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10 Most Googled Tax Questions

by
Lee Reams, BSME, EA
on
2/16/2017
10 Most Googled Tax Questions

As tax season starts rolling full steam ahead, we thought we would answer some of the most common tax questions posted to Google. These would apply to the current tax law and may change once expected tax reform takes place. 

1. When are taxes due?

Taxes are generally due for individuals on April 15th of the subsequent year. However, if the due date falls on a weekend or holiday, the due date will be the next business day. If taxpayers cannot file by the due date, they can file an extension that gives them until October 15th to file. Like the April 15th date, if October 15th falls on a weekend or holiday, the due date will be the next business day. Caution: The extension is an extension of the date to file, not an extension of the time you pay. Thus a 0.5% per month penalty will apply to any balance due plus interest at the current government rate. You can minimize the late payment penalty by including a payment of the estimated amount due along with the extension form. Even where you owe and cannot make a payment, filing the return on time or filing an extension avoids the 4.5% per month late filing penalty.

2. How to file taxes

There are two methods for filing returns: by paper or electronically. However, the IRS prefers electronic filing. Filing season generally opens between January 21 and 24 (it opened on January 23rd in 2017), at which time the IRS will begin accepting electronically filed returns and processing paper filed returns. There is no advantage to filing a paper return earlier in hopes of getting a quicker refund, since the IRS does not process paper returns prior to the opening of electronic filing.

Federal tax forms can be downloaded from the IRS site. State forms can be downloaded from the various state Internet sites. There are online sites that provide electronic filing; however, due to the added complications created by the Affordable Care Act and the many tax credits available, some of which are even refundable, it is probably best to have your return prepared by a professional. Visit TaxBuzz.com to find a professional in your area.  

3. When can you file taxes?

Returns can be filed either by paper or electronically; however, the IRS prefers electronic filing. Filing season generally opens between January 21 and 24 (it opened on January 23rd in 2017) at which time they begin accepting electronically filed returns and processing paper filed returns. There is no advantage to filing a paper return earlier in hopes of getting a quicker refund, since the IRS does not process paper returns prior to the opening of electronic filing.

The due date for individual returns is April 15th of the subsequent year. However, if the due date falls on a weekend or holiday, the due date will be the next business day. If you cannot file by due date, you will need to file an extension, which will give you until October 15th to file. Like the April 15th date, if October 15th falls on a weekend or holiday, the due date will be the next business day. Caution: The extension is an extension of the date to file, not an extension of the time you pay. Thus a 0.5% per month penalty will apply to any balance due plus interest at the current government rate. You can minimize the late payment penalty by including a payment of the estimated amount due along with the extension form. Even where you owe and cannot make a payment, filing the return on time or filing an extension avoids the 4.5% per month late filing penalty.

4. How do I file a tax extension?

If you cannot file by the due date, you can file an extension, which will give you until October 15th to file. No reason is required, so even if you have simply procrastinated, you are still qualified to file an extension. Like the April 15th due date, if October 15th falls on a weekend or holiday, the due date will be the next business day. Caution: The extension is an extension of the date to file, not an extension of the time you pay. Thus a ½% per month penalty will apply to any balance due plus interest at the current government rate. You can minimize the late payment penalty by including a payment of the estimated amount due along with the extension form. Even where you owe and cannot make a payment, filing the return on time or filing an extension avoids the 4.5% per month late filing penalty. If you need to file an extension or compute your potential tax liability so you can include a payment with the extension, visit TaxBuzz.com to find a professional in your area. 

5. How much do you have to make to file taxes?

Your filing threshold depends upon your filing status, age and type of income. For most wage earners the filing threshold is the sum of the standard deduction for your filing status and the personal exemption(s) for you and your spouse (if any). For example, in 2017 the standard deduction for a married couple both under age 65 is $12,700 and the exemptions are $4,050 each, making their filing threshold $20,800. For an individual under age 65 who is filing single, the standard deduction is $6,300 and the exemption is $4,050, making the filing threshold $10,250. However, not all situations are that simple, as it depends on whether there is self-employment income, Social Security income, capital gains income, income earned by a dependent, etc. The IRS provides an online calculator to help you determine whether you need to file.

Just because you don't have to file doesn't mean you shouldn't. You may have withholding that is refundable, or you may even qualify for a refundable credit such as a child tax credit, earned income tax credit or education credits.  

6. How long should I keep tax records?

With certain exceptions, the statute for assessing additional taxes is three years from the return due date or the date the return was filed, whichever is later. However, the statute of limitations for many states is one year longer than the federal law. In addition to lengthened state statutes clouding the recordkeeping issue, the federal three-year assessment period is extended to six years if a taxpayer omits from gross income an amount that is more than 25% of the income reported on a tax return. And, of course, the statutes don't begin running until a return has been filed. There is no limit when a taxpayer files a false or fraudulent return to evade taxes.

If an exception does not apply to you, for federal purposes, most of your tax records that are more than three years old can probably be discarded; add a year or so to that if you live in a state with a longer statute.

