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IRS Says it’s Time to Renew Expiring ITINs

IRS Says it’s Time to Renew Expiring ITINs

Time is running out for taxpayers who need to renew an expiring ITIN before next filing season.

In June, the IRS issued a press release reminding taxpayers that failing to renew an expiring ITIN can result in refund delays and ineligibility for some tax credits. While ITINs are only used by taxpayers who can’t get a Social Security Number, the IRS reported “nearly 2 million … are set to expire at the end of 2019.”

In the release, the IRS suggested two factors that could lead to ITIN expiration at the end of this year:  

  1. “Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal return at least once in the last three consecutive years will expire Dec. 31, 2019”
  2. “ITINs with middle digits 83, 84, 85, 86, or 87 that have not already been renewed will also expire at the end of the year”

If either of those circumstances applies to ITIN holders who will need to file a tax year 2019 return, the IRS said they should “complete a Form W-7 and submit all required documentation.” In addition to providing a link to the form instructions, the IRS pointed out that taxpayers can renew ITINs for every member of their family at the same time.

To help taxpayers avoid problems when renewing their ITIN, the IRS put together a list of common errors. Here are the regular offenders:

  • “Mailing identification documentation without a Form W-7”
  • “Missing information on the Form W-7”
  • “Insufficient supporting documentation, such as U.S. residency documentation or official documentation to support name changes”

ITIN holders need to have proof of U.S. residency for any dependents “from a country other than Canada or Mexico, or dependents from U.S. military personnel overseas” that they want to claim on their return. If the dependents’ passports are not stamped with the date of entry, then the ITIN applicants will have to supply other information, like medical and school records.

According to the IRS, affected taxpayers should have already started receiving CP48 Notices. If any of your clients are ITIN holders, now is as good a time as any to prepare for renewal questions. For more information, visit the “Individual Taxpayer Identification Number” page on IRS.gov. The IRS also offers videos explaining ITINs in English and Spanish.

Sources: IR-2019-118, “Individual Taxpayer Identification Number” 

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No Dyed Fuel Penalty in Florida, IRS Says

No Dyed Fuel Penalty in Florida, IRS Says

The IRS last Friday announced that it would be waiving the penalty for using red-dyed diesel in highway vehicles in Florida until September 15. The press release came while Floridians prepared for the possibility that Hurricane Dorian would make landfall.

As of this afternoon, the now-Category 2 storm has yet to make landfall in the United States, but NPR reported that Dorian battered the Bahamas with rain and 185-mile-per-hour winds as a Category 5 over the weekend.

Despite the storm weakening over the past few days, it still represents a very real threat to residents in the Southeastern US. When the IRS announced the dyed-fuel waiver, they wanted “to minimize or prevent disruptions to the supply of fuel for diesel-powered highway vehicles.”

The IRS points out that dyed fuel is normally used for non-taxable purposes, like providing home heating and running farm equipment and government buses. According to Publication 510, Excise Taxes, a penalty—“the greater of $1,000 or $10 per gallon of the dyed diesel fuel”—comes into play if someone knowingly sells or uses dyed fuel for non-taxable purposes.

While the waiver suspends the penalty until September 15, the agency says the usual 24.4-cent-per-gallon tax on highway diesel will still apply. Other restricted fuels, however, are not covered by the waiver: “Diesel fuel with sulfur content higher than 15 parts-per-million may not be used in highway vehicles.”

The IRS ended the release by noting they would “provide additional relief as needed.”

Sources: IR-2019-148; “The Latest on Hurricane Dorian and Its Path

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IRS to Self-Employed Taxpayers: Use the Tax Withholding Estimator

IRS to Self-Employed Taxpayers: Use the Tax Withholding Estimator

According to the IRS, self-employed taxpayers should use the Tax Withholding Estimator when they perform their next “paycheck checkup.”

IR-2019-149 is the latest press release advertising the Tax Withholding Estimator, the agency’s newest online tool: “The estimator is an expanded, mobile-friendly online tool that replaced the Withholding Calculator, which since 2001 had offered workers an online method for checking their withholding.”

The IRS stressed that they needed to develop a new resource to help even more taxpayers manage their tax withholding: “The old calculator lacked features geared to self-employed individuals; the new estimator made changes to address this important group.”

Why Should Taxpayers Perform a Paycheck Checkup?

Tax withholding outreach was a focus of the IRS due to the implementation of the Tax Cuts and Jobs Act. As the IRS explains in Publication 5307, “the Tax Cuts and Jobs Act changed the way taxable income is calculated and reduced the tax rates on that income.” That meant “the IRS had to address and make changes to income tax withholding in response to the new law as soon as possible after it passed.”

