Dealing with the IRS can be an unnerving task for many taxpayers, especially when unexpected penalties arise. One such penalty that often catches people off guard is the dishonored check penalty. Understanding this penalty and how to avoid it is crucial for taxpayers to navigate their financial obligations smoothly. In this article, we explore the details of the IRS dishonored check penalty, its implications, and proactive measures taxpayers can take to prevent it.
What is the IRS Dishonored Check Penalty?
The IRS dishonored check penalty, also known as the bounced check penalty, is imposed when a taxpayer’s payment to the IRS is made with a check, and the check is returned unpaid by the bank due to insufficient funds or other reasons. When this happens, the IRS will typically send Letter 608C, Dishonored Check Penalty Explained. This penalty is separate from any penalties or interest that may apply to the underlying tax debt. It’s also important to note that the IRS will not attempt to resubmit a check. That said, the payment will be considered unpaid.
Implications of the Penalty
When a check is dishonored by the bank, the IRS imposes a penalty. The penalty is 2% of the check amount if it exceeds $1,250. If the check amount was less than $1,250, the penalty is the lesser of the following:
$25
The check amount
Additionally, interest may accrue on the unpaid tax amount from the original due date of the tax return until the date of payment. Furthermore, repeated instances of dishonored checks can result in increased scrutiny from the IRS. It may also lead to additional penalties or enforcement actions. Therefore, it’s essential for taxpayers to address any issues promptly to avoid further complications.
Preventive Measures
To avoid the IRS dishonored check penalty, taxpayers can take several proactive measures:
Ensure Sufficient Funds.Before writing a check, verify that sufficient funds are available in the designated account to cover the payment amount.
Double-Check Information. Accurate information, including the payee name, amount, and date, should be provided on the check to minimize the risk of errors that could lead to a dishonored check.
Consider Alternative Payment Methods. Instead of using personal checks, taxpayers can opt for electronic payment methods. These include direct debit, credit card payments, or the IRS’s Electronic Federal Tax Payment System (EFTPS). These methods offer faster processing and reduce the likelihood of payment issues.
Set Up Payment Plans. If paying the full tax amount upfront is not feasible, taxpayers can explore setting up an installment agreement with the IRS. This allows them to make monthly payments until the tax debt is fully paid, reducing the risk of bounced checks.
Monitor Accounts: Regularly monitor bank accounts to ensure that payments to the IRS and other creditors are processed successfully. Promptly address any payment discrepancies or issues that arise.
Penalty Abatement
If you had expected the payment to clear, you can request penalty abatement from the IRS. You’ll need to submit a written explanation or proof that there was no reason to believe the check would not clear. It’s best to wait until after you receive Letter 608C to submit this.
Tax Help for Those Who Receive IRS Letter 608C
The IRS dishonored check penalty can result in additional financial burdens for taxpayers already facing tax obligations. By understanding the implications of this penalty and taking proactive measures to prevent it, taxpayers can avoid unnecessary fees and complications in their dealings with the IRS. Ensuring accurate payment information, maintaining sufficient funds, and exploring alternative payment methods are crucial steps in mitigating the risk of bounced checks and related penalties. By staying vigilant and addressing payment issues promptly, taxpayers can navigate their tax obligations more effectively and minimize the impact of penalties on their financial well-being. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
Filing taxes can be an intimidating task for many individuals, but it’s a crucial responsibility that shouldn’t be taken lightly. Making mistakes on your tax return can lead to delays in processing, missed deductions, or even audits by the tax authorities. To ensure a smooth and accurate tax filing process, here are some of the top mistakes to avoid when filing your tax return.
Incorrect Personal Information
One of the most common mistakes taxpayers make is providing incorrect personal information such as name spellings, Social Security numbers, or filing status. Ensure that all personal details are accurately entered to avoid processing delays and potential issues with tax credits or deductions.
Math Errors
Even simple math errors can have significant consequences on your tax return. Double-check all calculations to ensure accuracy, especially when totaling income, deductions, and tax credits. Using tax preparation software or hiring a professional can help minimize the risk of math mistakes.
Failing to Report All Income
It’s essential to report all sources of income, including wages, self-employment income, investment earnings, and any other taxable income. Failing to report income can result in penalties and interest charges, as well as potential audits by the IRS.
