Tax Tips : IRS online account and its benefits

 IRS Online Account 

Taxpayers can access and view their IRS tax information through their personal online account at any time. When filing their tax returns or following up on outstanding accounts or notices, they can view pertinent information. This white paper will provide answers to the following questions.

1. Why should I create an online IRS account?
2. What do I need to register for an online IRS Online account?
3. What are steps to set up your IRS account
4. What is ID me?
5. Can I create an IRS online account for business?

Why should I create an online IRS account?

The biggest reason to create an IRS account is to quickly look up your personal tax data. Once registered, you can access a wide array of your tax information, including:

1. Your adjusted gross income
2. Details of your latest tax return
3. Payment history for past five years
4. Amount of taxes currently owed
5. Economic impact payment amounts
6. Advance child tax credit payment amounts
7. Digital versions of some IRS notices
8. Tax professional authorizations

Along with viewing your personal tax information, with an IRS online account, you can make payments online, go paperless for certain IRS notices and approve authorization requests from your tax professional.

You can get instant copies of tax records like transcripts of past tax returns and wage and income statements. With an online account, you can also request an Identity Protection PIN to add an extra layer of security to your tax records.

Tax experts advise creating an IRS online account just in case you run into a tax issue or problem in the future. It's better to have an account already created than be forced to register online during the stress of a tax difficulty already in progress.

What do I need to register for an online IRS account?

If everything goes perfectly, it takes around 15 to 30 minutes to create an IRS account online. Before beginning the procedure, you will need to gather a few documents and pieces of information. Here's what you'll require:

1. A valid email address
2. Your postal address
3. A passport, passport card, or state driver's license issued by the United States
4. Your SSN or taxpayer identification number
5. A mobile phone associated with you

If you do not have a mobile phone or do not wish to link your number to your online IRS account, you can request an activation code by mail. The code will arrive in approximately 10 days and will be good for 30 days.

What steps do I take to set up my IRS online account?

The IRS provides multiple entry points for registration. The easiest method is to visit the IRS's Your Account online page. Click the blue "Sign in to your online account" button to begin the registration procedure.

Recently, the IRS added an interstitial page for online account management. About two minutes were required for a temporary loading page to redirect to the registration form.. 

Once the waiting page redirects, you will be directed to a screen requesting that you create an ID.me account. ID.me is a third-party identification service mandated for all new IRS accounts.

The ID.me registration should take approximately 15 minutes and requires images or scans of your identification documents — visit the ID.me website. Click the green button labeled "Create an account" to begin.

For a comprehensive explanation of the ID.me registration procedure, please refer to our ID.me tutorial. Here are the fundamental steps:

1. On the ID.me account creation page, enter your email address and choose a password.
2. Confirm your email address next.
3. Enable multifactor authentication on your mobile device.
4. Select an ID verification method: Self-Service using a "video selfie" or Video Chat with an ID.me representative.
5. Upload photographs of your ID.
6. Take and upload a "video selfie" or wait for a video chat interview for two hours.
7. Provide your Social Security number

Lastly, grant the IRS access to your ID.me verification.

After authorizing the IRS to access your ID.me information, your online IRS account should be active, and you should have access to all the information and capabilities the IRS offers.

What is ID.me?

ID.me is a third-party "identification verification" company that works with the Internal Revenue Service, the Social Security Administration, the Department of Veterans Affairs, and 27 state governments, largely for unemployment benefits.

The IRS began utilizing ID.me as a trial program for identity verification in 2017 and has now expanded it to cover all new accounts. Users of the IRS who created online accounts prior to the deployment of ID.me may continue to use existing accounts until the summer of 2022, when they will be required to register with ID.me. The IRS has not yet provided a date by which old accounts must be converted to ID.me.

Recent criticism has been leveled at ID.me and the IRS over the mandated video selfie, which is a needed registration step involving facial recognition technology. Politicians and advocacy organizations lobbied vehemently against the practice, stating that a private company should not gather biometric information on millions of Americans. Black and Asian faces have been proved to have a greater false positive rate when using facial recognition technologies.

The IRS announced a "transition away from usage of third-party verification employing facial recognition" on February 7 and stated that it would build a new identity verification approach that does not involve facial recognition.

Two weeks later, the agency announced that taxpayers enrolling for an IRS account would have the option of substituting the automatic facial recognition stage with a "video chat interview." The choice to employ a video selfie or a video chat interview is now made early on in the IRS account registration procedure (No. 4 in the listed steps above).

