IRS Unclaimed Tax Refunds The IRS announced that it has $1.5 billion in tax refunds from 2018 and gave taxpayers until the end of the season to claim their money. If you missed out on claiming your refund, there are steps you can take to make sure you claim other refunds from 2019 and on.
Where is My Tax Refund? The IRS backlog has caused delays in millions of tax refunds, but not all refunds are delayed due to the pandemic. Lead Tax Attorney Philip Hwang and CEO David King discuss how you can avoid refund delays when you file and how your refund may be affected by various circumstances.
What to do if You Missed the Tax Filing Deadline The end of tax season was officially April 18, 2022, which means the IRS is diving into enforcements and catching up on notices. What should you do, and what should you expect if you missed the filing deadline?
Payroll Taxes: What they are and how to file As a business owner, you have the responsibility of paying payroll taxes. It’s important to keep in mind the benefits of e-filing and to consider using this method for your payroll tax return.
IRS Sends Large Tax Bills for 2021 Unemployment Benefits While some were able to return to work in 2021, approximately 25 million people received unemployment benefits and didn’t withhold taxes. The IRS is now looking to collect back taxes for the $325 billion in total benefits and mailed millions of large tax bills this season.
Does Inflation Affect Your Tax Debt? The state of the economy can be detrimental to your IRS or state tax liability. What exactly happens to your tax debt during inflationary periods? CEO David King and Lead Tax Attorney Phillip Hwang discuss the difference in interest rates, deadlines, and what to do if you find yourself in this circumstance.
IRS Backlog to Clear Up by End of 2022 Many American taxpayers have been waiting for refunds that are a year or more behind. In recent weeks, Commissioner Charles Rettig stated that the IRS backlog is due to clear up by the end of 2022.
Gas Stimulus: What You Need to Know In California, the average cost for regular gas is now up to $5.82, or $6.21 for premium. Recently, the government has decided to step in on federal and state levels to alleviate costs and provide support to the public. This has led to the creation of a new gas stimulus, which would support households that own vehicles.
You’ve always filed your income tax returns electronically in the past. Your returns were less vulnerable to calculation errors and you received your tax refund much quicker than you did filing paper returns. But this year, when you attempted to e-file your federal income tax return, the IRS rejected your submission, issuing a statement that a previously filed return using your Social Security number was already on file. How could such a thing happen?
Welcome to the world of identity theft, tax fraud style. Scammers filing falsified returns reap millions for their fraudulent efforts, spending the money from their ill-gotten gains long before the IRS – or their victims – become privy to the fact that a crime has even been committed. Many victims only learn that they’ve been targeted after receiving an audit notice from the IRS. In the meantime, fines, fees, penalties and interest from tax return fraud have accumulated, – and it’s largely up to victims to straighten out the mess.
How tax fraud victims are targeted
Phone and Email Scams
The most obvious way to protect yourself against scammers is to never give out your personal information to someone you don’t know, especially over the phone. If someone from the “IRS” is attempting to contact you over the phone or by email and asks for your social security or card information, don’t give it to them. The IRS almost never contacts via phone, instead preferring to send notices via mail. Even if you do receive a call from the IRS, they won’t ask for your social security number – they already have that information. The IRS will never leave you threatening voicemails about any possible tax balance or fraud regarding your account and will never ask for you to provide personal information or payments over the phone. If you feel uncomfortable about the validity of a call, hang up and call the IRS yourself – that way you know if what they’re telling you is true.
Accountant fraud
Be wary of scammers who will pose as a tax preparer and then rip off customers through refund fraud or identity theft. These phony accountants will tell you that they can get you a large tax refund and typically prey on low-income and non-English speaking taxpayers.
Even if you go to a legitimate tax preparer, your information can still be exposed if there is a data breach. To avoid this happening – and being left vulnerable – ask your tax preparer what more you can do to protect your information in case of a breach.
Identity theft
Make sure to protect your social security number at all costs. Identity thieves will attempt to steal this information in order to steal not only your identity but your tax refund too. As long as you notify the IRS that your information has been compromised and your refund has been stolen, the IRS will work with you to provide your refund. However, it will take extensive time and paperwork to prove that your information was stolen.
