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Filing Taxes Late: Is It Too Late to File Taxes?

If you’re filing taxes late this year, you may be wondering if there’s still time to get your paperwork in while remaining under the radar. You may also be wondering what the regulations are regarding getting current if you’re several years behind on taxes. The truth is that taxpayers have a surprising number of options for filing taxes late if they’re willing to comply with the IRS. 

Is it ever too late to file taxes? Take a look at what you need to know.

What Happens If You File Taxes Late?

Will you be stuck with a penalty for late taxes if you file your taxes after this year’s tax deadline? All taxes filed past the tax deadline without an extension in place are considered late. There’s no standard answer for what happens when you file taxes late because the outcome will depend on how long you’ve gone without filing taxes, how much you owe in late taxes, and your ability to pay what you owe to the IRS. 

The simplest answer is that the IRS will call on you to file your taxes. If you fail to do this, you face a penalty for filing taxes late; fees, interest, and liens are not far behind. If you really let the situation get out of control, you could be facing charges for tax evasion. Luckily, the IRS is pretty reasonable about helping you to get caught up without much stress as long as you’re willing to take the actions needed.

First, it’s essential to know that the IRS won’t just forget about unfiled and unpaid taxes. While you may think that the IRS hasn’t noticed because you made it through the end of tax season without getting any notices, there’s a good chance that a letter is on its way. The IRS doesn’t just rely on the information you report on your tax returns to determine how much you owe; it uses a sophisticated system that cross-references payroll records and tax returns to calculate how much every taxpayer made during any given year. While you may have skipped filing a return, the IRS still knows if you’ve earned income based on this information.

If you don’t file taxes, the IRS will probably file on your behalf after you’ve ignored notices. There’s no benefit to allowing this to happen because the IRS will file on your behalf without giving you all the tax credits and rebates you may be entitled to receive. That means you’ll likely end up owing more than you should. You’ll also begin accruing failure-to-file penalties the moment your taxes are late. This totals five percent of what you owe the IRS for each month your return is late, and up to a maximum of 25 percent of your total bill for the first 60 days past the deadline. If you file your return 60 days late, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Are you concerned that you can’t file your taxes because you have no way to pay what you owe? The five percent penalty for filing taxes late is actually much more expensive than the late payment penalty of .05 percent. It pays to file even if you cannot cover your full bill. Only by filing your taxes can you access the many tax relief options provided to you by the IRS. Once you’re approved for relief, the penalties stop adding up as long as you stay in compliance with the terms of your relief agreement.

While the IRS has a reputation for being persistent, taxpayers who get up to date with late taxes can take advantage of a wide variety of relief options like an Installment Agreement (IA), Offer In Compromise (OIC), or Currently Not Collectible status (CNC). All of these options will freeze your payments, reduce your total bill, or provide you with years to pay it off in smaller chunks. Almost every taxpayer will qualify for at least one relief option, but the IRS won’t consider your application for relief unless you’ve filed all past due returns.

How Late Can You File Taxes?

It’s never too late to file taxes. Again, the only mistake is never filing taxes. The IRS doesn’t stop adding on fees and penalties just because you’re ignoring letters. If it determines that you owe money, it will activate liens and wage garnishments that seize paychecks, assets, and bank accounts until your bill is satisfied. While there is generally a 10-year statute of limitations on tax collection, the IRS can reclaim what you owe through liens and wage garnishments even if you’re trying to “wait out” the problem. By avoiding taxes, you’re racking up fees and interest that will actually prolong your liens and garnishments because you’re owing much more than your original tax bill.

Generally, filing your taxes within 60 days of the due date is the best option for being late because you’re capped at paying a maximum of 25 percent of your total tax bill. Beyond that, the IRS can tack on fines that equal 100 percent of your bill. However, filing today is the best option.

If you’d like to file your taxes late without incurring failure-to-file penalties, you can apply for an extension before the tax deadline. Depending on your situation, an extension can give you between 30 days and six months to file your taxes beyond the due date without being penalized for failure to file. However, you still have to pay at least 90 percent of your balance by tax day unless you want to incur late-payment penalties. While extensions give you more time to prepare your return, they don’t provide much of a buffer for paying your anticipated tax bill.

How to File Late Taxes

If you already have all of the information you need to file your late return, you can go ahead and file it the regular way. Just keep in mind that you need to have any W-2 or 1099 forms for the outstanding years in order to accurately report your income. 

If you’re missing documentation, you can use Form 4506-T: Request for Transcript of Tax Return from the IRS. In many cases, having your late taxes prepared by a tax professional is a good way to ensure that you’re handling the process properly. A tax expert can also fill you in on the process for applying for relief or installment payments if you have tax bills you can’t manage with lump payments.

What You Need to Know About Filing Your Taxes Late

If you owe taxes, you can only benefit from getting them filed now. You’re still entitled to your refund even if you missed the tax deadline. However, the IRS cuts you off from your refund after three years. That means you’ll be paying interest on owed taxes without getting the refund you’re owed. Owing taxes can also cause the IRS to hold back any future refunds.

Get Help With Filing Your Taxes Late

A late tax return is always better than no tax return. When you come to Tax Group Center for help with filing your taxes late, we’ll help you catch up with late tax returns. If you owe money to the IRS or state, we’ll walk you through the process of getting debt relief to reduce your debt, freeze your debt, or space out payments. With 30 years of dealing with the IRS on behalf of our clients to our name, the Tax Group Center team is ready to help you get your late tax return handled the right way. Contact us today!

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How Much Do I Owe the IRS? Figuring Out How Much You Owe in Taxes in 2021

If you owe the IRS money, you may be wondering how to untangle the confusion regarding the amount of back taxes owed. While plenty of options exist for rectifying a tax issue stemming from unpaid taxes, it’s important to begin working with the IRS right away to avoid messy issues with interest, wage garnishments, tax liens, and more. Fortunately, the IRS provides some clear resources for figuring out how much you owe, getting your taxes paid, or working out a settlement. Here’s a look at what you need to know if you’re trying to pin down answers on IRS taxes owed.

How Do I Know If I Owe the IRS?

If you owe the IRS money, you’ll receive a tax bill in the mail for the full amount. The bill that comes in the mail will inform you of the balance due. In addition, you will see any penalties or interest that you owe tacked on to your tax bill. It’s essential to understand that this bill is just the IRS’s first step in the collection process. If left unpaid, daily compound interest and monthly penalties will begin to accrue. While receiving a bill can be a startling way to learn that you owe the IRS money, another way to be notified that you have a tax bill is by filing or reviewing tax returns. If you have any unfiled tax returns floating around, it’s important to file them to start getting tax payments taken care of before penalties and interest begin accruing.

