Tax-Related Identity Theft

If you are interested in tax-related identity theft, the IRS has some videos to check out.

Tax-Related Identity Theft   English | Spanish | ASL

Subscribe today: The IRS YouTube channels provide short, informative videos on various tax related topics in English, Spanish and ASL.

Five Tax Tips on Making Estimated Tax Payments

Here are five tips about making estimated tax payments:

  1. When the tax applies. Taxpayers should pay estimated taxes if they expect to owe at least $1,000 in tax for 2017 after subtracting their withholding and refundable credits. Special rules apply to farmers and fishermen.
  2. How to figure the tax. Taxpayers need to estimate the amount of income they expect to receive for the year. Taxpayers also need to make sure they take into account any tax deductions and credits that they will be eligible to claim. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay any estimated tax.
  3. When to make payments. Taxpayers normally make estimated tax payments four times a year. The dates that apply to most people for 2017 are April 18, June 15 and Sept. 15. There is one last payment on Jan. 16, 2018.
  4. When to change tax payments or withholding. Major life changes like the birth of a child can affect taxes. When these changes happen, taxpayers should consider revising their estimated tax payments for the year. If the taxpayer is an employee, they may need to change the amount of tax withheld from their pay. If this is the case, the taxpayer should give their employer a new Form W–4, Employee’s Withholding Allowance Certificate. Anyone can use the IRS Withholding Calculator tool at IRS.gov to complete the form.
  5. How to pay estimated tax. Taxpayers have a variety of ways available to them to pay estimated tax. They can pay online, by phone or from their mobile device. Direct Pay is a secure online service to pay a tax bill or pay estimated tax directly from a checking or savings account at no cost. Visit IRS.gov/payments for easy and secure ways to pay taxes. Paying by mail is another option. If a taxpayer pays estimated tax through the mail, they should use the payment vouchers that come with Form 1040-ES.

Business or Hobby?

Millions of people enjoy hobbies that are also a source of income. From catering to cupcake baking, crafting homemade jewelry to glass blowing — no matter what a person’s passion, the Internal Revenue Service offers some tips on hobbies.

Taxpayers must report on their tax return the income earned from hobbies. The rules for how to report the income and expenses depend on whether the activity is a hobby or a business. There are special rules and limits for deductions taxpayers can claim for hobbies. Here are five tax tips to consider:

  1. Is it a Business or a Hobby?  A key feature of a business is that people do it to make a profit. People engage in a hobby for sport or recreation, not to make a profit. Consider nine factors when determining whether an activity is a hobby. Make sure to base the determination on all the facts and circumstances. For more about ‘not-for-profit’ rules, see IRS Publication 535, Business Expenses.
  2. Allowable Hobby Deductions.  Within certain limits, taxpayers can usually deduct ordinary and necessary hobby expenses. An ordinary expense is one that is common and accepted for the activity. A necessary expense is one that is appropriate for the activity.
  3. Limits on Hobby Expenses.  Generally, taxpayers can only deduct hobby expenses up to the amount of hobby income. If hobby expenses are more than its income, taxpayers have a loss from the activity. However, a hobby loss can’t be deducted from other income.
  4. How to Deduct Hobby Expenses.  Taxpayers must itemize deductions on their tax return to deduct hobby expenses. Expenses may fall into three types of deductions, and special rules apply to each type. See IRS Publication 535 for the rules about how to claim them on Schedule A, Itemized Deductions.
  5. Use IRS Free File.  Hobby rules can be complex and IRS Free File can make filing a tax return easier. IRS Free File is available until Oct. 16. Taxpayers earning $64,000 or less can use brand-name tax software. Those earning more can use Free File Fillable Forms, an electronic version of IRS paper forms. Free File is available only through the IRS.gov website.

Tips for Taxpayers Who Owe Taxes

The IRS offers a variety of payment options where taxpayers can pay immediately or arrange to pay in installments. Those who receive a bill from the IRS should not ignore it. A delay may cost more in the end. As more time passes, the more interest and penalties accumulate.

Here are some ways to make payments using IRS electronic payment options:

  • Direct Pay. Pay tax bills directly from a checking or savings account free with IRS Direct Pay. Taxpayers receive instant confirmation once they’ve made a payment. With Direct Pay, taxpayers can schedule payments up to 30 days in advance. Change or cancel a payment two business days before the scheduled payment date.
  • Credit or Debit Cards. Taxpayers can also pay their taxes by debit or credit card online, by phone or with a mobile device. A payment processor will process payments.  The IRS does not charge a fee but convenience fees apply and vary by processor.

Those wishing to use a mobile devise can access the IRS2Go app to pay with either Direct Pay or debit or credit card. IRS2Go is the official mobile app of the IRS. Download IRS2Go from Google Play, the Apple App Store or the Amazon App Store.

  • Installment Agreement. Taxpayers, who are unable to pay their tax debt immediately, may be able to make monthly payments. Before applying for any payment agreement, taxpayers must file all required tax returns. Apply for an installment agreement with the Online Payment Agreement tool.

Who’s eligible to apply for a monthly installment agreement online?

    • Individuals who owe $50,000 or less in combined  tax, penalties and interest and have filed all required returns
    • Businesses that owe $25,000 or less in combined tax, penalties and interest for the current year or last year’s liabilities and have filed all required returns

Those who owe taxes are reminded to pay as much as they can as soon as possible to minimize interest and penalties. Visit IRS.gov/payments for all payment options.

