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A Guide to Tax Record Retention

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It's Tax Time! Don't Forget 1st Quarter Estimated Payments.- Now is the time to pay your taxes AND make your estimated tax payment.

Both your individual tax return AND first quarter estimated tax payment are due. Here is what you need to know.

First quarter due date: Tuesday, April 15, 2025

The estimated tax payment rule

You are required to withhold or prepay throughout the 2025 tax year at least 90 percent of your 2024 total tax bill, or 100 percent of your 2025 federal tax bill.* A quick look at your 2024 tax return and a projection of your 2025 tax obligation can help determine if a quarterly payment might be necessary in addition to what is being withheld from any paychecks.

Things to consider

  • Underpayment penalty. If you do not have proper tax withholdings throughout the year, you could be subject to an underpayment penalty. A quick payment at the end of the year may not be enough to avoid the penalty.
  • W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 wage withholdings to make up the difference.
  • Self-employment taxes. In addition to paying income taxes, self-employed workers must also pay Social Security and Medicare taxes. Creating and funding a savings account for this purpose can help avoid the cash flow hit each quarter to pay your estimated taxes.
  • Use your refund. An alternative option to pay your first quarter estimated tax is to apply some or all of your tax refund.
  • Pay more in the first quarter. By paying a little more than necessary in the first quarter, you can be in a position to adjust future estimated tax payments downward later this year if your tax obligation trends lower than you originally thought.
  • Not sure if you need to make a quarterly payment? Take a quick look at your tax return to see the amount of tax you paid last year. Divide this amount by the number of paychecks you receive each year and compare to your most recent paycheck. Is enough being withheld from each paycheck? Talk to your employer if you decide you need to adjust your withholdings to cover next year’s tax bill.

*If your income is more than $150,000 ($75,000 if married filing separate), you must pay 110 percent of your 2024 tax obligation to avoid an underpayment penalty on your 2025 tax return.



Tax Bill Payment Options Expand Digitally- Understand the options and costs

As the payment alternatives continue to evolve in the economy, so too are the payment options available to you to pay your tax bill. Here is what’s available to you this tax filing season along with each option’s related costs.

Various payment methods to pay taxes

1. Electronic funds withdrawal. This comes out of the checking or savings account noted on your 1040 tax return. There is no charge for this service.

2. Send in a check. Use an IRS voucher for this. Write your check out to the U.S. Treasury and send it via certified mail.

3. Pay with a credit card. The IRS provides two vendors (called merchant banks) for this service: Pay1040 and ACI Payments. There is an interchange rate charged to you ranging from 1.75% to 1.85% with a minimum fee of $2.50.

4. Pay with a debit card. Again there are various services that provide this with a fee of $2.10 to $2.15.

5. Pay by digital wallet or cash. This usually involves a $1.50 fee

6. Drop off cash payment, including to one of 60,000 locations. Yes, you can still bring in your tax payment to designated locations and pay in cash. If this is the option you take, you will need an appointment. Details can be found here.

Available payment suppliers

Debit/Credit: Visa, Mastercard, Discover, American Express, Star, Pulse, NCYE, ACCEL, AFFN, Cirrus, Interlink, Jeanie, Shazam, Maestro

Digital Wallet: Click to Pay, PayPal, Venmo

Cash: Vanilla Direct

Interesting notes

  • If you have an online IRS account, you can make payments within this secure setting.
  • IRS offices still allow for walk up payments in cash. Just make sure you have an appointment and follow online instructions.
  • There are limits to the number of credit card transactions you can make in a year. You also need to get approvals if you think payments may exceed $100,000.
  • If you find you cannot pay your taxes, there are also installment payment plans.


Those Pesky Delays- Here are some of the common causes

Wondering why your tax return is not finished? The delay can often come from one or two items that were overlooked and are needed to complete your tax return. Here are some of the most common:

Missing statements. This includes all W-2s and 1099s, including any related to gambling winnings, income, interest, and mutual funds.

Details on basis. If you sell stock, a house or other property, you need to provide the date you purchased the item, along with the cost and condition of the item when purchased. You also need to ensure that all the costs are included. In the case of stock sales, this includes items like broker fees and surrender charges. And if you are reinvesting dividends, the cost of all those repurchases are also part of your basis in the stock!