You may also discover that you owe the IRS back taxes using the IRS.gov website. Following the registration process, you’ll be able to use the IRS Account Information portal to view how much you owe in taxes for each tax year. If you’re not necessarily tech-savvy, you can also contact the IRS by phone at 1-800-829-1040 (toll-free) from 7:00 a.m. to 7 p.m. from Monday through Friday.

How To Figure Out How Much You Owe the IRS

If you’re unsure about how much you owe the IRS, there are several ways to find out. You may want to first check your tax records to confirm you’ve paid your tax bill for the most recent tax year. However, there are more direct ways if you don’t have clear tax records available.

Request a Transcript

If you’ve received a bill from the IRS, the amount on the bill is the amount you owe. However, you may be curious to see your tax transcript for yourself to do your own analysis. You can do this by requesting a copy of your IRS transcript online. If you have an IRS account set up already, you can view the transcript online. If you don’t have an IRS account, you can request that the transcript is mailed to you as long as you provide your Social Security number, date of birth, and the mailing address associated with your last tax return. Transcripts usually arrive within 10 days.

Visit an IRS Office

You can visit your local IRS Tax Assistance Center (TAC) to inquire about a current IRS balance. Simply call the office in your area to make an appointment. Be sure to bring along a current government-issued photo ID and your Social Security number.

Ask a Tax Professional

Of course, the numbers that you receive from the IRS will be based on the records and findings of the IRS. Your records may show that the IRS taxes owed are actually lower. This is where it can be beneficial to go over your tax records and payments with a tax professional who specializes in tax problems.

Why Do I Owe Taxes?

People can owe taxes for reasons that range from improper tax preparation to math errors. It’s not necessarily true that only people who intentionally skip tax payments can owe the IRS money. In many cases, people owe tax money because they made incomplete tax payments. 

Here’s a look at common reasons why people end up owing the IRS money:

  • You forgot to file taxes.
  • You filed your taxes incorrectly.
  • You didn’t realize you owed taxes.
  • You didn’t hold enough from your paychecks to cover your tax bill throughout the year.
  • You didn’t properly adjust your tax planning strategy when your tax bill rose.
  • You failed to adjust your withholding amount to keep up with changes in the tax code.
  • You made a math error when filing your taxes.
  • You made a math error when paying your tax bill.
  • You didn’t have enough to pay your full tax bill when you filed your taxes.

Unfortunately for taxpayers, you will still owe money even if you didn’t intentionally skip paying your taxes. If you forgot to pay the IRS, there’s a good chance that you also forgot to handle your state taxes. As a result, you could be about to receive a tax bill for your state taxes. It’s crucial to get caught up with either filing or paying state taxes to avoid the consequences of not filing or paying state taxes.

How Long Can You Owe the IRS?

Penalties begin accruing the day after the filing deadline. Generally, there is a 10-year statute of limitations on IRS collections. That means that the IRS has 10 years from the date that your taxes were assessed to attempt to collect payment. However, the statute for collecting state taxes varies by state.

How to Pay Your Tax Bill to Stop Owing the IRS

The simplest way to stop owing the IRS money is to pay your bill in full. However, not everyone is in a position to make a lump cash payment to the IRS. The IRS is generally very generous with offering tax relief solutions for taxpayers who are unable to make payments in full. There’s only one general condition that impacts your eligibility: you need to file all your tax returns. 

The most common tax relief solution offered by the IRS is something called an Installment Agreement (IA). Under this arrangement, a taxpayer has 72 months (six years) to pay off a tax debt using monthly payments. Additionally, an option like an Offer in Compromise (OIC) may allow you to settle your IRS tax debt for less than the full amount.

Are Failure to Pay and Failure to File the Same Thing?

The last big detail to cover regarding how to take care of an IRS tax debt is the way the IRS handles failure to pay versus failure to file. Failure to pay applies if you do not file by the filing deadline without requesting an extension. Failure to file applies if you don’t pay the taxes reported on your return by the deadline. While you can request an extension to file, the extension doesn’t actually extend your payment deadline. That means you’re required to pay your anticipated owed tax bill by the deadline even if you don’t file your taxes due to an extension. A failure-to-pay penalty may apply if you didn’t pay your full tax amount by the filing deadline. Generally, the failure-to-file penalty is more than the failure-to-pay penalty.

Do I Owe the IRS? Find Out With Help From Tax Professionals

Let the tax professionals at Tax Group Center help you with back taxes owed to the IRS. Our team will help you determine the exact amount the IRS claims you owe. Next, we’ll help you work out payment options or tax relief solutions with the IRS. We’ve been helping taxpayers settle with the IRS for 30 years. Contact us today!

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Taxes After Death: What You Need to Know About Filing and Paying Taxes for a Deceased Person

Filing taxes for deceased loved ones is one of the unexpected tasks that can go along with managing final affairs. Many people are uncertain about what goes into filing taxes for a deceased person because they aren’t sure where the responsibility falls. 

The first thing to know is that the IRS does not cancel tax debts upon death. The hard reality is that IRS penalties and interest can accrue if unfiled returns are allowed to linger without being addressed after a person had died. If you’re handling the estate of a loved one, it’s important to know how to file a tax return for a deceased person.

Yes, you do need to file taxes on behalf of a deceased person if you have been tasked with managing an estate, because tax obligations don’t evaporate when a person passes away. Both the IRS and state taxing agencies will hold the estate of the deceased liable for filing and paying taxes on time. If you are the representative of an estate, you must file taxes in the exact way that the deceased person would have. That means filing both state and federal taxes for the year of death. In most cases, the estate representative will need to file an IRS Form 1040. When filing taxes for a deceased person, you must report all income up to the date of death. Family members sometimes discover that a loved one has not been consistently filing and paying income taxes. If this is the case, you’ll need to go back to take care of all unfiled taxes before you can claim refunds or request relief for tax debt.

What Happens if a Deceased Person Owes Taxes?

If you discover that taxes are owed after filing a deceased tax return, it’s necessary to pay the outstanding balance. The consequences of not filing or paying state taxes and federal taxes do not go away just because someone is deceased. If taxes are not paid, the IRS and state taxing authorities may decide to pursue collection from the person’s estate. If unpaid taxes go back several years, the IRS may conduct an audit. In some cases, the IRS will actually attach an estate lien to a person’s property.

Do You Have To File Taxes for a Deceased Person?

Yes, you should file a tax return for a deceased person if they had any reportable income or assets in the year that they died. This includes both earned income and income from investments. While you may not be required to file a tax return for the deceased if the person made less than $12,400 (under 65) or $14,050 (over 65), it’s still a good idea to file because there are various credits and deductions that could actually provide the estate with a refund.

In some cases, the surviving spouse or representative of the estate will have to file a separate return from the deceased person’s personal return that represents the estate. This is determined by the size and nature of the estate. For instance, most estates that receive $600 in income annually will require you to file an IRS Form 1041. Additionally, there is the matter of estate tax for larger estates. If an estate is liable for the estate tax, the estate administrator must file IRS Form 706 within nine months of the estate owner’s death.

