FAQ - Taxes, Audits, Extensions & Amendments
Do I Need to Pay Federal Taxes?
Of course! If you want to learn more about tax myths, we suggest that you point your browser to the Tax Protester.
How Much Is My Donated Gift Worth?
Good on-line sources to help you are The Salvation Army and Kelley's Blue Book . Remember, you may need to attach a qualified appraisal to your return for certain items you donated if you wish to claim the deductions on your tax return. The IRS expects all donations to be in good or better condition and you must retain your receipts from the charity as proof of your gift. Charitable organizations that sell donated cars will send you a Form 1098-C for you to determine the value of your gift.
When Should I Collect Social Security?
You can direct your questions to the Social Security Administration and their The Social Security Retirement Planner, but we can help you with your tax strategies for your retirement.
What is the AMT (Alternative Minimum Tax)?
The Alternative Minimum Tax was established in the 1970's to ensure that wealthier taxpayers with large write-offs and tax-sheltered investments pay at least a minimum tax. Congress created a second alternative tax computation which adds back to income certain tax preferences and eliminates some deductions. Taxpayers compute their taxes using both methods - the traditional tax computations and the alternative tax computations. Individuals are required to pay the higher of the two taxes. Until the American Taxpayer Relief Act of 2012 was passed, AMT was not indexed for inflation. Beginning in 2013, Congress has enacted a permanent "patch" to keep the exemption amounts from reverting to 2001 levels. The AMT has only two rates: 26% (2015 taxable income up to $185,400) and 28% (over $185,400); divide these levels in half if married filing separate returns. There are seven regular tax rates: 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. The AMT can be complicated to determine because it is usually the result of a variety of circumstances. Some items that may trigger the AMT are:
- excessive medical deductions in relation to income
- excessive real estate, investment, income, property, and foreign taxes paid
- excessive mortgage interest on property other than your home
- excessive miscellaneous itemized deductions
- exercising stock options
- excess depreciation
Do I Need to Pay Local Tax?
Most townships in the Philadelphia region require individuals and businesses to file earned income tax returns. Only report taxable earned income (ie. salaries, wages, commissions, self-employment income, and bonuses). DO NOT report nontaxable income on the local returns. Nontaxable income includes: Social Security Benefits, Unemployment Compensation, Pensions, Interest, Dividends, Lottery Winnings, Capital Gains, or active military service. Most retirees and homemakers do not need to pay, however, if a tax form is sent to you, you must return it and indicate why you have no earnings. For more about local Pennsylvania taxes, click here.
How Does the Local Tax Work?
You pay a local tax in townships where you live and where you work. If you work in a township that enforces a local tax, then your employer has to withhold it from your pay. If you live in a township that enforces the local tax, then you need to file a return. All local municipalities give credit for any Philadelphia wage taxes paid.
Is Local Tax the Same as a Per Capita Tax?
No. Local taxes are based on earned income.
Where's My Refund?
You can check the status of your refund online by visiting irs.gov and looking under "Where's My Refund?" or, after 21 days, by calling the IRS at 1-800-829-1954. Refund information is not available until at least 4-6 weeks after you file (or 3 if you file electronically). Make sure that you have a copy of your return handy when you call because you'll need to know your social security number, filing status, and amount of the refund.
The IRS allows individuals to directly deposit their federal refunds into up to three different accounts. These accounts include brokerage, checking, and savings accounts. You may also designate your refund to be sent directly into your IRA or Roth IRA (be sure to indicate which year you want to contribute to). For PA refunds, you may only choose direct deposit into one account: checking or savings. Make sure that you provide accurate routing and account numbers, otherwise, direct deposit will be rejected and a check will be issued. Check with your financial institution to determine when your refund has been received.
How Do I Pay My Tax?
The IRS accepts several forms of payment. Make your Check or Money Order payable to the "United States Treasury" for the full amount due. Do not attach your check to your return! Please write "2014 Form 1040" and your name, address, phone number, and social security number on your payment. Include Form 1040-V with your tax return.
You may also sign up for automatic funds withdrawal from your bank account, or sign up for EFTPS (Electronic Federal Tax Payment System). The EFTPS service is ideal for taxpayers who make multiple payments throughout the year because it also supports estimated tax payments and installment payments. Enroll online at www.eftps.gov or call 1-800-555-4477 for more information.
If you can't pay your entire balance due, you may file Form 9465 (available online) to request an Installment Agreement. Once approved, you'll be able to make a series of partial payments. Payments received after the due date of your return will be subject to penalties and interest.