Overlooking Deductions and Credits
Deductions and credits can significantly reduce your tax liability, so it’s important not to overlook them. Common deductions include mortgage interest, charitable contributions, and medical expenses, while credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit can provide valuable tax savings.
Forgetting to Sign and Date the Return
It may seem like a minor detail, but forgetting to sign and date your paper tax return can invalidate it. Make sure to sign and date your return before submitting it to the IRS or state tax authority. If filing jointly, both spouses must sign the return.
Using the Wrong Tax Form
Taxpayers often use the wrong tax form or schedule, leading to errors and delays in processing. Make sure to use the correct form based on your filing status, income sources, and any special circumstances. The IRS website provides guidance on choosing the appropriate forms for your tax situation. Tax preparation software will determine which tax forms are needed based on a series of questions it asks.
Missing the Filing Deadline
Failing to file your tax return by the deadline can result in penalties and interest charges, even if you’re due a refund. The deadline for filing federal income tax returns is typically April 15th, unless it falls on a weekend or holiday. The 2024 tax deadline is April 15. If you need more time to file, you can request an extension, but remember that an extension to file does not extend the deadline to pay any taxes owed.
Not Keeping Records
Keeping accurate records of income, expenses, and supporting documents is essential for substantiating items on your tax return and defending against potential audits. Maintain organized records throughout the year, including receipts, bank statements, and investment statements.
Ignoring State Tax Obligations
In addition to federal taxes, most taxpayers are also required to file state income tax returns. Make sure to fulfill your state tax obligations by filing the necessary forms and paying any taxes owed to the state revenue agency. State tax laws vary, so be sure to familiarize yourself with the requirements in your state.
Relying Solely on Automated Software
While tax preparation software can be helpful, it’s not foolproof. Automated programs may not catch every deduction or credit you’re eligible for, especially if you have complex tax situations. Consider consulting with a tax professional for personalized advice and assistance, especially if you have significant investments, own a business, or experienced major life changes during the tax year.
Tax Help in 2024
By avoiding these common mistakes and taking the time to ensure accuracy and compliance with tax laws, you can streamline the filing process and minimize the risk of errors, penalties, and audits. Remember to file your tax return on time, keep thorough records, and seek professional assistance when needed to navigate the complexities of the tax system effectively. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
Filing taxes is one of life’s responsibilities that we simply cannot avoid. At some point, we all file taxes on our own. Filing a tax return for the first time can be intimidating. Here is a guide for first-time taxpayers with filing tips and common mistakes to avoid.
Determine if You Need to File
It may have been your first year being employed, but you might not be required to file a tax return. Calculate all gross income you earned this past year, even if the job was nontraditional like gig work or freelancing. Remember gross income is the amount you earned before taxes or deductions were taken out. There are a lot of rules surrounding filing requirements, but in 2024, you must file if you meet one of the following scenarios:
Filing Status
Age at the end of 2023
Must file if gross income is at least:
Single
Under 65
$13,850
Single
65 or Older
$15,700
Head of Household
Under 65
$20,800
Head of Household
65 or Older
$22,650
Married Filing Jointly
Under 65 (Both Spouses)
$27,700
Married Filing Jointly
65 or Older (One Spouse)
$29,200
Married Filing Jointly
65 or Older (Both Spouses)
$30,700
Married Filing Separate
Any Age
$5
Qualified Widow(er)
Under 65
$27,700
Qualified Widow(er)
65 or Older
$29,200
The rules are different if your parents provide financial assistance, either through living expenses, education, or a monthly allowance. If this is the case, your parents might be able to claim you as a dependent. If you can be claimed on someone else’s tax return as a dependent, you still might have to file a tax return of your own. Single dependents must do so if any of the following applied to them in 2023:
Unearned income was more than $1,250
Earned income was more than $13,850
Gross income was more than the larger of:
$1,250, or
Earned income (up to $13,450) plus $400
These same criteria apply to married dependents as well. Furthermore, they have an additional criterion that applies:
Gross income was at least $5, and spouse filed separately and itemized their deductions
Remember, unearned income includes any money earned by doing nothing. Examples include investment income or rental property income. Earned income is the money you earn from work like salaries, tips, and self-employment income.
