tax bill

Tax bill too big to pay all at once? Sign up for an IRS payment plan

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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Do you owe the IRS money this year? You have several options for paying your tax online. But if you can’t pay it all at once, the IRS gives you payment plan choices.

Note, however, that your first step must be to file your tax return on time. Failure to do so can result in stiff penalties.

Paying with plastic

Some taxpayers find the easiest way to pay is with a credit card. The IRS has awarded contracts to three companies to accept payments by plastic: Official Payments, Link2Gov and WorldPay. They take American Express, Discover, MasterCard, Visa or a variety of debit cards.

Each company has its own fee schedule that will add to your bill.

IRS

If you do pay a fee, make a note of it for next year’s filing. The IRS has ruled that this amount is deductible as a miscellaneous itemized expense.

Keep in mind that if you don’t pay off your credit card in full, you’ll start racking up interest charges on your account. In some cases, though, your credit card interest charges might fall below IRS penalties and interest you’d owe if you don’t pay on time.

A low-interest credit card may be a good option in this scenario.

Installment plans

If your tax bill is too large for a credit card, the IRS will take monthly payments.

Approval is not automatic unless:

  • You owe less than $10,000.
  • You have paid taxes in a timely way during the past five years without entering into an installment agreement.
  • You can pay the full amount within three years.

To get the program going, you can attach Form 9465, Installment Agreement Request, to the front of your tax return. Or, you can request an installment agreement online at the IRS website if the total amount you owe is not more than $50,000.

Taxpayers who seek an installment plan must provide detailed financial information, including data on equity assets, that the IRS will verify.

Keep in mind that paying over time, even to Uncle Sam, will cost you more.

  • Expect to pay a one-time user fee of $225, up from $120 last year.
  • The fee drops to $107 for direct-debit agreements.
  • Some lower-income taxpayers could pay a reduced fee of $43.
  • Applying online is your best bet: You pay a $149 one-time fee, or only $31 if you agree to a direct-debit plan.

You’ll be billed for any fee when the agency sends you a notice detailing your payment terms. Plus, penalties and interest continue to accrue to your unpaid tax bill. The IRS may also file a federal tax lien against you, which will be released when you pay off your installment loan.

Another way to deal with a large tax bill is with a home equity loan. That way you won’t have to pay IRS penalties and fees.

Offer in compromise

What if you can’t pay off your tax bill, in whole or part, in three years or five years or even longer? Then it might be time to negotiate.

The IRS might be willing to accept a lump-sum payment offer of less than your total tax bill if it is realistic. In these cases, the agency hopes to get some taxpayer money sooner than it would after years of costly collection efforts.

The IRS will review your financial situation and future income potential to determine whether your offer is appropriate. Be warned, however: This program was designed only for extreme cases, and few filers will qualify for the program. If you believe your situation does indeed meet the requirements, you need to file two forms: Form 656, Offer in Compromise, and Form 433-A, Collection Information Statement.

To find out whether you qualify for an offer in compromise before filling out the paperwork, use the IRS’ online pre-qualifier tool. The questionnaire format will let you know if you’re eligible, as well as help determine an acceptable preliminary offer amount.

Options for offers in compromise include:

  • Lump sum cash offer — This must be paid in five or fewer installments within five months after the offer is accepted. You must include 20 percent of the offer amount plus a $186 application fee.
  • Periodic payment offer — This is paid in six or more monthly installments within 24 months after the offer is accepted. You must produce the first proposed installment payment plus $186.

The $186 fee is waived for qualifying low-income taxpayers.

The IRS has created a special website with “what if” scenarios regarding tax and payment issues for taxpayers who are having a hard time making their payments.

Regardless of which payment plan method you choose, make your decision now. Delay will only compound your financial and tax problems since penalties and interest charges will continue to accrue. By sending in any amount when you file your return, at least you’ll ultimately reduce your interest and penalty charges.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Misplaced decimal means big property tax bills

By Bankrate

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

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Remember that tax tip about double checking your math before submitting your return? It applies to tax agencies, too.

A misplaced decimal by Jupiter, Florida, tax officials prompted a panic by some homeowners who recently received larger-than-expected property tax bills.

One dot means 10 times tax trouble

The annual tax bills were 10 times greater than they should have been. Instead of a 0.233 millage rate used to calculate a portion of the local property taxes, the town used 2.33.

Fortunately for the seaside community’s property owners, Jupiter officials realized their error — after hearing from angry residents — and have corrected it.

“When I was entering the Town’s Debt portion of the millage rate for the preliminary tax notice I inadvertently typed 2.330 instead of .2330,” Jupiter Finance Director Mike Villella told The Palm Beach Post.

And there’s an even brighter silver lining. Jupiter officials are considering a slight decrease to the overall property tax rate.

I suspect the upcoming public hearing on the proposed property tax rate will be quite well attended.

Review your tax bills

All of us property owners can learn from the Jupiter math error. Everyone makes mistakes, so we need to pay close attention to those property tax assessments we receive, as well as our eventual actual tax bill.

