compensation in 2021. Unemployment compensation is taxable and must be reported on the recipient’s tax return.
Taxpayers who receive an incorrect Form 1099-G, Certain Government Payments (Info Copy Only), for unemployment benefits they did not get should contact the issuing state agency to request a revised Form 1099-G showing their correct benefits. Taxpayers who are unable to obtain a timely, corrected form from states should still file an accurate tax return, reporting only the income they did receive.
Filing an Amended Return
If you receive a corrected W-2 or 1099 after your return is filed and the information it contains does not match the income or withheld tax that you reported on your return, you must file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return.
Don’t Wait, Take Action Now
If you’re missing important tax forms, please contact the office for assistance.
Tax Credits To Help Cover Costs of Higher Education
Whether your child attends trade school, private college or public university, you already know that higher education in the United States is expensive. The good news is that many taxpayers are able to take advantage of two education tax credits to help offset these costs: the American opportunity tax credit and the lifetime learning credit. Taxpayers, their spouses, or their dependents who take post-high school coursework, may be eligible for this tax benefit.
How the Credits Work
These credits reduce the amount of tax someone owes. If the credit reduces tax to less than zero, the taxpayer could even receive a refund. To be eligible to claim either of these credits, a taxpayer or a dependent must have received a Form 1098-T, Tuition Statement from an eligible educational institution. There are exceptions for some students.
Key Things to Know
The American opportunity tax credit is:
- Worth a maximum benefit of up to $2,500 per eligible student.
- Only available for the first four years at an eligible college or vocational school.
- For students pursuing a degree or other recognized education credential.
- Partially refundable. People could get up to $1,000 back.
The lifetime learning credit is:
- Worth a maximum benefit of up to $2,000 per tax return, per year, no matter how many students qualify.
- Available for all years of postsecondary education and for courses to acquire or improve job skills.
- Available for an unlimited number of tax years.
Claiming the Credit
Taxpayers can use the Interactive Tax Assistant tool on IRS.gov to figure out if they’re eligible for either of these credits. If eligible, taxpayers who paid for higher education in 2021 can see these tax savings when they file their tax return. To claim either credit, taxpayers should complete Form 8863, Education Credits, and file it with their tax return.
Taxpayers should keep in mind that although there may be four academic years, there are five tax years. As such taxpayers can take advantage of both the American Opportunity Tax Credit (four tax years) and the lifetime learning credit (the fifth tax year), if eligible.
Don’t hesitate to call the office if you have any questions about these and other tax credits that could reduce your tax bill this year.
Small Business: Rent Expenses May Be Tax-deductible
If you’re a small business owner who is just starting out, you may not realize that some rent expenses may be deductible on your tax return. Here are some things small business owners should keep in mind when it comes to deducting rental expenses:
How Rent is Defined
Rent is any amount paid for the use of property that a small business doesn’t own. Typically, rent can be deducted as a business expense when the rent is for property the taxpayer uses for the business.
Lease or Purchase
- Sometimes a business must determine whether its payments are for rent or for the purchase of the property, because different tax rules may apply.
- Businesses must first determine whether an agreement is a lease or a conditional sales contract.
- Payments made under a conditional sales contract aren’t deductible as rent expense.
Businesses can’t take a rental deduction for unreasonable rents paid. Rent is unreasonable for deduction when it is higher than market value or a professional appraisal.
- Usually, unreasonable rent becomes a problem when business owners and the lessors are related.
- Rent paid to a related person is reasonable if it’s the same amount a business owner would pay to a stranger for use of the same property. The definition of a related person is not limited to family members. Please call for more information.
Office in the Home
A business owner’s workplace can be in their home if they have a home office that qualifies as their principal place of business.
- Business owners who rent their home and have a home office as their principal place of business may also qualify for a deduction.
- IRS Publication 587, Business Use of Your Home, Including Use by Daycare Providers, has more details about this deduction.
Rent Paid in Advance
Rent paid for a business is usually deductible in the year it is paid.
- If a business pays rent in advance, it can deduct only the amount that applies to the use of the rented property during the tax year. The business can deduct the rest of the payment over the period to which it applies.
- Business owners can review Publication 535, Business Expenses, for detailed examples on rent paid in advance.
Canceling a Lease
A business can usually deduct the costs paid to cancel a business lease.
If you have any questions about whether rental expenses are tax deductible for your small business, please contact the office.
Taxpayer Rights: Pay No More Than the Correct Amount
As a reminder, taxpayers have the right to pay only the amount of tax legally due, including interest and penalties. They also have the right to have the IRS apply all tax payments properly. This is one of 10 fundamental rights known collectively as the Taxpayer Bill of Rights.
The Taxpayer Bill of Rights (TBOR) is a cornerstone document highlighting the ten fundamental rights taxpayers have when dealing with the Internal Revenue Service. Every taxpayer needs to be aware of these rights in the event they need to work with the IRS on a personal tax matter.
With this in mind, taxpayers should know six important things about their right to pay no more than the correct tax owed. Here is a summary of what taxpayers can expect:
- File for a refund if they believe they overpaid their taxes.
- Contact the IRS by calling the number listed on the notice or bill if they believe there is an error on a notice or bill. Taxpayers may also write to the IRS office that sent the notice or bill within the time frame given and should provide photocopies of any records that may help correct the error.
- File an amended tax return if an error is discovered after the original return was filed. An amended return should also be filed if there is an error or change in your filing status, income, deductions, or credits.
- Request that any amount owed be removed if it exceeds the correct amount due under the law, if the IRS has assessed it after the period allowed by law, or if the assessment was done in error or in violation of the law.
- Request that the IRS remove interest from the account if the agency caused unreasonable errors or delays.
- Submit an offer in compromise using Form 656-L, Offer in Compromise. Taxpayers use this form to ask the IRS to accept less than the full amount of tax debt. Taxpayers do this if they believe all or part of the debt is not owed.
For general information about taxpayer rights, take a look at IRS Publication 1, Your Rights as a Taxpayer, which includes a full list of taxpayers’ rights. If you have specific questions, don’t hesitate to contact the office. Help is just a phone call away.