Ten IRS Rules For Amending Your Tax Return

FROM FORBES.COM

Try to file once and file correctly! But if you need or want to amend, here are 10 things you need to know.

No. 1: Amended returns are NOT mandatory. This may surprise you, but you are not under an affirmative obligation to file an amended tax return. You must file a tax return each year with the IRS if your income is over the requisite level. In fact, you can be prosecuted for failure to file (a misdemeanor) or for filing falsely (a felony). As Wesley Snipes’s misdemeanor convictions show, failing to file carries smaller penalties than filing fraudulently. But once you’ve filed your return, you can’t be prosecuted for failing to file an amended return, even though something may happen after you file that makes it clear your original return contains mistakes. So first ask yourself whether the return you filed was accurate to your best knowledge when you filed it. If it was, you are probably safe in not filing an amendment.


No. 2: You can’t cherry-pick what you correct. You don’t have to file an amended return, but if you do, you must correct everything. You can’t cherry-pick and make only those corrections that get you money back, but not those that increase your tax liability.

No. 3: Some errors don’t merit an amended return. Math errors are not a reason to file an amended return, since the IRS will correct math errors on your return. Likewise, you usually shouldn’t file an amended return if you discover you omitted a Form W-2, forgot to attach schedules, or other glitches of that sort. The IRS may process your return without them, or will request them if needed.

No. 4: Timing counts. Most people suggest you must amend within three years of your original return filing. Actually, you must file a Form 1040X, Amended U.S. Individual Income Tax Return, within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

No. 5: Only paper will do. Amended returns are prepared on Form 1040X. You must use this form whether you previously filed Form 1040, 1040A or 1040EZ. Amended returns are only filed on paper, so even if you filed your original return electronically, you’ll have to amend on paper.

No. 6: You must amend each year separately. If you are amending more than one tax return, prepare a separate 1040X for each return.

No. 7: Amended returns are more likely to be audited. In general, amended returns are more likely to be examined than original returns.

No. 8: Refunds can be applied to estimated taxes. If you file an amended return asking for considerable money back, the IRS may review the situation even more carefully. As an alternative, you can apply all or part of your refund to your current year’s tax.


No. 9: The statute of limitations is kind to amended returns. Normally the IRS has three years to audit a tax return. You might assume that filing an amended tax return would restart that three-year statute of limitations. Surprisingly, it doesn’t. In fact, if your amended return shows an increase in tax, and you submit the amended return within 60 days before the three-year statue runs, the IRS has only 60 days after it receives the amended return to make an assessment. This narrow window can present planning opportunities. Some people amend a return right before the statute expires. Plus, note that an amended return that does not report a net increase in tax does not trigger any extension of the statute of limitations.

No. 10: Don’t forget interest and penalties. If your amended return shows you owe more tax than you reported on (and paid with) your original return, you’ll owe additional interest and probably penalties too. Even though you might be amending a return from two years ago, the due date for your original return and for payment has long passed. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions. The IRS will compute the interest and send you a bill if you don’t include it. If the IRS thinks you owe penalties it will send you a notice, which you can either pay or contest.

How the Mega-Rich Avoid Paying Taxes

It is rumored that some of the wealthiest Americans manage to pay less in taxes than some of their employees. They achieve this by one of two methods: doing their own financial and tax planning or paying someone to do it for them. Simple, isn’t it?

The point is that the rich are able to avoid taxes through legal processes. Some mega-rich may use sketchy methods to avoid taxes, and everyone’s definition of sketchy is different. However, most of the mega-rich use superior understanding of the tax laws to take advantage of all of the legal methods available to reduce their taxes. Here are just a few of those methods.

Capital Gains Management – Assets that are considered long-term capital gains (held for more than a year) are taxed at a 15% rate, or for the wealthiest Americans, a 20% rate that was recently introduced. Short-term capital gains are taxed at the ordinary income tax rate, which for the mega-rich is 39.6%. That’s almost a 50% tax savings.

