What Happened To My Refund?
Friday, February 22nd, 2019
Lately there has been a lot of mainstream and social media attention surrounding people who traditionally get a tax refund but are not this year. Some are finding they actually owe money. Understandably, these reports are causing anxiety and anger among a large portion of the taxpaying public who feel cheated after being promised a tax reduction. Much of this is based on a misunderstanding of how the 2017 Tax Act worked.
Many taxpayers believe that because their refund is smaller, they are actually paying more tax. This is not necessarily true—many individual taxpayers are benefitting from lower taxes as a result of the 2017 Tax Act. Instead, reduced refunds result from changes in the way the IRS has collected tax during the year. After the 2017 Tax Act was passed, the IRS adjusted tables employers use to determine how much income tax to withhold from their employees’ paychecks. For most (if not all), this resulted in less income tax being withheld.
Whether you receive a refund or owe on April 15 is a product of the total tax (based on income and deductions), less amounts paid throughout the year in the form of wage withholdings and Estimated Tax Payments. Hence, when less tax has been withheld or paid during the year, the amount of your refund will likewise go down. In effect, taxpayers have been receiving the “refunds” they were accustomed to in small increments in every paycheck (because less tax was withheld). While many taxpayers are frustrated by the result at the end of the year, this is actually the more beneficial scenario. In prior years, your tax refund was the Government repaying the interest-free loan you gave it during the year.
Nevertheless, the abrupt realization that anticipated refunds are not forthcoming this year has created a number of problems. Many counted on refunds to pay for large expenses delayed throughout the year, vacations, or paying down other debt. For others, they are finding that unlike past years they will actually owe a significant amount come April 15.
If you are in the latter position, there may be even larger consequences. If you are currently in an Installment Agreement with the IRS, filing your 2018 tax return with an additional amount due will cause it to default. Worse, if you received an Offer in Compromise from the IRS in the past five years, filing a return with a balance due may cause your Offer in Compromise to default, putting you back at square one.
For these reasons, it is important for all taxpayers to:
- Be proactive in having your tax returns prepared early. The sooner you know what to expect, the more time you have to develop a plan that will minimize the impact;
- Review and revise the W-4 you provided your employer, so you don’t have the same problem in 2019. While the 2017 Tax Act increased the amount of the standard deduction, it also eliminated personal exemptions, and limited other deductions that may have been considered in the amount of your withholdings; and
- To determine whether you have benefitted from the 2017 Tax Act, compare the amount of “tax” showing on each return (not the amount to be refunded or owed), and consult a qualified tax professional to determine whether you should adjust past tax reduction strategies.
If you have questions, contact Anderson & Jahde, PC. at (303) 782-0003.
This entry was posted on Friday, February 22nd, 2019 at 3:43 pm and is filed under Articles.
How the Government Shutdown Affects the IRS
Thursday, January 31st, 2019
Many taxpayers are wondering how the recent government shutdown might affect their ongoing matters with the IRS. The most immediate question seems to be whether and how it will affect the upcoming income tax filing deadlines for all taxpayers. For now, the filing deadlines have not been extended. But there are also taxpayers with ongoing tax controversies with the IRS, including but not limited to: audits, appeals, Tax Court cases, Federal Tax Liens, levies, and other collection issues.
The IRS was already understaffed and underfunded prior to the shutdown. Because it lost employees during the shutdown, the IRS is now dealing with an even bigger staffing issue than before. Combine that with a 35-day backlog of work that could not be completed during that time and you have more work that needs to be completed by even fewer people.
Although nobody really knows what the long-term affects will be, our office has been told that it will take the IRS six months to a year to catch-up. Clearly, if the government is not funded beyond February 15, 2019 and another shutdown occurs, this catch-up period will be further extended.