Can I create an online IRS account for my business?

The IRS has not yet enabled internet access to company accounts. According to its online account FAQ, the IRS "plans to build an online account for business taxpayers in the future, allowing businesses to manage their federal tax responsibilities quickly and securely."

Through the Electronic Federal Tax Payment System, business owners can currently make payments or schedule projected payments online.

Published initially on January 29, 2022, at 4:30 a.m. PT.

Tax Tips: How To Make IRS Payment?

Are you prepared to file your federal income tax return, or have you already done so? If you owe taxes, remember to pay by Tax Day. And you are not required to file and pay simultaneously. The IRS provides the following payment options for taxpayers' convenience:

Pay by cash. 

Historically, you could not pay your federal income tax obligation with cash. Currently, however, the Internal Revenue Service (IRS) allows you to pay your taxes via PayNearMe.

You must visit the Official Payments page and follow the steps to make a payment. The IRS will then provide you a code that you can take to a participating merchant, where the cashier will scan the code in order for you to pay. Typically, the entire procedure takes between five and seven working days. It costs $3.99 to utilize the PayNearMe system, and the maximum payment amount is $1,000.

Official Payment Page: https://www.officialpayments.com/fed/index.jsp

Pay by check or money order

Even if you e-file, you can still pay using a check or money order. Make your check or money order for the whole amount payable to "United States Treasury" Write "XXXX (Tax Year) Form 1040" and your Social Security Number on the memo line (if you are filing a joint return, write the SSN shown first on your tax return on the memo line). Ensure that your name, address, and daytime phone number are printed on the check; this information may already be present.

Include payment with Form 1040-V, Payment Voucher (downloads as a PDF) and mail payment along with Form 1040-V to the state-specific address:

You can pay by check or money order even if you e-file. To pay what you owe, make your check or money order payable to "United States Treasury" for the full amount due. Write "XXXX (Tax Year) Form 1040" on the memo line together with your Social Security Number (if you are filing a joint return, write the SSN shown first on your tax return on the memo line). Make sure that your name, address, daytime phone number are on the check; that info may already be printed on your check. 

Include payment together with Form 1040-V, Payment Voucher (downloads as a pdf) and mail the payment along with your form 1040-V to the address that corresponds to the state where you live:

 

Do not write a check if you lack the money to cover it. There is a penalty for writing a bad check to the IRS ($25 or 2% of the check, whichever is more) and no one will be duped. It is not valuable.

Remember that the Internal Revenue Service (IRS) no longer accepts checks in excess of $100 million.

Direct Pay:

Taxes can be paid straight from a checking or savings account. To make a payment, visit the Direct Pay webpage. You will select (1) the tax form, (2) the reason for payment, and (3) the tax year:

You must verify your identification by submitting your filing status from your most recent tax return as well as your name, SSN, date of birth, and address. Enter the payment amount, due date, and bank account details. Once you reach the final page, you are finished. After payments are completed, the IRS does not retain your bank account information, and there is no fee to use the system.

You can schedule a payment or make a payment on the same day; however, IRS Direct Pay will only accept two payments within 24 hours. Note that each payment must be less than $10 million if you owe a lot.

Checkout how to guide for reference.

Pay by wire. 

Consider a wire transfer from your bank or financial institution on the same day. Contact your bank or financial institution for details, including fees and deadlines - not the IRS. To make a payment, download the Same-Day Payment Worksheet and fill it out prior to making the wire transfer.

Pay by Electronic Funds Withdrawal.

Electronic Funds Withdrawal (EFW) is a method for making direct debit payments from a bank account. The Internal Revenue Service does not charge a fee to use EFW, but your financial institution may (check first to avoid a last-minute panic). You must have access to your bank's routing and account numbers.

Pay by Debit or With Credit Card

You can clear your bill with a debit or credit card. Visa, MasterCard, Discover, and American Express are accepted by the majority of the IRS-approved payment processors.

In general, there is no restriction on the amount that can be paid; however, you are limited to two credit card payments per year for the same individual tax obligation. Payments with balances exceeding $100,000 may necessitate collaboration with your credit card or debit card issuer.