You may pay your balance due on your major credit card (American Express, Discover Card, MasterCard or Visa). A convenience fee will be charged by the service provider based on the amount you are paying. You can find out the fee by calling the provider without obligation to use the service. If you pay by credit card, you will need to place the confirmation number on the upper left-hand corner of page 1 of Form 1040. To pay your taxes by credit card, contact:
Official Payments Corporation
1-877-754-4413 (Customer Service)
1-888-658-5465 (Customer Service)
What if I Can't Pay My Tax?
You may have up to 60 months to pay your tax balance when you choose to make monthly installment payments. You will be charged a fee, interest, and perhaps a late payment penalty on tax not paid by April 15. To reduce your fees, it is best to pay as much of the tax as possible when you file. This is a costly option, so it is a good idea to consider other alternatives first. Use Form 9465 to make your request. You may also apply online to start your installment agreement. The IRS usually responds within 30 days.
How Do I Obtain a Copy of My Return?
You may request a copy or transcript of your tax return. Obtain a copy of Form 4506 or 4506-T from the IRS.
Transcripts are available only for 1040 series returns. It shows most line items from the original return as well as any additional schedules or forms. The transcript does not reflect changes you or the IRS made to the return. The IRS does not charge a fee for transcripts. You may make your request online for added convenience.
Copies of your return are available with Form 4506 for a $50.00 fee, payable to the "United States Treasury".
Extensions Are Bad, Aren't They?
No, extensions aren't necessarily "bad". Some things about extensions that may surprise you:
- Anyone can file a "No Questions Asked" automatic extension until October 15.
- File Form 4868 or by phone, tax software, or through a tax professional.
- Filing an extension allows you time to fund your self-employed retirement plans (not IRAS).
- You can have more time to make sure that your return is done accurately, especially if you are undecided about something regarding your return or you haven't received all of your information. Those with late-arriving K-1 forms and last-minute amended 1099s may benefit from an extension. Taxpayers who have experienced casualties, illness, or other unexpected events may also take advantage of the additional time.
- Extensions are NOT extensions to pay. So, if you owe, you need to send payment with your extension. We will help you estimate how much you may owe before we send your extension in.
- There is no extra fee to file an extension. But, if you owe and don't send payment, a late payment penalty and interest will be charged based on the balance due.
- As long as you have paid at least 90% of your tax due by April 15, you'll avoid penalties and interest. This includes withholding from your W-2, 1099s, estimated taxes paid, refunds applied from the prior year, and any amount you send in with your extension.
- As long as you have filed your extension and you are expecting a refund, you will not be subject to penalties and interest.
- Filing an extension does NOT increase your chance for audit at all.
- Enrolled Agents have the power to file extensions for you!
Do I Need to Amend My Return?
Tax Returns can be amended if something changes (ie. a 1099 statement) or a mistake was made on the original return. You may file an amended return up to 3 years from the filing date of the tax return. Returns may be amended to change filing status (commonly, changing to head of household). However, you may not amend to change your filing status to Separate if you originally filed as Joint.
Because of the recent Supreme Court ruling regarding same-sex marriages, couples married in juristrictions that recognize their marriage may amend federal returns from years 2011-2012. You may not amend state returns in those states that do not recognize the union.
Can I Be Audited?
The IRS can enforce an audit up to 3 years after you file your return. However, if you never file a return, there is no statute of limitations and, theoretically, you can be audited at any time.
What Are the Odds I'll Be Audited?
Actually, the odds are slim that you'll ever be audited, but they have become more frequent in recent years as the IRS tries to close the tax gap (the difference between what is owed and what is reported and collected). Because two areas of abuse in 2008 were small businesses and tax-exempt organizations, the IRS may increase examinations in these sectors. Generally, the IRS doesn't really have the personnel to examine every return they receive, but taxpayers should nonetheless be prudent about reporting all their income and careful with their deductions. Although odds vary depending on such factors as location and income, chances of audit are increased when:
Your information on the return doesn't match third-party documentation (W-2, 1099)
Your itemized deductions exceed IRS targets
You claim tax-shelter losses
Complex investment or business transactions without clear explanations
You receive cash payments in your work that the IRS thinks are easy to conceal
Business expenses are large in relation to income
Charitable cash contributions are high in relation to income
If you are a shareholder of a closely held corporation that is under scrutiny
A prior audit resulted in tax deficiency
An informer gives the IRS grounds that you are omitting income