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Miami Herald
03-05-2025
- Business
- Miami Herald
The 9 best states for retirees who still earn a paycheck
You're not alone if you're retired- or semi-retired- but still earning income from work. Many older Americans earn a paycheck from part-time jobs, freelance gigs, rental properties, or business ventures, even after leaving their full-time careers. And if that describes your situation, one question worth asking is: Which states are the most tax-friendly for retirees still working? Don't miss the move: SIGN UP for TheStreet's FREE daily newsletter Typically, retirees draw income from various sources: Social Security benefits, pensions (for some), and investment income such as capital gains, dividends, and interest. But many also rely on earned income-wages reported on a W-2, contract or freelance income via 1099s, income from pass-through entities like LLCs or partnerships (reported on a Schedule K-1), or net rental income. Related: Legendary fund manager makes bold stock market prediction As part of an ongoing series examining the best states for retirement based on income source and net worth, we previously looked at the best states for retirees who rely primarily on Social Security. In upcoming installments, we'll explore where to retire if your income comes mainly from investments or retirement account withdrawals. In this installment, we're focusing on retirees whose primary income source is still earned income. Unsplash Before diving into the state rankings, it's worth doing a quick review of how different types of income are taxed at the state level. Most state income tax systems are built around taxing earned income-wages, salaries, tips, and self-employment earnings. These types of income are taxed at the state's ordinary rates and brackets. By contrast, many states offer partial or full exemptions for income like Social Security benefits or public pensions. Here's how several common types of retirement-related income are taxed: K-1 income: If you have an ownership stake in a partnership, S corporation, or are a beneficiary of certain trusts, you'll receive a Schedule K-1. The income reported retains its character (business income, dividends, capital gains, etc.) and is typically taxed according to the state's standard income tax income: Net rental income -- after deductions such as mortgage interest, property taxes, repairs, and depreciation -- is generally treated as ordinary income and taxed at the state's regular income tax rates.1099 income: Freelancers, gig workers, and independent contractors report income via various 1099 forms (such as 1099-NEC, 1099-MISC, or 1099-K). No matter the form, this income is generally taxed as ordinary income. Related: The 9 worst states for Social Security income taxes Bottom line: State income tax rates really matter for retirees who still generate a significant share of their income from work, business interests, or rental properties. Unlike Social Security or certain retirement distributions, earned income rarely receives special treatment. From a pure income tax perspective, the most favorable states for retirees who still earn a paycheck are those without a state income tax. "These states are especially attractive for individuals with high earned income looking to minimize their state income tax liability," says Robert Westley, a regional wealth advisor with Northern Trust. For high earners, the potential savings can add up quickly. Currently, nine states do not tax earned income: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. But Westley cautions that "no income tax" doesn't mean "no tax." "For instance, Washington does not tax earned income but does tax the capital gains of high earners," he says. "Many of the other states make up revenues with higher property taxes, sales taxes, and other levies -- including state estate taxes." Other states are also working toward lower tax burdens. According to Tim Bjur, a senior content management analyst at Wolters Kluwer, Kentucky, Mississippi, and Kansas are among a group of states implementing or considering revenue-based triggers designed to phase down income tax rates. "Kentucky and Mississippi are not yet members of the group of states with no personal income tax," Bjur says. "But they are racing to enact revenue-based triggers that intend to reduce rates to zero." In Kentucky, a new law allows for future income tax rate reductions based on revenue performance, though it does not require the state to meet 100% of its revenue targets to proceed. The legislation became law without Governor Andy Beshear's signature -- he did not veto it. In contrast, Governor Laura Kelly vetoed a tax reform bill in Kansas, but the state legislature voted to override her veto. That law does not eliminate the income tax. Instead, it uses revenue triggers to transition Kansas from a two-bracket graduated system to a flat 4% income tax rate over time. Related: Secretary Bessent hints Social Security income tax changes are coming These developments could reshape the tax landscape for retirees in the years ahead -- particularly those whose retirement includes continued earned income from work, rentals, or business activity. For retirees still working, states with flat income tax rates can also be appealing. "A low, flat rate provides more certainty for seniors who are unsure if the income will fluctuate each year -- for example, a gig job," said Bjur. "Generous personal income tax exemptions and standard deductions