Decide How to File
The easiest and fastest way to file a tax return is electronically. You can use a tax software to prepare and file a return for you if your tax situation is simple. The IRS offers free tax preparation through IRS Free File, a program ideal for young and first-time filers. There is also online tax preparation software that is free for simple federal tax filings.
Collect All Your Tax Documents
If you’re a first-time filer you might need the following items to file:
Education expense forms, including Form 1098-T, receipts, scholarship records
Social security number
Routing and account numbers for direct deposit
Dependent information (if applicable), including names, date of birth, SSNs, etc.
Find Credits and Deductions
Even first-time filers are eligible for credits and deductions. A tax credit is a dollar-for-dollar reduction of your income. Some credits you may be eligible for are:
American Opportunity Tax Credit
Worth up to $2,500 per student, the AOTC allows you to claim a credit for tuition, fees and course materials. You can use Form 1098-T to determine your credit amount. Your school will either mail this form or make it available to you by January 31 each year. You cannot claim this credit if you are listed as a dependent on another tax return or earn above certain income limits. Just be sure you are eligible for this credit before claiming it. If you wrongly claim it, the IRS can make you pay back the amount you received, plus interest.
Lifetime Learning Credit
This credit is worth up to $2,000 per tax return and is for qualified tuition and related expenses paid for education, excluding course materials. You cannot claim this credit if you are listed as a dependent on another tax return or earn above certain income limits.
Tax Deductions
A tax deduction is a reduction of taxable income to lower your tax bill. You can claim the standard deduction of $13,850 for single filers in tax year 2023, as it will likely result in a lower tax bill than if you were to itemize deductions. Additionally, you can deduct student loan interest payments you make even if you do not itemize deductions. If you use your car for business purposes, you can deduct your mileage. The 2023 standard mileage rate is 65.5 cents per mile.
File By the Deadline
Now that you’re ready to file, you should be sure to submit your return by the tax deadline. In 2024, the deadline is April 15th. If you are getting a refund, you can have it sent by paper check or direct deposit. Direct deposit is the fastest way to receive your federal refund and you can track its status on the IRS website. You can also track your state refund online.
Tax Help for First-Time Taxpayers
First-time filers should note that filling your tax return by the tax deadline is critical. If you prepare your return and find that you owe taxes, don’t panic. You will need to pay your tax bill by the April deadline or request an extension to file. If approved, you have until October 16, 2024. Do not ignore your tax bill as this can lead to greater financial stress later. You should also figure out why you owe so you can avoid this problem again next tax season. Common reasons for owing are not withholding enough taxes during the year or not making quarterly estimated payments if you do not withhold any taxes from your income. When in doubt, ask for help. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
The IRS is responsible for collecting taxes owed to the United States government. When taxpayers fail to pay their taxes on time, the IRS initiates a collections process to recover the outstanding debt. This process can be complex and intimidating for those unfamiliar with it. Understanding how the IRS collections process works can help taxpayers navigate their obligations and avoid potential consequences.
Assessment of Taxes
The IRS begins by assessing the amount of tax you owe. This assessment can occur through various means. For example, if you file a tax return reporting income and deductions, or if the IRS conducts an audit to determine the correct amount owed. Once the tax liability is determined, the IRS will send you a notice detailing the amount owed, including any penalties and interest that may have accrued. At this point, the collections process has begun, and it will only end when one of two things happens. The tax bill needs to be paid or settled, or the statute of limitations needs to run out.
IRS Notice and Demand for Payment
After assessing the tax liability, the IRS sends a Notice and Demand for Payment. This notice outlines the amount owed and provides instructions on how to pay. It is important for you to respond promptly to this IRS notice to avoid further collection action by the IRS. Keep in mind that interest will accrue until the tax balance is paid in full. The current rate is 8% per year, compounded daily. Unfortunately, those who do not pay their tax bills will also need to deal with the failure to pay penalty. This is 0.5% for each month, or partial month, that the tax goes unpaid. The penalty can cost up to 25% of the total amount owed.
Payment Options
The IRS also accepts various forms of payment, including electronic funds transfer, credit card, check, or money order. You can pay the full amount owed in a lump sum. If paying in full is not possible, there are options for tax relief.
