published November, 2015
When the IRS thinks you owe money, the send you a letter. (Scam notes: They don’t call you on the phone and demand money without allowing you to dispute the amount—if that happens, it is probably a scam. Don’t send them money over the phone, they are NOT the IRS.)
The letter they send will go to the address they have on file for you. If you don’t respond to their letter, they’ll send another one. And a couple more. After this, they might find your bank account and take the money they think you owe—and that usually gets people’s attention. If you don’t get the letter because they don’t have your proper address, that is your fault for not letting them know how to contact you. If you use a new address on your tax return, they will update your address in their records. There’s a form (hey, it’s the IRS!).
Form 8822 for individuals, or Form 8822-B for businesses (https://www.irs.gov/pub/irs-pdf/f8822.pdf). The second page of the form tells you how to get it to them.
The California Franchise Tax Board also has Form 3533 (https://www.ftb.ca.gov/forms/2014/14_3533.pdf). They allow you to fill this out on-line. You can also file a return with the corrected address, or send in an estimated payment, or do this on-line at “MyFTB” if you have an account.
There is a separate form if you pay payroll taxes with the Employment Development Department, Form DE24 (http://www.edd.ca.gov/pdf_pub_ctr/de24.pdf).
published December, 2014
Here is a “cut and paste” from the IRS:
The Internal Revenue Service issued a consumer alert today providing taxpayers with additional tips to protect themselves from telephone scam artists calling and pretending to be with the IRS.
These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.
“These telephone scams are being seen in every part of the country, and we urge people not to be deceived by these threatening phone calls,” IRS Commissioner John Koskinen said. “We have formal processes in place for people with tax issues. The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”
The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:
If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:
Remember, too, the IRS does not use unsolicited email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.
Additional information about tax scams are available on IRS social media sites, including YouTubeand Tumblr where people can search “scam” to find all the scam-related posts.
published October, 2014
How does this help you? Short term, you have little choice of the tax rate you fall into. But you should not be “surprised” at how much tax you owe. Too many people are. In the long term, you may want to see what you can do to move “down” this list. Be sure to read the caveat in the last paragraph.
As you know, money pulled early from retirement is “expensive” money, both in terms of taxes, and also beause it will not be there when you retire. Hopefully, you won’t need to draw money from retirement funds early to meet living expenses. If you do, know that the tax rate is closer to 40% than 10%. The federal penalty for early withdrawal is 10%, plus the state adds a penalty also. And, you have to pay income tax on the money. The retirement fund people may offer to withhold federal (and state) tax, but they default to just withholding the penalty amount, not the penalty plus the income tax.
The self-employment income tax rate is closer to 50%. This includes federal and state income taxes, plus 15.3% for Social Security and Medicare. This includes income to partners in a partnership or members of an LLC who are performing services.
Income from wage jobs can be more like 30%. You pay income tax on this money, and they withhold half of the Social Security and Medicare from your check before you even get it. I think of this withholding as a tax. The benefit here is that the income tax is withheld before you ever see it, in hopefully the correct amounts.
Ordinary income is not earned by services, so there is no Social Security nor Medicare to pay. This would include things like interest—but with current interest rates you’d have to have a LOT of money to make any substantial amount of interest, and S Corporation earnings. There is still income tax on this, but it is taxed at a lower rate.
Capital gains rates are lower, closer to 15%, but you have to first buy an asset, and then sell an asset. See the definition of assets in a later issue.
Even better is cash flow without income tax recognition. I’m not suggesting you don’t report your income! Always report all your income in full. The tax code, however, allows you to take a depreciation expense against income from some capital assets. So it is possible to have cash flow that does not get taxed at all. The tax rate on this money is 0%.
Income tax rates are “progressive”—that is to say, the more money you make, the higher the rate is on your income, so the rates above are not only for a specific income level, they will also change as the rates get changed each year. Also, Social Security has an upper limit (this is a component of SE tax). This is a very broad illustration of tax rates and there are many nuances, adjustments, rules and limitations. I’ve spent 15+ years on this topic. Your actual results may vary.
published February, 2013
February 3rd, 1913 is the date the 16th Amendment went into effect. The first tax was 1% on personal income over $3,000 and topped out at 6%. Happy Anniversary IRS – maybe for old times’ sake we could go back to the original rates? It should be simple, except agreeing on what “personal income” is!
published December, 2010
The IRS included this website in one of their news releases. It is a “rating” site for IRS employees available to the public to read as well as post “reviews” of IRS personnel. There are only three people listed from California, and they have some questionable graphics, but I suppose it is a start. One of my practice groups had been talking about starting a “Book” to keep track of auditors, so we have a head start at audit and know who we’re dealing with (and what approach might be best to help our clients).
It looks like this was put together by a lawyer from Florida, and he has a slew of disclaimers—and they reserve the right to exercise judgment about inappropriate content and delete it. It also appears to be free to use. More dogbones means a better person to deal with, vs. one dogbone “should be fired immediately.” One of the three CA people is “Mr. Alice Coulton” out of Laguna Niguel.