Who Should File Taxes for Someone Who Has Passed Away?

Typically, the default is for surviving spouses to take care of filing taxes for deceased spouses. If a joint tax return is filed, the responsibilities of tax preparation and payment of any owed taxes fall on the spouse. If a person is not married at the time of death, the executor or estate representative will be tasked with filing the deceased person’s federal and state income tax returns for the year. 

If a joint return is filed, the surviving spouse shares this responsibility. As far as who signs the tax return for a deceased person, the person who prepared the return should be the one to sign it. If a spouse is filing a joint return, they will sign the return as the surviving spouse. In all other cases, the executor or estate representative will sign the return.

How Long Should You Keep a Deceased Person’s Tax Records?

The minimum amount of time that you should keep a deceased person’s tax records is three years. Generally, returns are only subject to audits going back three years. 

However, there is the rare case where the IRS will go back as far as six years into past returns. For this reason, it’s recommended that you hold on to all tax records belonging to a deceased person for at least seven years. Keeping the tax records of a deceased person can be even more critical than holding on to your own tax returns, because trying to obtain records on behalf of someone else in the event that you need to supply evidence of tax records during an audit can be very difficult. You may not have access to stored documents or passwords that are needed to obtain copies of tax-related documents.

What Happens to a Tax Refund Check for a Deceased Person?

If you are claiming a tax refund on behalf of a deceased person, the IRS requires you to fill out Form 1310: Statement of Person Claiming Refund Due a Deceased Taxpayer. In most cases, you’ll save yourself a big headache if you request a refund in the form of a paper check. If direct deposit is set up using a bank account that is not in the name of the deceased taxpayer, there is a good chance that the bank will reject the transaction. The person claiming the refund must indicate that they intend to distribute the tax refund according to applicable state laws in the state where the deceased person resided. It may also be necessary to supply a court certificate documenting that you are the legally appointed representative of the deceased’s estate to prove that you are entitled to receive the deceased person’s tax refund under state law.

Get Help for Taxes After Death

Filing taxes for deceased family members can be a difficult and overwhelming task due to complicated, ever-changing tax laws. In addition to reporting income, a surviving spouse or estate manager must also figure out tax obligations for things like IRAs and retirement accounts. What’s more, many people are surprised to discover that they can inherit tax problems when they inherit estates. If you discover that an estate owes taxes, many of the same tax relief solutions that apply for all taxpayers can be used to pay down tax debt using an Installment Agreement (AI).If you’ve been left to handle a final tax return for a deceased person, Tax Group Center is here to help you get everything squared away. Our tax experts and CPAs are backed by 30 years of experience. If necessary, we can work with the IRS on your behalf to take care of any lingering tax debts or penalties that are tied to a deceased person’s estate. Contact us today if you have any questions about managing taxes after death.

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What Is the Minimum Income To File Taxes?

Determining What You Owe the IRS: What Is the Minimum Income To File Taxes?

If you had a relatively low income this year, you might be wondering if you have to file taxes. First, don’t assume that making a modest income means the IRS isn’t expecting a tax return from you. If you skip tax preparation due to a misunderstanding, you’re still subject to all of the penalties that apply for unfiled returns. That’s why it’s essential to know the minimum income to file taxes.

Income tax minimum varies by filing status. The IRS has different income minimums for taxpayers based on both filing status and age. If you’re filing as single, the income threshold for owing income taxes is much lower. The threshold is also lower for people under the age of 65 than for people over that age.

What Is the Minimum Income to File Taxes?

More than 40 percent of Americans aren’t required to file taxes because they don’t meet the income minimum. However, the actual minimum income amount can look different from person to person within that group of millions of people. Here’s how it breaks down for 2020 incomes:

  • Filing Single: $12,400 (under 65)/$14,050 (over 65)
  • Married Filing Jointly: $24,800 (both spouses under 65)/$26,100 (one spouse over 65)/$27,400 (both spouses over 65)
  • Married Filing Separately: $5 for all ages
  • Head of Household: $18,650 (under 65)/$20,300 (over 65)
  • Qualifying Widow(er) With Dependent Child: $24,800 (under 65)/$26,100 (over 65)
  • Filing as Self-Employed: $400

You also have some other factors to consider before you shove your tax return into a drawer without sending it to the IRS. While the minimums above will apply in most cases, there could be an additional factor in your case that compels you to file. For instance, a self-employed person who makes below the threshold for their filing category should still file a return. People who purchase health insurance from state or federal marketplaces should also file. Lastly, you may be required to file taxes this year if another person claimed you as a dependent on their return.

What if none of those conditions apply to you? The truth is that you might still want to file your taxes even if you don’t technically have to file this year because you might benefit from some tax perks. For instance, you could receive an unexpected refund if you file, which you won’t receive if you have any unfiled returns. It can be beneficial to file a return every year just to stay on track and keep records of your income. Additionally, the amount you had withheld from your paychecks during the year may be returned to you in the form of a tax refund after you file. This is what’s known as a refundable credit. Not filing your taxes this year could mean that you’re not claiming things like the Additional Child Tax Credit, Health Coverage Tax Credit, or American Opportunity Education Credit. In other words, not filing is like waiving a free check from the IRS!

How can you estimate if you’ll get a refund this year even though you had a very low income? Generally, it’s wise to file your taxes if your employer withheld federal taxes from your paychecks. The same goes if you paid your quarterly estimated tax payments.

Who Doesn’t Pay Income Taxes?

Ultimately, the total income you make in any given year determines your tax obligation. The thresholds above for the various filing categories are what the IRS uses to determine who is required to pay income taxes in any given year. The very basic definition of someone who won’t be required to pay income taxes is a single filer under the age 65 making less than $12,400 per year. When looking at the chart above, you may have noticed that the threshold for all people filing as married filing separately is just $5. No, that’s not a typo. The IRS essentially provides no threshold for people who choose to file as married filing separately.

Do I Need to File a Tax Return?

The only person who can really answer this question is you. First, you’ll need to take a look at your paycheck records for the year to determine if you reached the threshold for your age and filing status. It’s critical to file even if you’ve only made a dollar above the threshold, because not filing when you make a low income opens you up to all of the same penalties for not filing at any income level.

Should You File Your Taxes This Year Even If You Didn’t Make a Lot of Money?

Even if you didn’t meet the minimum income to pay taxes, it’s still generally a good idea to file. The bottom line is that you’re probably entitled to a number of deductions and credits that could result in a nice refund. You also want to look at the whole picture to make sure that you’re accurately reporting your entire income. The full formula for determining if you made the minimum to file taxes includes your filing status, federal income tax withheld for the year, and your gross income.