Here are a few things we learned from the IRS:
- Priority in tax return processing will be placed on processing 2018 returns
- Priority will also be given to protecting the IRS’s statute of limitations on assessment and the collection statute of limitations, as well as resolving the IRS’s current caseload
If you are a taxpayer who filed a Petition in the United States Tax Court during this time, you may have an issue. We understand the IRS was not notified of some Petitions filed during the shutdown. The result is that the IRS’s automated system treated adjustments proposed in a Statutory Notice of Deficiency as undisputed—it assessed the tax (and applicable penalties and interest) and is now wrongfully attempting to collect funds from taxpayers, without giving them the opportunity to dispute it in Tax Court. IRS Counsel is aware of this issue and is actively searching for such cases to correct them administratively before enforced collection starts. But if you think you may fall within this category, you may want to call local IRS Counsel to ensure they are aware.
If you have questions, contact Anderson & Jahde, PC.
This entry was posted on Thursday, January 31st, 2019 at 5:00 pm and is filed under Articles.
Time to Calculate your 2018 Tax Liability
Saturday, December 22nd, 2018
Congress overhauled the tax rates and brackets for the 2018 tax year (and beyond), when it passed the Tax Cuts and Jobs Act (the Act) at the end of 2017. The new law reduces taxes for millions of taxpayers by lowering income tax rates across the board. In addition, the Act nearly doubles the standard deduction for all filers. As a result of these changes, the IRS updated the income tax withholding tables for 2018 to help most workers ensure that they are not having too much or too little withholding taken out of their pay. How much you will benefit from the Act will depend on a lot of factors, ranging from the size of your family and how much you earn to where you live. Since the full impact of the Act will not be felt until next spring, when you file your 2018 tax return, now is the time to estimate your tax liability to avoid any surprises.
You can estimate your tax liability by using the Withholding Calculator, which the IRS revised in response to the new law and can be found on IRS.gov. The IRS encourages taxpayers to use the calculator to adjust their withholding in response to the new law or changes in their personal circumstances in 2018.
The Calculator helps you identify your tax withholding to ensure the right amount of tax is withheld from your paycheck. You can protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year. At the same time, with the average refund topping $2,800, you may prefer to have less tax withheld up front and receive more in your paychecks.
If you are an employee, the Withholding Calculator helps you determine whether you need to give your employer a new Form W-4, Employee’s Withholding Allowance Certificate. You can use your results from the Calculator to help fill out the form and adjust your income tax withholding. If you receive pension income, you can use the results from the calculator to complete a Form W-4P and give it to your payer.
The Calculator will ask you to estimate values of your 2018 income, the number of children you will claim for the Child Tax Credit and Earned Income Tax Credit, and other items that will affect your 2018 taxes. The IRS suggests that you follow these steps:
- Gather your most recent pay stubs.
- Have your most recent income tax return handy; a copy of your completed Form 1040 will help you estimate your 2018 income and other characteristics and speed the process.
- Keep in mind that the Calculator’s results will only be as accurate as the information you provide. If your circumstances change during the year, come back to this Calculator to make sure that your withholding is still correct.
The Withholding Calculator does not ask you to provide sensitive personally-identifiable information like your name, Social Security number, address or bank account numbers. Also, the IRS does not save or record the information you enter on the Calculator.
It is important to remember the Withholding Calculator works for most, but not all, taxpayers. People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax. This includes taxpayers who owe self-employment tax, alternative minimum tax, the tax on unearned income of dependents or certain other taxes, people with long-term capital gains or qualified dividends, and taxpayers who have taxable social security benefits. The calculator will not determine the taxable portion of your social security benefits, but if you estimate the taxable amount (e.g., using the worksheet in the Form 1040 instructions), you can enter that into the Calculator as other nonwage income so that the calculator can take it into account.
If you have questions, contact Anderson & Jahde, PC.
This entry was posted on Saturday, December 22nd, 2018 at 7:37 pm and is filed under Articles.
IRS Debt and Passport Denial or Revocation
Friday, November 30th, 2018
Taxpayers with more than $50,000 of unpaid federal tax liabilities may find they cannot travel internationally, unless they are working with the IRS to resolve their tax liabilities. In December 2015, Internal Revenue Code § 7345 was enacted, authorizing the IRS to notify the State Department of taxpayers with “seriously delinquent tax debt,” which is:
- A legally enforceable federal tax liability of an individual;
- which has been assessed;
- is greater than $50,000; and
- for which a Notice of Federal Tax Lien has been filed or a levy is made.
