Category

tax forms

Category

The Internal Revenue Service (IRS) has announced that it will allow the use of E-signatures on certain tax forms that cannot be filed electronically. This is a temporary move intended to reduce in-person contact and lessen the risk to taxpayers and tax professionals during COVID.

What does that mean? Well, some forms, like Form 1040, U.S. Individual Income Tax Return, are already set up to allow e-signatures when filed electronically. More than 90% of Form 1040s are filed electronically.

But others, like Form 3115, are not: they’re intended to be signed on paper. Forcing tax professionals and taxpayers to sign by paper – and then asking the IRS to process that paper – just isn’t practical right now. As a result, the IRS is taking these temporary steps.

“We take the health and safety of the nation’s taxpayers, the tax professional community and our employees very seriously,” said IRS Commissioner Chuck Rettig. “Expanding the use of digital signatures is an important step during COVID-19 to help tax professionals. We understand the importance of digital signatures to the tax community, and we will continue to review our processes to determine where long-term actions can help reduce burden for the tax community, while appropriately balancing that with critical security and protection against identity theft and fraud.”

So, which forms can you sign digitally (for now)?

For now, the following forms can be submitted with digital signatures:

  • Form 3115, Application for Change in Accounting Method;
  • Form 8832, Entity Classification Election;
  • Form 8802, Application for U.S. Residency Certification;
  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;
  • Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies;
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return;
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and
  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms.

This is a temporary measure and applies to those tax forms that are signed and postmarked beginning on or after August 28, 2020, through December 31, 2020. The IRS plans to monitor the submissions and determine if additional steps are needed.

And if you’re wondering whether you have to use a specific brand or type of e-signature, the answer is no. According to an IRS memorandum, electronic and digital signatures may be created by many different technologies and they are not specifying a particular technology for this purpose.

It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

V is for Voluntary Withholding.

You already know that if you expect to owe tax at tax time, you should make estimated tax payments. But there’s an additional way that you can pay the government so that you don’t have to write a big check at the end: you can choose to have voluntary withholding from your benefits during the year. This is similar to withholding on your paycheck and means that you should owe less at tax time (or preserve your refund if you’re entitled to one).

Why might you owe? You might be receiving unemployment compensation (yes, it’s taxable), Social security benefit along with other income, Social security equivalent Tier 1 railroad retirement benefits, Commodity Credit Corporation loans, certain crop disaster payments under the Agricultural Act of 1949 or under Title II of the Disaster Assistance Act of 1988, or dividends and other distributions from Alaska Native Corporations to its shareholders. If you’re not certain whether your payment is eligible for voluntary withholding, just ask.

To request voluntary withholding, use Form W-4V (downloads as a PDF) to ask the payer to withhold federal income tax. It’s a very simple form. It looks like this:

W-4v

Just complete the personal information and tick the box that indicates the percentage you want to have withheld. There are limits on how much you can withhold. For unemployment compensation, the payer is permitted to withhold 10% from each payment. For any other government payment listed above, you may choose to have the payer withhold federal income tax of 7%, 10%, 12%, or 22% from each payment. There are no other options.

You should ask your payer when income tax withholding will begin. It will continue until you change or stop it, or if your payments stop.

You can find the rest of the series here:

It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.

U is for Undue Hardship.

If you’d read any posts on extensions – like this one – you are aware that filing for an extension is generally an extension of the time to file, and not the time to file. It’s almost the extension mantra.

But did you know that there actually is an extension available for payments – but there’s a pretty high bar.

First things first. The form is Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship (downloads as a PDF). It’s used to request an extension of time under section 6161 for payment of the tax shown on your return or an amount determined as a deficiency (an amount you owe after an examination of your return). It’s not meant to be a substitute for a regular extension or to set up an installment agreement.

You can file Form 1127 if you will owe any of the following, and paying the tax when it is due will cause an undue hardship. 

  • Income taxes
  • Self-employment income taxes
  • Withheld taxes on nonresident aliens and foreign corporations
  • Taxes on private foundations and certain other tax-exempt organizations
  • Taxes on qualified investment entities
  • Taxes on greenmail (popular in the 1980s but not so much now)
  • Taxes on structured settlement factoring transactions
  • Gift taxes (but not estate taxes)

Form 1127 can also be filed if you receive a notice and demand for payment (or tax bill) for any of the following if paying them at the time they are due will cause undue hardship: 

  • Normal taxes and surtaxes
  • Taxes on private foundations and certain other tax-exempt organizations
  • Taxes on qualified investments
  • Gift taxes

But here’s the key. You can only use the form if you can prove undue hardship. “Undue hardship” means more than an inconvenience: you must show that you would sustain a substantial financial loss if required to pay a tax or deficiency on the due date. The mere inability to pay does not ordinarily result in penalty relief. Under Treas. Reg. 301.6651–1(c), you must also show that you exercised ordinary business care and prudence for the liability. The IRS will look at all of the facts and circumstances, including your financial situation, and the amount and nature of your spending compared to your income. The IRS will consider whether you made reasonable efforts to conserve sufficient assets in a marketable form (you can’t have converted them to illiquid assets or restricted them in some way) and still could not pay all or part of your tax when it came due.