Some people assume they don’t need to file taxes based on their paycheck and later realize that other earnings they made throughout the year do qualify as income. If you made relatively little income, filing your taxes will likely be a very quick process that only includes a few tax forms. Taking just a little time to file your return is a much better option than dealing with a surprise tax lien down the road.

Final Thoughts: Getting Your Taxes Ready If You Meet the Minimum Income to File Taxes

Not being able to pay what you owe in taxes is never a reason to avoid filing your taxes at any income level. The IRS checks all tax records from around the country to calculate income. That means that the IRS will know how much you made in any given year even if you don’t report your earnings. If you’re worried that filing will create tax problems, you should know that not filing will create even bigger problems. Fortunately, there are many options for tax forgiveness and payment plans that allow you to take care of a tax debt without incurring interest and penalties. The team at Tax Group Center helps taxpayers prepare and file taxes to avoid penalties every day. We also negotiate with the IRS on behalf of our clients when taxpayers can’t pay their tax bills in full. If you’re trying to determine if you meet the minimum income to file taxes, we can take a look at your situation to let you know where you fall. We may also be able to identify some potential credits and refund opportunities that will have the IRS writing you a check this year. Contact us today for a tax consultation with Tax Group Center’s team of tax experts and CPAs.

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Are Political Contributions Tax Deductible?

How Giving Impacts Your Taxes: Are Political Contributions Tax Deductible?

If you gave to political candidates last year, you might be wondering if campaign contributions are tax deductible as you gear up for this year’s tax preparation. If you routinely deduct contributions made to charities on your tax returns, you may assume that the process works roughly the same when you make political donations. 

This is not accurate. It’s essential to distinguish between donations made to charitable organizations and political contributions before getting to work on your unfiled taxes. Only one can actually reduce your tax liability for the year!

Are Political Donations Tax Deductible?

No. “Political contributions deductible status” is a myth. The IRS makes it clear that you cannot deduct contributions that you make to any organizations that aren’t qualified to receive tax-deductible donations. This doesn’t just mean that donations made to candidates and campaigns are excluded from being tax deductible. It also extends to political action committees (PACs). Only donations given to registered 501(c)(3) organizations can qualify for tax-exempt status.

Are Political Contributions Tax Deductible for Businesses?

If you own a business, you understandably have a strong interest in how laws and policies will impact your industry. Unfortunately, that doesn’t mean that the IRS bends the rules to allow you to benefit from your political contributions. If you’re wondering if campaign contributions are tax deductible for your business, the same rules apply. You cannot claim political deductions on your tax return for your business. More specifically, you cannot claim any amount paid in connection with influencing legislation as a business expense. This rule is so strict that the law even prevents political candidates from deducting the money they spend out of their own pockets while running for elected office!

Where does that leave you if you made large political contributions last year? If you were hoping that contributions made to political causes would help to offset your tax bill for the year, it’s time to make a plan to avoid the penalties and interest that could accumulate if you can’t cover your tax bill in full. The good news is that there are many other expenses that you paid for throughout the year that many qualify for deductions this year. This is especially true if you take itemized deductions instead of the standard deduction.

If I Volunteer for a Political Campaign, Can I Deduct My Expenses?

We’ve already covered the fact that money donated to political campaigns will not be tax deductible. However, you may be wondering how the IRS treats the time you donate to candidates. Are donations to political campaigns tax deductible if those donations are volunteered time? The rules are the same for donations of both money and time. So the answer is no: any time you donate to a political candidate, political campaign or political action committee (PAC) is not considered a tax-deductible donation by the IRS.

Is Supporting the Presidential Election Campaign Fund Tax Deductible?

You may have noticed that you have the option to contribute to the Presidential Election Campaign Fund when you complete your tax return. The maximum that you can set aside for this contribution is $3. You might be wondering if that $3 deduction is tax deductible since it’s displayed on your tax form. It is not. Checking the box to make this contribution has no impact on your taxes or deductions for the year.

What Are the Political Contribution Limits for the Year?

While you won’t be getting a tax deduction for your contributions to political candidates and campaigns, there’s a good chance that you still want to throw your support behind a candidate or party. You should know that there are caps for every American when it comes to political donations. Here’s what you can legally give each year without violating any campaign finance laws:

  • Up to $2,800 per candidate per election
  • Up to $10,000 combined for all state, district, and local parties
  • Up to $106,500 to a national political party
  • Up to $5,000 per year to PACs

The Federal Election Commission (FEC) sets these caps, but the IRS will have questions for you if you go above them. Be sure to keep good records of your political donations if you routinely give large amounts of money to politicians and causes, because the IRS strictly enforces these limits.

How Can I Give to Tax-Deductible Causes for Tax Purposes?

While giving to a political cause isn’t going to help you lower your tax burden, there are still countless opportunities to give to charitable causes. From soup kitchens to animal rescues and humanitarian organizations, your options are endless.

The only detail to remember is that a charity must be registered as a 501(c)(3) organization for your donation to be legally tax deductible. Under the IRS’s rules, a donation that you give to an individual or group without that 501(c)(3) status won’t count on your taxes. 

It’s also important to note that purchasing goods from not-for-profit organizations won’t count toward tax deductions. For instance, a local church might be having a bake sale to pay for a new roof following a bad storm. You might purchase a slice of carrot cake during the sale to throw your support behind the effort, but that purchase will not be considered a tax-deductible contribution due to the fact that you received a “good” in exchange for the money you gave.

Final Thoughts on Political Contributions and Your Taxes

Are political contributions tax deductible? Unfortunately, you’re not going to be able to turn your political giving into a tax gain this year. That means that you’re out of luck if you were counting on the money you gave to political causes last year to help you lower a tax debt. The good news is that you have many legitimate options for avoiding the consequences of not filing or paying taxes, including things like installment agreements and debt forgiveness.

If you have any questions about figuring out your tax debt while factoring in charitable giving, Tax Group Center is here to help you get on the right page with the IRS. While using deductions to lower your tax burden may help you, it’s also crucial to understand that getting your return filed quickly can help you to avoid severe penalties like liens and levies. Our team of tax professionals and CPAs can help. We’ve been working with the IRS on behalf of our clients for 30 years. If you have tax problems that have grown too serious or confusing to handle on your own, simply contact us today for a consultation. Tax Group Center will work hard to get you on the road to tax relief. Having your taxes prepared by tax experts can help you maximize deductions of all types to reduce your tax liability for the year in full IRS compliance.

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How to Get Rid of Your Back Taxes

How to Get Rid of Your Back Taxes | Tax Group Center

What does owing back taxes really mean for your finances? Nobody wants to get a letter from the IRS about back taxes, but trying to close your eyes until it all goes away will make things much worse. As a taxpayer, you should know that the IRS offers many tax relief options that will get you on the road to back tax forgiveness. 

