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Time Business News
4 days ago
- Business
- Time Business News
Tips to Avoid Common Tax Filing Mistakes
Tax season can be stressful, and mistakes on your tax return can lead to delays, penalties, or even audits. Whether you file your taxes yourself or use a professional, avoiding common tax filing mistakes is crucial for a smooth and accurate process. Understanding these pitfalls and how to steer clear of them can save you time, money, and headaches. In this article, we'll cover practical tips to help you avoid the most frequent tax filing errors and ensure your tax return is accurate and complete. One of the biggest mistakes taxpayers make is rushing into filing without having all the required documents. Missing documents can lead to incomplete or incorrect returns. Tips: Collect all income statements such as W-2s, 1099s, and investment income slips. Gather receipts for deductible expenses, charitable donations, and medical expenses. Keep documentation for tax credits you plan to claim, such as education or childcare. Organize your documents in advance to avoid last-minute scrambling. Simple errors like misspelled names, wrong Social Security numbers, or incorrect addresses can cause your tax return to be rejected or delayed. Tips: Verify that your name and Social Security number match your Social Security card. Ensure dependent information is accurate and complete. Update your address if you've moved since the last tax filing. Failing to report all sources of income is a common and costly mistake that can trigger IRS penalties. Tips: Report all wages, interest, dividends, freelance income, rental income, and other earnings. Cross-check your income documents against your employer or bank statements. Remember to include side hustle or gig economy earnings like rideshare or freelance work. Your filing status affects your tax brackets, deductions, and credits. Selecting the wrong status can lead to paying more taxes than necessary or complications with your return. Tips: Understand the differences between single, married filing jointly, married filing separately, head of household, and qualifying widow(er). Use IRS guidelines or tax software to determine the best status for your situation. If you're unsure, consult a tax professional for advice. Many taxpayers miss out on deductions and credits because they're unaware or forget to claim them. Tips: Review common deductions such as mortgage interest, student loan interest , and medical expenses. , and medical expenses. Don't overlook tax credits like the Earned Income Tax Credit (EITC), Child Tax Credit, and education credits. Keep proper documentation to support your claims in case of an audit. Simple arithmetic mistakes can cause discrepancies that delay your refund or trigger an IRS review. Tips: Use tax preparation software that automatically calculates totals and credits. If filing manually, double-check all addition, subtraction, and carryover amounts. Consider professional help if you find the calculations overwhelming. Missing the tax filing deadline can result in penalties and interest on taxes owed. Tips: Know the IRS deadlines, usually April 15th for individual returns. If you cannot file on time, request an extension by filing Form 4868 to avoid late-filing penalties. Remember, an extension to file is not an extension to pay any taxes owed. Forgetting to sign and date your tax return is a surprisingly common mistake that leads to processing delays. Tips: If filing jointly, both spouses must sign the return. For electronic filing, ensure your digital signature is completed. If a third party prepares your return, make sure you review and sign before submission. Choosing direct deposit reduces the chances of your refund being lost or delayed. Tips: Provide accurate bank account and routing numbers. Avoid using prepaid debit cards for deposit as they can sometimes delay access. Double-check your bank information to ensure it matches your bank statements. Having records of your filed tax returns and supporting documents is essential in case of audits or future reference. Tips: Save digital copies and print physical backups. Organize documents by year for easy retrieval. Retain tax records for at least three to seven years, depending on your situation. Avoiding common tax filing mistakes is key to a hassle-free tax season. By staying organized, paying attention to details, and using available resources like tax software or professionals, you can file accurate returns and minimize your risk of errors. Taking the time to double-check your information, claim all eligible deductions and credits, and file on time can help you maximize your refund and reduce stress. If your tax situation is complex, consider consulting a tax professional to ensure your taxes are done correctly. With careful preparation and attention, you can avoid common pitfalls and have confidence that your tax return is accurate and compliant. TIME BUSINESS NEWS
Miami Herald
16-07-2025
- Business
- Miami Herald
What the IRS Really Knows About Your Income in 2025 - Clear Start Tax Reveals How to Stay Ahead of Surprise Tax Bill