The State Department may deny, revoke, or limit a taxpayer’s passport if the taxpayer has seriously delinquent tax debt. Although the statute was enacted in 2015, the IRS did not start sending notifications to the State Department until February 2018. If the IRS erroneously notifies the State Department that a taxpayer has a seriously delinquent tax debt, the taxpayer can file a lawsuit in the United States Tax Court or in a United States District Court.
If the IRS correctly notifies the State Department of a taxpayer’s seriously delinquent tax debt, it will issue Notice CP508 to the taxpayer, informing the taxpayer the State Department may restrict their passport, including denying applications for a passport or a passport renewal. If the State Department places any restrictions on a taxpayer’s passport, it will notify the taxpayer in writing.
Taxpayers who want to reverse restrictions on their passport can do so by paying their tax liabilities in full, agreeing to pay the IRS through an Installment Agreement or Offer in Compromise, or if a request for Innocent Spouse Relief is made. A taxpayer cannot pay the balance below $50,000 to reverse the passport restriction.
If you have international travel plans, and have received Notice CP508 from the IRS, or believe you have “seriously delinquent tax debt,” you are encouraged to resolve your unpaid liabilities as soon as possible. Otherwise, you risk having to cancel your travel plans and potentially forego the money spent on airlines tickets, hotels, etc. if you later find out your passport has been restricted.
If you have questions, contact Anderson & Jahde for competent, professional tax help.
This entry was posted on Friday, November 30th, 2018 at 4:30 pm and is filed under Articles.
The New Age For Online Retailers
Monday, October 29th, 2018
On June 21, 2018, the United States Supreme Court issued its Opinion in South Dakota v. Wayfair, Inc., overturning decades-old precedent requiring a retailer to have an actual “physical presence” within a state before that state can require the retailer to charge, collect, and remit its sales tax. With such a drastic change in the legal landscape, many wonder how the Supreme Court’s decision may affect their businesses.
Colorado (as we expect many others to do) has acted quickly to capitalize on the Court’s about-face. The Colorado Department of Revenue recently announced new rules, taking effect December 1, 2018, turning Colorado into a “destination-based” taxing jurisdiction—meaning, all sales will be sourced (and, therefore, taxed) based on the delivery address of the customer.
This change affects all businesses, although perhaps in different ways. If your business is located in Colorado, and you are fulfilling an order to a customer in Colorado, you must charge, collect, and remit the tax that would apply if the sale was completed in the jurisdiction where the goods are being delivered. For instance, if a business located in Grand Junction fulfills an order to a customer in the Denver metro area, the Grand Junction business now must charge, collect, report, and remit sales tax for: (1) Colorado (2.9%); (2) RTD (1%); (3) Scientific and Cultural Facilities District (1.1%); and (4) any “state-collected” county and/or municipal taxes (based on the county and municipality of delivery). This is a change from the old rule, where the business was only required to charge the tax for the jurisdictions the retailer and purchaser had in common (in the above example, only Colorado state taxes).
How the new rule will affect sales into “home-rule jurisdictions” (like Denver, Aurora, Colorado Springs, etc.) remains an open question. But a cautious business that routinely ships products throughout the state may be best served by obtaining a sales tax license in all home-rule jurisdictions in the state, and collect and remit all home-rule jurisdiction sales taxes based on the address to which the goods are delivered.
If your business regularly ships products to customers in another state, the new rule will affect how those transactions are taxed, as well. Under the new rule, all such sales are sourced to the delivery address—so, Colorado sales tax would not apply to deliveries outside of the state. Instead (and in light of Wayfair), Colorado businesses must take special care in determining whether, and under what circumstances, the customer’s state has a requirement for out-of-state retailers to collect and remit its sales tax on purchases into the state. In effect, the Wayfair decision now makes it possible that businesses with nationwide sales will be required to register in, and collect, and remit sales taxes to, all 50 states—regardless of whether they have any stores, employees, or property in the state.
Finally, if your business is outside Colorado, but routinely ships products to customers in Colorado, Colorado is clearly holding you accountable for collecting and remitting Colorado sales tax (including all applicable “state-collected” taxes) on those purchases. Again, whether and under what circumstances this rule would apply to a home-rule jurisdiction’s taxes remains to be seen.