Dependent conflict. You claim a dependent on your tax return, but your child claimed themselves as a dependent or an ex-spouse has already filed a tax return with the same dependent’s Social Security number.

Mismatched names. You recently got married, but did not change your name with the Social Security Administration.

Digital asset details. Just like details required when you sell other property, you will need to provide the details on ALL transactions related to digital currency and other digital assets. Also remember to acknowledge whether you own any digital assets. This simple omission can hold up filing your tax return.

Missing documentation for deductions. Common among these are: charitable contribution statements, medical expense documents, childcare forms, property tax forms, home sales records, pension statements, and retirement forms.

Waiting for your review. You need to sign your tax return and/or return a signed Form 8879 saying your return is ready to file electronically.

Receiving documentation late. The closer to the April filing deadline your documents are received, the greater the potential back log of tax return processing you’ll encounter. When it comes to tax return processing (and receiving a refund), the early bird not only gets the worm, it also gets the worm faster!

If you’re requested to provide a missing item, the sooner you can provide the information the better. It always takes a bit more time to review your return after setting it aside for a missing document or piece of information.



Common Overlooked Taxable Events

Here are seven tax topics that seem innocent but can cause problems if not handled correctly.

1. Gambling winnings. If you receive a tax form at a casino for your winnings, that information is sent to the tax authorities. Since the form typically only contains the amount you won, save copies and records of any gambling losses.

2. Maturing CDs. Be careful with maturing CD’s in a retirement account that are rolled over into new CDs. Normally it is straight forward and the interest is reported on a 1099-INT. However, with increasing interest rates, many are once again using CD’s in retirement accounts. So pay attention as your financial institution may provide you with tax forms showing the maturing CD as a distribution, but not report it as a rollover. You will need to account for this on your tax return. In this case, there is not a taxable event, but the IRS may think there is!

3. Retirement distributions. Make note of any distributions from your retirement accounts and note the type of account. You should receive Form 1099s for the distributions. Depending on your age and the type of retirement account, a number of tax surprises could occur if not properly recorded. This includes early withdrawal penalties, potential required minimum distribution penalties, and income tax on the withdrawals.

4. Gifts over $18,000. If you provide gifts in excess of $18,000 ($36,000 for a couple) to any one person during the year, you must fill out a gift tax return.

5. Contemporaneous documentation. The time to put together proper documentation to support your deductions is when the activity takes place. For example, if you misplace a receipt for a charitable donation, you can go back to the organization and ask for a copy of the old receipt, but a new receipt to replace the one you lost is not valid documentation. Common areas where this is important are with charitable contributions, mileage logs, and other itemized deductions.

6. Unemployment income. Unless specifically excluded by the federal government, unemployment income is taxable. Many taxpayers become surprised by an unwanted tax bill if federal withholdings are not taken out of these payments.

7. Digital assets. If you have any transactions during the year using digital assets (cryptocurrency), you have a taxable event. This is because digital assets are seen as property in the eyes of the IRS. This means long and short term capital gains come into play. And if you use digital assets to purchase other capital goods, then you have two potential taxable transactions!



ALERT: Small Business Beneficial Ownership Reporting Update

The requirement to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) is now not to be actively enforced or fined per recent announcements from the US Treasury and FinCEN.

Background

The Corporate Transparency Act requires most small businesses to file a report on FinCEN.gov to report their owners with confirmed identification, or face substantial fines and penalties. There are approximately 20 exceptions to this rule, but basically if you filed business organizational documents with a state entity you probably need to file the form.

Almost as soon as the law was enacted, it began facing numerous legal challenges. The filing deadline was delayed, then re-enacted, then delayed again. Those supporting the rule believe the filings will help law enforcement more readily identify fake companies and bad players. Those against the requirement consider it government overreach and believe the information can be found elsewhere.

Current Situation

Both FinCEN and the Treasury Department say they will no longer enforce the law, nor impose penalties for any firm that does not meet the current March 21st filing deadline. Does this mean the law is dead? Not technically, as the law is not rescinded. It is just not being enforced.

