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.

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...

read more

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...

read more
Read More

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.

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...

read more

Tax Audit Red Flags

At this time every year our tax attorneys are inundated with questions from clients regarding what

Read More

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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Ndamukong Suh Complains About Being Heavily Taxed

As one of the most controversial stars in the National Football League, Ndamukong Suh is not one to mince words. In a recent interview with Business Insider, Suh went on record with his displeasure regarding the amount of taxes he is expected to pay as a professional athlete.

A breakdown of the Tax structure

As per the law, athletes in the U.S pay 37% of their gross income as taxes. On top of that, individual states also charge taxes. Players also pay what is commonly referred to as “jock tax”. This is tax paid by an athlete to individual states where the athlete has played during the year. Additionally, taxation also applies to bonuses an athlete earns even if they were competing overseas.

According to Ndamukong Suh, if you factor in all these taxes and add other expenses such as agent fees, close to half of a player’s salary is accounted for before they end up seeing a dime.

Implications of the exorbitant tax structure

According to Ndamukong Suh, an athlete can easily end up broke even if they earn a 9 figure salary with such a tax structure in place.

In Ndamukong Suh’s view, the effects of high taxation also trickle down to family members. Many athletes are bread winners and their families rely on them for a living. With the government taxing athletes at such rates, it is putting the lives of many of their dependents at risk.

The Backlash

As you can imagine, there was a substantial amount of citizens who did not appreciate Mr. Suh’s point of view. One gentleman commented “Let’s assume his income truly is cut in half. That reduced amount is still exponentially more than I could make in my entire life time. I don’t feel bad for him in the slightest, and I think it’s incredibly tone deaf for him to complain about a contract worth well over $100 million.”


The response to Suh’s comments was not all negative. In fact, there were multiple people on social media who came out in support of Suh’s statements.

One Facebook user stated “If you take the fame and the amount of the contract out of the equation, this is just a guy who is unhappy that he is losing nearly half of his paycheck to the government. I think that’s something that most of us could relate to, and we should celebrate that a public figure has come forward to initiate a conversation about how heavily we are taxed.”

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...

read more

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

Read More

Tax Reform Bill Riddled With Errors

Tax code sheetsPresident Donald J. Trump speaks often about his tax reform bill that became law in December of 2017, creating a $1.5 trillion tax cut for a broad swath of American taxpayers. However, the legislation contains numerous unintentional errors that may prevent the bill from having the effects intended.

Our San Francisco tax attorneys believe that dozens of errors made the final edit of the new bill, each of which have the potential to dramatically alter the legislation’s ultimate impact.

Worse, many of the errors occur in the most controversial sections of the law. This could make it more difficult to secure the votes necessary to rectify these unintentional errors.

For example, lawmakers intended to create a short-term tax deduction that retailers, restaurants, and real estate firms could use to deduct the costs of expansion and renovations from their federal tax returns. According to a New York Times report, however, a typo requires these businesses to spread the tax break out over a period of up to 39 years instead of claiming it all immediately, removing the financial incentive for expansion lawmakers intended to include.

Ironically, President Trump’s own real estate empire is expected to be adversely affected by this mistake.

Another error creates an unintentional loophole allowing money managers to get around provisions intended to limit their access to potentially lucrative tax breaks. This will allow them to pay a lower marginal tax rate than typical wage earners on some of their income despite the fact that many money managers are already independently wealthy.

Congress could fix all of these errors by passing a “technical corrections bill” to amend the previous legislation, but Republicans would need votes from Democratic senators to pass it. The original bill did not receive a single Democratic vote, and reports indicate that Democrats are in no hurry to help their colleagues out on this issue.

For instance, Senator Sherrod Brown, D-Ohio, recently told Politico that his party has no interest in fixing the tax reform law’s typographical errors when they feel the law itself is fundamentally flawed. Sen. Brown sits on the Senate Finance Committee responsible for writing tax laws, so his opinion is likely valid for the vast majority of his Democratic colleagues.

Alternatively, the Treasury Department could issue “regulations” to fix some of the errors in the existing legislation. However, experts note that it is impossible to alter the underlying statute in this manner. Any attempt to do so could also invite litigation pertaining to what was actually intended in the legislation, potentially creating a lengthy legal battle.

Lawmakers and taxpayers alike are confused about how President Trump’s reform bill has so many errors in the first place. Legislation typically contains a few typographical mistakes, but the tax reform law has many more than the average bill.

Some experts have argued that the rush to get this bill in front of congress is to blame for the high volume of errors. The last bill to make a comparable number of changes to existing

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What The New Tax Plan Will Mean for Divorce

Couple in Divorce CourtIn late 2017, President Trump signed a tax bill that is set to change the tax code considerably. Family Law is one area that has been affected by the new tax codes. Alimony payments have undergone some changes that experts predict will have a critical impact on how couples negotiate divorce settlements. The tax code changes take effect in 2019, so couples planning to divorce only have 2018 to reap the benefits of the current tax laws.

Where the Divorce Difference Lies

The new tax bill gets rid of the alimony deduction that was allowed for the higher-earning spouse, and the recipient is not required to pay taxes. Before these changes, the requirements were reversed. The spouse paying the alimony could deduct it and the one getting it had to pay 15% tax. With the new laws, spousal support and child support will be similar. The structure of the current alimony payment system allowed couples to have more money between them, which made it possible to afford separate households. This new system will give the government a larger share of a couple’s money than before.

To put it in numbers, if one spouse pays alimony to the tune of $100,000 in a year, this amount would be deducted in full under the old taxation structure. At the highest tax bracket rate of approximately 40%, it means that this spouse will have spent $60,000. On the other end, the recipient pays 15% on the $100,000 and is left with $85,000. With the new tax bill, the higher earning spouse would have to pay the $100,000 without any relief.

