Five Income Tax Mistakes to Avoid

5 Common Income Tax Return Filing Mistakes to Avoid

When you file your Income Tax Return, making a mistake on your tax form could lead to big tax trouble. Something as simple as a math error or unsigned form could invite extra attention from the IRS.

The tax agency sees those mistakes every year, and IRS representatives warn taxpayers to be careful when filling out their forms. Even if you think you have everything filled out perfectly, it never hurts to double-check and look for these common tax day errors.

#1 - Assuming Your Tax Pro Prepared Your Income Taxes Properly

Blindly trusting your accountant or tax preparer to file your income tax return correctly can be costly. Of course you want to assume they do a great job, and most tax professionals do, but letting them file without your thorough review is a mistake. We resolve back tax problems for people, and often what gets people in trouble is a simple mistake; like forgetting to report income, missing deductions, or taking too many deductions. These are sometimes honest mistakes that if not caught early, can trigger red flags and have the IRS sending you letters of balances due. No one knows your financial situation better than you do so it’s important you double check your return so you’re not blindsided with an unwanted surprise.

#2 - Waiting Until the Last Minute

Filing taxes is stressful enough. You do not need to make things worse by waiting until midnight on April 15 to get your return in the mail. Give yourself plenty of time to gather all the necessary documents and complete your return. Keep in mind that unexpected problems could interfere with your last-minute tax filing plans. Getting your taxes done early is the only way to protect yourself from unforeseen circumstances that can delay your tax filing.

#3 - Failing to File Your Income Tax Return on Time

If you cannot file your return on time, you can ask for an extension by filling out a single form. Even if your documents are in disarray, there is no excuse for not filing on time. Filing an extension gives you six more months to get everything in order and complete your return. Keep in mind that you still need to estimate the tax owed and make payment, even if you file an extension. Filing an extension extends the amount of time you have to get your return to the IRS. It does not provide a reprieve from your tax debt. If you wait to make your tax payment, you will get hit with penalties and interest.

#4 - Not Making a Backup or Keeping Good Records

Making backup copies of your tax returns, income documents and schedules is an essential part of tax planning and preparation. Here are a few tips to stay organized.

  • Set up a folder or file box and use it to store your tax documents as they arrive. Scan each one before you put it away.
  • Once you have completed your return, be sure to make copies of every document, including your W-2 form and tax schedules, before sending the return to the IRS.
  • If you file electronically, be sure to save a PDF copy of your return before completing the final step.
  • Save all of those electronic tax documents on your computer or cloud storage device.

Ordering a lost copy of a past year's return from the IRS is time-consuming and expensive. You can save time and money by making your own backup copies. If the IRS audits you or requests more information from you, all your records will be extremely helpful in the process.

#5 - Ignoring Letters From The IRS After You File Your Taxes

Sometimes the IRS will send follow up correspondence, especially if you owe money to the IRS. It can be easy to ignore the first few letters. Even if you have the intention of paying your taxes soon you should still take action. You have the option to get on an installment agreement. Reach out to a tax relief firm if your financial situation requires it.

About Tower Tax Relief LLC

Our firm specializes in IRS Resolution, and the protection of our clients is our number one priority. We serve clients virtually or in person, whichever makes you most comfortable. If you want an expert tax resolution specialist, who knows how to navigate through the IRS storm, and will advocate on your behalf, reach out to us - Tower Tax Relief LLC. Call us today, we are ready to help - 469-206-4050. The first step will be to schedule a confidential consultation to explain your options to permanently resolve your tax problem.


Cryptocurrency

Cryptocurrency Investor? How to Stay in Compliance with the IRS

For early adopters of Bitcoin, Ethereum and other popular cryptocurrencies, the profit potential has been simply stunning. While there have been some heart stopping moments and frightening ups and downs, the clear long-term trajectory for cryptocurrency has been upward.

If you are one of those early adopters who profited, you probably feel pretty good about your decision. But your good fortune could soon take a turn that could leave you in trouble with the IRS.

After years of taking a hands off approach to cryptocurrency investments, the IRS is making up for lost time. At first, the IRS appeared unsure how to calculate virtual profits or tax cryptocurrency gains. That is no longer the case. The rules are now largely in place, and it is time for those who profited to pay up.

There has been movement on the cryptocurrency taxation front, and the IRS will take notice of your holdings - and your profits. The tax agency has recently obtained data from major cryptocurrency exchanges and is sending letters to large holders of these virtual currencies. Don't wait for the IRS to contact you. The best approach is to do your homework now and make a plan for paying what you owe. Here are some simple tips to help you stay in good standing with the IRS.