Don’t let the burden of owing the IRS money stifle your financial plans or peace of mind for one more day. The first step in figuring out how to get rid of back taxes is finding out how much you owe the IRS.

How to Find Out How Much You Owe the IRS

The IRS allows you to make an online account to view what you owe. You can also use your account to apply for a tax payment plan as one of your debt relief options. Setting up this account can be a little overwhelming due to the breadth of information the IRS requires. If you’re unsure about how to make first contact with the IRS, you can bring in a tax pro with experience in this arena to help you get it done.

What Are the Tax Relief Options When You Owe Money to the IRS?

There are several ways to reduce back taxes. If possible, pay the full lump sum that you owe right away. This is the simplest way to put a stop to the IRS’s pursuit of your back taxes. Don’t let unfiled returns stop you from paying what you owe; it’s essential to file all missing returns even if you can’t make a full lump payment right now. The IRS won’t work with you on back tax relief if you have any unfiled returns. Not filing your taxes is not a way to hide from the IRS. They use other sources to determine how much you owe even if you never file a return.

Installment Agreement (IA)

The most common option for tax relief is a payment plan. With the IRS, a payment plan takes the form of something called an IRS Installment Agreement (IA) that chops your total tax debt into smaller payments over 72 months. In addition to making your payments more realistic, an IRS IA pauses all penalties and interest as long as you’re staying current with payments. The IRS will generally not enforce collections as long as a payment plan is in place. However, if you default on a payment, the IRS will subject you to all of the previously held-back interest and penalties.

Offer in Compromise (OIC)

An IRS Offer in Compromise (OIC) is a settlement for taxpayers who cannot pay the full amount owed in back taxes. With this settlement, a taxpayer makes an offer to the IRS based on how much they can afford to pay. The IRS will either accept or reject the offer based on the financial details of the taxpayer. The IRS can be very restrictive when it comes to qualifications for this type of settlement. As a result, most taxpayers who are serious about being qualified for OICs work with tax experts who are familiar with the IRS to present offers that are more likely to be accepted. It’s also important to comply with all of the IRS’s requirements when submitting your application and financial records.

Currently Not Collectible (CNC)

If you’re under extreme financial hardship, you may be able to petition the IRS for Currently Not Collectible (CNC) status. With this agreement, the IRS will defer your debt obligation until you can begin making payments. You will be free from worries of having penalties, interest, fees, levies, and wage garnishments as long as you are under CNC status. 

Some situations where you might qualify for CNC relief include being on Social Security benefits, being unemployed, or having little to no money left over at the end of each month after covering your basic living expenses. The IRS will check back on your status periodically once a CNC “closing code” has been placed on your record to see if you’re in the position to make payments. 

While the IRS may not necessarily ask you to pay all at once if your income grows, they may ask you to begin an Installment Agreement. In some cases, a taxpayer may never pay the back taxes owed because the statute of limitations kicks in before their financial situation changes. While only a small number of people qualify for Currently Not Collectable status with the IRS each year, talking to a tax professional can help you gauge your likelihood of being approved for back tax forgiveness.

Penalty Abatement

Many taxpayers don’t realize that they can have penalties forgiven under certain circumstances. While the IRS does slap on penalties and interest if you’ve failed to file or pay taxes, they aren’t necessarily permanent. You may be able to have penalties removed if this is the first time you’ve failed to file taxes on time. Additionally, the IRS may remove penalties if you had a good reason for not filing your taxes when you should have. While being “too busy” is not a valid excuse, things like illnesses or natural disasters are.

How Can Tax Group Center Help You?

While the IRS may seem intimidating, you can rest assured that the agency’s goal is to collect as much of what you owe as possible. This is why the IRS is surprisingly generous when it comes to options for tax forgiveness. Sitting down with a tax expert to determine which relief option will provide the best back taxes help is the fastest way to enjoy the highest level of tax forgiveness available for you.

If you’re wondering how to get rid of back taxes, the Tax Group Center team can help you work out a plan to reduce penalties and interest while getting back on the road to a clear financial future. When looking at your situation, we’ll consider factors like an upcoming statute of limitation, your income situation, and the total debt you owe to determine the option that will leave you in the best shape. 

While not everyone will qualify for every type of relief, almost all taxpayers are at least in the position to work out payment plans with the IRS. The first step may be as simple as getting all caught up with unfiled returns from previous years. Our team understands tax relief options from top to bottom because we’ve been working with the IRS on behalf of our clients for more than 30 years. Let us walk you through the terms of all of the different tax relief options on the table. Contact Tax Group Center today for a consultation.

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Can You Get a Mortgage With Unpaid Taxes?

Can You Get a Mortgage With Unfiled Taxes | Tax Group Center

If You Owe the IRS, Can You Buy a House?

Are your dreams of owning a home dashed if you have tax problems? The answer can depend on your particular situation. The short answer is that owing the IRS money won’t automatically prevent you from qualifying for a home loan; a tax debt doesn’t equal a blanket rejection for a mortgage application. 

That doesn’t mean that you should ignore a tax debt! Things like missing tax returns and liens throw up some serious red flags for loan officers. While your lender’s terms and policies will ultimately determine your eligibility for a home loan, a negative tax situation will likely hinder you from owning a home. Take a look at what might be in store if you’re trying to get a mortgage without first getting everything squared away with the IRS.

Your First Obstacle to Being Approved for a Home Loan 

If you’re asking yourself, “Can I get a mortgage with unfiled taxes?” then you should keep reading. 

You might not get very far with the mortgage application process if you have unfiled tax returns in your recent history. Generally, lenders request W-2 forms going back at least two years when approving home loans. Lenders use your tax returns to verify your income as part of the application process. They need proof that you have consistently earned enough in recent years to fulfill your monthly mortgage payments for a particular home. Unfortunately, providing recent W-2 returns verifying your income becomes impossible to do if you haven’t filed your taxes. From the lender’s perspective, this is a big red flag.

Many lenders can’t provide you with a home loan if you cannot verify your annual income. That means you’re stuck until you prepare and file all unfiled tax returns. The good news is that this is generally very easy to do. There’s no need to be afraid of the IRS if you skipped a year of filing. They just want you to get current with your taxes. You may even finally get a tax refund to help build up your down payment for a house once you file. 

If you’ve been hesitating to file because you fear that you owe money to the IRS, filing is the first step to obtaining access to tax relief solutions that will help you clear your debt while avoiding interest and penalties. What’s more, being in a payment plan with the IRS to pay down a tax debt won’t automatically disqualify you from being approved for a mortgage.

