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| IRS Interest Rate Increases 1% to 6% | Payment Options Available for Those Who Can’t Pay in Full |
| IRS Increases Mileage Rates | |
| 2008 IRS Mileage Rates |
Don't like Telemarketers? National Do-Not-Call Registry
"If you are truly
serious about preparing your child for the future, don't teach him to subtract -
teach him to deduct."
Fran Lebowitz
Sole Proprietors Likely Audit Targets
Feb 2006
Sole proprietors, independent contractors, self-employed workers and others accounted for $68 billion in missing taxes, the IRS said.
“That is a very significant noncompliance rate,” Everson told reporters. “We do not have specific conclusions as to how much of this is willful or confusion.”
Sole proprietors are at least 10 times more likely to be audited this year than other business entities. Last year, with more enforcement personnel available, the IRS audited almost twice as many individuals as five years previously.
Professionals advise sole proprietors to consider making their businesses corporations or LLCs to avoid audits and to hire an Enrolled Agent (EA) or a Certified Public Accountant (CPA) for tax advice.
What are the red flags the IRS will be looking for in sole proprietor returns? Underpayment of quarterly estimated payments, or late payments, could be significant to the IRS. Sole proprietors should also watch their income-to-deduction ratio. If this ratio exceeds 52 percent, an individual is more likely to be audited. Finally, beware of the home office deduction – a prime IRS deduction, avoid vague expense categories, such as miscellaneous.
Kevin McKeon, an IRS spokesman for the metro area, was asked what red flags the agency looks for and “how it determines who would get audited.”
McKeon said that common errors that tip off the bureau are invalid or incorrect Social Security numbers for the filer or dependents, math errors, and incorrect bank deposit numbers or routing numbers. Returns will get special attention when the taxpayer fails to sign and date the return or fails to attach W-2s.
Generally the IRS assigns a numeric score “somewhat like a credit rating” to each return, and thereby determines which returns will require more review. But “the major reason of all audits is illegal tax shelter," McKeon said, “or the use of offshore credit cards.” “Sometimes we (the IRS) look at an industry and if you work in that industry you might be audited,” he added.
Returns prepared by computer are neat and less likely to have math errors experts agree. Taxpayers should prepare their returns early, but should not file early.
McKeon advised using only reputable tax preparers, those who have the title “enrolled agent” meaning that they’ve taken a qualifying test from the IRS.
| IRS Increases Mileage Rates Jul 1
thru Dec 31, 2008 Due to rising gas prices, the mileage rate will increase by eight cents to 58.5 cents a mile for all business miles driven from July 1 through Dec. 31, 2008. The new rate for computing deductible medical or moving expenses will also increase by eight cents to 27 cents a mile. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile. See news release IR-2008-82 and Announcement 2008-63. |
2007 IRS Mileage Rates
Business 48.5 cents per mile (depreciation component is 19 cents per mile)
Charity 14 cents per mile
Medical & Moving 20 cents per mile
IRS Offers Last Minute Reminders
Podcast: Last Minute Reminders
WASHINTON — Now that the April 15 tax return filing and tax payment deadline is nearing, the Internal Revenue Service offers the following last-minute tips for those taxpayers who haven’t yet filed, paid what they owe or taken the necessary steps to ensure they receive the economic stimulus payment they qualify for.
Taxpayers can speed their receipt of their economic stimulus payment by choosing IRS e-file and direct deposit and by filing by the due date. They also can minimize possible interest assessments and late filing or late payment penalties by filing and paying by the due date.
File Electronically
Take advantage of e-filing, which is fast, accurate and easy. Most available tax preparation programs check for errors and necessary information, increasing the accuracy of the return and reducing the need for correspondence with the IRS to clarify errors or omissions. With most programs taxpayers can usually file a state tax return at the same time they electronically file their federal return. Once the return is accepted for processing, the IRS electronically acknowledges receipt of the return. Generally, when someone files electronically, their refund will be issued in about half the time it would take if they had filed a paper return. Those who choose direct deposit will get their refund in even less time and receive their economic stimulus payments sooner as well.
Use IRS Free File
Free electronic filing from nearly 20 companies is available to taxpayers whose 2007 adjusted gross income was $54,000 or less. That means 70 percent of all taxpayers, 95 million filers, can take advantage of the IRS-sponsored Free File program. The only way to access this program is through the IRS’s secure, official Web site, IRS.gov. Free File is also available for individuals who are filing a tax return solely to receive their economic stimulus payment. There is no charge for this service.