Any monetary stream that can be classified as a capital gain will be classified that way in order to take advantage of the rates. Gains will be timed to bring the greatest tax advantage.

Losing ventures that result in capital losses can be used to offset capital gains. Tax-loss harvesting, or the strategy of selling off poorly performing investments at strategic times and using the losses to offset capital gains, optimizes the positive tax effects.

Income Modification – The mega-rich are adept at keeping their taxable income and applicable tax rates as low as possible.

By incorporating and paying themselves a reasonable, smaller salary, the mega-rich can take a higher portion of their income as dividends. Dividend income is generally taxed at the same 15%–20% capital gains rate. Another tactic is to take a portion of compensation as stock options, which are generally taxed only when the options are exercised.

Once you reach the mega-rich status, it is possible to take a significant portion of your income in dividends and receive a much smaller portion in traditional income taxed at normal rates.

Tax Deferral – The mega-rich enjoy the same tax-deferred benefits of retirement programs such as IRAs and 401(k)s as you do. Because of their wealth, they are in the position to max them out annually and take full advantage to the limits allowed by law.

There are other methods of tax deferral, such as with the stock option path listed above or deferred compensation plans that allow earnings to grow tax-free.

Borrowing Tactics – Strategic borrowing methods can actually earn money. Because of the leverage the mega-rich hold, they are able to borrow money in ways that can literally make money for them when they spot an opportunity.

One example is to purchase stock options at a fixed rate, then use those options as collateral to borrow money, which is used to make money off other opportunities. The loan is then paid off with those proceeds or by handing over the shares, thus avoiding capital gains.

Taxes Upon Death – Estate taxes can be dealt with by establishing an irrevocable trust where certain assets are no longer owned by the taxpayer. The trusts provide income while shielding the assets from taxes, and upon death, heirs will inherit the assets tax-free.

The “step-up” in basis is another method where capital gains taxes are avoided upon inheritance. The step-up refers to the value, or basis, of an asset. Consider a home you purchase for $200,000 that is worth $500,000 twenty years later upon your death. The $300,000 in extra value is not subject to capital gains because the basis is “stepped-up” or raised to its current market value for your heirs.

Otherwise, heirs would be stuck with a massive tax bill just to inherit the home, and those at lower incomes might not be able to keep the home. However, for the mega-rich, the step-up just becomes another nice tax break (albeit one that requires their death).

Perhaps someday you will be among the mega-rich and incorporate these and other tax-limiting methods in your financial strategy. If so, all we ask is that you keep the methods legal — and please do not forget about us if our advice helped you gain your mega-rich status.

How To File A Tax Extension In 7 Simple Steps. We can assist with the extension for free.

FROM BUSTLE.COM

1. Choose your own adventure: finish your return or file an extension

You’re going to need to do something — either file your taxes or request an automatic six-month extension — by April 15 to avoid the late-filing penalty of five percent of the unpaid balance per month (this penalty doesn’t typically apply if you’re owed a refund). 

Whether you’ve gotten the ball rolling or not, if you have a straightforward tax situation — for instance a single person with one or two W-2s — you should carve out an hour between now and April 15 (NOT at 11 p.m.) and just do the damn thing. Pay close attention to detail, though, because last-minute filers are more likely to make a mistake.

If you’re almost finished, but waiting on an important tax document, like a missing 1099 or a corrected W-2, then by all means, file an extension and pay any taxes due, then wait until you receive the pertinent doc to file your return. 

If you haven’t started yet and you have a complicated tax situation because you do a lot of freelance work or own your own business, then you’ll also probably want to buy yourself some extra time.

BUT if you’re holding off simply because you don’t have the money you owe, that is a bad strategy. You’re merely delaying an inevitable few hours (maybe less!) of intense concentration and misery for a hefty price tag of increased interest and penalties. If a flush bank account is the only thing standing between you and your completed 2014 tax return, then just come clean to Uncle Sam now:

• If you owe less than $50,000, you can apply via the Online Payment Agreement for amonthly installment plan with a term of up to 72 months. I’ve done it before — it’s super quick and easy. 
• Another option for taxpayers experiencing financial hardship is the Offer in Compromise, tax relief that settles your liability with the I.R.S. for less than the full amount due. You can complete this online Offer in Compromise pre-qualifier to see if you’re eligible. 