But you know how I noted earlier that an extension to file isn’t an extension to pay? The reverse is also true: undue hardship generally does not affect your ability to file. You can substitute this form for an extension to file (and it usually doesn’t provide a basis for penalty relief in a failure to file situation). 

You should file Form 1127 as soon as you know of a tax liability or a tax deficiency that you cannot pay. If the liability is for an upcoming return, file on or before the due date of that return, not including extensions. If you are requesting an extension of time to pay an amount determined as a deficiency, file on or before the due date for payment indicated in the tax bill. 

Typically, the IRS won’t give you more than six additional months to pay the tax shown on a return. However, other than taxes due under sections 4981 (excise tax on undistributed income of real estate investment trusts), 4982 (excise tax on undistributed income of regulated investment companies), and 5881 (greenmail), you may be granted an extension for more than six months if you are out of the country. And you must pay the tax before the extension runs out: do not wait to receive a bill from the IRS.

You can find the rest of the series here:

Scrambling to make estimated payments? Don’t worry! The Internal Revenue Service (IRS) is reminding taxpayers that estimated tax payments for the tax year 2020, ordinarily due April 15, 2020, and June 15, 2020, are now due July 15, 2020.

The extended deadline means that any individual or corporation that has a quarterly estimated tax payment due April 15, 2020, or June 15, 2020, has until July 15 to make that payment without penalty. The extension is part of the IRS response to the COVID-19 pandemic.

Generally, you should pay estimated tax if you are not subject to withholding. Realistically, this means that folks who rely on income reported on a Form 1099 (like self-employment income, interest, dividends, and retirement income) are most likely to be responsible for estimated tax. If you’re self-employed, a gig economy worker, a retiree with a pension or other income, or a partner in a partnership or LLC, this likely applies to you.

You will need to make estimated payments if you:

  1. You expect to owe at least $1000 in tax for the 2020 tax year after subtracting your withholding and credits.
  2. You expect your withholding and credits to be less than the smaller of 90% of the tax to be shown on your 2020 tax return or 100% of the tax shown on your 2019 tax return.

To figure your estimated tax, you can use form Form 1040-ES, Estimated Tax for Individuals (downloads as a PDF). 

You can write a check or IRS pay electronically. You can schedule tax payments up to 30 days in advance with Direct Pay or up to 365 days in advance with the Electronic Federal Tax Payment System (EFTPS).

And one more thing: don’t be too casual about your payments. If you do not pay enough tax by the due date for each quarter, you may be charged a penalty even if you are due a refund when you file your income tax return (nice, huh?).

Taxpayer asks:

How can I change my address with the IRS?

Taxgirl says:

The easiest way to change your address if there’s no time consideration is just to use your new address when you file your tax return. But if you filed a joint tax return and you and your ex now have separate addresses, each of you should notify the IRS of your separate address when you file.

If you move after filing your return, use Form 8822, Change of Address to notify the IRS of your new address. The form is easy to use – just download it from the IRS website or use the link above – but if you don’t want to use the form, the IRS allows you to submit a written statement. Mail a signed statement with your full name and Social Security Number (SSN) or Individual Tax Identification Number (ITIN), together with your old address and your new address to the address where you filed your last return. If you filed a joint return and you both still live together, include both names, SSNs (or ITINs), and signatures on the form or statement.

Keep in mind that the IRS isn’t fully open right now, so paper forms and statements can take a while to process.

The IRS says that you can also advise them of an address change over the phone. I’m a big fan of paper trails, so I don’t love this option – even if you could get through on the phone – but be aware that it is an option.

Finally, you can change your address with the US Postal Service to make sure your mail – including your stimulus check – gets to you. But that’s not a permanent solution – don’t forget to change it with the IRS, too!

Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.

The Internal Revenue Service (IRS) has announced a game-changer: later this summer, taxpayers will be able to file Form 1040-X, Amended U.S Individual Income Tax Return, electronically.