Medical Identity theft
Financial fraud such as a stolen credit card can be frustrating but can be quickly resolved since it’s easier to detect, and often doesn’t have significant long-term financial impacts. Medical identity fraud, on the other hand, can cost a victim tens of thousands of dollars and be notoriously difficult to resolve. Because of advancements in electronic communication and collaboration in the healthcare industry, personal health information (PHI) is more exposed and accessible. At the same time, this doesn’t always mean that your health provider is on the same page with your insurer. PHI is rarely tracked across multiple networks and this gap can make stealing and using it feasible.
Protecting Yourself from Tax Return Fraud
The best way to protect yourself from tax return fraud is by limiting access to your Social Security number. A bit of vigilance will protect you from many fraudulent attempts to obtain your Social Security number. Don’t carry your Social Security card unless you need to provide a copy for a job application or a similar purpose. Protect sensitive information on your computer by maintaining up-to-date antivirus and antispyware software and firewalls. Never send emails with personally identifiable information (PII) attached.
Think twice before responding to unsolicited “pre-approved credit” offers received online or in the mail. Never supply sensitive personal or financial information unless you have initiated the transaction or conversation – or unless you are 110 percent sure that the person on the phone or the website you’re dealing with is the real deal. If you receive questionable communication requesting (or demanding) sensitive financial or personal information from a company you’ve done business with, contact the company directly to verify that it is indeed them requesting the information.
If you receive unsolicited email, social media or text messages claiming to be from the IRS, there is a 100 percent probability that they’re fake. The IRS only initiates communications with taxpayers by regular mail or by telephone – period. Do not respond directly to such communications in any way. Instead, report suspicious IRS-related communications to phishing@irs.gov or call 1-800-366-4484. You can also sign up for Scam Alerts from the FTC to stay abreast of all the dirty tricks scammers are currently using.
If You’ve Been Victimized by Tax Return Fraud
The first indication that you’ve been victimized by tax return fraud often comes in the form of an inquiry from the IRS about discrepancies in your return. You may be questioned about returns issued in your name which you never received or wages earned for companies you’ve never even heard of. You may also be assessed additional taxes or tax return offsets for years that you didn’t file a tax return at all. Another telltale sign is a notice from the IRS that multiple returns have been filed during a single year using your Social Security number.
Once you become aware that you’ve been targeted by tax return fraud, you must act quickly to limit the damage. File a complaint with the Federal Trade Commission and a police report with your local law enforcement agency. Contact one or more of the three major credit reporting bureaus (TransUnion, Equifax or Experian) to have a fraud alert placed on your credit report. Close any credit card or other accounts that have been compromised or opened without your knowledge. Also, check your earnings report annually with the Social Security Administration to endure that there is no fraudulent activity.
If your federal tax refund has been stolen or you have other unresolved tax-fraud related issues, contact the IRS Identity Protection Specialized Unit at (800)908-4490. You can protect yourself from further tax return fraud attempts by filing “Form 14039 – Identity Theft Affidavit” with the IRS. It’s likely that you’ll be required to file a paper return for the present tax year and it may take months to resolve your case, as well as restore any refunds to which you’re rightfully entitled.
However, the IRS will issue you a unique IP PIN that will replace your Social Security number and which will allow you to e-file future federal income tax returns safely. Do not use this IP PIN for any other reason – including state income tax returns.
As of April 1, 2022, the IRS raised its interest rates for the quarter. These changes apply to quarterly taxpayers, such as corporations and self-employed filers.
The IRS announced the new rates as follows:
4% for overpayments (3% in the case of a corporation)
1.5% for the portion of a corporate overpayment exceeding $10,000
4% for underpayments; and
6% for large corporate underpayments
How higher IRS interest rates affect your liability
Liabilities accrue interest over time, so it’s likely that an outstanding balance will be affected if you are not in compliance with the IRS. The interest rate would be the short-term rate plus 3% on your liability.
For assistance with your tax liability, give us a call at (800) 536-0734 for a free consultation.
If you’re facing financial hard times, your retirement funds begin to look like a good source of much-needed cash. In cases of dire emergency, you may indeed be able to make withdrawals from those funds before you reach retirement age. However, the potential short-term and long-term consequences can be severe. Nonetheless, if you must make an early withdrawal from an Individual Retirement Account (IRA) or 401(k), there are certain circumstances under which you can minimize the bite by Uncle Sam.
The COVID-19 pandemic and the 2020 CARES Act have made it easier for taxpayers to withdraw funds from their retirement accounts. Learn more about taking a CARES Act retirement withdrawal HERE.