The Cause of these Changes

This alimony deduction, according to the House Ways and Means Committee, is a “divorce subsidy.” It is a technique to cover the tax cuts that come with the new bill, which are approximated to be in the vicinity of $1.5 trillion. The tax writers had to find ways to bring in revenue and alimony is one method. Estimations by the Joint Committee on Taxation reveal that the deduction repeal will raise $6.9 billion towards the $1.5 trillion tax cut.

The Potential Repercussions

Matrimonial lawyers figure that the new changes will make divorce negotiations that much more difficult. For one, because higher-earning spouses do not have any tax advantages to look forward to, they will be more careful about how much they give. The payer has a bigger financial burden to bear under the new tax bill, which can complicate settlement talks. In the original draft, the new changes were supposed to take effect at the start of 2018, and that saw a lot of people rush to their lawyers to finalize their divorces. The reconciled bill gave divorcing couples until the end of 2018. What this means is that parties that benefit from deductions will rush to pay alimony while those who pay taxes may want to extend negotiations.

Does the Lower Tax Burden Matter

Under the newly signed tax reform bill in 2018, individuals will incur

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Will Tax Reform Generate Higher Take-Home Pay?

boss holding paycheckTrump’s signature tax plan promises to deliver immediate results for many middle-class families and those with even smaller annual incomes. A recent article explained the new tax withholding tables for the tax plan passed in December of 2017. According to Yahoo Finance, a worker earning $60,000 per year—which is the median income of American citizens—would save $112 per month, or about $1,344 per year. [1]

Borrowing from Peter to Pay Paul

Any tax changes are certain to result in winners and losers, and critics of Trump’s tax plan insist that it benefits the wealthy more than the middle and lower classes. Many people’s paychecks will; immediately begin to get larger, but not everyone will see higher take-home pay. The tax bill eliminates the deduction for state and local taxes, so taxpayers in high-tax states will seldom realize big benefits from the changes. The new withholding tables are scheduled to take place in middle February of 2018. However, there are potential savings based on changes in the inheritance tax. The so-called “death tax” has long been a target of Republicans who’ve tried to enable wealthy supporters to pass on their wealth without high taxes.

Most Americans Expect Significant Cuts in Tax Liability

Our San Jose tax attorneys spoke with a gentleman from Milpitas who said “I’ve got a wife and 3 kids to look after, so I could definitely use a few extra dollars on my paycheck. The cost of living in the bay area is difficult to keep up with even with a great job.”

Although most groups can expect lower taxes and less withholding, the new tax tables don’t reflect traditional deductions for larger families. [2] The Newsweek study estimated that a single person earning $50,000 per year would have a tax bill that’s $974 lower than in 2017. Married couples earning $75,000 per year would pay $1,033 less, which is a 59% savings. A wealthy couple earning $1.5 million annually paid about $439,275 in taxes under the old tax regulations. Trump’s plan would result in a 20% increase in tax liability, or a bill of $527,268.

House Speaker Representative Paul Ryan (R-Wisconsin) commented on the new withholding tables.Ryan suggests that these savings would be a big boon for most families. Unfortunately, not everyone agrees. Taxpayers in states with high state income tax rates and local income taxes won’t be able to deduct their taxes from their federal tax bill. That means that those taxpayers could end up paying even more taxes.[3]

Inaccurate Withholding Risks of Trump Tax Plan

The total tax liability is hard to predict because so many common deductions have been eliminated. Many people who accept the new withholding strategy could end up owing higher taxes than withholding covers as well as penalties and interest. There’s no guarantee that the new tables will be 100% accurate. Every change in IRS policies generates thousands of hours of extra work for tax preparers, and even Trump’s simplified taxes are no exception.

Some Democratic members of Congress have complained

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California May Start Taxing Business Services

CA Flag and Credit CardA bill was proposed in California’s State Senate this past Monday that would add a new tax on businesses to help offset the impact of the federal tax bill passed by Congress and President Trump back in December, according to CourtHouseNews.com.

Senate Bill 993 was proposed by State Sen. Bob Hertzberg, D-Van Nays, to increase California’s state revenues through “a modest tax” on consultant services purchased by companies with more than $100,000 in sales receipts. Law firms and accountants are among the services that would be taxed under the proposed legislation.

The resulting revenue would be placed in a “Retail Sales Tax on Services Fund” that the state treasurer could distribute as needed for education, infrastructure projects, and programs to benefit California’s middle-lower income residents.

The exact tax rate will be determined at an unspecified date by a policy committee. Hertzberg’s office notes that other states with comparable taxes already in place charge between 4-6 percent on corporate consulting services.

Sen. Hertzberg also notes that this new tax could be used as a deduction on affected business’s federal tax return to the IRS, potentially lowering their total tax burden. He also cited the need to diversify the state of California’s revenue streams as a reason to support the bill.

This new bill is an effort to undo some of the impact of the federal tax law President Trump signed in December. That law capped state-level tax deductions at $10,000, a figure residents of blue states such as California and New York exceed with regularity. Some believe that this is an effort by President Trump to play political favorites in his tax bill.

This is not the first bill aimed at easing the tax burden on Californians. Another bill was passed last week allowing California residents to make charitable contributions to a fund within the state’s budget used for publicly funded colleges and universities. Since any donations are charitable and not a state tax, they act as a work-around to the $10,000 cap in the federal bill.

California state law requires any new tax to receive a super majority in both the State Senate and State Legislature before heading to the governor’s desk for final approval. Time will tell if Hertzberg can get the votes he needs.

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...

read more

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...

read more
Read More