also play a role." As of 2025, fifteen states impose a flat tax on all taxable income, regardless of income level: Arizona (2.5%)Colorado (4.4%)Georgia (5.39%)Idaho (5.695%)Illinois (4.95%)Indiana (3.0%)Iowa (3.8%)Kentucky (4.0%)Louisiana (3.0%)Michigan (4.25%)Mississippi (4.4%)North Carolina (4.25%)Pennsylvania (3.07%)Utah (4.55%) Both Iowa and Louisiana transitioned to flat taxes beginning in 2025. However, it's important to note that while flat tax systems might seem advantageous at first glance, progressive tax structures often benefit lower-income earners, such as retirees working part-time or those with modest self-employment income. "In a progressive system, lower income levels are taxed at lower rates, which can result in a smaller tax burden for retirees who aren't earning substantial amounts," said said Jean-Luc Bourdon, a wealth adviser with Lucent Wealth Planning, Some states offer targeted tax credits for older residents, often based on property taxes paid. "Most of the credits target low-income seniors and are not very generous," said Bjur. "California has a fairly generous senior head of household credit that is not tied to property taxes, with a $95,779 adjusted gross income cap for the 2024 tax year." And while income tax rates get most of the attention, don't overlook other important factors such as standard deductions, personal exemptions, and how states treat specific income sources like retirement account distributions or capital gains. For more about tax friendly states, read Which state should you retire to Related: Veteran fund manager unveils eye-popping S&P 500 forecast The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
Forbes
16-04-2025
- Business
- Forbes
What To Do If You Missed The IRS Tax Filing Deadline 2025
What to do if you missed the tax filing deadline Missing the tax filing deadline is not an uncommon occurrence, and the Internal Revenue Service provides several mechanisms to help you get back on track. This article outlines the essential steps you should take if you failed to file taxes on Tax Day. The IRS imposes a significant penalty for failing to file your tax return on time. This penalty is calculated at 5% of the unpaid taxes for each month or part of a month that the return is overdue, up to a maximum of 25%. If your return is more than 60 days late, the minimum penalty can be either $510 or 100% of the unpaid tax, whichever is less. The best way to reduce or avoid this penalty is to file your return as quickly as possible, even if you cannot afford to pay the full amount you owe. Doing so stops the failure-to-file penalty from accruing further and potentially reduces future enforcement actions, including wage garnishment or levies. Importantly, the act of filing demonstrates a willingness to comply, which may work in your favor when seeking penalty abatement or negotiating a payment plan later. E-filing is the fastest and most secure method of submitting your tax return. You can use the IRS Free File system or a third-party tax preparation software, depending on your income and the complexity of your return. If your return is more than three years overdue, be aware that the IRS may have already filed a substitute return on your behalf using information from your W-2s and 1099s. These substitute returns often result in higher tax liabilities because they do not account for deductions or credits you may be eligible for. The failure-to-pay penalty is a distinct charge from failure-to-file and accrues separately. It is assessed at a rate of 0.5% of the unpaid tax per month up to a maximum of 25% of the total tax owed. This penalty is in addition to the interest that compounds daily on the outstanding balance, calculated at a rate set quarterly by the IRS. Therefore, it is crucial to pay as much as you can, as soon as possible. Even partial payments can reduce the accrual of penalties and interest. If possible, pay your balance due in full using IRS Direct Pay or through your tax preparation software. Direct Pay is a service that allows you to transfer funds directly from a checking or savings account without additional fees. If you are using professional tax software, most platforms also integrate secure electronic payment options, including bank transfers and credit/debit card payments. Note that if you use a credit card, you may incur processing fees and potentially high interest rates from the card issuer. You should also retain records of your payment confirmation, as it may be needed for future correspondence with the IRS or your tax advisor. Even if you cannot pay your entire tax bill, making a substantial partial payment immediately can help limit the financial consequences. Any amount paid reduces the principal balance upon which penalties and interest are calculated. The IRS offers several mechanisms for deferred payment: • Short-Term Payment Plans If you can pay the full amount within 120 days, you may apply for a short-term payment plan. This option does not require a formal agreement and generally avoids setup fees. To qualify, your total balance (including taxes, penalties, and interest) must be less than $100,000. Applications can be submitted online via the IRS website, by phone, or by visiting a local IRS office. Approval is generally quick, especially for online submissions. • Installment Agreements For longer repayment periods, you can apply online or by filing Form 9465, Installment Agreement Request. These plans are generally available if you owe less than $50,000 in combined