Getting a Tax Lien Mortgage

If the IRS has placed a tax lien on your property due to unpaid taxes, getting a new mortgage becomes even more challenging. You’ll need to get that lien handled before being approved for a mortgage in nearly all cases. Owing taxes and having a lien are two very different circumstances from a mortgage loan officer’s perspective. In some cases, even if you have a tax lien, mortgage approval is possible if you’re currently on a repayment plan with the IRS. Mortgage lenders will need to see that you’ve been making consistent payments for a specific length of time before they’ll even consider working with you. What’s more, lenders may examine your application to ensure that you can manage potential mortgage payments at the same time as your lien payments. Lenders will often fold your monthly tax repayment into your debt-to-income ratio to make sure that you’re realistically capable of staying current with your mortgage to avoid foreclosure.

Be prepared to show lenders that you have a valid, current payment plan agreement with the IRS if you’re trying to obtain a mortgage while owing the IRS money. This may be your only path for getting a loan if you are not current with your tax payments. Most lenders will apply a special manual underwriting process for your loan if you’re making payments to the IRS.

The IRS Isn’t Your Only Concern

Can you buy a house if you owe taxes to the state? Liens are just one of the consequences of not paying your state taxes. Unfiled and unpaid state taxes can harm your chances of obtaining a mortgage just as much as IRS debt.

Can You Buy a House If You Owe Taxes?

It’s important to look beyond just eking by with the bare minimum when applying for a home loan. If you’re wondering, Can I get a mortgage with unfiled taxes? Then you should know it’s very possible. But failing to address your underlying debt with the IRS or state taxing authorities doesn’t put you in the best spot for negotiating favorable loan terms. 

If you’re allowing tax problems to cloud your record instead of taking advantage of options for IRS debt relief, you’re setting yourself up for a high interest rate. The big worry with this is that you’ll potentially end up paying tens of thousands of dollars more in pure interest than you should over the life of your mortgage. A lower interest rate with better terms increases your buying power to put you in a much better financial position as a buyer.

What’s the Plan If You Are Trying to Buy a Home With IRS Debt?

If you’re gearing up to buy a home, the time to address unfiled or unpaid taxes is now. The necessary steps will depend on where you stand with your ability to pay what you owe. The type of loan you’ll be applying for will also impact how to approach the application process. However, this is the general blueprint to follow when trying to obtain a mortgage with tax problems:

  • Work with a tax professional to enter into a repayment plan with the IRS. Make sure to get a copy of the repayment agreement that details what your monthly payment amount will total. You may need to provide this documentation to your lender.
  • Next, focus on making payments on time. Most lenders require between three and 12 consecutive payments on your record before they approve you for a mortgage.
  • When applying for mortgages, inform your lender about the agreement that is in place. The lender may ask for a copy of your tax repayment agreement with proof of payment attached.
  • If you’re applying for a mortgage but have a tax lien, you may need to obtain something called a Subordination Agreement from the IRS. This document confirms that the IRS’s lien will be secondary to the lien placed on your home by the mortgage company in the event of a foreclosure.

The dream of homeownership is not out of your grasp if you owe the IRS taxes, but allowing tax debts or unfiled returns to linger does make qualifying for a mortgage harder. Addressing tax problems as soon as possible is going to get you on track to being approved for a home loan. Ultimately, you will be in much better shape to afford a home once you’re able to get IRS penalties and interest out of the picture. However, the IRS won’t give you the opportunity to settle or pay off debts if you don’t reach out to ask for assistance.

If you’re hoping to come back strong from a tax issue to get approved for a home, Tax Group Center is in your corner. In many cases, the first step is simply finding out how much you owe in taxes. Getting that figure in your hands will help you get a realistic idea of how far away you are from getting approved for a home. Once we help you see where you are with tax debt, we’ll work on your behalf to establish debt forgiveness or installment agreements. Contact Tax Group Center today for a consultation.

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How to Track Your IRS Account Balance Using Four Options From the IRS

How to Find Your IRS Account Balance Tax Group Center

Do you want to know if you owe the IRS money? You actually don’t have to wait until you receive a letter from the IRS to figure out your IRS tax balance, because all taxpayers have the right to look at their balances directly. The IRS provides four options for doing this:

  • Check your balance online.
  • Check your balance over the phone.
  • Send a request for a balance report by mail.
  • Have a tax expert get the information for you.

Each option has its own set of pros and cons. What’s more, you’ll need to be prepared to make your request during specific windows of availability for some of the options. 

Let’s take a deeper look at how to check your IRS balance using these four options.

Option 1: Check Your Balance Online

The IRS hosts an ultra-convenient portal that taxpayers can use to view their IRS account details online. In addition to displaying your IRS account balance for owed taxes, the portal also gives you access to your payment history going back 24 months as well as your past years’ tax transcripts. While this resource is free, you do have to go through a setup process that can take time. 

The IRS requires you to provide a full roster of information to verify your identity, including your Social Security number (or Individual Tax Identification Number), date of birth, mailing address for your last return, email, and cell phone number. They’ll also ask for information about your credit cards, loans, mortgage, and more. 

Another hindrance that goes along with this option is that the IRS only makes this portal accessible during certain windows of the day (Monday: 6 a.m. to Saturday 9 p.m./Sunday: 10 a.m. to 12 a.m.). You may also find that the site is down for routine maintenance pretty frequently. This can be tough if the only time you have to sit down to try to figure out your IRS account balance is in the evenings following work. 

Option 2: Call the IRS

Yes, the IRS will pick up the phone for taxpayers! This can be a good option if you feel uncomfortable about supplying so much personal information through an online portal. Just remember that it’s typical to experience wait times of up to 30 minutes when you call the IRS to check your balance. In addition, the line has limited hours that last from 7 a.m. through 7 p.m. local time.

Number for individuals: 1-800-829-1040

Number for businesses: 1-800-829-4933

Number to request transcript by mail: 1-800-908-9946

Option 3: Make a Request by Mail

If putting in the time to set up an account online or waiting on the phone won’t work for you, you can send a mail request to the IRS. This is unsurprisingly the slowest option, so bear that in mind if you’re worried about interest and penalties being pinned to your IRS balance while you wait for documents to arrive in the mail. The IRS won’t waive penalties just because you were waiting to hear back about your balance. You’ll also need to verify that the IRS has your current address because the documents won’t get to you if there’s an older address on your file.

It’s also important to know exactly what you’re requesting when you make a “snail mail” request for your IRS account balance. If you filed a 1040, 1040A, or 1040EZ, you’ll want a document called the “Tax Transcript.” Anyone who filed another type of tax form will need to ask for something called the “4506-T Request for Transcript of Tax Return.” One of the more confusing aspects of this is that a transcript only covers one year. Additionally, penalties and interest may not show up on this transcript.

4. Have a Tax Professional Retrieve Your Balance for You

If you’re feeling intimidated about reaching out to the IRS, you’re not alone! Many people prefer to avoid making contact with the IRS on their own because they’re generally unfamiliar with how the IRS works. Others simply don’t have the time to deal with creating an account or waiting on hold for an IRS representative.