When you think your property tax bill is too big, you have options to correct it. Start with these 3 steps to lower your property taxes:

1. Review your property assessment amount.
2. Apply for homestead and any other exemption amounts for which you qualify.
3. Freeze your assessment if you are part of an eligible property group, such as a member of the military or a senior citizen.

You can get an idea of what type of exemptions your tax officials offer by checking your state’s property tax section at Bankrate’s state tax pages.

Appeal your assessment

If after receiving all the exemptions you deserve you still find your property tax bill is larger than you believe it should be, you can appeal it to the taxing officials.

It takes some work as homeowners who’ve gone through the appeals process can attest, but when you get a correct, lower bill, it’s worth it.

Do you regularly check your real estate tax assessments and bills, or do you just pay what the tax collector says you owe? Have you ever appealed a property tax bill?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Pay taxes in cash at 7-Eleven stores

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

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The Internal Revenue Service now is accepting cash from taxpayers who don’t have bank accounts or who prefer to pay their bills, tax and otherwise, that way.

Uncle Sam’s tax collector has partnered with ACI Worldwide’s Official Payments and PayNearMe to make cash tax payment available at more than 7,000 7-Eleven stores across the country.

“Taxpayers have many options to pay their tax bills by direct debit, a check or a credit card, but this provides a new way for people who can only pay their taxes in cash,” said IRS Commissioner John Koskinen in announcing the new service.

But, this being taxes and the IRS, the cash option isn’t as simple as showing up at your neighborhood convenience store and handing over your tax payment.

Here’s a primer on using the cash tax payment option.

Pay, but not quickly, with cash

Start at the IRS payments web page. Click the tab at the top of IRS.gov, “Payments,” to take you there.

Once at the payments page, click the “cash” link (under “Other ways you can pay”). Under the first step, click the link that takes you to Official Payments, with which the IRS has worked since 1999 to accept debit and credit card tax payments.

At the Official Payments website, start the payment process. No, it doesn’t say “pay with cash” yet. You’ll get there after you select the type of tax payment (annual 1040, estimated tax, etc.) you want to make.

After clicking on “Start,” the next web page offers you the “Cash at 7-Eleven” payment option. When you click “continue,” it will take you through the process, which ultimately will result in you getting an email from Official Payments that validates your information.

After the IRS also confirms your data, you’ll then get another email, this time from PayNearMe. This is the company that actually accepts your cash at a 7-Eleven and delivers it to the U.S. Treasury.

In that email you’ll find a link that will provide you with your PayNearMe code. You can print it or have it sent to your smartphone.

Now you’re ready to head, code in hand or on phone, to a participating convenience store. You can find one of the IRS-approved 7-Eleven payment locations by going again to the IRS cash payment page.

The convenience store clerk will give you a receipt for your payment, which should post to the taxpayer’s IRS account within 2 business days.

A few more cash payment details

As you can see from the process, it’s not a one-day task, so plan accordingly. If you wait until April 18 to pay, you won’t make the deadline and will be hit with late-payment penalties.

Similarly, the payment code is not good forever. It will expire 7 days after it is emailed to you.

Find your 7-Eleven early. Not every store is participating. And in some states, you can’t use this cash payment option at all. Official Payments notes in the fine print when you choose the cash option that, “There are no participating locations in the following states at this time: AL, AK, AR, GA, HI, LA, MN, MS, MT, NE, NM, ND, OK, SD, TN, WY.”

The maximum cash payment you can make is $1,000 per day.

And whatever cash amount you pay, it will cost you a few dollars more. A $3.99 service fee will be added automatically when you set up your cash payment at Official Payments.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

 

Some tax breaks made permanent

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

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By Bankrate

It’s not quite a done deal yet, but it appears that taxpayers soon will have some finality when it comes to popular tax breaks.

The list of tax extenders, the 50-plus tax provisions that technically are renewed, or extended, every year or so could be shorter thanks to the Protecting Americans from Tax Hikes, or PATH, Act of 2015.

This tax bill, announced late Dec. 15, makes permanent a variety of individual and business tax incentives. If passed by the House and Senate and signed by President Obama, PATH will mean the end of periodic worrying about the availability of some popular tax breaks.

The full bill runs 233 pages, but here are some of the individual taxpayer highlights.

Popular tax breaks made permanent

Teachers will get to write off some of their out-of-pocket classroom expenses every year. This is an above-the-line deduction, meaning it’s available directly on 1040 and 1040A forms and doesn’t require the filer to itemize deductions. Even better, the $250 tax break now will be indexed for inflation.

State and local sales taxes will be a fixture on Schedule A as a permanent choice for taxpayers who itemize, along with the deduction for state and local income taxes. You still have to pick just one set of taxes to deduct, but folks with no or low income taxes won’t have to worry about whether they get the option.

Traditional IRA owners age 70 ½ can continue to directly donate up to $100,000 a year from those retirement accounts to their favorite charities. They won’t get a tax deduction, but the money won’t count as taxable income when contributed this way.

Commuters who take mass transit rather than drive also get permanent relief when it comes to employer fringe benefits. The amount covered for rail and bus travel will remain roughly on par with parking benefits paid to workers who drive to the office.