Economic Stimulus Payments
Starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million households. To receive a payment, taxpayers must have a valid Social Security number, $3,000 of qualifying income and file a 2007 federal income tax return. The IRS will take care of the rest. Eligible people will receive up to $600 ($1,200 for married couples), and parents will receive an additional $300 for each eligible child younger than 17. Millions of retirees, disabled veterans and low-wage workers who normally do not need to file a tax return must do so this year in order to receive a stimulus payment. People filing only to receive the economic stimulus payment do not have to file by April 15 and they do not have to file a Form 4868 for an extension. These people must file Form 1040A, though, by Oct. 15 to receive the payment in 2008. Taxpayers normally required to file who cannot meet the April 15 deadline should file a Form 4868 to obtain an extension to file until Oct. 15.
Avoid Scams
If you receive unsolicited email or telephone calls from anyone purporting to be from the IRS, it’s probably a scam. Don’t click on any links; don’t answer any questions. Forward the emails or report the calls to phishing@irs.gov.
Earned Income Tax Credit
Earned income of less than $39,783 in 2007 may qualify a taxpayer (married filing jointly with more than one qualifying child) to claim the earned income tax credit. This credit could be worth up to $4,716 (depending on the number of qualified children and level of earned income). When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a tax return. An electronic special “EITC Assistant” is available to help taxpayers determine whether they are eligible. Taxpayers can access more information on this credit by clicking on “1040 Central” on the front page of IRS.gov.
Make Sure Your Paper Return is Error-Free
Those who file a paper return can avoid most potential delays in processing the return and avoid additional correspondence with the IRS to clarify errors should make certain they:
Pay Electronically
Taxpayers who file electronically can e-file and e-pay in a single step by authorizing an electronic funds withdrawal or by credit card. Electronic payment options are convenient, safe and secure methods for paying taxes or user fees. Taxpayers can charge taxes on their American Express, MasterCard, Visa or Discover cards, using an IRS-authorized service provider listed on IRS.gov. The service providers charge a convenience fee based on the amount of tax the taxpayer is paying. Taxpayers should not add the convenience fee to their tax payment. For those who can’t file or pay on time, the IRS provides extensions of time to file and payment plans.
Request an Extension of Time to File
Taxpayers who can't meet the deadline to file their tax return can get an automatic six-month extension of time to file from the IRS, but they must submit the request by April 15. The extension gives taxpayers until Oct. 15 to file the tax return. However, an extension of time to file does not give the taxpayer an extension of time to pay, which must be separately requested. Those who owe taxes can make a payment when they file the extension either by mailing a check made out to the U.S. Department of the Treasury or by several electronic payment methods, such as electronic funds withdrawals from bank accounts and credit card payments. Taxpayers can get an automatic six-month extension of time to file their tax returns by filing Form 4868, Automatic Extension of Time to File. Taxpayers can e-file the extension request from a home computer or through a tax professional who uses e-file. Taxpayers can e-file their extensions at no cost. Several companies offer free e-filing of extensions through the Free File Alliance; these companies are listed on IRS.gov.
Request an Extension of Time to Pay
Based on the circumstances, a taxpayer could qualify for an extension of time to pay. The IRS is willing to allow extensions of time to pay in order to assist in tax debt repayment. However, interest and certain penalties may apply. A taxpayer can request an extension from 30 to 120 days depending on the specific situation. Taxpayers qualifying for an extension of time to pay of 30 to 120 days generally will pay less in penalties and interest than if the debt were repaid through an installment agreement. Taxpayers can request an extension of time to pay using the Online Payment Agreement option available. If you owe tax but cannot pay the full amount, you should pay as much as you can by the April 15 due date in order to minimize any interest and penalty charges.
Apply for an Installment Agreement
The IRS may allow taxpayers to pay any remaining balance in monthly installments through an installment agreement. Taxpayers who owe $25,000 or less may apply for a payment plan electronically, using the Online Payment Agreement application. Alternatively, taxpayers may attach a Form 9465, Installment Agreement Request, to the front of his or her tax return. Taxpayers must show the amount of their proposed monthly payment and the date they wish to make their payment each month. The IRS charges a $105 fee for setting up an installment agreement. The fee is reduced to $52 for those who establish a direct debit installment agreement and $43 for those with an income below a certain level (more information is available on Form 13844). Taxpayers are required to pay interest plus a late payment penalty on the unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. A taxpayer who does not file the return by the due date — including extensions — may have to pay a failure-to-file penalty.