When you put the task in the hands of a tax professional, they will reach out to the IRS to retrieve your balance information. The big benefit of doing this is that you already have someone working with you who can provide guidance if it turns out you owe the IRS money. If this is the case, a tax professional specializing in debt relief will be able to introduce you to some relief solutions that will potentially allow you to get debt managed without penalties and interest.

What to Do When You Owe the IRS Money That You Can’t Pay

You may discover that your IRS balance is at $0 after getting access to your balance information. If this is the case, you should be all set! The only exception is if you requested a paper transcript by mail, because penalties and fees aren’t always represented on those documents. That means that a small amount of unpaid fees could technically become an “unpaid tax debt.” If this is a concern, you can have a tax professional look into the situation for you to confirm that you don’t owe anything more to the IRS.

If you do have a balance, the best course of action is to pay it off. If you can’t pay the balance in full, it’s time to explore options for debt relief through the IRS Fresh Start initiative. The most common form of IRS debt relief is an Installment Agreement (IA) that allows you to pay off your balance over six years (72 months). You may be able to freeze or reduce your balance using options like an Offer in Compromise (OIC) or Currently Non Collectible (CNC) status if you can prove that you’re financially unable to meet your debt obligation.

The one thing you don’t want to do after discovering that you have an IRS balance is to ignore it. The IRS will assign fees, interest, and penalties if your balance remains unpaid. This will eventually lead to liens and levies that give the IRS the right to seize wages, bank accounts, and assets from you in an attempt to settle your debt.

Work on a Tax Settlement for Your IRS Balance

You need a clear picture of what you owe before the IRS begins sending you letters about penalties and collection efforts. You can begin the process of finding out your balance today using the tools available from the IRS. For many taxpayers, the easiest way to get the clearest answer is simply to have a tax professional request a balance report on their behalf.

If you do owe the IRS money, it’s important to get plans in motion for seeking a tax settlement as quickly as possible to avoid IRS penalties. Your IRS balance can grow substantially if you allow the payment deadline to go by without entering into some type of installment agreement or forgiveness plan with the IRS.

At Tax Group Center, we help taxpayers understand their tax balances and how to best pay them off. If you already have a payment plan, we can also help you find your IRS payment plan balance. If you have unfiled tax returns that are preventing you from being eligible for tax relief, we can help you get that taken care of before applying for IRS Fresh Start options. Our tax lawyers have been helping clients work with the IRS to settle tax debts for 30 years. Let us help you get your IRS balance squared away if lingering tax debt is causing you stress. Contact Tax Group Center today to get started!

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Understanding Your CP14 Notice

Understanding Your IRS CP14 Notice Tax Group Center

If you’ve received the IRS letter CP14, you probably have some questions. The good news is that there’s still a lot you can do before it becomes a problem that impacts your finances or credit. However, the reality is that you probably do owe the IRS unpaid taxes if an IRS notice CP14 has arrived in your mailbox. Let’s go over what this form means and what options you have, and you’ll see why acting quickly is in your best interest.

Why Did I Get a CP14 Form From the IRS?

The IRS CP14 Balance Due notice informs taxpayers that they have an unpaid tax balance. The most common reason why taxpayers receive this notice is because they filed a tax return without actually paying the full amount of taxes owed with the return. If this is the case, you may have incorrectly interpreted what you owed. You may have also knowingly failed to pay your balance because you’re unable to cover what you owe in taxes right now. Here are some other common causes for CP14 letters:

  • You owe a balance because the IRS is charging you a penalty for not filing your taxes by the filing deadline.
  • You didn’t withhold enough taxes based on your income during the year.
  • You failed to make your estimated quarterly tax payments in April, June, September, and January.

The good news is that your failure-to-pay penalty may be forgiven if this is your first time receiving it. Generally, the IRS is pretty generous if you request a first-time penalty abatement. However, the IRS is pretty strict when it comes to penalties for not covering your quarterly taxes on time. Some taxpayers are able to work something out to get that penalty dropped when creating a larger plan for debt relief with a tax lawyer.

What about interest on unpaid taxes? While you won’t be charged interest on the money you owe in late taxes as long as you pay your debt in full by the deadline on the notice, interest begins accruing on any unpaid amount left by that date. If you apply for a relief option, action on penalties and interest is typically suspended as long as you’re complying with the terms of your relief plan.

Could an IRS Notice CP14 Be a Mistake?

In most cases, you will at least understand why the IRS has applied a balance to your account. It’s very common to miss tax payments due to human error or lack of funds. If you only owe a penalty, the total may be low. 

Do you feel that the IRS has made a mistake, and that you paid all of your owed taxes in full by the deadline? Make sure you look over your tax return and payment records before sending the IRS any payments. While rare, it’s possible that the IRS has made an error. Don’t forget to give the deductions and credits on your return a second glance, too. In some cases, you may be able to reduce your tax liability by filing an amended return. This can potentially wipe out the owed balance by reducing what you actually owe in taxes.

What to Do After Receiving a CP14 Letter

Do not ignore your IRS CP14 letter just because you feel the IRS has made an error. The IRS will treat your debt as active even if it’s an error until you correct the situation! Once you’ve confirmed that the IRS’s assessment of your debt is correct, you have a few options. Here’s a look at how taxpayers should handle C14 letters:

  • Pay Your Balance in Full: If you’re able, paying your debt in full by the deadline on your letter is the most direct way to remove yourself from the IRS’s radar.
  • Request an Extension: The IRS is sometimes willing to give taxpayers who owe balances more time to pay. In some cases, you will be given up to 120 days to come up with the funds needed to get your balance to $0. This is what’s known as a Temporary Delay of Collection Process.
  • Ask for Tax Relief: If you can’t cover your balance, the IRS may allow you to utilize a tax relief option.

The most common form of IRS debt relief is something called an Installment Agreement (IA). Using an installment agreement, you can pay off your balance over a span of time lasting up to 72 months (six years). If you can prove financial hardship, the IRS may allow you to enter into an Offer in Compromise (OIC) or Currently Non Collectible (CNC) status to reduce or freeze your debt. Keep in mind that both relief options require an extensive application process that requires you to prove that you’re unable to pay your tax debt by providing financial information and records.

Why You Shouldn’t Ignore a CP14 Letter

If this is your first time dealing with the IRS, it’s understandable if you feel intimidated. We want you to understand that having an IRS tax balance doesn’t have to snowball into a big ordeal if you address the issue promptly. The IRS is often more than willing to work with taxpayers with balances. In fact, this is precisely why the IRS has such a robust collection of relief options under its Fresh Start initiative.

There’s no reason to try to evade the IRS if you can’t pay your balance. If you try that, the serious consequences begin piling up. The IRS will begin applying liens, levies, and other penalties to your account if you don’t respond by the deadline on your CP14 letter. Unfortunately, this means that the IRS will try to seize your wages, bank accounts, and assets in an attempt to recover what you owe on your tax balance. This issue can end up haunting you for years even if your tax balance wasn’t that high. If the IRS decides to levy your wages, your employer will have no choice other than to comply. What’s more, nonpayment penalties that are added to your balance can end up costing you much more than what you originally owed in taxes.