The fees charged by third-party credit and debit card providers may vary by provider, card type, and payment amount. Debit card costs range from $2.00 to $3.95, whilst credit card fees range from 1.87 percent to 1.99 percent (minimum fees apply). The convenience fee paid to your provider will be labeled "Tax Payment Convenience Fee" or a similar phrase, while the tax payment will be labeled "United States Treasury Tax Payment."

Integrated IRS e-file and e-pay service providers are subject to separate regulations (and fees).

Use the Electronic Federal Tax Payment System (EFTPS)

To make a payment via telephone using EFTPS, dial 1.800.555.3453. Call 1.800.733.4829 if you are deaf, hard of hearing, or have a speech disability and have access to TTY/TDD equipment. To make an online payment with EFTPS, log in (https://www.eftps.gov/eftps/login/loginInitial) and follow the instructions. You may arrange your payment by 8:00 p.m. EDT at least one calendar day prior to the due date. It is important to remember that your tax payment is still due even if the website is unavailable, so be prepared.

Enrollment is required to utilize EFTPS. After the IRS verifies your information, you will get a personal identification number (PIN) via mail within five to seven business days. Between the Internal Revenue Service and the United States Postal Service, you will need patience.

Also, as fraudsters intensify their attempts to steal your personal and financial information, remember that EFTPS will never approach you by email. If you receive an email purporting to be from the EFTPS tax payment service or from an unknown sender claiming to have information about EFTPS payments, please forward the email to phishing@irs.gov or contact the Treasury Inspector General for Tax Administration at 1-800-366-4484.

Several additional payment tips: 

1. Plan ahead. If you pay by mail, your money is typically considered paid as of the postmark date. For all other payment methods, your money is deemed received when it is accepted, not when it is initiated. Ensure that electronic payments are scheduled in advance to avoid late fees and penalties. And keep in mind that accidents might occur, so allow yourself some extra time.
2. These options are applicable if you are filing a tax return or requesting an extension. Remember that an extension only extends the filing deadline, not the payment deadline. If you owe tax, you must include a payment with your extension request.
3. Paying late? Pay anyhow. It is preferable to pay late over not at all. If you will be late, do not let it deter you.
4. Be wise. No of how you choose to pay, you should never mail cash.
5. Be mindful of your clicks. If you are uncertain about the legitimacy of your payment method, you can always return to the IRS website. Use only IRS-approved techniques and search for safe sites (typically characterized by https:). Remember that iTunes and other gift cards cannot be used to pay taxes (more here). 
6. Employ the correct currency. You must pay in U.S. dollars even if you're paying taxes on international income.
7. You are not required to send payment if the amount you owe is less than $1.

Tax Tips: Tax Law Changes for Tax Year 2022

 It's time to start planning for 2022's return now that the tax filing season for the 2021 tax year is complete. After all, you may be able to save more money by doing more tax planning. However, effective tax preparation necessitates being aware of what has changed and been added since the previous year. For the 2022 tax year, there are many modifications and revisions to the tax code that informed taxpayers should be aware of.
We've compiled a list of the most significant tax law amendments and modifications for 2022 to assist you (some related items are grouped together).
Utilize this knowledge right away to keep more of your hard-earned money when it comes time to file your 2022 tax return the following year.

• Child Tax Credit
• Child and Dependent Care Credit
• Earned Income Tax Credit
• Recovery Rebate Credit
• Tax Bracket
• Capital Gain
• Standard Deduction
• Form 1099-K
• Charitable Gift Deduction
• Retirement Saving
• Teacher Expenses
• Keddie Tax
• Adoption of a Child
• Education Bond
• Parking and Transportation Benefits
• Americans Working Abroad
• Payroll Taxes
• Standard Mileage Rates
• Long-Term Care Insurance Premiums
• Health Savings Accounts (HSAs)
• Flexible Spending Accounts (FSAs)
• Alternative Minimum Tax (AMT)
• Tax "Extenders"
• Self-Employed People
• Estate & Gift Taxes

Download a copy of these changes

Tax Planning Tips: Why You Need A Year Round Tax Planning

 Year-Round Tax Planning

Many individuals and companies, only worry about their tax in March and April. Cross their fingers for a large return. It sounds familiar, but this is not right from tax planning prospective.

By March and April, you might have taken few irreversible steps and those you cannot correct or reverse, as a result your tax might go up. 

Everyone should plan their taxes year-round. You still need to think about taxes even if you have already filed your tax return. The tax you might owe or the rebate you anticipate in April may be impacted by what you do right now.