Both the Supreme Court’s decision in Wayfair, and Colorado’s new rule to benefit therefrom, significantly increases both the risk and administrative burden in complying with our state’s (as well as others’) tax collection obligations. Determining what taxes you may need to collect on any transaction requires a careful review of each jurisdiction’s statutes and ordinances (state, special districts, county, and city).
This entry was posted on Monday, October 29th, 2018 at 1:20 pm and is filed under Articles.
I have an Estate Plan—What do My Successor Trustees or Personal Representatives Actually Do?
Monday, September 17th, 2018
The Successor Trustee
If you have completed your estate plan using a living trust, you likely have named successor trustees of your trust. A trustee is a person or trust company you select and name in your trust. With a living trust that you create, you are the Grantor of the trust and you are generally the first trustee in charge of your own assets held in your trust. As the Grantor, you can make changes to your trust, including moving assets to and from the trust, changing its beneficiaries and changing successor trustees.
The Successor Trustee During Incapacity
A successor trustee is needed if you experience incapacity, either short-term or long-term, and again when you pass away. During your incapacity, your successor trustee manages the trust assets, takes care of your needs and the needs of anyone else who is dependent upon you for support. If you are no longer able to manage your financial affairs, because of cognitive impairment or another injury, your successor trustee will step in and handle the trust for you. A successor trustee is a fiduciary for you over the trust and its property, and a successor trustee cannot make changes to your trust. A fiduciary is legally required to act in your best interest when serving as a successor trustee.
The Successor Trustee After Your Death
Upon your death, the successor trustee will follow your trust instructions and distribute the assets held in the trust to your named beneficiaries the way you have chosen. When assets are held in a living trust correctly, you may avoid probate when you pass away. Your successor trustee will close down the trust without the burden of probate. This means that court supervision is typically not required to settle your trust at your death.
The Personal Representative
If you have completed your estate plan using a Last Will & Testament, you have named a personal representative (executor) to settle your probate estate after you pass away.
A personal representative is also a fiduciary, and although named by you in your Last Will & Testament, must be appointed by the court in the probate process. A probate petition must be filed with the court for your personal representative to be appointed. The appointment authorizes your personal representative to gather the estate’s assets, sell assets, pay creditors and open an estate bank account.
Depending on the state law, a personal representative may work under an unsupervised probate or with court supervision. The personal representative is ultimately responsible for distributing the estate assets to your heirs in accordance with the terms of the Last Will & Testament. If there is no Last Will & Testament, then your personal representative will distribute your assets in accordance with state laws. Your personal representative distributes estate assets only after debts, taxes and administration expenses are paid.
This entry was posted on Monday, September 17th, 2018 at 1:14 pm and is filed under Articles.
IRS Updates the Tax Withholding Tables
Wednesday, August 1st, 2018
Congress recently changed the tax rates and brackets for 2018 and beyond, when it passed the Tax Cuts and Jobs Act (the “Act”). The rate changes, however, were not as radical as some had initially proposed. Instead, the major changes affecting many taxpayers stem from other provisions of the Act, such as nearly doubling the standard deduction to $12,000 for single filers, $18,000 for head-of-household filers and $24,000 for married couples who file jointly. In any case, the Act was the most sweeping rewrite of the tax code since 1986.
The full impact of the Act will not be felt until next spring, when you file your 2018 tax return. Most Americans will enjoy a tax cut, at least for the next eight years (the provisions of the Act expire after 2025), but the benefits of the law will depend on a lot of factors, ranging from the size of your family and how much you earn to where you live.
The new law reduces taxes for millions of taxpayers by lowering income tax rates across the board. For example, if your top 2017 tax rate was 25%, it falls to 22% in 2018, and a chunk of your income that used to be taxed at 15% will now be taxed at a new 12% rate. As a result of the lower tax rates, the IRS has updated the income tax withholding tables for 2018 reflecting the changes made by the tax reform legislation.