3 Types of Retirement Funds
There are three primary types of tax-optimized retirement funds in the United States:
Traditional IRAs
Roth IRAs
401(k)s
Traditional IRAs
Traditional IRAs are drawn from pre-tax earnings. When you deposit funds in a traditional IRA, the taxes on those funds and your earnings are deferred until after you retire, presumably when your income is lower and you qualify for a lower tax bracket.
Roth IRAs
By contrast, Roth IRAs are drawn from post-tax earnings. Because you pay taxes on Roth IRA deposits upfront, you do not have to pay taxes on either the principal or the earnings, provided that your Roth IRA has been open for five years or longer and you are at least 59 ½ years old when you begin making withdrawals.
401(K)
401(k) funds are sponsored by your employer. You can invest either pre-tax earnings or post-tax earnings, with tax implications similar to those for a traditional or a Roth IRA. Many employers match their employees’ contributions dollar for dollar. The catch is that you can’t access your employer’s contributions to your 401 (k) until you are fully vested in the company, which translates to being employed for a certain length of time which varies but five years is common.
For what reasons can you withdraw from an IRA without penalty?
If you are younger than age 59½, taking withdrawals from either a traditional or Roth IRA or from a 401(k) will usually trigger a 10 percent tax penalty in addition to paying any income taxes that are due. However, there are exceptions that vary depending on whether you are withdrawing from a traditional or a Roth IRA or from a 401 (k). You can avoid tax penalties from withdrawing from a traditional IRA even if you are younger than age 59 ½ for the following reasons
Purchasing a first home.
Educational expenses for yourself or a family member.
Death or disability of a family member.
Covering unreimbursed medical expenses.
Purchasing health insurance coverage (only if you are not already covered).
To claim one of these exceptions, you will need to complete IRS Form 5329 along with your income tax returns the following year. Even if you avoid the penalty, you will still need to pay taxes on the money you withdraw. This means that you should withdraw enough to cover your needs, plus a little extra for taxes.
Is there a Roth IRA withdrawal penalty?
Yes, penalty-free early withdrawals for Roth IRAs apply to only two circumstances: first–time home purchase or death or disability of a family member. However, the penalty for early withdrawal from a Roth IRA only applies to earnings, since you have already paid taxes on the principal. You will also need to submit Form 5329 along with your tax return.
How do I avoid an early withdrawal penalty on 401(k) retirement funds??
It is possible to make early withdrawals from a 401(k). However, the IRS is especially harsh on early withdrawals from 401 (k) funds. You may make what are known as hardship withdrawals before age 59 ½ for the following reasons:
Purchase a first home.
Pay for college for yourself or a dependent.
Prevent foreclosure or eviction from your home.
Cover unreimbursed medical expenses for yourself or a dependent.
However, hardship withdrawals from a 401 (k) differ from hardship withdrawals from an IRA. You will be assessed a 10 percent penalty in addition to paying income taxes on your withdrawal. To avoid the 10 percent penalty on early withdrawals from a 401(k), you must fulfill one of the following circumstances.
Total disability.
Medical expenses that total more than 7.5 percent of your adjusted gross income (AGI).
Court order to give the money to a divorced spouse, child, or other dependents.
Permanent separation from your job (including voluntary termination) during or after the year you turn 55.
Permanent separation at any age with a plan for equal yearly distributions of your 401(k) (once you begin taking distributions, you must continue them until you reach age 59 ½ or for five years, whichever is longer).
A better option than a hardship withdrawal from your 401(k) may be to take a loan against the value of your 401(k) with an outside lender. The lender places a lien against your 401(k) which remains in place until you repay the loan. Your funds remain in your 401(k), safe from the reach of Uncle Sam. However, if you default on the loan, the lender will have the right to seize your 401(k) to collect payment.
Is it bad to withdraw from an IRA?
It should be clear that IRA and 401k withdrawal should be considered a last resort. Even if you avoid tax penalties, you are depleting the available funds available for your retirement so in this sense, it is a bad idea and if you can avoid it, you should. If you must borrow, borrow enough to cover your obligations plus taxes, and repay the funds as quickly as possible. After all, you are actually repaying yourself – and your future.
Need to speak with a licensed tax professional? Optima Tax Relief provides a comprehensive range of tax relief services. Schedule a consultation with one of our professionals today.