Installment Agreements
An IRS installment agreement is a formal arrangement between a taxpayer and the IRS to pay off a tax liability over time. With a short-term installment agreement, you will need to pay your full tax bill within 180 days. This option is available to those who owe less than $100,000 in combined tax, penalties and interest. With a long-term installment agreement, you can pay your full tax bill in over 180 days. This option is available to those who owe less than $50,000 in combined tax, penalties and interest.
Offer in Compromise
An Offer in Compromise (OIC) is a program offered by the IRS that allows taxpayers to settle their tax debt for less than the full amount owed. It’s a viable option for individuals or businesses who are unable to pay their tax liability in full or would suffer undue financial hardship if forced to do so. It’s important to understand that the chances of the IRS accepting an OIC is not high. This form of tax relief is reserved for taxpayers who have suffered severe, long-term financial troubles, making it impossible for you to pay your tax bill.
Currently Not Collectible Status
Currently Not Collectible (CNC) status, also known as hardship status, is a designation used by the IRS for taxpayers who are experiencing significant financial hardship and are unable to pay their tax debt. When a taxpayer is granted CNC status, the IRS temporarily suspends collection activities, such as liens, levies, and garnishments, until the taxpayer’s financial situation improves.
IRS Notice of Federal Tax Lien
Once the tax debt remains unpaid, the IRS files a Notice of Federal Tax Lien. Filing the NFTL makes your unpaid tax debt public and establishes the IRS’s legal claim to your property. The IRS will also send you a copy of the notice. A federal tax lien will make it very difficult for you to sell or transfer property without satisfying the IRS’s claim. Furthermore, the lien may affect your credit score and ability to obtain loans or credit.
To release the Notice of Federal Tax Lien, you must satisfy the tax debt in full, either by paying the amount owed, entering into an installment agreement with the IRS, or settling the debt through an Offer in Compromise. Once the tax debt is paid or otherwise resolved, the IRS will issue a Certificate of Release of Federal Tax Lien within 30 days. This removes the lien from your property and releases the IRS’s claim.
IRS Final Notice of Intent to Levy
If you still make no effort to pay your taxes, the IRS will issue a Final Notice of Intent to Levy. This notice typically comes 30 days before the levy is initiated. When the IRS levies, it means they seize your property to satisfy a tax debt. Levies can take various forms, including seizing wages, bank accounts, vehicles, real estate, retirement accounts, or other assets.
You have the right to appeal a levy action by requesting a Collection Due Process (CDP) hearing with the IRS Office of Appeals. During the CDP hearing, you can dispute the validity of the tax debt, propose alternative collection options, or present evidence of financial hardship or other extenuating circumstances. The IRS may release a levy if you apply for a payment arrangement, demonstrate financial hardship, or present an Offer in Compromise. Once the IRS releases the levy, you regain control of your assets, and the IRS stops collection actions related to those assets.
Legal Action
In extreme cases, the IRS may take legal action against delinquent taxpayers to enforce collection of unpaid taxes. This can involve filing a lawsuit in federal court to obtain a judgment against the taxpayer or pursuing criminal charges for tax evasion or fraud. Legal action should be avoided whenever possible, as it can result in significant financial penalties and even imprisonment.
Tax Help for Those in IRS Collections
The IRS collections process is a complex and multifaceted system designed to ensure compliance with the tax laws. While dealing with tax debt can be stressful and intimidating, understanding how the process works can help you navigate their obligations and avoid serious consequences. By responding promptly to notices from the IRS and exploring payment options, taxpayers can resolve their tax issues and move forward with peace of mind. When in doubt, seeking the help of a credible tax professional is a good option. Optima Tax Relief is the nation’s leading tax resolution firm with over $1 billion in resolved tax liabilities.
Since its enactment in 2017, the Tax Cuts and Jobs Act (TCJA) has significantly impacted the American tax landscape, introducing a slew of changes aimed at reducing tax burdens for individuals. However, many of these provisions were designed to sunset after a set period. Most are slated to expire in 2025. As this deadline approaches, it’s essential to examine the implications of these expiring provisions and how they might affect taxpayers across the nation.
Expiration of Individual Tax Provisions
Several key provisions of the TCJA affecting individual taxpayers are set to expire at the end of 2025.
Tax Brackets
The Tax Cuts and Jobs Act reduced the marginal tax rates across most individual tax brackets. But, once the sunset clause takes effect, these rates could revert to their prior levels.
