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What Happens If I Pay My Taxes Late?

Failing to file your federal income tax return by the filing deadline could be costly if you owe the IRS money. You could be assessed penalties and interest on the money you owe and this can really add up over time. If you are due a refund from the IRS there is no penalty for filing late, however, you should be certain that you are actually due a refund to avoid any issues.

There is a 5% late filing penalty for all monies owed each month and part of a month that the debt goes unpaid. These charges are accrued for a period of 5 months and the cap on this penalty is 25% of the unpaid balance.

If your unpaid balance is 60 days or more past due to an additional minimum fee of $205 or 100% of the unpaid balance will be assessed whichever is the least of the two amounts. The minimum amount that is charged however does not lessen the impact of the 5% per month that has accrued for 5 months which can be significantly greater.

In addition to the previously mentioned charges, an additional 0.5% late payment penalty will be applied to your unpaid tax bill plus any interest every month and part of a month that the balance goes unpaid.

The deadline to file your taxes for 2018 is April 17th and if you request an extension for six months, the filing deadline is October 15.

Note that requesting an extension will not offset your obligation to pay. You must pay approximately 90% of your owed taxes for 2017 to avoid any penalties and interest.

In order to avoid paying penalties and interest, it is suggested that you try to avoid any penalties by filing your tax return on time by the filing deadline. Even though you may owe the IRS and can’t pay right away, it is best to file your return by the deadline to avoid penalties, if not request an extension.

If you request an extension you may offset the late payment penalty only if you have already paid at least 90% of what you owe for your 2017 tax return. The remaining 10% can be paid by the extended filing date.

If you foresee that you are going to be late paying your taxes, it is suggested that you try to pay some of the money when you file your return. This reduces the number of penalties and interest because it will be applied to a lesser amount.

The final suggestion is that if you are going to file a late return and can’t pay what you owe; if you can show ‘reasonable cause’ why you filed late and can’t pay your taxes, the IRS will not charge you with penalties. However, ‘reasonable cause’ is not something that is outlined or defined by the IRS and they make their decision based on each individual case.

If you owe less than $50,000, you may be able to request to pay

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Tax Audit Red Flags

At this time every year our tax attorneys are inundated with questions from clients regarding what they should look out for to ensure they don’t send any red flags to the IRS that would trigger an audit.

With the deadline for filing your tax return rapidly approaching, we thought it would be a great idea to ask our tax attorneys about some of the most common red flags that the IRS is looking for when they’re deciding to audit someone. Note: this blog is not intended to be legal advice, and was designed solely to inform the public on common mistakes that lead to tax audits.

Failure to Report all Income

This one seems obvious, but you might be surprised how easy it is to forget to report a source of income.

This is especially true for people who do freelance work. Any company a freelancer does work for is required to send the IRS 1099 and W2 forms that report all the income they earned. They are also supposed to send these forms to you – but it’s not out of the ordinary for these to get lost in the mail, or have incorrect figures on them.

Keeping your own books is crucial to make sure that you’re reporting the appropriate amount, and that someone else’s error doesn’t increase your tax liability.

A typical issue that plagues many high tech workers in the San Francisco Bay Area is the double counting of income from stock options, or employee stock purchase plans that is reported on both W2 and a 1099B from the brokerage house that handles the trades.  Anyone selling stock must make sure to report the sales and take credit for the basis, or gain that has been reported on the W2.  San Francisco tax attorneys are often asked to step in and resolve the erroneous tax bills issued to Silicon Valley employees due to this issue.

Charitable Deductions

This is one of the most common deductions that people take on their taxes; and subsequently one of the most common that people abuse.

The IRS may examine your total amount given to charity in relationship with what you make each year. Then they’ll compare that to what other people in your tax break donate each year. If you have donated much more than people with similar income, this could potentially trigger an audit.

A tax attorney in San Francisco says “I’m sure it’s no surprise to you that documentation is huge for these deductions. If you’ve donated something that isn’t monetary, you need to be able to prove the value. If you have donated money, it’s crucial to get a receipt from the organization you’ve donated to.”

Home Office

One of the most common deductions people get wrong is the home office deduction. The rules for taking the home office deduction are very specific, and can be tricky for people who aren’t professional tax preparers.

One tax attorney in San Jose said “There are a lot of people

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Courtney Love’s Tax Troubles

The former front lady for the band “Hole” has been hit with a $320K tax lien. Courtney Love’s latest financial dilemma mirrors the tax troubles she had in 2014. In fact, she lost a $96,000 judgment in a Los Angeles court this past week. According to the IRS, the widow of Kurt Cobain and co-star of Man on the Moon also had a tax lien filed against her in 2009. While she did pay that amount of $324,335.21 off, the latest round in the financially-challenged singer’s life stems from a tax bill she received for $266,861.01 in 2017.

This past Tuesday, Love was ordered by an LA Superior Court judge to pay $96,000 to Dawn Simorangkir. The latter is a professional fashion designer who accused Love of defamation of character on Twitter. While the initial lawsuit saw the Judge order a payment of $450,000 – Love only paid about $350,000. This resulted in additional fees being assessed for Love to pay to Simorangkir.