The problem with the carte blanche discarding of records for a particular year because the statute of limitations has expired is that many taxpayers combine their normal tax records and the records needed to substantiate the basis of capital assets. These need to be separated, and the basis records should not be discarded before the statute expires for the year in which the asset is disposed. Thus, it makes more sense to keep those records separated by asset. The following are examples of records that fall into that category: 

  • Stock acquisition data - If you own stock in a corporation, keep the purchase records for at least four years after the year the stock is sold. This data will be needed to prove the amount of profit (or loss) you had on the sale.
  • Stock and mutual fund statements (If you reinvest dividends) - Many taxpayers use the dividends they receive from stocks or mutual funds to buy more shares of the same stock or fund. The reinvested amounts add to the basis in the property and reduce gain when it is finally sold. Keep statements at least four years after the final sale.
  • Tangible property purchase and improvement records - Keep records of home, investment, rental property, or business property acquisitions AND related capital improvements for at least four years after the underlying property is sold.

Records can be important, so please use caution when discarding them.

7. When is the last day to do taxes?

The due date for individual returns is midnight on April 15th of the subsequent year. However, if the due date falls on a weekend or holiday, the due date will be midnight of the next business day. If you cannot file by the due date, you will need to file an extension, which will give you until October 15th to file. Like the April 15th date, if October 15th falls on a weekend or holiday, the due date will be the next business day. Caution: The extension is an extension of the date to file, not an extension of the time you pay. Thus a 0.5% per month penalty will apply to any balance due plus interest at the current government rate.

8. Is Social Security taxed?

Generally, your Social Security (SS) benefits are not taxable until your modified adjusted gross income (MAGI) is more than the base amount for your filing status. MAGI is your regular AGI (without Social Security income) plus 50% of your Social Security income plus tax-exempt interest income plus certain other infrequently encountered modifications.

The base amounts (threshold where the SS benefits become taxable) are:

  • $25,000 if you are single, a head of household, a qualifying widow or widower with a dependent child, or married filing separately and did not live with your spouse at any time during the year; 
  • $32,000 if you are married and file a joint return; 
  • Zero if you are married filing separately and lived with your spouse at any time during the year. 

Thus, if your only income was SS benefits, you would likely not be subject to income tax on those benefits. On the other hand, if you have other sources of income and your MAGI exceeds the base amount for your filing status, some portion of your SS benefits will be taxable. The maximum amount of your taxable SS will never exceed 85% of your SS benefits.

The IRS provides an online calculator that you can use to determine the taxability of your SS benefits.

9. How long does it take to get taxes back?

Filing your return electronically and using direct deposit will generally result in your refund being issued in about 21 days. Refunds by check will take a bit longer. Paper-filed returns can take several weeks since the paper returns must be individually keyed in at IRS processing centers.

To combat filing fraud, refunds that include earned income tax credit or additional child tax credit are being delayed until sometime after February 15. At the same time the filing due date for W-2s and 1099-MISC (non-employee compensation) has been moved up to January 31. These changes give the IRS time to deny refunds where the income was fabricated simply to qualify refundable tax credits.

10. I can't pay my taxes. What can I do?

The vast majority of Americans get a tax refund from the IRS each spring, but what if you are one of those who end ends up owing?

The IRS encourages you to pay the full amount of your tax liability on time by imposing significant penalties and interest on late payments if you don't. So if you are unable to pay the tax you owe, it is generally in your best interest to make other arrangements to obtain the funds for paying your taxes rather than being subjected to the government's penalties and interest. Here are a few options to consider:

  • Family Loan – Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.
  • Credit Card – Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay the credit card discount fee, you will have to pay it and pay the higher credit card interest rates.
  • Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate, and there is a user fee to set up the payment plan. In making the agreement, a taxpayer agrees to keep all future years' tax obligations current. If you do not make payments on time or have an outstanding past-due amount from a future year, you will be in default of your agreement, and the IRS has the option of taking enforcement actions to collect the entire amount owed. Taxpayers seeking installment agreements exceeding $50,000 will need to validate their financial condition and need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). Taxpayers may also pay down their balance due until it amounts to $50,000 or less to take advantage of the streamlined option.
  • Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because you are jeopardizing your retirement, and the distributions are generally taxable at your highest bracket, which adds more taxes to your existing problem. In addition, if you are under age 59½, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further. 

Whatever you decide, don't just ignore your tax liability, because that is the worst thing you can do.

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Lee Reams, BSME, EA

Lee Reams, BSME, EA

Editor-in-Chief

Besides his role at CountingWorks as an educator and speaker to thousands of accountants nationwide, Lee manages a technical research service for a large group of tax accountants which sharpens his technical skills. Lee served on the Board of Blackline Systems, is a former Board of Director for the California Tax Education Council, is a Past President of the San Fernando Valley Chapter of Enrolled Agents, Member and Past Director for the California Society of Enrolled Agents.

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