Despite a year-long series of press releases reminding taxpayers that they might need to adjust withholding to address these changes, some tax professionals reported clients seeing surprise tax bills. Using the Tax Withholding Estimator is just one way taxpayers can avoid that problem, and accessing it is relatively easy.

How Does the New Tax Withholding Estimator Help Self-Employed Taxpayers?

The Tax Withholding Estimator helps self-employed taxpayers calculate their withholding by letting them enter information that wasn’t accepted by the old calculator: “The estimator allows a user to enter any self-employment income, including income from side gigs or the sharing economy, in addition to wages or pensions.”

Those who regularly used the old IRS Withholding Calculator will notice a number of improvements when they pull up the new Tax Withholding Estimator. Here’s the list provided by the IRS:

  • Plain language throughout to improve taxpayer understanding.
  • The ability to target either a tax due amount close to zero or a refund amount.
  • A new progress tracker to help a user know how much more information they need to enter.
  • The ability to go back and forth through the steps, correct previous entries, and skip questions that don’t apply.
  • Tips and links to help the user quickly determine if they qualify for various tax credits and deductions.
  • Automatic calculation of the taxable portion of any Social Security benefits.

Taxpayers concerned that they won’t pick the correct withholding form after getting the results of the estimator don’t need to worry. The IRS said that users will be given a link to the form corresponding to their entered information—Form W-4 for employees or Form W-4P for pensioners.

Source: IR-2019-149

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New Process Lets Expats get Square with IRS

New Process Lets Expats get Square with IRS

The Internal Revenue Service says it has new procedures in place that can help certain expatriated American taxpayers come into compliance with their U.S. tax obligations and get relief for back taxes.

Relief Procedures for Certain Former Citizens apply only to those individuals who have not filed U.S. tax returns as American citizens or residents, owe a limited amount of back taxes to the U.S. and have net assets of less than $2 million.

Lack of compliance by eligible taxpayers must not have been willful in order to take part in this program. The IRS acknowledges that many of the taxpayers in this group have lived outside the U.S. for most of their lives and my not even been aware they had American tax obligations.

To qualify for the program, the IRS says taxpayers have to file their missing tax returns as a first step:

“Eligible individuals wishing to use these relief procedures are required to file outstanding U.S. tax returns, including all required schedules and information returns, for the five years preceding and their year of expatriation. Provided that the taxpayer’s tax liability does not exceed a total of $25,000 for the six years in question, the taxpayer is relieved from paying U.S. taxes,” the IRS press release states.

Individuals who qualify for the procedure will not be assessed penalties and interest. These procedures are only available to individuals. Estates, trusts, corporations, partnerships and other entities are not eligible.

No specific termination date was issued for this new program, although the IRS says it will issue a closing date before it decides to shut the program down.

Taxpayers who relinquished their U.S. citizenship any time after March 18, 2010, are eligible – as long as they satisfy the other criteria of the new procedure.

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Taxpayers can use 2018 tax return to estimate 2019 withholding amount

IRS Tax Reform Tax Tip 2019-121, September 4, 2019

Millions of people have filed their 2018 tax return, making this a prime time to consider whether their tax situation came out as expected. If not, taxpayers can use their finished 2018 return and the Tax Withholding Estimator to do a Paycheck Checkup ASAP and, if needed, adjust their withholding. Having their 2018 return handy can make it easier for taxpayers to estimate deductions, credits and other amounts for 2019. Performing a Paycheck Checkup is a good idea for anyone who:

  • Adjusted their withholding in 2018, especially those who did so later in the year.
  • Owed additional tax when they filed their tax return this year.
  • Had a refund that was larger or smaller than expected.
  • Had life changes such as marriage, childbirth, adoption, buying a home or income changes.

Since most people are affected by the Tax Cuts and Jobs Act all taxpayers should check their withholding. They should do a checkup even if they did one in 2018. This especially includes taxpayers who:

  • Have children and claim credits such as the Child Tax Credit.
  • Have older dependents, including children age 17 or older.
  • Experienced changes to itemized deductions this year.
  • Itemized deductions in the past.
  • Are a two-income family.
  • Have two or more jobs at the same time.
  • Only work part of the year.
  • Have high income or a complex tax return.

This Tax Withholding Estimator works for most taxpayers. Those with more complex situations may need to use Publication 505, Tax Withholding and Estimated Tax, instead of the Tax Withholding Estimator. This includes taxpayers who owe alternative minimum tax or certain other taxes, and people with long-term capital gains or qualified dividends.

Taxpayers can use the results from the Tax Withholding Estimator to see if they need to complete a new Form W-4, Employee’s Withholding Allowance Certificate, and submit it to their employer. In some instances, the calculator may recommend they have an additional flat-dollar amount withheld each pay period. Taxpayers give this form to their employer and do not send this form to the IRS.

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