Before this year, you could only amend your tax return by paper. At the best of times, that could mean a six-to-eight week wait for processing. And these are not the best of times. With a backlog of mail due to the pandemic, processing times were expected to be extremely lengthy.

Taxpayers and tax professionals have – for years – hoped that the IRS would allow for e-filing amended returns. According to the IRS, making the 1040-X an electronically filed form has been the agency’s goal for years. 

Now, it’s really happening.

 (Insert cheers and whistles here.)

“This new process is a major milestone for the IRS, and it follows hard work by people across the agency,” said IRS Commissioner Chuck Rettig. “E-filing has been one of the great success stories of the IRS, and more than 90 percent of taxpayers use it routinely. But the big hurdle that’s been remaining for years is to convert amended returns into this electronic process. Our teams have worked diligently to overcome the unique challenges related to the 1040-X, and we look forward to offering this new service this summer.”

Typically, about 3 million amended returns are filed by taxpayers each year. Most tax professionals expect that number to be higher due to the pandemic as taxpayers hope to change elections affecting dependents and refunds (a superseded return might be a better bet).

If you’re one of those folks rushing to file an amended return, use caution. If you’re making a change that is more than correcting a missed line item or righting a transposed number, take a breath first and think about the big picture. Merely filing an amended return may not be the best way to correct tax fraud or address a significant omission like a missed foreign compliance form. If your amended return carries potential consequences beyond payment due, check with a tax professional before mailing it in. You can’t un-ring that bell.

And you shouldn’t use an amended return to file for an injured spouse claim. Use Form 8379, Injured Spouse Allocation (downloads as a PDF) for that. You also shouldn’t use Form 1040-X to request a refund of penalties and interest or an addition to tax that you have already paid: you’ll make that request with Form 843, Claim for Refund and Request for Abatement (downloads as a PDF).

But the opportunity to correct mistakes quickly is a welcome change. Just don’t get too excited: you won’t be able to amend returns for multiple years just yet. Only tax year 2019 Forms 1040 and 1040-SR returns can be amended electronically when the program opens. Additions will be added in the future.

” Adding amended returns to the electronic family also complements our partnership with the tax software industry, which continues to work with us to provide better ways to help taxpayers,” said Ken Corbin, Commissioner of the IRS Wage and Investment division.

Of course, you can always opt to file your amended return by paper, but why would you want to? According to the IRS, filing electronically means that returns can be processed faster (true in my experience) while minimizing errors generally associated with manually completing the form (arguably true, if you remember to consider user input issues).

Despite the lag times in processing, the rules haven’t changed: if you choose to file an amended return (by paper or electronically), the regular statute of limitations rules apply. That means that filing an amended return does not extend the statute of limitations, or extend the time to pay. 

If you electronically file Form 1040-X, you can still use the “Where’s My Amended Return?” online tool to check the status. You’ll need to provide your Tax ID number, your date of birth and your zip code.

(One quick sidebar: You may be used to seeing the amended return referred to as Form 1040X. I’m not just dash-happy: as of January 2020, the IRS advised that Form 1040X will be called Form 1040-X.)

First things first: as of today, the 2019 tax filing season deadline remains July 15, 2020. 

I just wanted to get that out of the way since there are so many headlines suggesting that there’s a change on the way. As of today, nothing has changed. 

Here’s where we stand. On March 20, 2020, the IRS officially confirmed – and issued guidance – making clear that the due date for filing tax returns and making tax payments has been extended from April 15 to July 15. You can read the guidance here (downloads as a PDF).

And if you need more time to file, you can always file for an extension. However, it’s important to note that, in 2020, an extension would extend the time to file by six months from the original due date (April 15) to October 15, 2020, and NOT six months from the revised due date (July 15, 2020) to January 15, 2021.

But it is true that there are whispers about pushing the filing deadline into fall. So far, those are just whispers. There is no official proposal on the books. There’s not even a potential date being bandied about: it’s been rumored that it could move anywhere from September 15, 2020, to December 15, 2020. For now, those rumors aren’t helpful.

A group of tax professionals and I had a lively discussion on Zoom about this just last evening (on May 7). I think the consensus is that there will be political pressure to push the date forward, but that could create more problems. Extending the time to pay assumes that taxpayers will have those funds to pay later. But in a tough economy, that might not be true. Taxpayers may just be kicking the can down the road by planning to pay later – at the same time that other payments may come due (like those for 2020).

And, the stats also don’t support the need for a push just yet. 

Last year, the Internal Revenue Service (IRS) received and processed nearly 156 million returns. About 137 million were received before the filing deadline. The remainder – about 10% – were filed with an extension. That’s in keeping with the usual expectations for extended returns.