Family benefits now tax code fixtures

Another group of tax breaks created to help families also will now be a permanent part of the Internal Revenue Code. Most of these provisions were set to expire at the end of 2017.

The child tax credit, which previously was made a permanent part of the tax code, gets another boost. A temporary enhancement that allows more parents to claim an additional refundable child tax credit — that’s money back from Uncle Sam even if you don’t owe any taxes — now is permanent, too.

Obama’s signature education tax break, the American opportunity tax credit, also is now in the tax code for good. This tax break, which increased and replaced the Hope credit, provides a $2,500 credit, a portion of it refundable, for costs associated with 4 years of college costs.

The enhanced Earned Income Tax Credit, which provides tax assistance to low- and middle-income workers, stays put, too. The provisions that offer added help for larger families are now permanent.

One-year extension only

A few folks, however, will have to continue to play a waiting game again next year. Some extenders were renewed retroactively for the 2015 tax year, but extended only through 2016.

The above-the-line deduction for qualified college tuition and fees is good for the 2015 and 2016 tax years only. It remains capped at $4,000 for filers who meet the adjusted gross income thresholds.

Homeowners who are able to get their mortgage terms modified or who face foreclosure also get only temporary tax help. The provision that excludes forgiven home loan debt from taxation applies to qualifying deals made in 2016.

Similarly, the option to count private mortgage insurance, or PMI, premiums as tax-deductible loan interest on Schedule A also is available only through the next tax year.

Some opposition remains

While this generally is good news, the bill must be approved by Congress and then signed by the president.

There is some talk from some lawmakers in both parties about voting against PATH because of its nearly $800 billion cost.

I suspect, however, that PATH opponents will make their points about fiscal responsibility during the floor votes, and the overall bill will still clear both chambers.

The timing of the vote is still a bit up in the air. It must be coordinated with a separate funding bill to keep the federal government, including the IRS, operating through September 2016. But votes on both the tax and spending bills are expected soon.

Did your favorite tax break make it permanently into the tax code? Do you agree with PATH choices? Or do you agree that the cost is too steep?

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Could Wal-Mart spur tax reform?

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

Wal-Mart, the world’s largest retailer, is both loved by millions of bargain-seeking consumers and hated by millions of others, including activist groups who see it as the epitome of corporate greed.

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The Bentonville, Arkansas-based company also might be the catalyst that prompts Congress to finally act on long-stalled tax reform.

This week the Americans for Tax Fairness, or ATF, a liberal-leaning Washington, D.C., consortium of other advocacy groups, released a report charging Wal-Mart with using an “extensive and secretive web of subsidiaries located in countries widely known as tax havens.”

And although ATF questions the legality of some of Wal-Mart’s financial moves, most tax experts say the company is adhering to convoluted corporate tax laws.

Wal-Mart in Luxembourg

So just what is Wal-Mart accused of doing in the international tax arena?

ATF says that research compiled by the United Food & Commercial Workers International Union shows Wal-Mart has 22 shell companies in Luxembourg. Twenty of the companies were established since 2009 and five in 2015 alone, according to the report.

But as for retail outlets, ATF says that Wal-Mart does not have one store in that European nation, which is infamous as a tax haven country.

Dollar-wise, ATF says Wal-Mart has transferred ownership of more than $45 billion in assets to Luxembourg subsidiaries since 2011.

And as for taxes, the company reported paying less than 1 percent in tax to Luxembourg on $1.3 billion in profits from 2010 through 2013.

Added to a long international tax list

Wal-Mart is not alone in using its global presence to trim, or even eliminate, its U.S. tax liability. Other well-known American firms with worldwide reaches — Apple, Amazon, Starbucks, Goodyear Tire and Wynn Resorts to name a few — have managed to pay the U.S. Treasury very little or even nothing by making specific tax code moves.

Typically, these companies set up subsidiaries in lower tax nations and get U.S. tax credits for the payments they make abroad. Others move their corporate headquarters to a foreign location, on paper at least — a process known as inversion.

Problem with repatriation

But would changes to the U.S. international tax system be better or worse? One of the most frequently discussed ways to return U.S. companies fully to the domestic tax fold is to offer incentives.

This possibility, contends ATF, is part of what it calls the big box retailer’s long game.

Wal-Mart, says the advocacy group, “apparently hopes the U.S. Congress will reward its use of tax havens by enacting legislation that would allow U.S.-based multinationals to pay little U.S. tax when repatriating current low-taxed foreign earnings (such as to fund infrastructure spending) and pay no tax with the adoption of a territorial tax system.”

Tax change isn’t easy or cheap

Point taken. But any tax code changes will produce winners and losers. The goal is to offset the short-term losses in exchange for longer-term corporate tax benefits — not for just the companies, but also for Uncle Sam.

Changes to U.S. taxation of multinational companies already have been getting a closer look. Our combined state/federal corporate tax rate of 39 percent is the highest among global developed countries and there is bipartisan agreement that changes need to be made to bring that rate down so that truly U.S.-based firms remain internationally competitive.

Now that Wal-Mart’s role in corporate tax-reduction maneuvers is under the spotlight, the company’s size and notoriety might just spur Congress to finally make some Internal Revenue Code changes.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.