Taxable Income (Single filer in 2023)
TCJA Marginal Rate
Pre-TCJA Marginal Rate
$11,000 or less
10%
10%
$11,001 to $44,725
12%
15%
$44,726 to $95,375
22%
25%
$95,376 to $182,100
24%
28%
$182,101 to $231,250
32%
33%
$231,251 to $578,125
35%
35%
$578,126 or more
37%
39.6%
Standard Deductions
The TCJA nearly doubled the standard deduction, making it more advantageous for many taxpayers to take the standard deduction rather than itemizing deductions.
2017 (Pre-TCJA)
2018
2024
2026 (Post-TCJA)
Single Filer
$6,350
$12,000
$14,600
Reverts Back
Married Filing Jointly
$12,700
$24,000
$29,200
Reverts Back
Head of Household
$9,350
$18,000
$21,900
Reverts Back
Tax Credits
Certain tax credits changed after the TCJA was enacted. Here are some tax credit provisions that could expire in 2025.
Child Tax Credit: Current at $2,000 per child. Prior to the TCJA, the credit was $1,000 per child. Single parents who earned more than $75,000 could only partially claim it. For married couples, this amount was $110,000. The TCJA increased these amounts to $200,000 and $400,000 respectively.
Credit for Other Dependents: Taxpayers can claim $500 for each dependent that doesn’t qualify for the child tax credit.
Tax Deductions
If the TCJA is not extended or made permanent, there are several tax deductions that will revert to pre-TCJA figures.
SALT Deduction: Currently capped at $10,000. However, a new proposal is aiming to raise this limit to $20,000 for married couples filing jointly who earn less than $500,000 for tax year 2023. Prior to the TCJA, there was no limit for the SALT deduction.
Mortgage Interest Deduction: Prior to the TCJA, homeowners could deduct interest paid on mortgages of up to $1,000,000, or $500,000 for married couples filing separately. Under the TCJA, anyone who takes out a mortgage between December 15, 2017, and December 31, 2025, can only deduct interest paid on the first $750,000. This amount reduces to $375,000 for married taxpayers filing separately.
Charitable Giving Deduction: You can currently deduct charitable contributions, up to 60% of your adjusted gross income. Once the TCJA sunsets, the cap will be 50% of your AGI.
Medical Expense Deduction: Currently capped at 7.5% of adjusted gross income. Prior to the TCJA, the cap was 10% of AGI.
Miscellaneous Deductions: The Tax Cuts and Jobs Act eliminated several miscellaneous deductions that were previously available. These include the cost of tax preparation, unreimbursed work expenses, moving expenses, and others.
Other Provisions
Estate and Gift Tax Exemptions: Currently capped at $13.61 million per lifetime for individual filers and $27.22 million for married couples filing jointly. The projected amounts after the TCJA sunsets in 2026 are $7 million for single filers and $14 million for married couples filing jointly.
529 Plan Gifts: Under the TCJA, 529 Plans now cover up to $10,000 per year for K-12 tuition. Funds can also be used to pay student loan debt.
Personal Exemptions: Prior to the TCJA, taxpayers could claim $4,050 for each personal exemption in addition to the standard deduction or their itemized deductions. The amount is now $0.
Uncertainty and Planning for the Future
The looming expiration of these TCJA provisions introduces uncertainty into the tax planning landscape for individuals. Taxpayers must consider the potential impact of these changes on their finances and prepare accordingly. For example, individuals may need to reassess their withholding allowances or adjust their financial strategies to mitigate any potential tax increases in the future.
Congressional Action and Potential Reforms
As the expiration date approaches, there is likely to be increased debate over the fate of the TCJA provisions. Lawmakers may consider various options, including extending certain provisions, making them permanent, or implementing alternative reforms to the tax code.
However, reaching consensus on tax policy can be challenging, particularly in a politically divided environment. Consequently, taxpayers should stay informed about developments in tax legislation and be prepared to adapt their plans accordingly.
Tax Help for Those Affected by the TCJA
The impending expiration of Tax Cuts and Jobs Act provisions in 2025 has significant implications for taxpayers across the United States. As these provisions sunset, individuals must navigate potential tax increases and plan accordingly. While the future of these provisions remains uncertain, staying informed and proactive can help taxpayers mitigate any adverse effects and optimize their financial strategies in the years to come. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