IRS tech tools are smarter than ever - Clear Start Tax explains how income mismatches trigger audits, and what taxpayers can do to stay compliant. IRVINE, CA / ACCESS Newswire / July 16, 2025 / With the IRS expanding its data-matching capabilities through advanced systems like the Information Returns Processing (IRP) platform, taxpayers are finding themselves blindsided by CP2000 notices, audits, or unexpected tax bills, sometimes months after filing. According to Clear Start Tax, understanding how the IRS cross-checks income data in 2025 is essential to staying ahead of costly surprises. "The IRS doesn't need to guess - they already have your 1099s, W-2s, and even crypto reports before you file," said the Head of Client Solutions at Clear Start Tax. "Most IRS notices come from mismatches, not criminal intent. But if you ignore them, they can escalate fast." How the IRS Sees Your Income - Before You Even File Contrary to popular belief, the IRS doesn't wait for an audit to catch mistakes - most income mismatches are flagged automatically. The IRS's Information Returns Processing (IRP) system aggregates data from countless sources, comparing it against your tax return behind the scenes. This means the IRS often knows about your income, even if you forget to report it. The IRP system pulls in data from: W-2s from employers1099 forms from banks, brokerages, and gig platformsSSA and unemployment recordsCryptocurrency exchange reports (via Form 1099-DA, coming soon)Mortgage and insurance statementsForeign bank account data (via FATCA agreements) These records are automatically compared against your tax return. If a mismatch appears, a CP2000 notice - or worse, an audit flag - can be triggered without warning. CP2000 Notices Are the First Warning Sign A CP2000 notice is often the first time a taxpayer learns the IRS found a mismatch in their income reporting. It's not an audit - yet - but it carries serious consequences if ignored. The IRS uses these notices to propose changes to your return, often with added taxes, interest, and potential penalties. According to Clear Start Tax, the most common triggers for CP2000 notices in 2025 include: Missing or incorrect 1099-NEC or 1099-K gig incomeReporting investment income incorrectly (e.g., selling crypto without basis data)Overlooking unemployment or early retirement withdrawalsFiling with outdated employer informationOmitting foreign income or failing to disclose foreign accounts "In 2024, the IRS issued over 11 million CP2000 notices," added the Head of Client Solutions. "It's one of their most common enforcement tools - and most people don't even know what it is until they get one." Avoid Surprises by Matching Records Before the IRS Does Once the IRS has flagged your return, it becomes much harder to negotiate or correct errors. That's why Clear Start Tax encourages taxpayers to stay one step ahead by verifying all income sources and tax documents before they file. This proactive approach can prevent costly notices and reduce the risk of enforcement actions. Steps Clear Start Tax recommends include: Reconciling all 1099, W-2, and third-party data before filingRequesting wage and income transcripts from the IRSAmending prior-year returns with missing incomeResponding promptly and professionally to CP2000 or Letter 6173 noticesExploring relief options if penalties or balances are already accruing By answering a few simple questions, taxpayers can find out if they're eligible for the IRS Fresh Start Program and take the first step toward resolving their tax debt. Fresh Start Program Offers Relief - Even After a Notice For those who have already received a CP2000 notice or now owe tax due to underreported income, you still have options. The IRS Fresh Start Program helps taxpayers reduce, settle, or restructure their debt. Clear Start Tax helps clients determine eligibility and guides them through each step of the resolution process. Depending on a taxpayer's financial situation, the program may offer: Payment plans based on current ability to payReduction or removal of penalties and interestSettlement for less than the full amount owed through an Offer in Compromise "Even if you've made a mistake, there's a path forward," said the Head of Client Solutions. "What matters is responding early - and getting the facts straight before the IRS takes further action." About Clear Start Tax Clear Start Tax is a full-service tax liability resolution firm that serves taxpayers throughout the United States. The company specializes in assisting individuals and businesses with a wide range of IRS and state tax issues, including back taxes, wage garnishment relief, IRS appeals, and offers in compromise. Clear Start Tax helps taxpayers apply for the IRS Fresh Start Program, providing expert guidance in tax resolution. Fully accredited and A+ rated by the Better Business Bureau, the firm's unique approach and commitment to long-term client success distinguish it as a leader in the tax resolution industry. Need Help With Back Taxes? Click the link below: 710-3533 Contact Information Clear Start TaxCorporate Communications Departmentseo@ 535-1627 SOURCE: Clear Start Tax
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.