The updated withholding information, announced last January in IRS Notice 1036, shows the new rates for employers to use during 2018. Employers should be using the 2018 withholding tables by now, and most employees probably have already seen increases in their paychecks. The new withholding tables are designed to work with the Forms W-4 that workers have already filed with their employers to claim withholding allowances. This eliminates any burden on taxpayers and employers, as employees do not have to do anything at this time. The new tables reflect the increase in the standard deduction, repeal of personal exemptions, changes in available itemized deductions, increases in the child tax credit, and changes in tax rates and brackets.
The revisions are also aimed at avoiding over-and under-withholding of tax as much as possible. To help people determine their proper withholding, the IRS revised the withholding calculator on IRS.gov as well. Taxpayers are encouraged to use the calculator to adjust their withholding in response to the new law or changes in their personal circumstances in 2018.
For 2019, the IRS anticipates making further changes involving withholding. The IRS will work with the business and payroll community to encourage workers to file new Forms W-4 next year and to share information on changes in the new tax law that impact withholding.
This entry was posted on Wednesday, August 1st, 2018 at 4:56 pm and is filed under Articles.
Extending the Filing Date of Your Income Tax Return When You Are in an IRS Installment Agreement.
Monday, June 18th, 2018
When a taxpayer agrees to pay the IRS through a monthly Installment Agreement, the terms of the agreement require that the taxpayer (1) timely file all required federal tax returns and (2) timely pay all federal tax obligations for the entire duration of the Installment Agreement. This is known as being “in compliance.” If a taxpayer is not in compliance with all required filing and payment obligations, the IRS can (and will) terminate the Installment Agreement.
This sounds simple, but many taxpayers do not understand that extending the filing deadline of their income tax returns (personal or business) can ultimately lead to a default of the terms of their Installment Agreement. This is because extending the filing deadline of an income tax return does not extend the payment deadline.
The filing and payment deadline for an individual income tax return is April 15 each year. A taxpayer can properly extend the filing deadline to October 15 of that year, but the payment deadline is not extended. That means the entire tax due needs to be paid on April 15, even if the tax return is not filed. That requires the taxpayer to know what his or her income tax liability is on April 15 so any balance due can be full paid. This basically requires the taxpayer to know what the completed return will be as of April 15, to ensure that no tax will be due when the return is timely filed within the extended deadline of October 15.
For example, Tom is currently paying the IRS in an Installment Agreement. In 2016, he worked as an employee for half the year (earning wages) and for the other half of the year he worked as an independent contractor (having been issued Forms 1099). For various reasons, Tom and his return preparer could not complete his 2016 Individual Income Tax return for filing by April 18, 2017 (the filing deadline that year). Tom timely filed an extension to file his return in October 2017.
Tom knew he had withholding paid in to the IRS that year from his wages, but he never made any estimated tax payments in relation to the Forms 1099 he was issued as an independent contractor. When Tom filed his 2016 return on October 15, 2017, he had a balance due of $10,000 on his return, because he had not paid in enough taxes during the year. Thus, this was a default, and the IRS terminated his Installment Agreement.
Although taxpayers in Installment Agreements can extend the filing deadline of their income tax returns, there are risks in doing so. If the taxpayer is due a refund, or no balance is due when the income tax return is filed within the extended deadline, then the taxpayer is in compliance and within the terms of the Installment Agreement.
If you owe the IRS money, contact Anderson & Jahde for competent, professional tax help.
 Taxpayers are required to pay taxes to the IRS during the year, either through withholding or estimated tax payments. Failing to make required estimated tax payments can also cause a default of the Installment Agreement.
This entry was posted on Monday, June 18th, 2018 at 7:25 pm and is filed under Articles.
Getting Relief From the IRS as an Innocent Spouse
Friday, May 4th, 2018
A common problem we see is where the IRS is pursuing one spouse for taxes attributable to his or her spouse, or ex-spouse. These are particularly difficult in divorce situations since not only are many divorces sufficiently traumatic in and of themselves but adding the IRS to the mix makes it explosive.