Whatever you decide, choose an adventure that doesn’t end with the I.R.S. levying your paychecks or seizing your property.

2. Estimate your 2014 tax liability

Once you’ve determined that filing an extension is the right course of action for you, you’ll need to approximate tax liability for 2014. If you’re using e-file, most software will help calculate that for you after you’ve entered your W-2s and 1099s. 

However, if you’re going the old-fashioned paper route, you’ll need to add up your gross income yourself. If you’re single with no kids, subtract the standard deduction of $6,200 (unless you’re itemizing your deductions because of extreme medical bills or charitable contributions) and your personal exemption of $3,950 from the total — the result is your adjusted gross income — then scan the 2014 tax table for your AGI and filing status to find your tax liability for this year.

3. Figure out how much you already paid

Again, tax software makes this step a lot easier by tallying it for you. E-file is unquestionably the way to go unless you’re allergic to the Internet or living in a remote cabin somewhere. If you’re filing a paper copy, you’ll need to collect all your W-2s and add up the federal taxes paid from line 2. Also check to see if you have any federal income tax withheld on line 4 of your 1099s, but that’s a lot more rare. 

4. Pony up 

Your unpaid tax balance is still due on April 15 even if you’re filing an extension. I repeat, your unpaid tax balance is still due on April 15 even if you’re filing an extension. Ideally you’ll be able to pay any outstanding taxes along with your extension. However, if you’re unable to pay in full at the moment, see the alternative options listed under step 1.

5. File Form 4868 either electronically or via mail 

Whether you e-file your extension or submit a paper copy, completing this application is a breeze. You’ll just need your usual name, address, Social Security number, and the totals from steps 2 and 3 above. Once you’ve filled everything out, simply click submit or pop it in the mail, and now you’re good to go until your newly extended October 15 deadline!

6. Figure out your state’s tax extension policy

Form 4868 covers your delay as far as Uncle Sam is concerned, but what about Auntie California or wherever you live? Requirements for tax extensions vary state by state. Some, such as Wisconsin, Alabama, and California, offer automatic extensions with no additional paperwork, but in other states, like New York, you need to file a request. Research your state’s rules and file an extension, if necessary.

7. Actually remember to finish your return

Yes, you garnered yourself an additional six months to do your taxes, but time flies and it’s important not to procrastinate right up to the deadline again. Your automatic extension gives you until October 15 to file your return, but why not finish as soon as you have everything you need and a few sober hours to get it all done? Just imagine how amazing that will feel.

Why You Should Ask for a Tax Extension - We can help you file it for free

 Do you plan to spend the weekend cozying up to your tax forms?

With tax day looming, you may be considering filing an extension if you aren't quite prepared. If so, here are some things to think about.

First, if you need more time, you still have to file the extension paperwork by April 15. Tax form 4868 gives you an extra six months.

If it's just a matter of getting together some extra cash, you can go ahead and file while requesting a few extra months to pay. You will be hit with fees, but smaller ones than not filing.

And even if you do get an extension, you still need to make a payment if you think you owe money to avoid a monthly charge for late payment.

Remember, just ignoring tax day won't make it go away and it can cost you real money. Failure to file can cost you between 5 percent and 25 percent of what you owe.

And if you are in a bind, you may want to consider using plastic to pay. The fees on your credit card will likely be lower than penalties from the IRS.

Should You File for a Tax Extension? Contact me for assistance in filing an extension.

The tax deadline of April 15 is rapidly approaching and maybe you’re in panic mode. If you don’t have all your documents, facts and figures together, you may be considering either devoting some midnight oil to the project, or filing an extension.