tax, penalties, and interest and have filed all required tax returns. Monthly payments can be made via direct debit, payroll deduction, check, money order, or credit card. Direct debit is highly recommended because it reduces the risk of missed payments and is a prerequisite for lower setup fees. • Offer In Compromise In cases of significant financial hardship, you may qualify for an OIC, which allows you to settle your tax debt for less than the full amount owed. Eligibility is based on a detailed analysis of your income, assets, expenses, and ability to pay. You may use the pre-qualifier tool on the IRS website to gauge your eligibility. Remember, while an OIC can provide substantial relief, it is not a quick fix. The application process can take months, and many offers are rejected. Therefore, it is essential to consult a tax professional with experience in IRS negotiations before pursuing this option. A qualified advisor can help assess your eligibility, prepare accurate documentation, and maximize the likelihood of acceptance. If this is your first time missing a filing or payment deadline, you may be eligible for the IRS's FTA program. To qualify, you must have no penalties for the three prior tax years, have filed all required returns (or filed a valid extension), and have paid or arranged to pay any tax due. This abatement is available for one tax period only. When requesting FTA, ensure that you meet all the criteria before contacting the IRS. While the process can often be completed over the phone, more complex cases may benefit from a written request that includes an explanation of your prior compliance history. If you are not eligible for FTA, you may still qualify for penalty relief if you can demonstrate reasonable cause. Common grounds include serious illness, death in the family, natural disasters, or an inability to obtain critical records due to circumstances outside your control. The IRS evaluates reasonable cause on a case-by-case basis, considering the facts and circumstances of each situation. To apply, you must submit a detailed written statement explaining what happened, when it happened, and how the event impacted your ability to comply with tax requirements. Documentation such as hospital records, death certificates, insurance reports, or third-party affidavits can be instrumental in establishing credibility. The IRS communicates with taxpayers primarily through written notices, and these letters serve as the official method of alerting you to outstanding balances, missing returns, potential penalties, and impending enforcement actions. Common notices include CP14, which notifies you of a balance due; CP501, a follow-up reminder that your tax debt remains unpaid; and CP504, an urgent notice warning of imminent collection actions such as levies. Each notice contains vital information about your tax account, including the type of issue, the amount owed, the due date for resolution, and instructions for responding. Failing to respond may lead to enforced collection activities, such as wage garnishments, bank levies, or federal tax liens. These consequences not only compound your financial difficulties but may also negatively affect your credit rating and future financial opportunities. Therefore, it is imperative that you read every notice carefully, understand its implications, and act on it promptly. Organize your correspondence in a dedicated folder and take note of deadlines or response instructions included in each notice. If you are unsure about the meaning or accuracy of any portion of a notice, seek clarification as soon as possible. If you are dealing with multiple years of unfiled returns, significant outstanding balances, or IRS enforcement actions, you can benefit substantially from expert guidance. A certified public accountant, enrolled agent, or tax attorney has specialized knowledge of tax law and IRS procedures and can help you navigate complex matters including audits, negotiations, and penalty mitigation strategies. Their assistance ensures accuracy in filing and provides a layer of protection for your legal rights and financial interests. You can use the IRS Directory of Federal Tax Return Preparers for verifying a professional's status and locating advisors in your area. To ensure this doesn't happen again, stay organized and start early to optimize your tax planning. Keep a dedicated folder where you store your tax documents throughout the year, such as W-2s, 1099s, and deductible expense receipts. This helps streamline the process when it's time to file. Start your tax preparation by February or even earlier to give yourself ample time to gather information, fix errors, and consult with a tax professional if needed. Use digital reminders and calendar tools to stay on top of key dates like the April 15 filing deadline and quarterly estimated payment deadlines. If you think you need more time to file, submit Form 4868 for a six-month extension but note that it does not extend the time to pay. Estimate and pay as much of your tax bill as possible by the original deadline to avoid penalties. Missing the tax filing deadline is not the end of the world. The key is to act quickly, stay organized, and take advantage of the resources and programs the IRS provides. In doing so, you can minimize financial damage and set yourself on a path to long-term compliance. If you're uncertain where to begin, speak with a qualified tax professional to evaluate your unique situation and guide you through the next steps.