• Identify your filing status

• Know your Adjusted Gross Income (AGI)

• Check your withholding.

• Save for your retirement

• Benefit from tax credits and deductions

• Harvest your Tax-loss.

• Organize your tax records

Identify your filing status

Your filing status is considered for calculating your tax liability, standard deduction, and eligibility for certain credits. If you qualify for more than one filing status, consult a tax practitioner to determine which one will result in the least amount of tax. Your tax situation, including your filing status and your eligibility to claim specific tax credits and deductions, may change because of changes to your family life, such as marriage, divorce, birth, and death.

Know your Adjusted Gross Income (AGI)

When calculating your taxes, your AGI and tax rate are crucial variables. Your total yearly income (TYI), less any adjustments or deductions from it, is your AGI. In general, your tax rate and the amount of tax you pay increase with your AGI. Making adjustments during the year that lower your AGI can be a part of tax planning.

Check your withholding.

Due to the pay-as-you-go nature of federal taxes, the majority of your tax will need to be paid throughout the year as you generate the money. When your personal or financial information changes, use the IRS Withholding Calculator to verify your withholding. If you want to modify the amount of tax deducted from your paycheck, provide your employer an amended Form W-4. Your AGI may decrease if your withholding is increased or changed, which could have an impact on your tax obligation or anticipated refund. Every year, as well as if your financial or personal position changes, think about submitting a new Form W-4.

Save for your retirement

Opportunities for retirement savings can also reduce your AGI. Your take-home income and AGI are both decreased when you make contributions to a retirement plan at work. One more strategy to save for retirement and reduce your taxable income is to make contributions to a regular IRA account.

Benefit from tax credits and deductions

Any qualifying deductions from your AGI, including your standard deduction, must first be subtracted in order to determine your remaining taxable income. When you deduct tax credits from the amount of tax you owe, your tax is reduced. Your whole financial planning can benefit from tax planning. To make the filing season for you and your family less "taxing" the following year, start making plans now to uncover tax savings throughout the year.

Harvest your Tax-loss

Underperforming investments can be sold, exchanged for reasonably comparable investments, and the proceeds used to offset genuine investment gains. Tax-loss harvesting is the term for this procedure. As a result, less of your money might end up going to taxes and more might continue to be invested and generate income for you.

Organize your tax records

Create a system to keep all of your crucial information in one place. For electronic recordkeeping, you can either use a software application or labeled file cabinets to maintain paper records. As you receive tax records throughout the year, add them to your folders. It will be simpler to prepare your return if you have easy access to your data, and you might find deductions or credits that you might have missed. Whenever your address changes, let the IRS know. If your legal name changes, notify the Social Security Administration right once to prevent a holdup in the preparation of your tax return.

Tax Planning Tips: Avoid Underpayment Tax Penalty With Withholding Tax OR By Paying Estimated Tax

What is Estimated Tax?

1. Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.

2. Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.

3. Visit WWW.IRS.GOV to calculate estimated tax due by using IRS Withholding Tax Estimator. 

4. Refer Publication 505, Tax Withholding and Estimated Tax.

5. For estimated tax purposes, the year is divided into four payment periods. You may send estimated tax payments with Form 1040-ES by mail, or you can pay online, by phone or from your mobile device using the IRS2Go app. Visit IRS.gov/payments to view all the options. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax.

6. However You don’t have to pay estimated tax for the current year if you meet all three of the following conditions.

• You had no tax liability for the prior year

• You were a U.S. citizen or resident for the whole year

• Your prior tax year covered a 12-month period

How you can avoid Underpayment Penalty?

1. Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.

2. Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.

3. Visit WWW.IRS.GOV to calculate estimated tax due by using IRS Withholding Tax Estimator. 

4. Refer Publication 505, Tax Withholding and Estimated Tax.

5. For estimated tax purposes, the year is divided into four payment periods. You may send estimated tax payments with Form 1040-ES by mail, or you can pay online, by phone or from your mobile device using the IRS2Go app. Visit IRS.gov/payments to view all the options. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax.

6. However You don’t have to pay estimated tax for the current year if you meet all three of the following conditions.

• You had no tax liability for the prior year

• You were a U.S. citizen or resident for the whole year

• Your prior tax year covered a 12-month period

Once you determined  estimated tax, ensure that your withholding tax + previous estimated tax payment is ¼th of estimated tax by Apr 15, ½ of estimated tax by Jun 15, ¾ of estimated tax by Sep 15 and 100 % of estimated tax by Jan 15 (Next Year)

What is Underpayment Penalty?