Many people believe that if after years of timely filing, they suddenly put in for an extension that a red flag will go up. Not so. The IRS does not track this behavior and oftentimes there are very good reasons to file an extension.

On the other hand, some folks believe that filing an extension is the best thing to do to minimize audit risk. There’s been a rumor going around for years that the IRS makes its selection of returns to audit by pulling from the seasonal pool – those returns that are filed by April 15. Well, this is just a rumor and I have never been able to substantiate it. Auditors claim no knowledge on the subject and I can’t tell if they are being truthful or if they have pledged secrecy. Personally, I think there are other factors that flag returns for audits; not the filing date.

The following guidelines regarding the wisdom of filing an extension are provided by John Petosa, CPA, JD, Professor of Accounting Practice at Syracuse Joseph I. Lubin School of Accounting and Whitman’s online master’s program, Accounting@Syracuse.

1. “File an extension if you are currently under audit.  If you are being audited and file an extension, the IRS cannot include the current year in their audit.” The outcome of the audit may also affect your current year filing. For example, you might have NOL, capital loss, passive loss or home office operating expense carry forwards that may be applied to the current year. If the audit results change any of those numbers, you will want to wait until the end of the audit to determine the proper carry forward amounts.

2. “If you don’t have all the information to file the return completely and accurately, you should wait.  The primary way that a person is audited either via a letter or in person is because the information on their return fails to match a 1099, W-2 or some other information form that was filed with the IRS using the taxpayer’s social security number.  Making sure you have all the information in your return is a wise reason to extend the return.” Because partnerships, S Corporations, and Trusts can extend to September 15 for the filing of those tax returns, the K-1s they generate that belong to your individual return may be delayed until then. It’s better to wait, then file and amend later. After all, amended returns are more likely to be audited.

3. “ An important reminder is that filing an extension does not extend the time to pay the tax due.  Even if you file the extension you are still required to pay the tax that you think is due with the extension.” Use IRS Form 4868 and paper file with a check for the amount you think you will owe. Best to overpay and get a refund than underpay and be penalized. Remember to put your Social Security number and Form 1040 2015 on the memo line of the check so it is applied properly.

4. “Filing the extension and paying the amount that is due avoids the penalty and possible criminal sanctions associated with the “failure to file”.  File the extension and get the extra time to file completely rather than not extend the return, file late and pay late and be subject to significant penalties and interest.”

5.“If you have asked for a private letter ruling on a particular tax position you are considering using you should extend the return in anticipation of the response.”

9 Innocent Tax Return Mistakes That Trigger IRS Problems

1. Wrong or missing Social Security numbers. Be sure you enter all SSNs on your tax return exactly as they are on the Social Security cards.
2. Wrong names. Be sure you spell the names of everyone on your tax return exactly as they are on their Social Security cards.
3. Filing status errors. Some people use the wrong filing status, such as Head of Household instead of Single. The Interactive Tax Assistant on IRS.gov can help you choose the right one. Tax software helps e-filers choose.
4. Math mistakes. Double-check your math. For example, be careful when you add or subtract or figure items on a form or worksheet. Tax preparation software does all the math for e-filers.
5. Errors in figuring credits or deductions.  Many filers make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit, and the standard deduction. If you’re not e-filing, follow the instructions carefully when figuring credits and deductions. For example, if you’re age 65 or older or blind, be sure you claim the correct, higher standard deduction.
6. Wrong bank account numbers. You should choose to get your refund by direct deposit. But it’s important that you use the right bank and account numbers on your return. The fastest and safest way to get a tax refund is to combine e-file with direct deposit.
7. Forms not signed or dated. An unsigned tax return is like an unsigned check – it’s not valid. Remember that both spouses must sign a joint return.
8. Electronic filing PIN errors. When you e-file, you sign your return electronically with a Personal Identification Number. If you know last year’s e-file PIN, you can use that. If not, you’ll need to enter the Adjusted Gross Income from your originally-filed 2012 federal tax return. Don’t use the AGI amount from an amended 2012 return or a 2012 return that the IRS corrected.
9. Mismatches between your tax return and Forms 1099. These key forms come in many varieties, and they are important. For interest and dividends there are Forms 1099-INT and 1099 DIV. And the granddaddy of them all, Form 1099-MISC. With each 1099, the IRS receives a copy. If you forget to include 1099 income on your return, expect a notice. It may include penalties and will almost surely include interest. It can even trigger a more comprehensive audit.

