IRS will begin processing 2018 tax returns Jan 28

Despite the ongoing federal government shutdown, which includes the U. S. Treasury Department, IRS announced that it will begin processing income tax returns for calendar year 2018 on Monday, January 28, 2019.  Individual income tax returns are due on April 15, 2019.  IRS announcement

Fiscal year tax returns due in November or December 2018, or January 2019, have been extended to February 15, 2019.

Got a Great Idea? Maybe you should patent it!

Rural Iowa is full of creative people. In fact, a recent analysis by the Smithsonian Institution showed Guthrie County, Iowa to be a leading hub of innovation. On a ranking of patents per capita, comparing all counties in the United States, Guthrie County ranks #4! (Clemens, Austin. “Inventing America.” Smithsonian June 2018: 18. Print.)

A patent is essentially a contract with the government: in exchange for disclosing your Great Idea, you get a 20-year monopoly to control its use and sale.

The process of obtaining a patent is complex. It is not simply a matter of filling out a form. The applicant must prove that the invention meets legal standards for novelty, utility, and non-obviousness. The application must fully describe the invention and enable another to practice it. While the initial application cannot be modified, claim scope is often negotiated with the patent office during the prosecution phase, which will likely last two years or more.

Although some inventors file patent applications on their own behalf, most turn to a registered patent practitioner for assistance. The United States Patent and Trademark Office (USPTO) maintains a searchable list of active patent practitioners who have passed the USPTO's registration exam and meet the qualifications to represent patent applicants before the USPTO.  

Karen Varley has been a registered patent practitioner since 2000 and has successfully prosecuted numerous patents in the U.S. and in many foreign countries. Contact our office if you have interest in pursuing a patent on your Great Idea!

When You Get a Letter from the IRS

Adapted from IRS Tax Tip 2018-95  - Every year the IRS mails millions of letters to taxpayers for many reasons. Here are some tips and suggestions for taxpayers who receive one:

Don’t ignore it. Most IRS letters and notices are about federal tax returns or tax accounts. Each notice deals with a specific issue and includes specific instructions on what to do.

Don’t panic. The IRS and its authorized private collection agencies do send letters by mail. Most of the time you just need to read the letter carefully and take the appropriate action. 

Do take timely action. A notice may reference changes to your account, taxes owed, a payment request, or a specific issue on a tax return. Taking timely action could minimize additional interest and penalty charges.

Do review the information. If the letter is about a changed or corrected tax return, review the information and compare it with your original return. If you agree, make notes about the corrections on your personal copy of the tax return, and keep it for your records.

Don’t reply unless instructed to do so. There is usually no need to reply to a notice unless specifically instructed to do so. On the other hand, taxpayers who owe should reply with a payment. IRS.gov provides information about payment options.

Do respond to a disputed notice. If you don't agree with the IRS,  mail a letter explaining why not.  Include information and documents for the IRS to review when considering the dispute. Send your letter to the address on the contact stub at the bottom of the notice, and allow at least 30 days for the IRS to respond.

Don't call the IRS. It's usually not necessary.  If you feel you must contact the IRS by phone, use the number in the upper right-hand corner of the notice. Have a copy of the tax return and letter handy when calling.

Do avoid scams. The IRS will never initiate contact using social media or a text message. The first contact from the IRS usually comes in the mail. Taxpayers who are unsure if they owe money to the IRS can view their tax account information on IRS.gov.

Missed the tax deadline and owe tax? File by June 14 to avoid higher late-filing penalty.

WASHINGTON —Adapted from IRS Newswire IR-2018-133

Taxpayers who owe federal income tax and file their return more than 60 days after the deadline will usually face a higher late-filing penalty. For that reason, the Internal Revenue Service urges affected taxpayers to avoid the penalty increase by filing their return by Thursday, June 14.  

Ordinarily, the late-filing penalty, also known as the failure-to-file penalty, is assessed when a taxpayer fails to file a tax return or request an extension by the due date. This penalty, which only applies if there is unpaid tax, is usually 5 percent for each month or part of a month that a tax return is late.  The late-filing penalty will stop accruing once the taxpayer files.  

However, if a tax return is filed more than 60 days after the April due date (or more than 60 days after the October due date if an extension was obtained) the minimum penalty is either $210 or 100 percent of the unpaid tax, whichever is less. This means that if the tax due is $210 or less, the penalty is equal to the tax amount due. If the tax due is more than $210, the penalty is at least $210.

In addition, the IRS urges taxpayers to pay what they owe to avoid additional late-payment penalty and interest charges. The late-payment penalty, also known as the failure-to-pay penalty, is usually ½ of 1 percent of the unpaid tax for each month or part of a month the payment is late. Interest, currently at the rate of 5 percent per year, compounded daily, also applies to any payment made after the original April 18  deadline.

After a return is filed, the IRS will figure the penalty and interest due and bill the taxpayer. Normally, the taxpayer will then have 21 days to pay any amount due.

Taxpayers can use their online account to view their amount owed, make payments and apply for an online payment agreement. Before accessing their online account, taxpayers must authenticate their identity through the Secure Access process.

