10 Things Not To Do On Tax Day - Forbes

Happy Tax Day! You've probably read a ton of lists by now advising you about last minute filing tips and how to reduce your tax bill. That’s all good stuff. But as you finish up the last minute scramble to get your taxes filed, here’s a quick list of what not to do:

1. Fib on your taxes and think you’ll pay later. Don’t cheat to get your money faster – or to avoid paying what you owe now. Lying on your return is wrong. It’s also criminal. Even assuming that you don’t get charged criminally for fraud, the IRS does track patterns of tax behaviors: if they notice a pattern of bad filing behavior (filing now to avoid paying, for example), you’ll eventually be flagged. In addition to slowing future refunds, causing delays in processing and potentially increasing your audit risk, you’ll also get socked with a pretty nasty tax bill. You’ll eventually have to pay what you owe plus penalty and interest.

2. Call your tax professional for anything other than an extension. Lean in closely for this one and listen very carefully. Your tax professional may be awesome. Your tax professional may love you as a client. Your tax professional may be thrilled to have your business. But – and this is important – your tax professional doesn’t want to hear from you today. Really. Unless you’re filing for an extension, put the phone down. It isn't likely that you can bring in your tax information for the first time on Tax Day and expect to file a reasonably correct tax return on time: all you can do at this point in most circumstances is file for extension. And if you’ve found a mistake on your return? You’ll want to amend using good ol’ form 1040X… next week. Not today. It’s been a long, busy season. Cut your tax professional a break.

3. Spend your refund when it’s not in pocket. If your tax return says that Uncle Sam owes you money – and not the other way around – the temptation is to want to spend it. Right now. And why not? It’s good news, right? But don’t rush to the web to plan that dream vacation or plop a deposit down on a brand new car until you actually have cash in pocket. There could be a delay in processing your return or you could be subject to offset. You might have made a calculation error, overstated a deduction or understated your income. Your refund might be held due to concerns about a duplicate Social Security number or an injured spouse claim. Most of the time, IRS gets it right and statistically, refunds were processed fairly quickly this year. But Visa doesn’t accept “I’m eventually getting a tax refund” for payment. So be smart, plan ahead and don’t spend your refund in advance.

4. Head out for the post office at 4:55pm. If you’re going to have a Murphy’s Law moment, it’s bound to be on Tax Day. According to a study in the Journal of the American Medical Association, deaths from traffic accidents rise 6% on Tax Day. Combine the rush with the extra stress – and in many parts of the country today (including mine), some pretty terrible weather and you’re bound to increase your odds of something bad happening. And even assuming that something terrible doesn't happen (and I hope that it doesn’t), you don’t want to take a chance on missing that postmark. Check the post office website for post offices with extended hours today – or better yet, leave a few minutes early.

5. Call the IRS. On a routine day, the chances of the IRS actually picking up the phone are about 7 in 10. And if you are one of the lucky taxpayers to get through to IRS, you’re going to have to wait. On Tax Day, those statistics are even more dire. Don’t assume that you can camp out at your phone today and still meet your filing deadline. If you’re worried about timing, you need to file for an extension and figure it out later (but see #7).

6. Forget to sign your return. I know the feeling. You are so glad to be done that you swoop out of the office, tax return in hand on your way to have Tax Day done for good. Don’t be so glad to be done that you forget to sign your return. A tax return is not considered timely filed if you don’t sign it properly – and if you’re married, that means both spouses have to sign. So take a moment to look your return over and make sure that your signature is at the bottom.

7. Assume you’ll figure it out later. I’m a big fan of extensions. I always say that it’s better to file a complete, correct return on extension than a rushed, flawed return by April 15. But. And it’s a big but. You need to have a follow-up plan. Filing for an extension gives you six months to get your information together to file your return. Use that six months wisely. Don’t think of an extension as another reason to procrastinate for months at a time. An extension does give you some breathing room but take advantage of the time to figure how you’re going to file and, in some cases, how you’re going to pay (just keep in mind that a filing extension doesn’t extend the time to pay).

8. Not pay at all. This is so simple that my 8 year old thought of it, reminding me that “it’s bad, right?” Yes, it is. Taxes are due today and that includes your payment, too. If you can’t pay your taxes in full, there are options available to soften the blow. But don’t just ignore it: trust me, it won’t go away.