1. If your tax due due is more than as stated in previous slide, then you are liable for underpayment of estimated tax. 

2. If you didn’t pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. 

3. The Underpayment of Estimated Tax by Individuals Interest / Penalty applies to individuals, estates and trusts if you don't pay enough estimated tax on your income or you pay it late. The penalty may apply even if we owe you a refund.

1. Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers,  fishermen, and certain higher income taxpayers. Please refer to Publication 505, Tax Withholding and Estimated Tax, for additional information. 

2. The penalty may also be waived if:

1. The failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or

2. You retired (after reaching age 62) or became disabled during the tax year for which estimated payments were required to be made or in the preceding tax year, and the underpayment was due to reasonable cause and not willful neglect.

3. Taxpayers can use following forms to adjust their withholding tax by submitting following forms to the payer.

   • W-4 Employee's Withholding Certificate

   • W-4P Withholding Certificate for Periodic Pension or Annuity Payments

   • W-4R Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions

   • W-4S Request for Federal Income Tax Withholding From Sick Pay

   • W-4V Voluntary Withholding Request

   When you need to Adjust Your Withholding Tax?

Following changes  will result current withholding less than your tax liability. 

• Change of lifestyle: 

1. Marriage

2. Divorce

3. Birth or adoption of child

4. Purchase of a new home

5. Retirement

6. Filing chapter 11 bankruptcy

• Change of wage income

1. You or your spouse start or stop working, or start or stop a second job

• Change in the amount of taxable income not subject to withholding

1. Interest income

2. Dividends

3. Capital gains

4. Self-employment income

5. IRA (including certain Roth IRA) distributions

• Change in the amount of adjustments to income 

1. IRA deduction

2. Student loan interest

3. deduction

4. Alimony expense

• Change in the amount of itemized deductions or tax credits

1. Medical expenses

2. Taxes

3. Interest expense

4. Gifts to charity

5. Dependent care expenses

6. Education credit

7. Child tax credit

8. Earned income credit

Education Saving, Expenses and Tax Implication

• Coverdell Education Savings Accounts [ESA] are trust or custodial accounts designed solely for the purpose of paying the trust beneficiary's qualifying education expenses.

• Series EE and series I bonds interest tax free, if you pay qualified educational expenses.

• Education Credits: Taxpayers can take advantage of two comparable tax credits to help defray part of the costs of higher education. They are known as the American opportunity credit—formerly the "Hope" credit—and the lifetime learning credit, and they are similar in some ways and dissimilar in others.

• Scholarships, fellowships, need-based education grants, eligible tuition reductions, as well as student loan cancellations and repayment aid, are all possible tax-free options for taxpayers.

• Taxable or tax-free tuition reductions are possible. A tax-free tuition decrease is referred to as a qualifying tuition reduction. If a tuition reduction is taxable, the taxpayer is viewed as receiving a payment in the amount of the tuition reduction and paying it to the educational institution on the student's behalf.

• Taxpayers can take a special deduction of up to $2,500 for interest paid on student loans used to pay for higher education costs. The interest on student loans is deducted as an adjustment to income, thus the deduction is available regardless of whether the person itemizes deductions.

Dirvorce, Separation and Taxation

The change in a person's relationship status, such as a legal separation or divorce, has an impact on their tax situation. For tax reasons, a couple is considered married until they receive a final decree of divorce or separate maintenance.

• When a person is divorced or separated from their spouse, they usually need to file a new Form W-4 with their employer to claim the proper withholding.

• Amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separate maintenance payments for federal tax purposes.

• For federal tax reasons, alimony or separate maintenance payments made to a spouse or former spouse under a divorce decree, a separate maintenance decree, or a signed separation agreement may be considered alimony or separate maintenance payments.

• A parent who has custody of a child can generally claim that child on their tax return. If parents share custody 50/50 but don't file a joint return, they'll have to pick who gets to claim the child.

• When property is transferred between couples, or between former spouses if the transfer is due to a divorce, there is usually no acknowledged gain or loss. It's possible that the transaction will need to be reported on a gift tax return.

• Divorcing couples who are still married at the end of the year are treated as married for the purposes of determining their filing status for the year. The IRS.gov tool What Is My Filing Status can assist users in determining which filing status is appropriate for their scenario.