With the passing of another tax deadline, I thought it would be helpful to go over the consequences of not filing your tax return on time. If you have not filed your 2016 tax return, file it as soon as possible to minimize the penalties that you may owe.

There are three types of payments that could be assessed if you do not pay the tax owed on time. These are late filing penalties, late payment penalties, and interest.

If you owe taxes and don’t file your tax return or extension by the original due date, or if you filed an extension but fail to file your return by the extension due date you will be subject to late filing penalties.

The late filing penalty is 5% of the tax owed for every month your return is late, up to a maximum of 25%. If you fail to file your return for over 60 days after the due date or extended due date, the minimum penalty is the lesser of $205 (for 2016) or 100% of the unpaid tax due.

Late payment penalties could be assessed if you do not pay all of the taxes you owe. These apply if you do not pay all of the taxes owed by the original due date, regardless of whether or not you filed an extension. The late filing penalty is 0.5% of the tax owed for each month the tax remains unpaid, up to a maximum of 25%.

If both penalties apply to you the monthly penalty would be 5%, up to maximum penalty of 25%.

You will also be charged interest on any unpaid taxes starting the day after the return’s due date.

If you correctly expect to get a refund there is no penalty. You have three years to file from the due date or you will no longer be eligible for your refund.

Between Hurricane Harvey, the fast-approaching Hurricane Irma and the various wildfires ravaging the west, unfortunately natural disasters have been all too common this summer.

The last thing on anyone’s mind living in those areas is taxes, but nonetheless, there are various tax aspects of a disaster that people should be aware of. Fortunately, this is one area that the IRS makes rapid decisions to help those in need. Below is a sampling of the latest relief for victims of Hurricane Harvey from the IRS. Those impacted by disasters should check the IRS’s page frequently as other disasters may get similar relief from the IRS in the near future.

•  The IRS has provided special relief to encourage leave-based donation programs. Under these programs, employees may forgo their vacation, sick or personal leave in exchange for cash payments the employer makes, before Jan. 1, 2019, to charitable organizations providing relief for the victims of this disaster. The donated leave will not be included in the income or wages of the employees. Employers will be permitted to deduct the cash payments as business expenses.
•  401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Harvey and members of their families who live or work in disaster area localities affected by Hurricane Harvey and designated for individual assistance by the Federal Emergency Management Agency (FEMA). For a complete list of eligible counties, visit The FEMA Disaster website page. To qualify for this relief, hardship withdrawals must be made by Jan. 31, 2018. In addition, the six-month ban on 401(k) and 403(b) contributions that normally affects employees who take hardship distributions will not apply.
•  Hurricane Harvey victims in parts of Texas and any area designated by FEMA as qualifying for individual assistance (currently 18 counties are eligible) have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments. This includes an additional filing extension for taxpayers with valid extensions that run out on Oct. 16, and businesses with extensions that run out on Sept. 15. This also includes the Sept. 15, 2017 and Jan. 16, 2018 deadlines for making quarterly estimated tax payments. In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area.

Finally, for those who want to help and support those victims of any natural disaster, be cautious of who you make donations to. In order for donations to be tax deductible, they must be made to recognized charitable organizations under the IRS. For instance, Go Fund Me donations are typically not deductible as they go to a person and not a charitable organization. If you are donating online, make sure you are on the legitimate website for the charity. Unfortunately, it is all too common for charity scams to pop up during disasters with fake websites that are very similar to legitimate ones. You should ensure that the organization clearly has their Employee Identification Number (EIN) posted and you can use that and their name to check their exempt status on the IRS website. If you are donating a significant sum, that little bit of homework on your part is well worth it.

In September of 2016, the IRS announced that it would start using private debt collectors to recover certain overdue federal tax debts in the spring of 2017. To implement this new program, the IRS contracted with four private collection agencies: CBE Group, Conserve, Performant, and Pioneer. In carrying out their collection efforts, these four companies are required to respect taxpayer rights and obey the consumer protection regulations established in the Fair Debt Collection Practices Act.

How does this new program work?

Considering the continual mail and phone scams that keep emerging, the IRS Commissioner warned taxpayers to be alert for new scams related to this program. When a taxpayer’s account is transferred to a private debt collection agency, the IRS will give the taxpayer written notice of the transfer. In addition, the private collection agency will then send a second, separate letter to the taxpayer verifying this transfer. The private collection agency will not ask for payments to be made on a prepaid debit card or for checks to be made out to the collection agency. All checks should be made payable to the U.S. Treasury. The IRS emphasized that even with private debt collection, taxpayers should not be receiving phone calls from the IRS insisting on immediate payment. The IRS always mails multiple collection notices before making phone calls.

