Tax questions can pop up at any time of the year. When people need answers, they should start with the Interactive Tax Assistant on IRS.gov. It’s a tool that provides answers to many tax law questions.
The taxpayer enters answers to a series of questions and the tool gives them a response based on those answers. Here are some of the topics covered:
Filing Status, Dependents, and Exemptions
Retirement: Pensions, IRAs, Social Security
Many people enjoy hobbies that are also a source of income. From painting and pottery to scrapbooking and soap making, these activities can be sources of both fun and finances. Taxpayers who make money from a hobby must report that income on their tax return.
If someone has a business, they operate the business to make a profit. In contrast, people engage in a hobby for sport or recreation, not to make a profit. Taxpayers should consider nine factors when determining whether their activity is a business or a hobby. They should base their determination on all the facts and circumstances of their activity.
If a taxpayer receives income for an activity that they don’t carry out to make a profit, the expenses they pay for the activity are miscellaneous itemized deductions and can no longer be deducted. The taxpayer must still report the income they receive on Schedule 1, Form 1040, line 21.
Publication 334, Tax Guide for Small Business
Publication 525, Taxable and Nontaxable Income
Publication 529, Miscellaneous Deductions
Publication 535, Business Expenses
Publication 17, Your Federal Income Tax
About Schedule C, Profit or Loss from Business
A taxpayer might at some point see the IRS make a decision about their taxes. If the taxpayer disagrees with this decision, they have the right to appeal it. The right to appeal an IRS decision in an independent forum is one of 10 basic rights known collectively as the Taxpayer Bill of Rights.
Here are some facts taxpayers should know about the right to appeal an IRS decision:
- Taxpayers have the right to a fair administrative appeal of most IRS decisions.
- There is an independent office called the IRS Office of Appeals. This office is separate from the IRS office that first reviewed the case.
- Generally, the Office of Appeals will not discuss a case with the IRS.
- Taxpayers also have the right to receive the Office of Appeals’ decision in writing.
- Taxpayers generally have the right to take their cases to court.
- Your Appeal Rights and How to Prepare a Protest if You Don’t Agree is a publication that explains how a taxpayer can appeal a tax case when they disagree with the IRS’s findings.
- If the IRS sends a notice proposing that the taxpayer owes more money, the taxpayer may want to dispute it. If so, the taxpayer may file a petition with the United States Tax Court.
- Some taxpayers may have a claim for a refund. These taxpayers may take their case to their United States District Court or to the United States Court of Federal Claims. Generally, the taxpayer must file this claim two years from the date of the IRS notice denying the taxpayer’s refund.
While the federal income tax-filing deadline has passed for most people, some taxpayers did not file an extension and still have not filed their tax returns. These taxpayers should file ASAP. They should do so even if they can’t pay to avoid potential penalties and interest, which can continue to add up quickly.
Here are some things taxpayers in this situation should know:
- Penalties and interest are only added on unfiled returns if the taxpayer did not pay taxes by the April deadline. Taxpayers who did not file and owe tax should file a tax return and pay as much as they are able to now. If they cannot pay the full amount, they should learn about payment options. These can reduce possible penalties and interest added to the amount the taxpayer owes.
- IRS Free File is available on IRS.gov through October 15.
- Some taxpayers may have extra time to file their tax returns and pay any taxes due. These include:
o Some disaster victims
o Military service members and eligible support
personnel in combat zones
o U.S. citizens and resident aliens who live and work
outside the U.S. and Puerto Rico
- If a return is filed more than 60 days after the April due date, the minimum penalty is either $210 or 100 percent of the unpaid tax, whichever is less. Therefore, if the tax due is $210 or less, the penalty is equal to the tax amount due. If the tax due is more than $210, the penalty is at least $210.
- The IRS provided penalty relief for certain taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.
- Other taxpayers filing after the deadline may also qualify for penalty relief. Those who are charged a penalty may contact the IRS and explain why they were unable to file and pay by the due date.
- Taxpayers who have a history of filing and paying on time often qualify for first-time penalty abatement.
- There is no penalty for filing late if a refund is due.
With scam artists hard at work all year, taxpayers should be on the lookout for a surge of evolving phishing emails and telephone scams.
Taxpayers should watch for new versions of two tax-related scams. One involves Social Security numbers related to tax issues. The other threatens taxpayers with a tax bill from a fictional government agency. Here are some details about these scams to help taxpayers recognize them:
The SSN scheme
- The latest twist includes scammers claiming to be able to suspend or cancel the victim’s Social Security number. This scam is similar to and often associated with the IRS impersonation scam.
- It is yet another attempt by con artists to frighten taxpayers into returning robocall voicemails.
- Scammers may mention overdue taxes in addition to threatening to cancel the taxpayer’s SSN.
Fake tax agency
- This scheme involves a letter threatening an IRS lien or levy.
- The scammer mails the letter to the taxpayer.
- The lien or levy is based on bogus overdue taxes owed to a non-existent agency.
- The fake agency is called the “Bureau of Tax Enforcement.” There is no such agency.
- The lien notification scam also likely references the IRS to confuse potential victims into thinking the letter is from a legitimate agency.
Both these schemes show classic signs of being scams. The IRS and its Security Summit partners – the state tax agencies and the tax industry – remind everyone to stay alert to scams that use the IRS or reference taxes. Being alert is especially important in late spring and early summer as tax bills and refunds arrive.
The IRS has stated that it is committed to ensuring taxpayers pay no more than the correct amount of tax owed. Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly. This is one of 10 basic rights known collectively as the Taxpayer Bill of Rights.
Here are some important things taxpayers should know about their right to pay no more than the correct tax owed. They can:
- File for a refund if they believe they overpaid their taxes.
- Contact the IRS if they believe there is an error on a notice or bill.
- File an amended tax return if an error is discovered after the original return was filed.
- Request that any amount owed be removed if it exceeds the correct amount due.
- Request that the IRS remove interest from the account if the agency caused unreasonable errors or delays.
- Submit an offer in compromise using Form 656-L. Taxpayers use this form to ask the IRS to accept less than the full amount of tax debt. Taxpayers do this if they believe all or part of the debt is not owed.
Educators may be able to deduct unreimbursed expenses on their tax return. This deduction can put money right back in the pockets of eligible teachers and other educators.
Here are some things to know about this deduction:
- Educators can deduct up to $250 of trade or business expenses that were not reimbursed. As teachers prepare for the next school year, they should remember to keep receipts after making any purchase to support claiming this deduction.
- The deduction is $500 if both taxpayers are eligible educators and file their return using the status married filing jointly. These taxpayers cannot deduct more than $250 each.
- Qualified expenses are amounts the taxpayer paid themselves during the tax year.
- Examples of expenses the educator can deduct include:
- Professional development course fees
- Computer equipment, including related software and services
- Other equipment and materials used in the classroom
- Taxpayers claim the deduction on Form 1040 or Form 1040NR. The taxpayer should remember to complete and attach Form 1040, Schedule 1 to their return.
- To be considered an eligible educator, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide. They must also work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.