As tax law is very complicated, this article is intended only for educational or illustrative purposes and should not be construed to communicate legal or professional advise.  You should contact us with any specific questions so we can properly interpret how the tax laws applies to your situation.   Killingbeck Tax Preparation, Kokomo, Indiana.  765-452-8000.

Info. About Your Income Tax Refund

1. You should increase or decrease your withholding  if you wish a certain size refund or if you owe over $1000 (to avoid penalty.  See Owing section further down the page..)
   
2. Taxpayer can apply part or all of a refund to the estimated tax for the next year.
3. Accepting and cashing a refund that is too small  doesn't limit ability to claim additional refund. 
4. On refunds that are too large, do not cash check.  Call IRS.  There is no interest charged on cashing a refund that's too large. Use form 843 to return excess.
   
5. If you plan to move, you need to notify post office.  Post office will forward tax checks.
6. Taxpayer can check on IRS or State refund  by calling refund lines or checking their web site.
   1. They will need the first SS # on return, their filing status & the amount of refund.
      
      
7. Refund Offsets: 
    IRS will withhold refunds for back child support, student loans, amounts owed the State, and other government programs.
   1. IRS can also make a levy against social security benefits received up to 15% of social security.
   2. If a Joint return and other spouse had income, they can file injured spouse to get their share of refund. See injured spouse section further down this page.
8. Watch closely if you have any major changes coming in next  year that can greatly affect their refund:
   Getting married-divorced, retiring, changing jobs, spouse going to work, selling rental, receiving IRA or a lump sum distribution.   
   1. You may need to increase withholding or file estimated tax.
9. You can check the status of refund after 72 hours after IRS acknowledges it.
   1. Call 1-800-829-1954 or go to www.irs.gov and select "Where is My Refund?"
   2. If taxpayer files form 8379 injured spouse, allow 11 weeks if filed electronically or 14 weeks with paper return.
      
      
10. Amount of Refund You Want Refunded to You 
    1. Taxpayer can choose to have their refund in the mail or deposited in up to 3 accounts.   Use form 8888 for multiple direct deposits.  Use electronic filing for other direct deposits.
    2. Taxpayer can directly deposit into savings, checking, IRA account, HSA account, Education savings Account (ESA).  If you do a direct deposit you must let bank know which year the funds apply to
       1. Account must be in taxpayers name or bank may not accept.  
    3. IRS says you can check status of refund if it has been 6 weeks since filed paper return, 3 weeks, electronically, 14 week (11 weeks electronically) if filed form 8379 (injured spouse).
       
       
11. Amount you want Applied to Estimate Tax 
    1. Taxpayer can chose to have part or all of their refund applied to the next years estimated tax.
        

Info. About Owing on Income Taxes

1. Be sure to include voucher & check on top of return.  Also leave check & voucher loose in the envelope.
2. Use special IRS address  to send in payment when you owe.
3. Make check or money order payable to US Treasury (Not IRS) and paid by 4/15. 
   1. Write in the memo section of you check, the first SSN on the return,  the words "Form 1040", the Year of tax return, and your daytime phone number.
4. If taxpayer doesn't have full amount to pay, tell them to send what they can & tell IRS how they can pay.  Two choices.
   1. File an extension of time to pay on form 1127.  IRS will not grant for more than 6 months.   Will charge interest.
   2. Or  use installment form 9465 (can set up at www.IRS.gov) 
      The IRS will give them up to 60 months to pay balance. The IRS charges $105 ($43 if income <250% of poverty level) or $52 if taxpayer has direct debit of payment from their account)
      1. Can’t use 9465 if still paying on previous 9465
   3.  If person goes into military active duty and owes taxes to IRS, the IRS may defer payment without interest if call up severely impacted ability to pay.
5. Do not attach check to return.  Instead put with 1040-V in envelope with return.
6. Returned Checks  If bad check used to pay amount due, for checks under $1,250 the IRS charges $25.  Checks over $1250 they charge 2% of check. 
7. Can pay on tax return, by phone or on web 1-800-945-8400  or at www.eftps.gov. 
   1. Can schedule estimated payments
        
8. Paying By Credit Card on return or e-check
   1. Can have come out of checking or savings account.
   2. If pay by Debit card there is a $2.95 charge. 
      
   3.  Federal uses Mastercard, American Exp., Discover or VISA. Can pay on return or contact credit card company.                 
      1. Payment service to contact. Official Payments Corp.  Call at 1-877-754-4413 or website
         www.officialpayments.com ($2.35 for every $100 )
         or www.payusatax.com          ($1.95 or every $100)
      2. Can have it taken out of your checking account by setting up E-filed tax return.   Can set to come out on 4-1
      3. Can set up pay of EFTPS.  www.irs.gov/e-pay. 
         
