What should you do if you made a mistake on your federal tax return that you’ve already filed? Well, it depends on the type of mistake you made.

If you made a mathematical error why calculating your federal income tax, chances are it will be caught by the IRS processing of your tax return.

If your mistake was that you failed to include the required Income Tax Schedule(s), the IRS will contact you to supply the missing information.

If the mistake on your federal tax return was that you did not report all your income or did not claim a credit, you should file an amended or corrected return using Form 1040X, Amended U.S. Individual Income Tax Return.

When you file your amended income tax return don’t forget to Include copies of any tax schedules that have been changed and make sure to add any Form W-2 you did not include.

If you are claiming a refund on the Amended Income Tax Return, it must be received within 3 years after the date you filed your original income tax return or within two years after the date you paid the tax, whichever is later.

It will take the IRS 8 - 12 weeks to process your amended income tax return.

If you made a mistake on your federal tax return you already filed and the IRS contacts you, make sure to respond in a timely manner.

source: www.irs.gov

There are various options for payment of an outstanding federal income tax liability. Because your balance is subject to interest and a monthly late payment penalty, it is in your best interest to pay in full as soon as you can to minimize the additional charges. Penalties are also assessed for failure to file a tax return so you must file immediately even if you cannot pay your balance in full.

IRS Tax payment options allow you to pay your tax liability by sending a check or money order, made out to “United States Treasury.” You may pay by transferring money electronically from your bank account. You can even pay your federal income tax liability by credit card or debit card. Be advised that a service provider, not the IRS, may charge a convenience fee for electronic payments from your bank account or for a payment by credit card. If you cannot pay in full you should pay as much as possible to reduce the accrual of interest on your account.

You should consider financing the full payment of your income tax liability through loans, such as a home equity loan from a financial institution or a credit card cash advance. The interest rate and any applicable fees charged by a bank or credit card are usually lower than the combination of interest and penalties imposed by the Internal Revenue Code. If you cannot pay in full immediately, the IRS offers a short amount of additional time, up to 120 days, to pay in full. No fee will be charged for entering this type of payment arrangement.

Another IRS tax payment option is by installments. Tax payment installment agreement allow you to make a series of monthly payments over time. The IRS offers various options for making monthly payments such as:

1. Direct Debit from your bank account
2. Payroll Deduction from your employer
3. Payment via check or money order
4. Electronic Federal Tax Payment System (EFTPS)
5. Payment by credit card via phone or Internet, or
6. Online Payment Agreement (OPA)

A one-time installment agreement fee of $105.00 will be charged when you enter into an installment agreement unless you choose to pay through a Direct Debit from your bank account, in which case the fee is $52.00. Taxpayers with income at or below 250% of the Department of Health and Human Services poverty guidelines can apply to pay a reduced user fee of $43.00.

If you can pay your IRS tax payment in a shorter period of time, you can request a short amount of additional time, up to 120 days, to pay in full. This payment arrangement does not carry a fee.

If you decide on entering into an installment agreement, your monthly payment should be based on your ability to pay and should be an amount that can be paid each month to avoid defaulting.

If you are not able to provide full payment when you file your tax return, you can request a pre-assessment installment agreement on current tax liabilities by using the Online Payment Agreement (OPA) application on the IRS.gov website.

If you are not able to provide full payment after you have filed your tax return and received a bill from the IRS (a balance due notice), you can request an installment agreement using the Online Payment Agreement (OPA) application on the IRS.gov website.

You may also request an installment agreement by calling the toll-free number on the bill.

You will need to specify the amount you can pay and the day (1st-28th) you wish to make your payment each month. The IRS will expect to receive the payment ON the day you indicate so be sure to figure mailing time into the date you select. The IRS will respond to your request, usually within 30 days, to advise you as to whether your request has been approved, denied or more information is needed.

Direct debit or payroll deduction installment agreements provide an opportunity to make timely payments automatically and reduce the possibility of default. For a direct debit installment agreement you will need to provide your checking account number and your bank routing number to initiate the automated withdrawal of the payment.

You may contact the IRS by phone or in person, or you may submit Form 9465 (PDF), Installment Agreement Request, through the mail. The form has space for you to write in your checking account number and your bank routing number, or you may staple a voided check to the form.

To initiate a payroll deduction installment agreement, submit Form 2159, Payroll Deduction Agreement. Form 2159 must be completed by your employer. The IRS will set up a regular installment agreement for you and convert it to a payroll deduction agreement upon receipt of the completed form from your employer.

