Taxes Questions and Answers to Your Tax Questions

Getting Back Your Money – How to Claim an Income Tax Refund

When it comes to income taxes, many people experience confusion as it is not always an easy topic to understand. They don’t know how to claim an income tax refund. During the tax year, you may find that you have not paid enough income tax and that you, therefore, owe money to the government as a result of this. However, it also works the other way. You are eligible to receive an income tax refund when you have paid more tax to the government than your actual tax liability. In this article, I will talk about the basics of claiming a tax refund if you have overpaid. What you need to do if you believe you are due a refund … Read more

What Should You Do with Your Income Tax Refund?

by Hank Coleman

According to a recent Nasdaq survey, 41% of Americans who received a tax refund in 2016 put that money into savings. While 38% used the money to pay off debts. Just 5% of Americans splurged on a big purchase. But, what should you do with your income tax refund? Should you pay off debt or invest? Just like how receiving a big tax refund isn’t always a big deal, putting that money towards something that’s more “entertaining” than “responsible” isn’t always a bad option either. What you should do with your income tax refund depends on your current financial situation and your ability to manage the debts currently in your name. Should you pay off debt or invest or something … Read more

The Dangers Of Income Tax Refund Anticipation Loans

by Hank Coleman

Income tax refund anticipation loans are not a good deal for consumers. In fact, they are downright crummy and can cost you hundreds of dollars. Unless you are in dire need of funds right away for a legitimate emergency, you are better off being patient and waiting for your income tax refund to come to you through direct deposit or even the mail instead of getting an income tax refund loan. What Is an Income Tax Refund Loan? A tax refund anticipation loans is a program offered by many of the nation’s largest tax filing companies. The program allows taxpayers to get their tax refund from the filing company immediately that day instead of having to wait for the IRS … Read more

5 Amazing Events That Trigger A Tax Bill like Winning an Olympic Medal

by Hank Coleman

How Winning an Olympic Medal Tiggers a Tax Bill

There are some crazy things that Uncle Sam wants to collect taxes on from you. Did you know that Michael Phelps and the rest of the US Olympians who earned a medal in the Olympics will owe the United States government taxes on their prize money under current law? Having a tax bill on these events just blows my mind. There are some other events and windfalls that can trigger a tax bill if you’re not careful. Here are five of the most random things that generate taxable income and a subsequent tax liability for you when it comes time to file your income taxes. 5 Great Win Falls That Trigger A Tax Bill Winning an Olympic Medal When you win … Read more

Reader Question: What To Do If You Get Audited By IRS?

by Hank Coleman

This is the next installment in the Reader’s Questions Series, which highlights questions emailed to me by you, the readers of Money Q&A.

Be sure to find out at the end of this article how you can receive a free copy of Dave Ramsey’s book, The Total Money Makeover if I feature your money question on the next blog post. If you’re not familiar with Dave Ramsey’s book, you should run right out and get it. It’s one of the top ten best personal finance books you should read.

Today’s question comes from Ben who asks about being audited by the US Internal Revenue Service (IRS).

What steps should you take after being notified that the IRS is going to audit you?

What happens if IRS audits you?

It can be scary to find yourself audited by IRS. What should you do? What are the first steps to take when you’re audited by the IRS? Here are the steps.

The vast majority of audits conducted by the IRS are what’s called, correspondence audits. That means the IRS sends you a letter that you must answer. Typically, the IRS asks about income from their records, 1099s, and the like that do not match what was reported to the IRS by your bank, employer, investment firm, or contractor.

Correspondence audits are low-level inquiries from the IRS, and they account for 80% of the audits from the IRS to American taxpayers. But, you should take the notice seriously. You need to respond within the allotted timeframe that the IRS sets in your audit letter, and you need to respond with the information that they have requested.

But, what should you do with a full blown audit? What steps should you take with an audit by IRS?

I Can’t Pay My Taxes: What Should I Do?

by Jeremy

We’re in the thick of tax season, and if you’re having anxiety about handling what you owe whether personally or for your business, you’re not alone. You’re not alone if you think, “I can’t pay my taxes”. If you’re expecting to owe a large sum to the IRS by the April 15^th deadline, and know you’re not going to be able to pay off your debt, there are various ways to approach your situation.

Filing Issues

Even if you can’t pay what the IRS expects of you, you absolutely need to make filing a priority. While the date usually falls on April 15^th, this year is a bit of an anomaly, with a filing deadline of Monday, April 18^th. With this deadline only a month away, time is of the essence, and the penalties for missing this filing date can be pretty severe, at least from a financial standpoint.

The maximum penalty can add up to a massive 25% fee on the total cost of your debt if you don’t file within the five months following the deadline, in addition to the interest, the initial amount will gradually accrue as long as it takes you to pay back. By filing prior to the deadline, you can avoid this steep penalty fee, and the IRS will be more willing to work with you.

Can I Use Credit to Pay?

While not always the most viable option, there is something to be said about using your credit card to handle a debt to the IRS that would go unpaid. You’ll need to determine whether the interest on your card is higher, or whether the interest charged by the government would be more desirable.

In most cases, a credit card has lower rates than what the IRS enforces in efforts to get their money. If you can’t put the entire debt on your card, you can make a partial payment and avoid penalty fees and lessen the amount of interest you’ll pay over time. The IRS interest rate comes in a half of 1% each month, and continues rising until it hits the maximum of 25% during the following 50 months.

The IRS does accept credit cards, but be aware there’s a fee for using one of the approved processors, which depends on the processor chosen. Right now it looks like Pay1040.com is the cheapest processor, charging a 1.87 percent fee on your transaction.