What to do now

  • If you have not filed your BOI form at www.fincen.gov, you will not be penalized or forced to do so at this time.
  • If you wish to file your report, the site is still available and your report may be filed.
  • Since the law is still in place, the requirements, penalties and fines may be reinstated. The likelihood of this happening during the current administration is remote at best.
  • FinCEN will still be modifying requirements to try and identify questionable businesses, so there may be announcements in the future.

If you are interested, here is a link to the announcement from the Treasury Department.



Understanding the Tax Gap- Voluntary tax compliance is measured

While more and more legislation is introduced that penalizes all of us for doing things wrong on our tax returns, please remember that at its origin, tax collection in the U.S. is a voluntary. In other words, the tax code is defined, we are given due dates, and the government asks us to voluntarily comply.

When you don’t, there are late filing penalties, underpayment penalties, fines, fees, interest and other imposed compliance incentives including audits. To help guide Congress and the Treasury department, there are ongoing studies conducted to try to calculate the trends in non-compliance.

The Tax Gap

The result of this research is an estimate known as the Tax Gap. As you can imagine, calculating this Tax Gap is made very complicated due to the complex nature of the tax code. Here is the IRS’s most recent Tax Gap projection.

Key observations

  • Around 85% of the tax liability is actual paid, leaving underpayment of approximately 15%.
  • Collection activity (audits, etc.) brings back approximately 1 to 2% of the underpayment.
  • This leaves a projected tax gap of over ½ trillion dollars
  • The gap consists of non-filing, under-reporting, and nonpayment, of which under-reporting tax liability is the largest culprit.

So what?

  • The more that is under-reported, the more likely audits will bear fruit and increase over time.
  • The less compliance, the more likely there will be an increase in pre-baked penalties. This can be seen in the recent trends to fine for late filing of W-2s and 1099s.
  • Knowing this Tax Gap information suggests it makes sense to not be in the Net Tax Gap box as that is where compliance is focusing its attention.


The Impact of IRS Layoffs

During the recent chaos of Federal employment moves over the past couple of weeks, two actions will impact how filing your tax return this year could go and how to prepare accordingly.

Voluntary termination

After being offered voluntary termination, approximately 75,000 employees across all departments of the federal government took up the executive branch’s offer. What isn’t known at this time is what areas of government services will be impacted.

6,500 terminations at the IRS

As part of the executive branch’s trimming of the government, all newly-hired IRS employees were terminated. This includes about 6,500 new hires (approximately 6% of all IRS employees) as part of the IRS’s recent workforce expansion. For those that follow the news, this trimming appears to be politically motivated as the recent expansion of their workforce was a fairly partisan affair.

What it means for you this tax season

The remaining staff are unsettled. There will be greater workload, sadness, and uncertainty about job security for the remaining staff at the IRS. This means getting your questions answered may be more difficult.

IMPACT: If you need a question answered by the IRS, be prepared to wait longer. You may also find it more difficult to get a qualified answer. Should you speak with an IRS representative, try to show some compassion for their situation.

Open questions may take longer to close. As you may recall, during the pandemic the IRS suspended the mailing of notices to taxpayers. When the backlog of notices was turned back on, many taxpayers found themselves facing potential liens because prior notices were never sent. Until the mailing of notices were turned back on, many these taxpayers were unaware of any problems with their tax records. This backlog still exists and will get worse.

IMPACT: You’ll probably have a hard time getting someone on the phone who can help with your particular problem. And responses to your mailed replies to IRS notices is taking a very long time. So be prepared to respond multiple times concerning the same issue. Consider sending all correspondence to the IRS using certified mail so there is evidence should you need to prove the timeliness of YOUR replies.

Don’t expect audit rates to go down. Audit rates are already extremely low, with a significant portion of the audit activity now being identified automatically through computer generated correspondence audits. The irony here is that given the progressive nature of the individual tax system, the majority of tax is paid by a minority of taxpayers. Audits will still naturally follow the potential for a return-on-investment for the time spent auditing a particular tax return.

IMPACT: Double check your 2024 tax return documents for missing items. This is especially true for all 1099s! And double check that they are correct. If you report an incorrect dollar amount, you can almost guarantee you will see a notice from the IRS. And be prepared to defend your deductions with proper documentation.

