What is the Status of My Tax Return?

To get your refund status, go to the IRS Web site and provide the following information shown on your return:

  - Your Social Security number or Tax Identification Number.

  - Your filing status.

  - The refund amount.

You can check on your refund 48-72 hours after you have filed your return electronically. You can also use the automated toll-free TeleTax number (1-800-829-4477) to obtain information about a refund.

How long does it generally take to receive a refund?  If you mail your tax return, it can take up to 6 weeks.  Filing electronically cuts the time to three weeks.  And if you file an amended return  it can take eight to 12 weeks to get a refund check.

Uncle Sam Wants YOU to File!

There's one thing that Uncle Sam is serious about it: Taxpayers must file federal income tax returns when required. The IRS is notoriously tough on no-shows and insists tax returns are filed when due — whether or not full payment can be made with a return.

What happens if you don't file a tax return on time? The penalties can be steep. Assuming you will owe tax to the IRS, the delay may result in penalty and interest charges that increase your tax bill by 25 percent or more. It could even result in criminal prosecution. On the other hand, there's no penalty for failing to file a return if you're due a refund. However, if you wait too long to file, you might forfeit the refund

Occasionally, the IRS will cut you some slack if you have "reasonable cause" for failing to file a return, as opposed to "willful neglect." If you're citing a serious illness, however, the IRS expects you to file once you get better.

One case: A California taxpayer claimed that he could not file a return and make a timely payment due to gall bladder surgery, an accompanying illness, and the inability to work for the next four months. However, after his recovery, the taxpayer was able to resume his legal practice, pay business expenses, manage two rental properties and take care of two minor children.

Years later, he filed a return for the year in question but did not include payment for the $8,122 due. The IRS sent a bill for the amount, plus more than $3,000 in penalties. The man sought relief from the penalties, raising a reasonable cause defense because of his surgery.

For an illness to constitute reasonable cause, it must incapacitate you to such a degree that you are unable to file your return. Since the individual in this case was able to continue conducting other business, the court ruled that his health problems did not constitute a "reasonable cause for his delay in filing and paying taxes." (Donald Ramirez, TC Memo 2005-179)

 "A showing of reasonable cause requires (an individual) to demonstrate that he exercised ordinary business care and prudence, but nevertheless was unable to file or pay the tax within the prescribed time … For illness to constitute reasonable cause for failure to file, (he) must show that it incapacitated him to such a degree that he could not file his returns."
— U.S. Tax Court, Ramirez

Fall-back position: Depending on the circumstances, a late filer may qualify for a payment plan with the IRS. All payment plans require continued compliance with filing and payment responsibilities once the plan is approved. Our firm can provide the details.

 

Tax Records: What to Keep, What to Toss

Hang onto the Right Papers!

Once the tax filing deadline passes, you may be in the mood to throw out some tax records. But be careful not to discard essential receipts that could help you fend off an IRS audit — or toss out important documents that could enable you to collect a future refund by filing an amended tax return.

Here are some guidelines on what you need to keep for federal tax purposes and what you can safely get rid of (individual states may have their own regulations):

Completed tax returnsMany tax advisers recommend that you hold onto copies of your finished tax returns forever. Why? So you can prove to the IRS that you actually filed. But even if you don't keep the returns indefinitely, you should hang onto them for at least three years after they are due or filed, whichever is later.

Substantiating paperworkRetain all receipts, canceled checks, and other records that back up the items on your tax return for the same three-year period. The reason you must keep these items has to do with the "statute of limitations." In most cases, the IRS can audit your return for three years. You can also file an amended return on Form 1040X during this time period if you missed a deduction, overlooked a credit or misreported your income.

Exceptions to the rule In some cases, the statute of limitations is longer than three years. The IRS has up to six years to conduct an audit if you understate your income by more than 25 percent. And the tax agency can come after you anytime if fraud is involved or you don't file a tax return at all.

But there are also cases when taxpayers get more than the usual three years. You have up to seven years to amend a return and take deductions for bad debts or worthless securities, so don't toss out any records that could result in refund claims from those items.

Investment statementsSave information about stocks, bonds and other investments for as long as you own them. In order to calculate capital gains or losses, you need figures from these statements that show the purchase date, price, commission and dividend reinvestment. If you invest in limited partnerships or "passive" activities, you should also retain related records until you sell.

Individual retirement accountsThe IRS requires you to keep copies of Forms 8606, 5498 and 1099-R until all the money is withdrawn from your IRAs. With the introduction of Roth IRAs, it's more important than ever to hold onto all IRA records pertaining to contributions and withdrawals in case you're ever questioned.

Real estateSave records that enable you to compute the basis or adjusted basis of your home. You'll need this information to determine depreciation for home office or rental purposes, as well as any taxable gain if you sell. Also, keep records related to your purchase price, refinancing a mortgage, settlement or closing costs, the cost of improvements, casualty loss deductions and insurance reimbursements for casualty losses. Generally, you should retain this information for as long as you own the property and, after you sell it, for the statute of limitations period that applies.

Multiple-year write-offsSave proof of deductions that are taken over more than one year. When you "carryover" excess write-offs because they can't be deducted right away, you need to hold onto the related records longer.