Be careful. Tax returns are filed under penalties of perjury. Simple reporting problems can lead to crippling mistakes that can cost big. The law has elaborate Form W-2 and Form 1099 reporting rules to serve as checks and balances. Yet a huge part of our tax system is about self-reporting.

3 Tax Loopholes for the Merely Middle Class

FROM DAILYFINANCE.COM

Former presidential candidate Mitt Romney's legendary tax deduction for his horse may sound like the ultimate boondoggle of the super rich.

Ditto for writing off the private jet, stashing money in offshore accounts and paying the nanny as a corporate employee.

Here are some other tax loopholes that might be within your reach:

1. Maximize your 529. The tax benefits of a 529 college savings plan are baked right into the plan -- you put in after-tax money and the proceeds grow tax-free, like a Roth individual retirement account. In some 34 states and the District of Columbia, you also get a tax benefit on your state taxes. But there's more to it than that.


Depending on the state, each parent can make a contribution for each child. That's why Patrick Beagle, a financial planner at WealthCrest in Springfield, Virginia, has four accounts for his two children. Beagle and his spouse each contribute the maximum of $4,000 a year for his state's tax break, for a total of $16,000.

You can also "front-load" your 529 savings by making several years of contributions at once, something President Barack Obama and his wife Michelle were able to take advantage of for their two daughters, putting $240,000 away all at once in 2007.

Depending on the state, there may be no time limit on how long your contribution has to stay in the 529 account before you get a deduction. If you have a child who is already in college, you can make your yearly contribution, get the tax credit and then withdraw it for use immediately.

2. After-tax Roth conversions. Want to fill up your Roth but either make too much to qualify or find the $5,500 a year limit too low? You can contribute after-tax money to your 401(k) and convert it to a Roth, thanks to a new Internal Revenue Service notice.

Jim McGowan, a certified financial planner with the Marshall Financial Group in Doylestown, Pennsylvania, altered his tax-planning strategies for many of his clients because of this change.

For those whose companies allow it, McGowan is having clients put aside $20,000 to $30,000 extra in their 401(k)s after they have maxed out the $18,000 allowed with pre-tax money.

The total an individual can save a year, including any matching funds, is $53,000, so there is plenty of wiggle room.

McGowan's clients are just starting to utilize Roth conversions, so nobody has rolled over funds yet. "Potentially, it could be an enormous benefit tax-wise," he says.

Not the least of which is that if you put the same amount in a brokerage account, you'd be paying capital gains every year. But with the extra in a 401(k) and then rolled into a Roth, the funds are sheltered.

Likewise, you can make a "back-door" Roth contribution, even if you are over the income level of $183,000 for singles or $193,000 for married couples.

First, you contribute after-tax dollars to an IRA, which you can do up to the regular limits of $5,500 or $6,500 for those over 55. You can then convert this "non-deductible IRA" at will to a Roth, says Harvey Bezozi, a tax accountant with his own firm in Boca Raton, Florida.

"Some people commingle the funds with a traditional pre-tax IRA, but I like to keep them separate so you can keep track of what you did," he says.

3. 'Business' income. You don't have to buy a farm, like one of Patrick Beagle's clients did, just to get some additional expenses to off-set income. Any small business will do.

Beagle has clients who sell products at home-based parties through companies like Thirty-One and Silpada. This opens up a lot of other deductions because they are using part of their home as an office or to store merchandise. There are also phone costs, office supplies and advertising costs to consider.

And all that guacamole for the handbag party? A legitimate business expense.