It’s unfortunate that the idea of voluntary compliance to help fund our government is so chaotic and more political than ever. The best approach is to comply with the tax rules and adjust according to the situation. And this is where our service can help.



The New Problem with IRS Identity Theft- PLUS: Small Business FinCEN Update!

In its most recent annual report to Congress, the Taxpayer Advocacy Service outlines troublesome trends it sees in the processing and administration of tax returns and taxpayer support. By law, the National Taxpayer Advocate’s report must identify the 10 most serious problems taxpayers face in their dealings with the IRS and make administrative and legislative recommendations to address those problems. One of the most critical issues identified in their recent report:

Continuing delays in resolving identity theft cases

Per the report, “For cases closed by the IRS’s Identity Theft Victim Assistance (IDTVA) unit in Fiscal Year 2024, the average time it took the IRS to resolve identity theft cases and issue refunds to the affected victims was almost two years.”

Talk about frustrating! It currently takes up to two years to get a victim’s tax records corrected and receive a refund when you have already been made a victim by the ID thief!

While the Taxpayer Advocacy Service is recommending changes, it will take some time to implement by the IRS. So what do you do in the meantime? Here are some tips:

File early. If you have any reason to believe your identity is compromised, file your tax return as early as possible. For example, if you received notices during the year from any businesses that their records may be compromised and exposed some of your personal information, this is a signal that you may be at risk.

Check your credit reports. Remember, each year the three major credit agencies are required to provide copies of your credit report free of charge. The beginning of the year is a great time to check. If you see anything fishy, file your tax return immediately. These reports can be ordered at: AnnualCreditReport.com

Consider the IRS Identity Protection PIN program. While not for everyone, if you are worried about IRS Identity theft, sign up to receive a unique id or PIN to be used when filing your federal tax return. While it can be a hassle, it will help avoid anyone else filing using your identification.

In the meantime, there is hope that the Taxpayer Advocacy report will motivate the IRS or someone in Congress to take action to help victims receive more timely resolution to their problem.

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FIN-2025-CTA1 February 18, 2025
FinCEN Extends Beneficial Ownership Information Reporting Deadline by 30 Days;
Announces Intention to Revise Reporting Rule

The on then off then on again requirement for small businesses to report their beneficial owners to the federal government is now on again with a new reporting deadline of March 21, 2025. This represents a “stay” of a judge’s order to eliminate the requirement. In other words, the filing requirement may be removed, but until it is, most small businesses need to still file the report.

Should you file the report for your business?

Per the notice:

Notably, in keeping with Treasury’s commitment to reducing regulatory burden on businesses, during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks. FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.

The current ruling says yes…but it probably will change if you can read into this notice. Here is a link to the announcement: FinCEN Announcment



Does Your Mileage Log Travel the Distance?

The tax code allows deductions for qualified miles driven for business, medical, moving and charitable purposes. But to claim this deduction you must keep adequate records of actual miles driven. During an audit, this is an often disallowed deduction, despite the fact that you actually drove the distance claimed. How can you make sure this doesn’t happen to you? Here are some tips.

1. Keep a log. The tax code is clear on this point. You may not estimate your miles driven. You must support your claimed deduction, ideally with a detailed mileage log.

2. Create good habits. Your odometer reading and miles driven should be noted as soon as possible after the event. Keep a log book in your car and note the miles driven each day. Logs created after-the-fact with estimated miles driven could be disallowed during an audit.

3. Make thorough entries. Note the odometer readings, date, miles driven, the to/from locations, and the qualified purpose for the trip.

4. Don’t lose out on the extras. The deduction for miles driven is meant to provide a deduction for fuel, depreciation, and repairs. You can also deduct out-of-pocket expenses for tolls, parking and other transportation fees. Keep a running total of these fees in the back of your mileage log.

5. Keep separate logs for each deduction. Remember you may deduct mileage for business, charitable purposes, qualified moving and medical miles. It is best to keep track of each in a separate mileage log.

6. Alternative business transportation deduction. When it comes to deducting business transportation expenses, remember the miles driven method is not the only one available to you. You may also deduct your actual expenses, but how and when you make this determination is important. In the initial year of placing your vehicle into service for your business, it is best to keep track and record all your actual auto expenses. An analysis can then be conducted to see which method is best for you to maximize your deduction.