Penalty relief may be available

Taxpayers who have a history of filing and paying on time often qualify to have the late filing and payment penalties abated. A taxpayer usually qualifies for this relief if they haven’t been assessed penalties for the past three years and meet other requirements. For more information, see the First-Time Penalty Abatement page on IRS.gov.

Even if a taxpayer does not qualify for this special relief, they may still be able to have penalties reduced or eliminated if their failure to file or pay on time was due to reasonable cause and not willful neglect. Be sure to read the penalty notice carefully and follow its instructions for requesting this relief.

Payment options

Many taxpayers delay filing because they are unable to pay what they owe. Often, these taxpayers qualify for one of the payment options available from the IRS.

Special filing deadline rules apply to members of the military serving in combat zones, taxpayers living outside the U.S. and those living in declared disaster areas. For those who qualify, these special deadlines affect any penalty and interest calculations. Visit IRS.gov for details on these special filing rules.

Tips for teenage taxpayers starting a summer job

Adapted from IRS Tax Tip 2018-82 

Now that school’s out, many students will be starting summer jobs…from working at a summer camp to being an office intern. Here are a few things the IRS wants these workers to know when starting a summer job:  

• New employee? Students and teenage employees normally have taxes withheld from their paychecks by the employer. Each new employee fills out a Form W-4. The employer uses the W-4 to calculate how much federal income tax to withhold from the employee’s pay. The IRS Withholding Calculator can help a taxpayer fill out this form.
• Self-employment. Students who do odd jobs over the summer, like baby-sitting or lawn care, are considered self-employed. Money earned from self-employment is taxable. Workers who are self-employed may be responsible for paying taxes directly to the IRS. One way to do that is by making estimated tax payments during the year. Keep good records of all money received and paid.
• Tip income. A waiter or camp counselor or anyone who receives tips should know that tip income is subject to federal income tax. Keep an accurate daily log and report tips of > $20 received in cash in any single month.
• Payroll taxes. This tax pays for benefits under the Social Security system. While taxpayers may earn too little from their summer jobs to owe income tax, employers usually must still withhold Social Security and Medicare taxes from their pay. If a taxpayer is self-employed, then Social Security and Medicare taxes may still be due and are generally paid by the taxpayer.
• Reserve Officers' Training Corps. If a taxpayer is in an ROTC program, active duty pay, such as pay for summer advanced camp, is taxable. Other allowances the taxpayer may receive – like food and lodging allowances paid to ROTC students participating in advanced training - may not be taxable. The Armed Forces' Tax Guide on IRS.gov has more details.

More Information:
Tax rules for students.
Is My Tip Income Taxable?
Do I Have Income Subject to Self-Employment Tax?

IRS YouTube Videos:
Part-Time and Summer Jobs

It's Free Fishing Weekend! Enjoy it in an Iowa State Park.

Iowa residents fish for free Friday, June 1, through Sunday, June 3! Many parks are hosting free family fishing events and clinics.

Check out the DNR events page for a complete list of events in state parks and other free fishing events across the state:

Grab your poles and spend the weekend in an Iowa State Park!

2018 Income Tax Changes

WASHINGTON – Adapted from IRS Newswire IR-2018-124   The Internal Revenue Service urges two-income families and those who work multiple jobs to complete a “paycheck checkup” to verify they are having the right amount of tax withheld from their paychecks.

The passage of the Tax Cuts and Jobs Act, which will affect 2018 tax returns that people file in 2019, makes checking withholding amounts even more important. These tax law changes include:

• Increased standard deduction
• Eliminated personal exemptions
• Increased Child Tax Credit
• Limited or discontinued certain deductions
• Changed the tax rates and brackets

Individuals with more complex tax profiles, such as two incomes or multiple jobs, may be more vulnerable to being under-withheld or over-withheld following these major law changes. The IRS encourages a “paycheck checkup” as early as possible to help taxpayers check if they are having the correct amount withheld for their personal financial situations.

Withholding Calculator

The IRS Withholding Calculator is the easiest, most accurate way for taxpayers with these complicated tax situations to determine their correct withholding amount. The tool allows users to enter income from multiple jobs or from two employed spouses. It also ensures that these taxpayers apply their 2018 tax deductions, adjustments and credits only once – rather than multiple times with different employers.  To use the Withholding Calculator, taxpayers should have their 2017 tax returns and most recent paystubs available.

The calculator will recommend how to complete a new Form W-4 for any or all of their employers, if needed. If a couple or taxpayer is at risk of being under-withheld, the calculator will recommend an additional amount of tax withholding for each job. Taxpayers can enter these amounts on their respective Forms W-4.

The calculator doesn’t request personally identifiable information, such as name, Social Security number, address or bank account numbers. The IRS does not save or record information entered in the calculator. Taxpayers should watch out for tax scams, especially via email or phone, and be especially alert to cybercriminals impersonating the IRS. The IRS does not send emails related to the calculator or the information entered.

Adjusting Withholding

Employees who need to complete a new Form W-4 should submit it to their employers as soon as possible.  Employees with a change in personal circumstances that reduce the number of withholding allowances must submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.

As a general rule, the fewer withholding allowances an employee enters on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 means more tax withheld. Entering a larger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

More information is available via the following links:

• Withholding Calculator Frequently Asked Questions
• Tax Withholding
• Tax Reform page on IRS.gov