Remember: Before tossing out financial documents, be sure to shred them thoroughly. Identity theft — one of the fastest growing crimes in the country — wreaks havoc in victims' lives after personal information is stolen and used for fraudulent purposes. One way identity thieves obtain account numbers and other data is by rummaging through trash.

Want to File an Amended Tax Return??

Let's say you discover a deduction that was overlooked on a federal tax return that has already been filed. Or you realize that you didn't report some income. Perhaps you heard about a recently passed tax law that includes retroactive tax breaks you can benefit from.Whatever the reason, an amended tax return may be the answer.

Amended returns generally must be filed within three years from the date you filed the original return, or within two years after the date you paid the tax, whichever is later. However, there are exceptions to this rule. For example, when it comes to amending a tax return to claim a loss for worthless investments or non-business bad debts, for example, you have up to seven years.

Contact our office for help. We can review past tax returns, check for forgotten deductions and file amended returns.

Estimated Tax Payments

Estimated Tax Payments – Don’t Forget!

If you are self employed or retired, you don’t have tax withheld from a paycheck. So you need to “pay as you go” by sending estimated tax payments to the government on a quarterly basis.  The federal due dates are April 15, June 15, September 15, and January 15. (If the due date falls on a Saturday or Sunday, or national holiday, the deadline moves to Monday.)

Contact us if you have questions about estimated tax or you’ve lost the coupons we prepared for you.

Tax planning – Computer Software

Do you buy or lease computer software for use in your business? Do you develop computer software
for use in your business, or for sale or lease to others? Then you should be aware of the complex rules
that apply to determine the tax treatment of the expenses of buying, leasing or developing computer
software.

Purchased software. Generally, the way to account for the cost of purchased software is to amortize
(ratably deduct) the cost over the three-year period beginning with the month in which you placed the
software in service.

However, software that (1) is readily available for purchase by the public, (2) is subject to a nonexclusive
license and (3) hasn't been substantially modified (non-customized software), and (4) is placed in service
in tax years beginning before 2013 qualifies as “section 179 property,” and is thus eligible for the Code
Sec. 179 elective expensing deduction that is generally available only for machinery and equipment. For
tax years that began in 2010 or 2011, the deduction was limited to $500,000. For tax years beginning in
2012, the deduction is limited to $125,000 ($139,000 as adjusted for inflation). The limits are reduced by
the cost of other section 179 property for which the election is made. Also, the election is phased out for
taxpayers placing more than $2,000,000 of section 179 property into service during tax years beginning
in 2010 or 2011 and $500,000 for tax years beginning in 2012 ($560,000 as adjusted for inflation). Non-
customized software that was acquired and placed in service after Sept. 8, 2010 and before Jan. 1, 2012
is also eligible for a 100%-of-cost depreciation deduction in the year that the software was placed in
service (bonus depreciation). The bonus depreciation is at a 50% rate if the software was acquired or
placed in service before Sept. 9, 2010. The bonus depreciation for an item of software is reduced to
take into account any portion of the item's cost for which a Code Sec. 179 election is made, and regular
depreciation deductions are reduced to take into account both the bonus depreciation and any Code
Sec. 179 election.

There are two other exceptions to the three-year amortization rule.
• One exception requires that, if you buy the software as part of a hardware purchase in which
the price of the software isn't separately stated, you must treat the cost of the software as part
of the cost of the hardware. Thus, you must depreciate the software under the same method
and over the same period of years that you depreciate the hardware.
• The other exception requires that if you buy the software as part of your purchase of all or
a substantial part of a business, the software must be amortized over 15 years (unless the
software is non-customized software).

Leased software. You must deduct the amounts you pay to rent leased software in the tax year in which
paid, if you are a cash-method taxpayer, or the tax year for which the rentals are accrued, if you are an
accrual-method taxpayer. Generally, however, deductions aren't permitted before the years to which
the rentals are allocable. Also, if a lease involves total rentals of more than $250,000, special rules may
apply.

Software you develop. Costs for developing computer software may be accounted for using any of the
following methods:

(1) amortizing the costs over a three-year period beginning with the month that the software was placed in service;

(2) deducting the costs in the tax year in which the costs are paid (if you are a cash-method
taxpayer) or in the tax year in which the costs are accrued (if you are an accrual-method
taxpayer), but only if all of your costs of developing the software are deducted this way;
(3) amortizing the costs over a five-year period beginning with the completion of the development,
but only if all of your costs of developing software are amortized this way;
(4) amortizing the costs over a period longer than five years, but only if the costs are Code Sec.
174 “research or experimental expenditures.”

You should also be aware that if following any of the above rules requires you to change your treatment
of software costs, it will usually be necessary for you to obtain IRS consent to the change by following
prescribed procedures.

Please give us a call if you have any questions. We would be pleased to assist you in applying the tax
rules for treating computer software costs in the way that is most advantageous for you.

Bob
Robert L. Hesch, CPA
Tax Manager
Flagel, Huber, Flagel & Co, CPAs
9135 Governors Way
Cincinnati, OH 45249-2037
513.583.4044 office | 513.774.7250 fax | 513.703.9763 cell