There are several types of accounts that the IRS will not transfer to private collection agencies. Some of these accounts include taxpayers who are deceased, in designated combat zones, victims of identity theft, or in presidentially declared disaster areas and requesting relief from collection. If a taxpayer does not want to work with a private collection agency appointed to his or her account, he or she must notify the private collection agency in writing. Also, the IRS urges taxpayers who are unsure if they have unpaid taxes due from a previous year to check their account balances on www.irs.gov/balancedue.

For more information on private debt collection visit the Private Debt Collection page on the IRS website.

On May 11, 2017, the Tax Court issued a Memorandum Decision (TC Memo 2017-79) that addressed, among other things, the Taxpayer arguing that the software “lured” him into claiming too many deductions on his tax return.

There were a number of issues on this return that caught the eye of the IRS: alimony paid deduction, interest deduction, and deduction for other expenses. When examined by the IRS, the Taxpayer did not have much in the way of paperwork to support his positon for the deductions reported.

In addition to disallowing the majority of the deductions taken, the Taxpayer was assessed an accuracy related penalty for substantial understatement of income tax. For this penalty, the burden shifts to the Taxpayer to show that his mistakes were reasonable and in good faith. “He admitted during trial that he deducted items he shouldn’t have, and that he overstated certain losses. He tried to blame TurboTax for his mistakes, but tax preparation software is only as good as the information one inputs into it,” the Court concluded.

Tax preparation software must be used correctly to be useful for purposes of showing reasonable cause and good faith as a defense to accuracy related penalties. The majority of court cases have rejected this defense.

It is the taxpayer’s responsibility to review the output as well as the input when using tax software. Remember the old adage: Garbage In Garbage Out.

When preparing your return, ensure you are reviewing the return before filing it. I just received a phone call this week from someone that was asking if his tax software was properly calculating the tax on rental property he had sold. A first for him. I commend him for wanting to understand what he was filing.

Remember: You can’t blame the software!

Right before this year’s tax deadline, the IRS put out a release reminding people that some of us may not have to ask for an extension. While this advice is coming a bit late from me for the current tax year, it is definitely something to keep in mind. As the IRS notes “Taxpayers in Presidentially-declared disaster areas, members of the military serving in a combat zone and Americans living and working abroad get extra time to both file their returns and pay any taxes due.”

If you are a taxpayer in a disaster area you will often have extended time to file and pay. These extensions of time also apply to other tax-related items like contributing to an IRA. The IRS states that generally any area given a disaster declaration by FEMA is provided this relief, which is extended to relief workers, businesses and anyone who has their tax records located in the disaster area.

If you are a member of the military or eligible support personnel serving in a combat zone you will have at least 180 days after you leave the combat zone to file your tax returns and pay your taxes. As with the disaster relief, this extension also pertains to other tax-related items like contributing to your IRA. The IRS suggest checking Publication 3, Armed Forces’ Tax Guide, for further details.

For U.S. citizens and resident aliens who are living and working outside the United States and Puerto Rico, you have until June 15, 2017 (for the current tax year) to file your return and pay any taxes due. This also applies for military members on duty outside the U.S. who do not qualify for the combat zone extension. The IRS does note two items with this category of extended filing: 1) Attach a statement with your return explaining which situation applies for you; and 2) interest still applies to payments received after the standard filing deadline (generally April 15). See Publication 54 for more information.

For everyone else, just remember to ask for more time by filing Form 4868.

We all know how it goes – as soon as the New Year begins the tax forms begin filling up your mailbox. Just another year to throw the 1099s and W-2s in a pile and ship them off to your accountant just in time to throw a return together and be done with it. Many people see tax time as a necessary evil which they grin and bear their way through the steps in order to get it done and over with. If you are one of these people you may benefit from doing things a little different this year and seeing where it gets you.

There are many benefits to paying attention during your tax filing process if you have never cared or take the time to understand before. It doesn’t matter whether you are a wealthy business owner or just a normal guy or gal working for your paycheck – a good CPA can help you get the most benefit not only tax wise but possibly financially as well. Taking time with your tax preparer to understand the why’s and how’s can open your eyes to things you may be able to do differently to better your tax or financial position in the future. If your accountant does not have your best interest at heart then find a new one because a good accountant takes a personal interest in their clients and wants to see them do as well as absolutely possible. A good accountant will not only be able to prepare your tax return to its fullest potential but they are able to advise you on future moves and desires.
This year, make a resolution to spend some time with your accountant, learn something new, and solidify the relationship. Having a trusted advisor as opposed to a tax preparer on your team will take you a long way and be worth every penny.