It’s Time to Ask a Tax Expert: Get Help With Understanding Your CP14 Notice

If you’ve received the CP14 letter, the team at Tax Group Center is here for you. We can confirm what you owe, and you may be able to use the IRS CP14 pay online option through the IRS’s Direct Pay portal to pay as quickly as possible. Depending on your IRS CP14 reason for payment, our team may be able to help you explore options for penalty abatement and debt relief after addressing any unfiled returns from the past. Contact Tax Group Center if you have questions about a CP14 notice you’ve received from the IRS. Our team has been helping clients work with the IRS for 30 years, and we’re ready to help you, too!

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The Basics of Cryptocurrency and Bitcoin Taxes

Crypto & Bitcoin Taxes What You Need to Know

What does the IRS think of cryptocurrency? If you’re dabbling with Bitcoin and other virtual currencies, you need to know the Internal Revenue Service’s stance on things. Do you pay taxes on Bitcoin and other virtual currencies? Absolutely! Skirting the use of actual dollars doesn’t mean skirting the tax obligations that go along with using actual dollars. 

While cryptocurrency tax laws are still emerging, the one thing that’s as clear as day is that the responsibility falls on the crypto user to calculate, track, and pay all taxes owed. Take a look at the basics of virtual currency tax rules to avoid IRS penalties and interest.

Do You Pay Taxes on Bitcoin? Some Crypto Tax Basics

Any cryptocurrency units that you purchase, sell, or mine are considered taxable as property by the IRS. As a result, you should view cryptocurrency that you own more like stocks or a vacation home than currency. That means being aware of capital gains and losses when you move your cryptocurrency. However, there is a caveat to that rule that makes understanding how to report cryptocurrency on taxes confusing. The IRS does view cryptocurrency as income if you are paid in cryptocurrency by an employer. 

Here’s a rundown on some of the big things to know about cryptocurrency and your taxes:

  • There isn’t a separate “cryptocurrency tax rate.” Crypto fair market value is converted to dollars for tax purposes.
  • Cryptocurrency is generally treated as property.
  • All property-transaction taxes apply to crypto transactions.
  • Wages paid in cryptocurrency are taxed as regular income.
  • Self-employment income paid in cryptocurrency is taxed as regular self-employment income.
  • If you pay for services using cryptocurrency that you’re holding as a capital asset, you must report a capital gain or loss because you are exchanging an asset for a service.
  • Cryptocurrency received as a gift will not become recognized income until you sell, exchange, or dispose of it.
  • Cryptocurrency paid to charitable organizations will qualify for the charitable deduction contribution. Generally, the deduction amount is equal to the fair market value of the currency at the time of your donation.

You must report any sales or capital transactions involving cryptocurrency throughout the year. Typically, you will be reporting capital gains and losses using Form 8949: Sales and Other Dispositions of Capital Assets. You will also be responsible for detailing gains and losses using Form 1040/Schedule D: Capital Gains and Losses. 

In anticipation of taxes, you should be keeping impeccable records and documentation regarding all sales, exchanges, and disposition of cryptocurrency. It is especially important to document the fair market value of all currencies at the times of your transactions.

Bitcoin as Wages: How Is Bitcoin Taxed When an Employer Pays Me in Cryptocurrency?

If your employer pays you using Bitcoin or another virtual currency, you’ll need to report that income the same way you’d report any income you’ve earned. 

The good news is that your employer will be the one doing most of the hard work in regards to converting Bitcoin to dollars on your W-2 form. That means that you’ll see the Bitcoin value that you were paid converted to U.S. dollars on your form. Throughout the year, your Bitcoin salary will also be subject to the same withholding amounts for Social Security and Medicare as regular wages based on the converted dollar value.

Be Prepared for Extra Work When Keeping Track of the Cryptocurrency Tax Rate

When you do business using cryptocurrency, the IRS expects you to keep track of fluctuating values to accurately fulfill your tax obligations. This is especially critical if you do a lot of Bitcoin mining, selling, or trading. Here’s what you’re responsible for:

  • Recording the fair market value of the Bitcoin when you mined or purchased it.
  • Records of the fair market value of your Bitcoin when you used it.
  • Records of the fair market value of your Bitcoin when you sold it.

While you’re being held to the same tax standards as people purchasing and selling stocks, you may not be getting the same paper trail that stock buyers are getting. Someone working with a broker would rely on a Form 1009-B or Form 1099-K at the end of the year to report transactions for tax purposes. With Bitcoin tax, you’re generally on your own when it comes to keeping records.

In most cases, third-party crypto networks are only required to send tax forms to customers who ordered more than $20,000 in cryptocurrency and made at least 200 transactions. Five states (Arkansas, Massachusetts, New Jersey, Vermont, and the District of Columbia) have even lower thresholds ranging from $600 to $2,500. However, you’re still responsible for reporting your crypto gains on your taxes even if you didn’t hit the $200,000 or 200-transactions thresholds. This is where a lot of people run into trouble; they assume that not receiving tax forms means that they don’t have to report cryptocurrency on taxes.

While crypto networks are supposed to send you the right forms once you hit certain thresholds, the bottom line is that you’re ultimately responsible for reporting all crypto gains. It’s wise to keep your own perfectly organized records regarding all transactions even if you think you’ll be getting a form. Your transaction history on the crypto platform you use can also be helpful for keeping your own records.

What About Capital Losses on Bitcoin and Other Virtual Currencies?

You can take advantage of many of the usual tax deductions if you access tax preparation services. The IRS does allow cryptocurrency users to deduct capital losses. The process works essentially the same as deducting capital losses for any stocks or bonds you’d own. Under current rules, you are permitted to write off cryptocurrency losses of more than $3,000. The volatile nature of cryptocurrency makes this an especially appealing tax perk for crypto users and traders. What’s more, your losses may help counteract any capital gains owed from your crypto endeavors.

How Is Bitcoin Taxed? Getting Answers From Tax Professionals

If you’ll be filing taxes that include Bitcoin and crypto payments, your return is going to be very interesting to the IRS. While any mistakes you make may be honest ones stemming from the newness and uncertainty of how to pay taxes on Bitcoin, the IRS will still hold you to the same standards as all other taxpayers when it comes to accurately and honestly filing and paying your taxes. Make sure you’re using tax help resources to ensure that you’re not putting yourself at risk for audits or penalties. At Tax Group Center, we use our 30 years of experience with the IRS to help today’s generation of crypto users enjoy the same steadfast tax support as people filing returns with typical wages and investments. If you have questions about virtual currency tax laws, contact us today.