Despite the extraordinary circumstances surrounding this tax season, the IRS has already received over 125 million returns in 2020. That’s off by just 11% from 2019 – remarkable, really, considering that much of the country – and the IRS – is shut down. And, it’s not even the end of the not-so-normal filing season yet. It’s very likely that a few million more taxpayers could file before the July 15, 2020, deadline, bringing us level(ish) with 2019.

So, to recap, there’s no official proposal to move the tax filing deadline. Just speculation. If something changes, I’ll let you know.

You probably already know that you can fix most tax return mistakes by filing an amended return. If IRS doesn’t correct your error or if it’s a huge mistake or if you forgot to report something important (like being married), you can amend your previously filed tax return with a federal form 1040X, Amended U.S. Individual Income Tax Return (downloads as a PDF). It’s a relatively short form, but must be filed by paper: when you’re finished, you must print out and mail your form 1040X. You may not file your amended return electronically.

But an amended return isn’t always the best option.

According to National Taxpayer Advocate Erin M. Collins, a “superseding tax return” may be the best fix for some taxpayers during this filing season – if the IRS can process them quickly and properly. 

About seven of ten taxpayers get a refund each year. Most want their money quickly and opt for a check. But some choose to apply the refund against the tax owed for the next year. That’s especially true for taxpayers who expected to have an amazing 2020 – while the economy was going gangbusters. When you make that election, it becomes irrevocable, which means that you can’t later ask the IRS to refund the overpayment before filing a 2020 tax return.

But these aren’t ordinary times. Some taxpayers are now unemployed or earning less than before. They may have additional costs because they are paying for health care or unexpected work-from-home expenses (that might not be deductible). Having that refund in hand would probably come in… well… handy.

Collins says that’s where the value of a superseding return comes into play. If you file a second return after the tax filing deadline, it’s an “amended return.” You cannot reverse the decision to apply 2019 overpayments against the 2020 tax on an amended return. Normally, this would be a problem at the end of April… but not this year. In 2020, the filing deadline for your 2019 tax return has been moved to July 15, 2020.

But, Collins explains, if you file a second return before the filing deadline, the second return “supersedes” the first return. The superseding return is treated like the originally filed return. Voila! Now, you can elect to receive the overpayment as a refund.

Of course, there’s a catch: Like amended returns, superseding returns must be filed on paper. Paper returns take at least six weeks to file at the best of times – and these are definitely not the best of times. So, returns won’t be processed timely. Still, filing a superseding return to request the overpayment be refunded now will generate the refund payment in 2020 rather than 2021. And providing bank or financial institution account information will further speed up the payment by four to six weeks. Collins says that it is her understanding that paper returns will be processed in the order received, so there is no reason to wait. She’s also planning to urge the IRS to process paper returns as quickly as possible after employees are safely able to return to work. That should be soon.

Looking for your tax forms, like your W-2 or 1099-MISC? Most tax forms should be in your mailbox or on their way – but if you don’t have them in hand just yet, there are steps that you can take to make sure that you have what you need when it’s time to file.

If you’re looking for your annual Benefit Statement from the Social Security Administration (SSA), you’re in luck: things just got a little easier. Your form SSA-1099, Social Security Benefit Statement, or form SSA-1042S, Social Security Benefit Statement (Nonresident Aliens), should land in your mailbox by the end of January. But if you haven’t received your form yet and you live in the United States, you can print a replacement form online. 

Simply click over to my Social Security on the SSA website. If you don’t already have an account, click the button to start. If you already have an account, simply log in to your account to view and print the form.

SSA screenshot
SSA

To create an account, you’ll need to have the following information handy:

  • A valid email address;
  • Your Social Security number; and
  • A U.S. mailing address.

You’ll enter this information on the next few screens which look like this:

SSA screens
SSA

Once you’ve created the account, you can request the request form. Just note that you can’t request a replacement form SSA-1099 or SSA-1042S for 2019 until after February 1, 2020.

You must be at least 18 years of age to create an account and you can only create an account for yourself. You cannot create an account for another person even if you have that person’s written permission – that includes lawyers, accountants and representative payees. The penalties for violating that rule can be steep and include civil and criminal penalties (or both).

One more thing: These forms are for your “regular” Social Security benefits. Forms SSA-1099 and SSA-1042S are not available for people who receive Supplemental Security Income (SSI) benefits.

The Internal Revenue Service (IRS) will begin accepting paper and electronic tax returns on January 27, 2020. That means that tax forms used to prepare returns may already be in the hands of taxpayers, or they are on their way. Here’s what you need to know about tax form due dates and what to do if yours is late.