CBS News
14-04-2025
- Business
- CBS News
What to know about the IRS substitute for return
If you've ever missed the deadline to file your taxes — or skipped a year entirely — you might assume it just slips under the radar. But that's not how the Internal Revenue Service (IRS) operates. Eventually, the agency catches up to the issue, and when they do, they might file something called a substitute for return , or SFR, on your behalf. Sounds helpful at first glance, right? After all, maybe the IRS is just trying to help you out and save you the trouble? Well, not quite. The IRS substitute for return is basically a ghost tax return. They file it for you when you have unfiled tax returns . But unlike a return you'd submit, which could include deductions, credits and adjustments that lower your tax bill , a substitute for return is very bare-bones. It's not built to work in your favor; it's built to get you into the system and kick off the collections process if you owe money for your taxes . If you've received a notice that the IRS has filed a substitute for return for you — or you think you might be at risk — it's important to understand what that means and how it can affect your financial situation. Below, we'll break it down in simple terms. Get help with your unfiled tax returns today . The substitute for return is the IRS's way of saying, "We waited for your tax return, you didn't send it, so we made one for you." It's used when the IRS has information that shows you had income during a particular year but didn't file your taxes . To create the substitute for return, the IRS uses third-party information like the W-2s, 1099s and other documents that are reported to them. However, they only use the income information. They don't account for any deductions you may qualify for , like mortgage interest, business expenses or even dependents unless they're clearly documented. This usually results in a higher tax liability than if you'd filed yourself. Once the IRS prepares the substitute for return, they send you a Notice of Deficiency , usually by certified mail. This lets you know what they think you owe and gives you a chance to respond or file your actual return. If you don't reply within 90 days, they'll finalize the substitute for return and begin collection efforts based on that return. Chat with a tax relief expert about your options now . First and foremost, a substitute for return typically leads to a bigger tax bill. Since the IRS doesn't include deductions or credits in your favor, the amount you owe will often be inflated compared to what it likely would've been if you'd filed yourself. That means you could end up owing thousands more than necessary for your taxes. The IRS can also start applying penalties and interest based on the amount from the substitute for return. These add up quickly — sometimes faster than you might think. And even if you eventually get around to filing the correct return, you might still owe interest and penalties from the original due date. Another issue is that once the IRS finalizes a substitute for return and you haven't responded, they can begin enforced collection actions . That includes wage garnishments, bank levies and tax liens. This process can be incredibly stressful and damaging to your financial stability. And while you can still file your original tax return after the substitute for return is done, fixing the problem isn't instant. It takes time to process, and in the meantime, the collection efforts might keep going. If you're self-employed, things get even trickier. The IRS usually classifies all income as subject to self-employment tax without subtracting any business expenses. So if you had $60,000 in gross revenue but $30,000 in expenses, the SFR will treat it like you earned a full $60,000 in net income, which massively inflates both your income and self-employment taxes. The IRS substitute for return might sound like a helpful safety net, but in reality, it's more like a red flag — and a warning. It's the IRS's way of getting your unpaid taxes into the system and starting collection actions if necessary, so it's not something to ignore. If you've received a notice about a substitute for return or suspect one might be coming, the best thing you can do is take action quickly. File your original return, ideally with help from a tax professional, and make sure all your deductions and credits are properly included. Even if you can't pay the full amount right away, filing can stop the clock on some penalties and prevent things from getting worse. And if you're feeling overwhelmed, don't go at it alone. There are tax professionals, tax relief companies and even programs through the IRS that can help you sort things out, but the key is to face it head-on. Because when it comes to taxes, doing nothing is usually the most expensive option.