For more information about filing and paying taxes, choose “1040 Central” or refer to the Form 1040 instructions or IRS Publication 17, Your Federal Income Tax. Taxpayers can download forms and publications from the official IRS Web site, IRS.gov or request a free copy by calling toll free 800-TAX-FORM (800-829-3676).
|
2008 FILING SEASON STATISTICS |
|||||
|
Cumulative through the weeks ending 4/3/07 and 4/4/08 |
|||||
| Individual Income Tax Returns |
2007 |
2008 |
% Change |
||
| Total Receipts |
88,581,000 |
96,821,000 |
9.3% |
||
| Total Processed |
84,215,000 |
90,064,000 |
6.9% |
||
|
|
|
|
|||
| E-filing Receipts: |
|
|
|
||
| TOTAL |
61,345,000 |
67,437,000 |
9.9% |
||
| Tax Professionals |
44,210,000 |
47,184,000 |
6.7% |
||
| Self-prepared |
17,135,000 |
20,253,000 |
18.2% |
||
|
|
|
|
|||
| Web Usage: |
|
|
|
||
| Visits to IRS.gov |
109,353,000 |
132,444,000 |
21.1% |
||
|
|
|
|
|||
| Total Refunds: |
|
|
|
||
| Number |
73,622,000 |
75,136,000 |
2.1% |
||
| Amount |
$174.165 |
Billion |
$183.043 |
Billion |
5.1% |
| Average refund |
$2,366 |
$2,436 |
3.0% |
||
|
|
|
|
|||
| Direct Deposit Refunds: |
|
|
|
||
| Number |
49,935,000 |
53,694,000 |
7.5% |
||
| Amount |
$136.605 |
Billion |
$147.164 |
Billion |
7.7% |
| Average refund |
$2,736 |
$2,741 |
0.2% |
||
Payment Options Available for Those Who Can’t Pay in Full
WASHINGTON — The Internal Revenue Service reminds taxpayers who owe but can’t pay in full that several options are available to help them meet their tax obligations and save money by the April 15 filing deadline.
Taxpayers should file their return on time, pay as much as they can with their return and use IRS.gov if they need to request a payment agreement.
Interest and penalties add up for people who don’t file and pay on time. But taxpayers can limit these charges by filing on time and paying sooner.
Though interest, currently at the rate of 6 percent per year and late payment penalties, normally 0.5 percent (1/2 of 1 percent) per month, apply to any tax paid after the April 15 deadline, taxpayers can limit these charges by paying sooner. In addition, by filing on time, a taxpayer avoids the much larger 5-percent-per-month late-filing penalty. For example, a taxpayer who files on May 1, owing $1,000 in tax, would be charged interest plus a $50 penalty.
Various e-pay options offer taxpayers the easiest and fastest way to make a full or partial payment with their return. These options enable taxpayers to make payments either online or by phone using electronic funds withdrawal or a credit card. Alternatively, taxpayers can send the IRS a check made out to “United States Treasury.”
Taxpayers who need more time to pay can find out in just a few minutes whether they qualify for a payment agreement with the IRS. Just click on the Online Payment Agreement link and follow the prompts. By entering some basic information about their tax situation, eligible taxpayers can set up in a matter of minutes either a short-term payment extension or a monthly payment plan.
A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.
A monthly payment plan or installment agreement gives a taxpayer more time to pay. Though interest still applies, the late-payment penalty is cut in half for any month an installment agreement is in effect. This reduced rate of 0.25 percent (1/4 of 1 percent) per month is only available if the tax return was filed on time.
A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52, if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.
Alternatively, taxpayers can apply for a payment agreement by filling out Form 9465, Installment Agreement Request. This form can be filed along with either an electronically filed return or a paper return. If filing on paper, be sure to attach it to the front of the return.
Some taxpayers can wait until after April 15 to file and pay. As a general rule, those eligible get the extra time penalty-free and interest-free without having to ask for it. Eligible taxpayers include:
Revenue Ruling 2008-47 provides the rates for interest on tax overpayment and underpayments for the calendar quarter beginning October 1, 2008. The interest rates will be 6 percent for overpayments (5 percent in the case of a corporation), 6 percent for underpayments, 3.5 percent for the portion of a corporation overpayment exceeding $10,000, and 8 percent for large corporate underpayments. The quarterly determination is required by section 6621 of the Internal Revenue Code.
Revenue Ruling 2008-47 will appear in IRB 2008-39, dated September 29, 2008.
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Copyright © 2001-2008 by Gary W. Lundgren, EA