9. Fail to take advantage of all of the cool stuff available. To ease the pain of Tax Day, many companies offer specials, deals and promotions – but they’re only around for one day. Don’t get so wound up today that you fail to take advantage of all of those promos.

10. Panic. For all that we’re going to talk about Tax Day all day (and yes, I will be talking about it all day), it’s just one day. There are bigger fish to fry. There are very few things that you can do today that can’t be undone or fixed. So relax and take a few deep breaths. You've got this one in the bag.

If you have any questions, please give us a call. We're here to help you.

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

Article originally published on Forbes.com by Kelly Phillips Erb

Understanding Your Forms: Form 1098, Mortgage Interest Statement (Forbes)

Each year about this time, mailboxes across America are filled with tax forms. Sometimes, those tax forms go straight to a tax professional, unopened. Other times, taxpayers may dutifully open those forms and type the information, box for box, into tax preparation software. In both cases, it’s not unusual for taxpayers to not have an understanding of the meaning of all of the numbers, letters and other information on those forms. That’s about to change.

Article originally published on Forbes.com by Kelly Phillips Erb

I’ll be dissecting some of the most basic tax forms for you. The more you know, the less scary some of these forms can be.

Here’s what you should know about the form 1098, Mortgage Interest Statement:

A form 1098, Mortgage Interest Statement, is used to report mortgage interest, including points, of $600 or more paid to a lender for a mortgage.

For federal income tax purposes, a mortgage is a loan secured by your main home or second home. It includes first and second mortgages, home equity loans, and refinanced mortgages. A home can be a house, condominium, cooperative, mobile home, boat, or similar property. It must provide basic living accommodations including sleeping space, toilet, and cooking facilities. That means that your traditional rancher qualifies – as does a yurt, a mobile home and even a yacht.

There is, however, a catch: while you may claim your qualified home mortgage interest on your federal income tax return so long as you meet the criteria, you might not have a form 1098 to show for it. The IRS only requires a lender to issue a form 1098 if the property that secures your mortgage is considered real property. Real property is defined, for this purpose, as “land and generally anything built on it, growing on it, or attached to the land.” If a mortgage is not secured by real property, the lender is not required to file form.

The rules for a mortgage apply to your primary home, as well as a second home. The total amount of debt that you can use for purposes of calculating the home mortgage interest deduction for your main home and second home cannot be more than $1 million ($500,000 if married filing separately) even if you pay more than that; some exceptions apply for grandfathered debt. You can bump the number if you have qualifying home equity debt.

The $600 threshold applies separately to each mortgage but like a form 1099, it’s not impossible that your lender will issue a form 1098 to you even if you paid less than $600. This also means that you may receive more than one form 1098 if you have more than one mortgage.

The form 1098 looks like this:

The number that most taxpayers care about is found at box 1 (circled in red). Box 1 reports the total amount of home mortgage interest paid to your lender. Assuming that you meet the criteria (discussed generally above), you can deduct this entire amount on a Schedule A. Yep, Schedule A. That means you have to itemize your deductions to take advantage of the home mortgage interest deduction (only about 1/3 of taxpayers itemize).

Some homeowners may also be able to deduct points. Points are included on form 1098 at box 2. Points are typically pre-paid interest that you pay in advance to improve the rate on your mortgage. You can deduct points in the year that you pay them if you meet certain criteria: the points must be paid on a loan secured by your main home in order to purchase or build your main home. Points must also be within the range of what’s expected in the area where you live in order to claim the deduction. And remember, just because they’re reported on form 1098 doesn't mean that you qualify for the deduction.

Your lender will also report any refund or credit for a prior year’s overpayment of interest. If this applies to you, you’ll see it at box 3. This is unusual.

Box 4 is a catch all. This can be used by the lender to report information to the homeowner (this information does not have to be reported to the IRS). This includes general information but also information that might be useful when preparing your taxes – especially the amount of real estate taxes paid. In addition to your home mortgage interest, real estate taxes paid on your primary – and your secondary home – are generally deductible. If you escrow money for real estate taxes as part of your mortgage, your lender may report the amount of real estate taxes paid here (if you pay real estate taxes out of pocket, separately from your mortgage, you won’t see that here). Remember that the amount of your escrow may not equal the amount of your real estate taxes paid: you only get a deduction for the latter.