         
   4. State of Indiana Pay  IN-ePay
      1. Can use Discover, Am Express, Mastercard, VISA, or check draw (only $1 charge).
      2. Can pay by phone at 1-866-729-4682 or website at www.in.gov/dor/epay
      3. Cost is 2% of tax plus $1 fee.  Can  also do estimated tax.
         
         
9.  Injured Spouse Can Get Their Part of Refund:     
   1. Use this rule to get an extra refund where a tax refund is kept to satisfy a debt such as child support or a student loan.
   2. To qualify the injured spouse must have income that was reported on a joint return showing a refund.
   3. To get a refund after filing, file form 8379.  No 1040X is needed.  Refund will take about 8-12 weeks.
   4. Can file form 8379 with original return by attaching to front of 1040 and writing "Injured  Spouse" in upper left corner of 1040.   Will delay refund 11 weeks if filed electronically or 14 weeks if send in return.
   5.  An injured spouse is not limited to 3 years on amending
      
   6. Can also file injured spouse on the Indiana return.  It has its own form. 
   7. Can’t file electronically till Feb. 1^st (according to IRS in fall 2005).
      
      
10. Relieving Spouse of Liability   
    Use form 8857 & attach statement.
    1. Taxpayers who suspect their spouse may be evading taxes should file married filing separate to keep from having to pay taxes when that income is discovered.
    2. No longer a 2 years limit to file from when IRS begins tax assessment. 
    3. Equitable Relief: 
       1. If taxpayer is divorced, lived apart all year or spouse died, you may be able to avoid joint liability with spouse by filing a separate liability exclusion
       2. Generally, if you make a separate liability election (form 8857), you are liable only for the portion of tax due on the joint return that is allocatable to you, determined as if you had filed a separate return.  
    4. Separation of Liability allows understated and unpaid tax, interest, and penalties to be allocated between estranged spouse, former spouse or deceased spouse. 
    5. Innocent Spouse:   Allows a spouse to be relieved of owing if
       1. The tax on the joint return was understated due to the  omission of income by your spouse or erroneous  deductions or credits claimed by your spouse.
       2. When signing the joint return, you did not know and had no reason to know that tax on the return was understated.(signing under duress may be an exception
       3. Taking  all circumstances into account, it would be inequitable to hold you liable for the tax. 
    6. You file form 8857 and attach a form explaining why you would qualify.  Follow form 8857 instructions
    7. Other IRS Relief:  IRS may also grant relief it taxpayer signed joint return and spouse, without taxpayers knowledge, doesn’t pay tax due and uses funds designated for paying tax for some other purpose.   
       
       
11.  Underpayment of Estimate Tax Penalty 
    1. Underpayment  penalty applies when
       1. The amount owed is over $1000 and it is more than 10% of tax shown on the return or estimated tax not paid on time.
       2. Amount paid  is less than 90% of the tax &  
          1. This rate is 66.66% for farmers.
          2. IRS computes this quarterly.
       3. Withholding is less than 100%* of last year’s tax.
          1. *For AGI over $150,000, this is 110% of prior year
          2.  If 50% of previous years income is from small business, the only has to be 90% of previous years income
       4. For 2011 the interest penalty rate runs 3 to 4%.
       5.  Our practice is to let the IRS bill for underpayment penalties unless taxpayer wants it included (IRS suggests this as well).  Check box on back of 1040 to delete 2210. 
       6. On the state go ahead and include the penalty as this is what the state suggests.
          
           
    2. Exceptions to Penalty
       1. Penalties can be be waived for  hardship, death retirement, disability & other reasonable causes (injury, absence, casualty loss, inability to obtain records, ignorance of law, forgetfulness?, etc.
       2. To apply for hardship waiver, attach an explanation on the 2210 asking for waiver. 
       3.  If taxpayer gets a penalty notice with no reference  to his note, they should write back on the penalty slip explaining the situation & asking for waive.
          
          
    3. When larger sums are received in middle or later part of the year, you can use 2210 special exceptions
       1. You must be able to divide income into 4 quarters
       2. Withholding is split evenly over the quarter.
    4. Individuals in the military can have interest owed frozen while on combat duty. 

Give us a call if you have questions or we can be of help, 765-452-8000.  Killingbeck Insurance & Tax Preparation, Kokomo, Indiana.