It is important not to ignore an IRS notice. If you do not pay your tax liability in full or make an alternative payment arrangement, the IRS is entitled to take collection action.

If you are unable to make any payment at this time, have your financial information available (e.g., pay stubs, lease or rental agreement, mortgage statements, car lease/loan, utilities) and call the appropriate number below to receive assistance:

Individual taxpayers: 800-829-1040
Business taxpayers: 800-829-4933

You have rights and protections throughout the collection process. If you would like information on making arrangements regarding any of the IRS tax payment options refer to Publication 594 The IRS Collection Process

source: irs.gov

With tax and accounting professionals heading into the beginning of the TY 2009 income tax filing season, the IRS has announced significant new changes that it plans to implement starting in Jan. 2011, along with enhanced enforcement measures that will start this season. The changes are geared toward providing regulation of the thousands of unlicensed and uncredentialed tax preparers across the country who offer filing services.

The most notable of the proposed changes schedule to start in 2011 (for 2010 income tax reporting) includes requiring paid preparers to register with the IRS, receive a “preparer tax identification number (PTIN), take an initial competency test and take at least 15 hours or continuing professional education (CPE) courses per year. Ethics rules found in Circular 230 would also be extended to this new group of paid preparers. The changes in licensing and CPE would not affect professionals already recognized by the IRS, such as CPAs, enrolled agents and attorneys, so long as they are in good standing with their respective licensing agencies.

“As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year. The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers,” said IRS Commissioner Doug Shulman. “Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation’s tax system. In addition, we are taking immediate action to step up oversight of tax preparers this filing season.”

Changes for 2010
In addition to the changes proposed for next year, the IRS has started sending notices to to approximately 10,000 preparers across the country who handle “large volumes of specific tax returns where the IRS typically sees frequent errors.”

These include reminding the professionals to practice due diligence when handling Schedule C income and expenses, Schedule A deductions and qualification for the EITC and homebuyer credits. Agents may also visit many of these preparers and, under a separate enforcement program, the IRS is also planning to conduct compliance investigations of paid preparers that may include agents posing as taxpayers.

Do you suppose the IRS has an ulterior motive for making these changes - like increasing revenue? The global recession has resulted in less Americans working and that means less tax revenue for the IRS. By implementing these measures, the IRS can make up some of the difference by dissuading tax preparers and tax advisors from taking chances on questionable deductions. If you are a tax preparer or tax advisor - beware!

source: cpatechnologyadvisor.com

Before you know it, federal income tax season will be here. If you were one of the millions of unfortunate Americans who lost their job in 2009, be aware it may have created new tax issues.

The Federal Stimulus Act has extended the tax benefit for those who received unemployment compensation in 2009. The first $2,400 of 2009 Unemployment Compensation is TAX-FREE. However, the unemployment benefits above the $2,400 limit will still count as taxable income.

Otther income tax issues created by unemployment have to do with severance and other payments. Severage payments from your former employer are taxable. In addition, any payments you received for accumulated vacation or sick time is also taxable. Always ensure that enough taxes are withheld from these payments to avoid a big tax bill.

Generally, withdrawals from pension plans are taxable unless they are transferred to a qualified plan (like an IRA). If you happen be under 59 1/2, an additional tax may apply to the taxable portion on your federal income tax.

If you sell stocks, bonds and investment property are not immediately taxable. However the sale of assets should be reported. If you have a gain on a sale, it may generate an income tax liability. You should review your overall tax situation and make sure you pay the required taxes to avoid any estimated tax penalty. Be aware that it may effect your federal income tax and state income tax (if applicable).

There are some deductions you can take when filing your federal income tax forms. You can deduct employment and outplacement agency fees, resume preparation, and travel expenses for job search and interviews.

If you lost your job, be advised that moving costs incurred because of a job change may be deductible. You must meet certain criteria relating to distance moved and timing of the move.

If you decide to start your own business after becoming unemployed, be aware that the IRS provides information and classes.

If you become eligible for Public Assistance or Food Stamps it is not taxable.

Your former employer must provide your W-2 by January 1, 2010, even if the business filed bankruptcy. If you haven’t received your W2 by the required time, contact your former employer. If that fails, the IRS can assist you in filing a substitute W-2.

If you lost your job in 2009, we suggest you contact IRS (www.irs.gov), your accountant or a tax attorney to maximize your tax deductions and reduce your tax liabilities.