IRS Offers Tips for Disaster Preparedness

Not only is Hurricane Preparedness Week May 7-13, but many areas have suffered from severe flooding. The IRS has reminded taxpayers to prepare for hurricanes and other natural disasters, such as floods, now. By taking a few steps before disaster strikes, taxpayers can reduce their stress when it comes time to file claims or rebuild after the catastrophic event.

Here are some things to consider:

  • Update Emergency Plans — Because a disaster can strike any time, be sure to review emergency plans annually. Personal and business situations change over time, as do preparedness needs. Make plans ahead of time and be sure to practice them.
  • Create Electronic Copies of Documents — Taxpayers should keep a duplicate set of key documents. Keep documents including bank statements, tax returns and insurance policies in a safe place. Doing so is easier now that many financial institutions provide statements and documents electronically, available on the Internet. Even if original documents are available only on paper, scan them into an electronic format and store them on DVD, CD or cloud storage.
  • Document Valuables — It’s a good idea to photograph or videotape the contents of any home, especially items of higher value. Documenting these items ahead of time will make it easier to claim insurance and tax benefits after a disaster strikes. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings. Photographs can help prove the fair market value of items for insurance and casualty loss claims.
  • IRS Ready to Help — In the case of a federally declared disaster, impacted taxpayers can call 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. Taxpayers can request copies of previously filed tax returns and attachments, including Forms W-2, by filing Form 4506, Request for Copy of Tax Return.  Alternatively, order transcripts showing most line items through the Get Transcript link on IRS.gov, by calling 800-908-9946 or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript or Form 4506-T, Request for Transcript of Tax Return.

Small Business Week Reminder: Work Opportunity Tax Credit can Help Employers Hiring New Workers; Key Certification Requirement Applies

The Internal Revenue Service today reminded employers planning to hire new workers that there’s a valuable tax credit available to those who hire long-term unemployment recipients and others certified by their state workforce agency. During National Small Business Week—April 30 to May 6—the IRS is highlighting tax benefits and resources designed to help new and existing small businesses.

The Work Opportunity Tax Credit (WOTC) is a long-standing income tax benefit that encourages employers to hire designated categories of workers who face significant barriers to employment. The credit, usually claimed on Form 5884, is generally based on wages paid to eligible workers during the first two years of employment.

To qualify for the credit, an employer must first request certification by filing IRS Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. Other requirements and further details can be found in the instructions to Form 8850.

There are now 10 categories of WOTC-eligible workers. The newest category, added effective Jan. 1, 2016, is for long-term unemployment recipients who had been unemployed for a period of at least 27 weeks and received state or federal unemployment benefits during part or all of that time. The other categories include certain veterans and recipients of various kinds of public assistance, among others.

The 10 categories are:

  • Qualified IV-A Temporary Assistance for Needy Families (TANF) recipients
  • Unemployed veterans, including disabled veterans
  • Ex-felons
  • Designated community residents living in Empowerment Zones or Rural Renewal Counties
  • Vocational rehabilitation referrals
  • Summer youth employees living in Empowerment Zones
  • Food stamp (SNAP) recipients
  • Supplemental Security Income (SSI) recipients
  • Long-term family assistance recipients
  • Qualified long-term unemployment recipients.

Eligible businesses claim the WOTC on their income tax return. The credit is first figured on Form 5884 and then becomes a part of the general business credit claimed on Form 3800.

Though the credit is not available to tax-exempt organizations for most categories of new hires, a special rule allows them to get the WOTC for hiring qualified veterans. These organizations claim the credit on Form 5884-C. Visit the WOTC page on IRS.gov for more information.

IRS Promotes Specialized Online Services during Small Business Week

National Small Business Week for 2017 is April 30 through May 6. During this time, the Internal Revenue Service will promote many online products to help small business owners and those who are self-employed understand their tax responsibilities.

Here are just a few among dozens of useful IRS products in the spotlight for this year’s National Small Business Week:

  1. Sharing Economy Tax Center.  This special webpage provides fast answers to tax questions, as well as links and forms for the sharing economy. People who use one of the many online platforms to engage in this type of business, such as renting a spare bedroom, providing car rides or providing many other goods or services, are involved in the sharing economy. Topics include filing requirements, rules for home rentals and business expenses.
  2. Self-Employed Individuals Tax Center.  Taxpayers will find the Self-Employed Individuals Tax Center to be a great resource for sole proprietors and others who are in business for themselves. This site has many handy tips and references to tax rules a self-employed person may need to know. In addition to many other subjects, taxpayers will find information on:
    • How to Make Quarterly Payments.
    • Requirements for Information Returns.
    • How to File an Annual Return.
    • Business Structures.
    • Qualified Joint Ventures
  3. Small Business and Self-Employed Tax Center.  This online information center features links to a wealth of useful tools, including Small Business Taxes: The Virtual Workshop and common IRS forms with instructions. Find help on everything from how to get an Employer Identification Number online to how to engage with the IRS during an audit. The IRS Tax Calendar for businesses and Self-Employed is a convenient, at-a-glance resource designed to show key tax dates for businesses. Download the Calendar Connector tool to get the dates even when offline.