The form that most folks care about is the form W-2, which has a due date of January 31. Your tax form is on time if the form is properly addressed and mailed on or before the due date. If the normal due date falls on a Saturday, Sunday, or legal holiday – which is not the case in 2020 – issuers have until the next business day.

Here’s a look at the due dates for some other popular tax forms:

Keep in mind that these are the due dates for furnishing tax forms to taxpayers. Due dates for supplying tax forms to the IRS may be different. Also, keep in mind:

  • Some forms might have been issued earlier, so go back through your records if you’re missing a 1099 or a 1098-C. If you redeemed savings bonds, for example, the form 1099-INT might have been issued at the time of redemption. Similarly, if you donated a car to charity, form 1098-C would have been acknowledged within 30 days of the sale or 30 days of the contribution.
  • It’s popular to make some forms available online or via email. However, tax forms cannot be generated electronically without your consent unless a paper copy is also issued. However, in these days of e-statements and online transfers, it’s not out of the question that you might have checked a box to receive your information electronically. Check your inbox and your spam filter.
  • You may also want to hold off filing if you’re a beneficiary of a trust or estate, or a shareholder, partner or member of a pass-through company. Even though those entities now file a little earlier with the IRS than they used to, they rarely report early. Pass-through entities must prepare their tax returns before they can furnish Schedules K-1. Those Schedules K-1 might take until March or April to show up on your doorstep. In some cases, it could take longer.

If you haven’t received a tax form by the due date, here’s what to do:

  • Look around. Your form could be stuck in a magazine or lost in that pile of mail on the counter that you’ve been swearing to sort through for weeks. Your form could be at work. Before you assume that it wasn’t delivered, double-check.
  • If you’re sure that you didn’t receive your forms, contact the issuer. It might be easy to fix. You might not have received the form because of an incomplete or wrong address. Or maybe your form got lost in the mail. If that’s the case, the issuer can furnish another form: problem solved.
  • If your employer is no longer in business or has moved, try to make contact. It’s the fastest, easiest solution. If you don’t receive your forms and you don’t know where your employer has moved, send a note to the last known address; there may be a forwarding order at the post office. Or try Google. I know that it’s not your job to find your employer, but if you have time to click through Baby Yoda memes, you can search online for a change of address.
  • If you still don’t have your forms, or if your forms aren’t correct, contact IRS. The IRS doesn’t want to hear from you about missing forms until the end of February. But when you call, have your address, phone number, Social Security Number, and dates of employment available. It’s also helpful to have an estimate of your earnings, together with your withholding; you can find most of this information on your last pay stub. You’ll also need the name, address, and phone number of your employer. Make your life easier by being prepared before you pick up the phone.
  • Be patient. After your call, the IRS will contact your employer. The IRS will also send you a form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., along with instructions. If you don’t receive your missing forms from your employer by Tax Day, April 15, file form 4852. But be smart: don’t file to get your tax return in early or to teach an employer a lesson. If you file an improper form, you could be hit with substantial penalties.
  • You may need to amend. If you receive your tax form after your return is filed using a form 4852, and the information is different from what you reported, you will have to amend your return via form 1040X, Amended U.S. Individual Income Tax Return (downloads as a PDF).
  • If you need to replace a form SSA-1099 or SSA-1042, you can request a new one on or after February 1, 2020. The easiest way is to go online and request an instant, printable replacement form at www.socialsecurity.gov/myaccount. If that’s not an option, you’ll need to contact SSA directly, not IRS. To contact SSA, you can call 1.800.772.1213 (TTY 1.800.325.0778) or visit your local Social Security Office (find yours here).

One final piece of advice: do not file your tax returns until you’ve received your tax forms. I know it’s tempting. I know you think you know what’s on those forms, but what if you’re wrong? Not only are you making it hard on your preparer to figure it out, but you’re also asking them to break the rules: the IRS bars tax preparers from e-filing tax returns with paystubs (without receipt of forms W-2, W-2G and 1099-R). There are whole threads on social media about tax pros who feel victimized by taxpayers insisting that they file early: don’t be that guy (or girl).

Filing before you have your forms in hand also sets you up for a potential audit. For starters, the IRS matches forms W-2 and forms 1099 to the information on your tax return. If the data doesn’t match, the IRS will flag your return. My mom – who is right almost all of the time about everything – used to tell me that it was okay to be different. That might be true in junior high, but it’s not true at the IRS. Trust me. You want your tax return to look like everybody else’s tax return. Don’t give the IRS a reason to give yours a second look.