Learn the Rules of Cryptocurrency Compliance

There has been confusion over how cryptocurrencies were to be taxed. The IRS itself has issued a number of different rulings in that regard. With conflicting information and no clear direction, many cryptocurrency investors chosen to avoid the whole thing.

Studies suggest only a small percentage of cryptocurrency investors have reported their holdings to the IRS. Some cryptocurrency investors didn't understand they were required to report the investments, while others assumed the transactions were anonymous. The IRS may have been slow to categorize cryptocurrencies, but the tax agency now has firm rules in place. Now that the IRS has proven that neither contention is correct, it is time to learn the rules and follow the reporting requirements: IRS Virtual Currency Guidance.

Whether you do your own homework or seek out expert advice, the more you know the better off you will be.

IRS Frequently Asked Questions on Virtual Currency Transactions

Estimate Your Gains from Cryptocurrency

Once you know the rules, the next step is to estimate your potential gains. The rules governing cryptocurrency profits are complex, but you should still be able to estimate the possible tax hit.

It may take some time to reconstruct the purchases and sales you made along the way, so take your time and gather as much information as you can. If you are missing some information, you may be able to find what you need through your favorite cryptocurrency exchange. Many major exchanges keep detailed records of purchases, sales and other cryptocurrency transactions. Once you know how much you made on those cryptocurrency transactions, you can work to calculate the taxes you might owe.

Tax ExpertWork with a Cryptocurrency Tax Relief Expert

Tax calculations are not for the faint of heart, and it is easy to make a mistake. If you want to avoid problems with the IRS and avoid penalties and interest, you need expert help and guidance.

The cryptocurrency market is still relatively new, and the current IRS tax treatment of these virtual assets is even newer. In anticipation, some tax experts have started specializing in these alternative investments. Seeking their expertise could help you pay what you owe while avoiding penalties and interest.

If you already have a Certified Public Accountant, start by asking about their experience with cryptocurrency investments. If your current tax advisor is not a cryptocurrency expert, find someone who understands how these unique assets are taxed. It may take some time, but it is important to find an expert you can trust.

The IRS may have been slow to shine a light on the cryptocurrency revolution, but they have caught up to it. Some early adopters have already received notices from the IRS. Others are scrambling to calculate their profits and pay what they owe. The tips listed above will help you develop a plan, so you can stay in good standing with the IRS.

About Tower Tax Relief LLC

Our firm specializes in IRS Resolution, and the protection of our clients is our number one priority. We serve clients virtually or in person, whichever makes you most comfortable. If you want an expert tax resolution specihttps://towertaxrelief.com/blog/alist, who knows how to navigate through the IRS storm, and will advocate on your behalf, contact us - Tower Tax Relief LLC.  We’ll schedule a confidential consultation to explain your options to permanently resolve your tax problem. Call us today, we are ready to help - 469-206-4050.

https://towertaxrelief.com/blog/


Forgiven Debt

Do You Owe Taxes on Forgiven or Cancelled Debt?

Do you owe creditors money you can't afford to repay? You may be eligible to have the debt forgiven or otherwise canceled. When this happens, you no longer owe your creditors the money that you used to owe them.

What you need to know is, the IRS usually treats such canceled debt as income. Income that you could owe taxes on. If you fail to report it or fail to pay taxes on the cancelled debt, you’ll end up owing penalties and interest. Over time, that could become just as big of an issue as your original debt.

When Do I Not Owe Taxes On Forgiven Debt?

In some cases, you may get an exemption and there are some circumstances in which you won't owe taxes.

Your Debt is discharged through bankruptcy proceedings: If you are in serious financial trouble, you may file for bankruptcy. By filing bankruptcy, you may have your debts discharged by the court. Bankruptcy debts,  are not considered taxable when forgiven.

You're insolvent: When you are able to settle with a creditor by paying them less than you owe them, your financial situation may be bad enough that you owe, in general, more than you own. If the IRS considers you financially insolvent, you may have either part or all of your debt excluded from taxation. If you believe that you qualify for insolvency exemption, you should hire a tax resolution professional to help make sure.

A canceled debt from friends or family:
If you borrow from friends or family and have them forgive the debt, the money forgiven is considered a gift. Gifts are not taxable income.

Tax-deductible interest: Forgiven debt that includes interest that is tax-deductible. You do not need to report the interest component as taxable income. Discharged student loans are also usually exempt from taxation.