On December 9th, 2016, the IRS announced that the 2017 tax filing season will begin on January 23rd, 2017, when it will start accepting electronic tax returns. Per its website, the IRS is expecting more than 153 million individual tax returns to be filed during 2017, some of which will be affected by recent changes in tax law. Specifically, the IRS is now required to hold refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15th, 2017. This rule applies to the entire refund, not just the portion of the refund relating to these credits. Furthermore, due to delays in refund processing through financial institutions, weekends, and the Presidents’ Day holiday on Monday, February 20th, 2016, the IRS is warning taxpayers who claim either credit that they most likely will not be receiving their refunds before February 27th, 2017.

How can you check the status of your refund?

There are two easy ways:

– Where’s My Refund on the IRS website – This website will be updated with estimated deposit dates for early EITC and ACTC refund filers after February 15th, 2017. All you need is your social security number or ITIN, filing status, and your exact refund amount.

– IRS2Go – This is the official mobile app of the IRS. It can be downloaded from the IRS website. EITC and ACTC refund filers can start checking the status of their refunds after February 15th, 2017.

The 12 days of tax planning countdown- for web

With the year coming to an end, it is important to start getting your books in order to have them ready to close, and get a head start on filing your tax return. It is important to know that for the upcoming year, many due dates have changed for 2016 returns, and will be changed going forward.

Here are a few of those dates that have changed for the upcoming filing season. Additional guidance can be found on the American Institute of Certified Public Accountants (AICPA) website:

• Partnerships with a calendar year end will have a new due date of March 15th, and the extension date remains as September 15th. Fiscal year partnership returns are due on the 15th day of the 3rd month after year end, and a six month extension is allowed from that date.

• Trusts and Estates Form 1041 will have the same filing date of April 15th, but the new extension date is now September 30th.

• Exempt organizations will have the same filing date of May 15th, but with a single automatic 6-month extension of November 15th.

• FinCEN Report 114 will have a new due date of April 15th, with a new extension date of October 15th.

• Information returns including W-2 and most 1099 MISC forms will be due to the IRS/SSA on January 31st. This is the same date that they are due to the taxpayer. All other 1099 forms are due February 28th or March 31st if filed electronically.

• C Corporations have different rules for the upcoming years depending on when the year end is:

C Corporations with a calendar year end will have a new due date of April 15th with an extension date of September 15th.

C Corporations with a fiscal year end return other than December 31st and June 30th will be due on the 15th of the 4th month after the year end with an extension on the 15th of the 10th month after year end.

C Corporations with a June 30th fiscal year end will have a due date of September 15th with a new extension due date of April 15th.

It is important to be aware of these new filing dates since this will effect many entity returns in the upcoming filing season.

It’s hard to believe we are two-thirds of the way through 2016 already. Seems like just yesterday you were gathering all of your tax documents and filing your 2015 return (or maybe you still are if it was extended). I know for a lot of individuals and business owners taxes are the last thing on their mind right now, but if you are willing to spend a little time in September it might save you some heartburn come next tax season.

For most business owners and self-employed individuals, September 15th marks the due date for your third round of 2016 estimated tax payments. Most simply rely on the vouchers printed out with their 2015 tax return. There is nothing wrong with this, but these figures are based on your 2015 income. If you have experienced changes in 2016, whether good or bad, the amount you are planning on paying on September 15 may require some tweaking.

We are far enough in to the year to put together a good picture of where you will be at the end of the year. Doing some quick forecasting now could save you from a big cash hit on January’s estimated payment (if you tax plan at year end) or on April 15th. If you take a look at your books and notice some big changes from 2015 now is a good time to adjust your payment.

Keep in mind that as long as you make the payment amounts on your current vouchers you will have met the withholding requirements and will not be subject to estimated tax penalties, but the consequence of withholding too little or too much hits the pocketbook down the line, and we all know the lifeblood of small business is cash.

If you have any questions or would like a qualified professional to take a quick look at your numbers to make sure you aren’t going to be forking out extraordinary amounts of cash come spring, give your CPA a call. It may be well worth it.