It is possible, under the right circumstances, for the innocent spouse to be relieved of IRS tax liabilities. First, relief is only available for income taxes; employment taxes are not included. Second, the IRS may only pursue one spouse’s taxes from the other spouse if they filed a joint income tax return because the liability is “joint and several,” meaning the IRS may pursue either spouse or both; if you filed returns on the basis of married filing separately, you are only responsible for your own taxes. Third, by and large, the IRS and the courts disregard the allocation of tax liability the parties may have agreed to in their divorce proceedings. Fourth, while this article is directed to federal taxes, you should always follow up with the state to make sure that whatever relief you get from the IRS, you also get from your state.
Who can elect? Either or both parties to a joint return may challenge the joint and several liability that the IRS is seeking to impose. To the extent you are successful, you will only be liable for the portion of the tax that is attributable to your income and deductions, and not your spouse or ex-spouse.
When during the process may relief be sought? The law is quite generous in allowing one seeking innocent spouse relief to request it at any time after the beginning of an IRS examination through and including at a much later date when the IRS is trying to collect the tax.
How do I make the election? A spouse requesting relief must complete IRS Form 8857 and send it to the IRS office on the Form’s instructions. Completing the form correctly and persuasively is absolutely critical to potentially getting relief. It is essential that you retain an attorney to assist you with this.
To what extent will my (ex)-spouse be informed? As a matter of due process, the IRS is obligated to notify your spouse, or ex-spouse, about your request for relief and obtain his or her position on the assertions you make. If you have been the subject of abuse, there are special procedures to protect you. If you were forced to sign the joint return and would not have done so but for the abuse, it is possible to argue that you did not intend to file a joint return, in which case you may not be liable for your spouse’s tax even in the first place.
What relief is available with respect to additional taxes the IRS believes is due? There are two bases for getting relief with respect to additional taxes resulting from an examination of the filed return. The easiest is with respect to divorced individuals. If you are now divorced or have been separated and not living together for the last 12 months, all you need to do is prove the amount of tax attributable to your income and deductions versus the amount attributable to your spouse. If you and your spouse are still together, getting relief is much harder and requires showing that you are both innocent of the mistakes on the return and that you did not significantly benefit from the tax savings.
What relief is available with respect to the balance owed on a filed tax return? This situation is also a difficult one and requires getting the IRS to be fair and apply equitable principles for relief. In essence, you must prove that you did not significantly benefit from the tax savings and that you had no reason to believe that your spouse would not pay the taxes shown on the return.
Because of the complexities of seeking innocent spouse relief, you should retain an attorney experienced in dealing with innocent spouse relief.
This entry was posted on Friday, May 4th, 2018 at 11:16 am and is filed under Articles.
IRS to End Offshore Voluntary Disclosure Program
Tuesday, March 20th, 2018
On March 13, 2018, Acting IRS Commissioner David Kautter announced September 28, 2018 will be the end of the IRS’s popular Offshore Voluntary Disclosure Program (OVDP), saying “Taxpayers have had several years to come into compliance with U.S. tax laws under this program . . . . All along, we have been clear that we would close the program at the appropriate time, and we have reached that point.”
Originally offered in 2009, the OVDP allowed Taxpayers with previously undisclosed and untaxed foreign assets and income to come back into compliance with their U.S. Tax obligations and avoid criminal prosecution by filing amended tax returns and all necessary disclosures (FBARs, 5471s, 8938s, 3520s, etc.), and paying a set (and reduced) penalty. Over the years, more than 45,000 Taxpayers have used the OVDP to report their previously undisclosed foreign assets, and the IRS has collected over $11.1 billion in back taxes, penalties and interest.
Since the OVDP’s inception, the Denver tax attorneys at Anderson & Jahde have assisted dozens of clients in coming back into compliance with their foreign asset disclosures and income reporting requirements through the OVDP (and related programs). While the IRS will continue to accept disclosures through the Streamlined Filing Compliance Procedures if the Taxpayer can certify their prior failures were not “willful,” many Taxpayers do not neatly fit into this category. For them, the elimination of the OVDP (open even to those who willfully failed to disclose foreign assets and income) severely limits the options available, and increases the risks of potential criminal prosecution and substantially larger fines and penalties.
If you have undisclosed foreign assets or foreign income call the attorneys at Anderson & Jahde to discuss which option is best suited to your situation before this valuable program ends.
This entry was posted on Tuesday, March 20th, 2018 at 11:13 am and is filed under Articles.