Yahoo
09-04-2025
- Business
- Yahoo
Thinking you might not file your tax return? Reconsider, if you want to save money
There is just under a week left before the official April 15 tax filing deadline. More than half of all expected federal tax returns have been filed – nearly 90 million as of March 28, according to the latest filing statistics from the Internal Revenue Service. If yours isn't among them – and you haven't been granted a special extension to file because you live in a federally declared disaster area – you may be tempted to think the IRS won't miss it or won't go after you if you don't file – given the upheaval at the agency since the new 'Department of Government Efficiency' installed operatives there. Or maybe you don't want to file because you owe money and can't afford to pay your balance due. Whatever the case, here is why it's in your financial interests – on top of your legal requirement and civic duty – to file anyway. If you owe money to the IRS, you could be subject to two different penalties plus interest if you don't file and don't pay what you owe by April 15. The biggest upfront penalty will come if you don't file a return on time. You will be charged 5% of your unpaid taxes for every month you don't file. The total penalty assessed may not exceed 25% of your outstanding debt. If you don't think that's a big deal because you figure what you owe is small and you can handle that monthly penalty, consider this: If the 5% you're assessed is below $510 and your return is more than 60 days late, starting after day 60, you will be assessed a minimum of $510 per month going forward or 100% of what you owe, whichever is less. 'If you have a balance due, don't file late because you will compound your problems,' said North Carolina-based CPA Jim Buttonow. The good news: It is easy to avoid a late-filing penalty. If you really can't get your return in by April 15, just submit Form 4868 by next Tuesday to get an automatic six-month extension. Your new filing deadline will then be pushed to October 15. If you don't even do that, technically, the IRS can choose to file a 'substitute' return for you based on the third-party reporting it has on your income (e.g., copies of income forms it received from your employers and banks and brokerages, such as W2s and 1099s). 'That return will not have (all) the deductions or credits a taxpayer is entitled to. This typically results in higher taxes owed than if the taxpayer filed their own return,' said Misty Erickson, tax content manager at the National Association of Tax Professionals. Even if you file for an extension, you still have to pay what you owe by April 15. If you don't, you will be subject to a failure-to-pay penalty that amounts to 0.5% of your unpaid balance every month until you file or until the overall total you pay hits 25% of what you owe. In the case of both the failure-to-file and the failure-to-pay penalties, interest will accrue not only on your unpaid taxes but on the penalty, too. The agency has an automated process in place through which it sends out balance-due notices (known as the CP14 notice) to individuals within 60 days after the April 15 deadline, Erickson said. So, your records will show that you owe money. If you can't pay what you owe in full, try to pay whatever you can by April 15. Then, either call the agency at the number on the CP14 notice or review the IRS payment plan options to see if one makes sense for you. (If you're confused or want to contest what you owe, it may help to work with an enrolled agent, CPA or tax attorney, who can represent you before the IRS.) If you don't owe the IRS any more money, you won't be assessed a failure-to-file penalty if you don't file. But you may be penalized in other ways. For instance, you might be due a refund. If you don't file, you won't be paid. Ditto if you are owed refunds from prior tax years for which you didn't file returns. Last month, the IRS announced that there is still more than $1 billion in unclaimed refunds for 2021. Since the law allows taxpayers three years to file and claim their refunds, this April 15 will be your last opportunity to file your 2021 return to claim any refund you're owed for that year. If you're self-employed, any year you don't file a tax return means the income you earned that year won't be reported to the Social Security Administration. So, 'you will not receive credits toward Social Security retirement or disability benefits,' the IRS notes on its site. And if you're trying to secure a loan, lenders will want to see your most recent return. If you don't have one, that could affect your chances or timeline for loan approval. Sign in to access your portfolio