Forgiven Debt
1040 tax form

Including the forgiven debt in your tax return

Didn't tell your tax professional about the forgiven debt? If you did not tell your tax professional about the forgiven debt, you likely won't know about the tax liability until you receive a notice in the mail about it. Usually, a creditor who forgives you over $600 sends you a 1099-C form stating the amount forgiven. If the debt forgiven is exempt, you may need to fill out a Form 982. Form 982 states how much should be exempt, and why.

What do you do if you pay taxes on forgiven debt that should be excluded?

If debt forgiven is exempt from taxes, but you still pay, you're may amend your tax return. You may amend your tax return for three years. You simply need to file Form 1040X and mention your exemption on Form 982. Working with forgiven debt can be complex. It is usually a good idea to hire a tax resolution professional to work out the details.

About Tower Tax Relief LLC

Our firm specializes in IRS Resolution, and the protection of our clients is our number one priority. We serve clients virtually or in person, whichever makes you most comfortable. If you want an expert tax resolution specialist, who knows how to navigate through the IRS storm, and will advocate on your behalf, reach out to us - Tower Tax Relief LLC. Call us today, we are ready to help - 469-206-4050. The first step will be to schedule a confidential consultation to explain your options to permanently resolve your tax problem.


How to Protect Yourself When Paying Taxes – Vital Steps You Need to Take Now

Tax season can be an unpleasant time of year for a lot of taxpayers, especially if you owe money to the IRS or State. The only thing you can do is make the most of it, prepare ahead of time, and pay the lowest amount allowed by law.

Whether you are due a refund or writing a big fat check to the IRS, there are some steps you should take after your return has been filed. Here are three critical steps to take once the tax filing deadline has come and gone.

Step #1: Print Off Hard Copies of All Your Forms and Receipts

Even if you save all of your documents on the computer and in the cloud, it is a good idea to print off hard copies and store them in a safe place. From the 1099 forms detailing your interest and dividend payments to the receipts that back up your charitable donations and business expenses, you never know when you will need this information.

You will appreciate having those hard copies on hand if your computer crashes or your cloud storage service fails. It takes only a couple minutes of printing, and those couple minutes could save you weeks of hassle down the road.

Step #2: Check Your Refund Status Or Balance Due Online

Even if you file electronically, you cannot expect instant service on your tax refund. It is the IRS after all. Even so, you should see quick action on your return and a notice that it has been accepted. Keeping an eye on your tax refund is one of the best ways to protect yourself and make sure the money you are owed does not end up in the hands of identity thieves.

This is also true if you owe money to the IRS. There have been tax identity theft cases where someone else files a tax return with your social security number, leaving you to deal with the liability or adding on to the amounts you owe.

If you use a tax filing software package, you should receive a notice by email when your return is submitted to the IRS, and another when it has been accepted. Watch your email box carefully and follow up if you do not receive those notifications within a day or two.

Once a week has passed, be sure to check the Where's My Refund page at the IRS.gov website to see where your refund stands. This handy tool provides a real-time picture of your refund status, from the time it is received by the IRS to the minute the money hits your bank account.

If you owe money, log in to your IRS account here https://www.irs.gov/payments/view-your-tax-account and check the balance to make sure it lines up with what you know you owe. If there are discrepancies, contact your tax resolution firm ASAP.

Step #3: Prepare for Next Year

You just filed your taxes, and the last thing you want to do is think about filing for next year. Despite this trepidation, now is the perfect time to start getting your ducks in a row for the filing season to come.

Start by looking at your current year's return and think about ways you could have lowered your tax debt. Perhaps you could have given more to your favorite charity. Maybe you could have increased your retirement savings rate. Knowing what you did wrong this year will make it easy to adjust your strategy and save more money going forward.

Nothing can make filing taxes a truly pleasant experience, but dealing with the IRS is something every American needs to do. Now that your tax return has been duly filed and your 1040 form is on its way to the IRS, taking the right steps can save you money down the line, protect you from identity theft and make future tax dealings a little less stressful.

About Tower Tax Relief LLC

Our firm specializes in IRS Resolution, and the protection of our clients is our number one priority. We serve clients virtually or in person, whichever makes you most comfortable. If you want an expert tax resolution specialist, who knows how to navigate through the IRS storm, and will advocate on your behalf, reach out to us - Tower Tax Relief LLC.  We’ll schedule a confidential consultation to explain your options to permanently resolve your tax problem. Call us today, we are ready to help - 469-206-4050.