If real estate taxes don’t make it onto box 4, they may be reported at box 5. Although box 5 is typically considered “reserved,” it makes no difference where taxes are reported to you so long as the correct amount ends up on your Schedule A.

And that’s it: form 1098 is generally a pretty simple form. If you have questions about items on the form, ask your lender – or check with your tax preparer.

Article originally published on Forbes.com by Kelly Phillips Erb

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com

5 Things Taxpayers Are Irrationally Afraid Of - And Shouldn't Be (Forbes)

Tax issues cause some folks to act in an irrational manner. True, the taxman shouldn’t be ignored. But feared? Nah.

Here’s my list of the top five things that taxpayers are irrationally afraid of and shouldn’t be:

1. Being aggressive when it comes to deductions. You’re entitled to take deductions. C’mon, say it with me now: you’re entitled to take deductions. Taxpayers often fear that claiming tax deductions will raise eyebrows at Internal Revenue Service. That’s not true unless we’re talking really excessive as compared to your level of income – and even then, if you have the documentation to prove it, why would you care? Those charitable receipts? Use them. Kept a mileage log? Don’t let it go to waste. Paid your tax pro in 2014? Make it count. If a deduction is legitimate and you have the documentation to prove it, take it.
2. Audits. First, let’s just clear up a misconception: the random audit is not common. In fact, less than 2% of individual returns are audited. That includes those returns that include hot button tax issues or are otherwise on the IRS’ radar. Second, in most cases involving a deficiency, there is no full blown audit; in most instances, if an adjustment is necessary, you’ll be notified by IRS and asked to provide documentation (usually by mail, called a correspondence audit). If an actual audit is necessary, you’ll have plenty of notice and if you have to appear, you don’t even have to be there (your attorney or other tax professional can often go in your place so long as he or she is authorized to talk to the IRS on your behalf). Do not live in fear of a tall man in a dark suit knocking on your door, unannounced, to perform an audit at your home or business: that just doesn’t happen.
3. Not having enough money to pay your bill. I can’t tell you how many clients that I have that don’t file returns or reply to letters because they can’t pay their tax bill in full. While it’s always better to pay on time, the world won’t end if you don’t. If you can pay the full amount eventually, you can work out a payment plan with the IRS. If you absolutely can’t pay the full amount (ever), there are still options including an Offer in Compromise which would allow you to pay your bill in part. Ignoring your tax bill altogether should never be an option – the IRS can garnish your wages, levy your bank account or take other actions. Don’t be scared, be proactive.
4. Correspondence from the IRS. It’s not unusual for clients to drop piles of unopened mail from IRS on my desk during an appointment. I’ve even had clients bring in suitcases filled with certified mail from IRS, unopened. When you get a letter from IRS, don’t ignore it: take a deep breath and open the envelope. It’s rarely as bad as you think. Sometimes it’s an informational letter (advising you that you might need to file a certain form, etc.), sometimes it’s simply a notice of adjustment in which case you pay what you owe or work something out (see 3 above) and occasionally, you’ll receive a notice of deficiency (again, see 3 above). What’s really important to remember is that most IRS correspondence is time sensitive – there are deadlines. You can fix the problem if you address it. Ignoring it doesn’t make it go away and usually makes it worse.
5. Making a mistake. Everybody makes mistakes – didn’t your mother tell you that? There’s no need to panic. Making an honest mistake on your return can happen, and the IRS is usually pretty amenable to working something out when it happens. In fact, if you’re up to date on your taxes and make a small mistake that results in a deficiency, the IRS will often waive any associated penalty (always ask). If you’re just plain ol’ cheating, they’re not so nice. But mistakes? They happen. Get over it.

Article originally published on Forbes.com by Kelly Phillips Erb - 04/12/2015

Security Tax Services LLC

North Sound                                       South Sound

2802 Wetmore Ave, Suite 212           33530 1st Way S, Suite 102

Everett, WA 98201                             Federal Way, WA 98003

425.339.2400                                     253.237.0751

fax 425.259.1099                               fax 253.237.0701

www.securitytaxservices.com