CNN
09-04-2025
- Business
- CNN
Haven't filed you tax return yet? Here are two big reasons why you should
There is just under a week left before the official April 15 tax filing deadline. More than half of all expected federal tax returns have been filed – nearly 90 million as of March 28, according to the latest filing statistics from the Internal Revenue Service. If yours isn't among them – and you haven't been granted a special extension to file because you live in a federally declared disaster area – you may be tempted to think the IRS won't miss it or won't go after you if you don't file – given the upheaval at the agency since the new 'Department of Government Efficiency' installed operatives there. Or maybe you don't want to file because you owe money and can't afford to pay your balance due. Whatever the case, here is why it's in your financial interests – on top of your legal requirement and civic duty – to file anyway. If you owe money to the IRS, you could be subject to two different penalties plus interest if you don't file and don't pay what you owe by April 15. The biggest upfront penalty will come if you don't file a return on time. You will be charged 5% of your unpaid taxes for every month you don't file. The total penalty assessed may not exceed 25% of your outstanding debt. If you don't think that's a big deal because you figure what you owe is small and you can handle that monthly penalty, consider this: If the 5% you're assessed is below $510 and your return is more than 60 days late, starting after day 60, you will be assessed a minimum of $510 per month going forward or 100% of what you owe, whichever is less. 'If you have a balance due, don't file late because you will compound your problems,' said North Carolina-based CPA Jim Buttonow. The good news: It is easy to avoid a late-filing penalty. If you really can't get your return in by April 15, just submit Form 4868 by next Tuesday to get an automatic six-month extension. Your new filing deadline will then be pushed to October 15. If you don't even do that, technically, the IRS can choose to file a 'substitute' return for you based on the third-party reporting it has on your income (e.g., copies of income forms it received from your employers and banks and brokerages, such as W2s and 1099s). 'That return will not have (all) the deductions or credits a taxpayer is entitled to. This typically results in higher taxes owed than if the taxpayer filed their own return,' said Misty Erickson, tax content manager at the National Association of Tax Professionals. Even if you file for an extension, you still have to pay what you owe by April 15. If you don't, you will be subject to a failure-to-pay penalty that amounts to 0.5% of your unpaid balance every month until you file or until the overall total you pay hits 25% of what you owe. In the case of both the failure-to-file and the failure-to-pay penalties, interest will accrue not only on your unpaid taxes but on the penalty, too. The agency has an automated process in place through which it sends out balance-due notices (known as the CP14 notice) to individuals within 60 days after the April 15 deadline, Erickson said. So, your records will show that you owe money. If you can't pay what you owe in full, try to pay whatever you can by April 15. Then, either call the agency at the number on the CP14 notice or review the IRS payment plan options to see if one makes sense for you. (If you're confused or want to contest what you owe, it may help to work with an enrolled agent, CPA or tax attorney, who can represent you before the IRS.) If you don't owe the IRS any more money, you won't be assessed a failure-to-file penalty if you don't file. But you may be penalized in other ways. For instance, you might be due a refund. If you don't file, you won't be paid. Ditto if you are owed refunds from prior tax years for which you didn't file returns. Last month, the IRS announced that there is still more than $1 billion in unclaimed refunds for 2021. Since the law allows taxpayers three years to file and claim their refunds, this April 15 will be your last opportunity to file your 2021 return to claim any refund you're owed for that year. If you're self-employed, any year you don't file a tax return means the income you earned that year won't be reported to the Social Security Administration. So, 'you will not receive credits toward Social Security retirement or disability benefits,' the IRS notes on its site. And if you're trying to secure a loan, lenders will want to see your most recent return. If you don't have one, that could affect your chances or timeline for loan approval.