Most of Love’s earnings stem from loyalties and other monies from Cobain’s estate. However, the popular singer also made substantial revenue from her acting career and global tours with Hole. Sadly, Love has mismanaged her funds in recent years — putting the blame on unscrupulous accountants.

On a positive note, Love claims to be sober since 2007. The blonde bombshell struggled with drug addiction — especially after the loss of her husband, Kurt Cobain. However, she admitted to Vanity Fair — back in November 2011 — that she had financial troubles even when Curt was alive.

Love stated that up to $250 million of Nirvana’s earnings were lost over the years. Similarly, she said that Kurt was promised $11 million for his — and the band’s — appearance at Lollapalooza. According to Love, she claims that money could not be found — and that too has resulted in her current financial troubles and woes.

In 2012, Frances Bean Cobain — Courtney and Kurt’s daughter — took control of End of Music, LLC. The latter is the company that earns revenue from the deceased rocker’s publicity rights. Frances claims her estranged mother asked her for a $2.75 million loan — from her trust fund — in 2010.

With no end in sight for Love’s financial struggles, a rep for Courtney refused to comment on the current situation.

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Collecting Unclaimed Tax Refunds

hand full of cashEach year, a percentage of taxpayers do not file a tax return. Some choose not to file because they owe money; however, a surprising number of people are due to receive a refund and do not file. Billions of dollars worth of unclaimed tax refunds are amassed every year. It is extremely easy to claim a refund from a prior tax year; however, this must be done within three years of the due date.

Who is Due a Refund

Taxpayers who overpaid estimated tax or those who had more tax withheld than required could be due a refund. Lower-income taxpayers may also be eligible for the Earned Income Tax Credit, which can result in a refund regardless of whether or not taxes were overpaid. Conversely, taxpayers who are behind on child support payments, or have student loans in default may find that their return has been seized by the IRS. However, it is still important to file to avoid breaking any laws and to reduce debt obligations.

Filing a Prior Year’s Return

In order to claim a refund for a prior tax year, a return must be filed. There are a couple of different ways to accomplish this task. The Internal Revenue Service (IRS) has downloadable tax forms for prior years on their website. These can be completed and filed by mail. A tax preparation service can also assist with filing previous year’s returns, for a fee.

Filing Needs

Filing a prior year’s return requires some attention to detail since tax laws and requirements are always changing. Be sure to gather all W-2’s or 1099 forms and other tax documents before starting to prepare the return. For taxpayers who itemize deductions, receipts or other proof of expenses must be gathered and organized. It can be a challenge to locate all documents from a prior year, but with a bit of effort, this can be easily accomplished. Since employers file all W-2’s and 1099 forms with the IRS, this information can be obtained by request.

Taxpayers must file a return on the form from the year they are filing for, for example, if filing a tax return for the tax year 2016, the 2016 forms should be used. Also, the instructions for that year must be followed. If the form is correct, but the instructions are not, the return may have to be filed again. It is vital to file returns for all missing years and to file soon, returns not claimed within the three-year deadline become the property of the IRS.

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Beware: The Latest Tax Refund Scam

You should definitely exercise caution and assume it might well be a scam if you receive an unexpected refund check for your taxes from the IRS, or you notice a deposit has been made in your bank account.

This latest scam works by having the fake refund deposited into a real bank account, after first stealing the financial and personal information of taxpayers to file taxes. The IRS released a statement in the middle of February, warning taxpayers of this latest scam.

Keeping alert is important to avoid being taken in by this scam, as the way in which it is carried out is always changing. At the moment, the scammers contact the unsuspecting taxpayer and pretend to be debt collectors. They point out that the deposit has been made to their account by mistake and a collection agency is seeking repayment of the incorrect amount.

Other versions of this scam reported by taxpayers advise that the taxpayer will be threatened with arrest and charged with fraud unless they pay back the amount they received. Victims are given a phone number and a case number in order to repay the money.

Of course, you really will need to return the money to the IRS if you have a deposit in your bank account that you aren’t entitled to, supposedly for last years taxes. You don’t want to incur the wrath of the IRS or the risk of penalties for not paying it back, making it important to follow these steps.

Returning a Bogus Refund To the IRS

If you received the bogus tax refund deposit by direct deposit, your bank’s ACH, or automated clearing house will need to return the money to the IRS. You should also call the IRS and let them know you have a fake refund amount and are returning it. Businesses should call 800-829-4933, while an individual taxpayer should call 800-829-1040.

You should return any uncashed check to the IRS as soon as possible, if your fake refund was received in the form of a check. You should include a note explaining why you are returning the check, write ‘void’ on the back of the check, avoid bending or stapling the check, and make sure you send it to the appropriate location, as indicated below.

You will need to mail the IRS a personal check or a money order for the amount of the fake refund if you already cashed the check. You should also call the IRS at the same numbers listed above to let them know you are returning the check, and why. You will need to put some key information on the back of the check or money order to make sure it is processed efficiently and as quickly as possible – your taxpayer ID or social security number, the applicable tax year that you are receiving a refund on your taxes, and the words ‘payment of erroneous refund.’ However, you may incur additional interest if you have cashed the check and then

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