There are few things in life that make you feel more agitated than owing back taxes to the IRS. Personal tragedy and despair aside, since we’re really talking about finances here rather than personal lives, having the IRS on your back is perhaps one of the worst situations in which you can find yourself. The arms of the IRS are long and reach far into your business, and you could soon find your paycheck being altered because you owe the IRS money. They have ways!
For instance, you’ll never see an IRS refund while you have an outstanding balance with them. Even worse, if you own property they can take that from you! They can even seize your salary, not just take from it. They can also seize your bank account. Very scary stuff we’re dealing with here.
Why It’s Good to Make an IRS Payment Right Now if You Can
Also, did you ever consider that at some point you might need the federal government to help you out? What’s that you say? If you said “no” then you should probably get a hard dose of reality or learn a bit about how our government works because you are perhaps a bit misguided. Do you drive much? Ever leave your state? Chances are you drove on an Interstate highway more than just a few times. Or how about your plans for old age…do you plan on drawing any Social Security or getting any Medicare? How about disability…? No? Easy to say until you have a disabling accident or you reach old age with no savings and even the tiny Social Security monthly check is helpful.
Or do you plan on just eliminating yourself from the idea of owning a home? If you need a mortgage it might be hard to get one if you won’t pay the IRS their due. Credit scores and all…
How to Make an IRS Payment
Well the IRS wants its money so they are going to make it easy for you. IRS payments can be made with a credit card, a check, a money order, or an electronic transfer from your bank account. Those choices are all available if you are able to pay right now.
If you can’t make your entire IRS payment right now then they’ll work with you. You can set up an IRS installment agreement. It’s like IRS layaway…pay over time until your bill is settled. For more info on how to set up an IRS installment plan, go here to the IRS website. There is a fee for setting up a payment plan…$43 to $105 depending on what type of agreement you set up.
There’s also an Offer in Compromise, which is sort of hard to achieve but if your situation meets all the qualifications you may be able to settle with the IRS for less than what you actually owe. More about that here on the IRS website. This one has a scary-looking application process and it costs $150 to apply. Some people get a tax lawyer to help them through it.
In our car culture, it’s not uncommon for many of us to use our personal vehicles for our jobs. If this describes you then you should know about the IRS mileage rate and how to deduct your car expenses on your income tax return. Deductions are your friend when it comes to your income tax. Deductions lower your taxable income, resulting in a lower tax bill with the IRS.
IRS Mileage Rate vs. Actual Car Expenses
The IRS mileage rate is a dollar amount set each year by the IRS, which represents what they figure it costs to operate a vehicle per mile. The rate is adjusted for inflation each year, going up a few cents annually. The rate is currently around $.55 per mile. Therefore, you would take the total number of miles you drove during the tax year, and multiply that by the mileage rate. This rate rolls everything into one number…gas, upkeep, and wear & tear. It does not, however, include tolls and parking.
The alternative to using IRS mileage is to calculate actual expenses for business use of your car. Of course this takes much more work and also you must keep all receipts all the time. It’s much more work to use actual expenses but in come cases it’s worth it because your deduction will be higher. What you should do is calculate both ways…using the standard mileage rate and using actual expenses, and see which benefits you the most.
The rules are a little tricky so be very careful if you claim business miles and pay close attention to the following very important issues.
How To Claim IRS Mileage: Commuting Doesn’t Count
First, let’s sort out what counts towards figuring your IRS mileage. To begin with, we’re talking actual business use of the car, not personal use such as commuting. Driving to and from work is not business use of your car. That right there cuts away a lot of confusion around this tax deduction. Commuting doesn’t count. After all, you chose to drive to work, didn’t you? There are some commuters who use public transportation, so where is their deduction? If you cycle to work, where’s the deduction? There are hardly any costs to deduct! In choosing a home, did you consider your commute? We all make choices and the choice to commute by car is yours to make or not to make. The IRS doesn’t give you a tax break just because you made the choice to drive to work.
For more on the intricacies of claiming business miles on your federal income tax return, take a look at IRS Publication 463 here on the IRS website.
An IRS EIN is a free Employer ID number that’s available directly from the IRS website. You should not pay a third part service to get your EIN for you, or to assist you in any way. It’s very easy to get an IRS EIN, and it’s not a complicated process, either.
The form for requesting an Employer ID Number is the old SS4 form. While that’s still used, it’s more convenient to use the IRS’s online EIN tool located here. The process is instant, and when you are finished using the application tool, you’ll have your IRS EIN. No waiting.
So what are those other services charging you for? Hard to say exactly, but they claim they IRS denies applications frequently and they can help you if this happens to you. While the validity of this is questionable, usually the “errors” in an EIN application are typos or number mismatches. In other words, little things that you can easily fix yourself.
The IRS EIN application page isn’t available 24-7, and the third party companies are. If you find it extremely inconvenient not to be able to apply for an EIN at 4 am on a Monday morning then well maybe you’re willing to pay for the services.
What is an IRS EIN Used For?
If you own a business and you want to open a bank account in your business name, then you need an EIN. If you have employees then you need an EIN. If your business is a corporation (including S-Corporation) then you need an EIN.
In the latter case, the whole point of a corporation is that it is its own entity…hence the need for its own ID number.
If your business is a non-profit organization, you’ll need an IRS EIN in order to file for tax-exempt status.
Can you believe that with all the technological advances in personal computers, tax preparation software, and electronic submission of tax returns, there are still people who are holding on to the past and filing their tax returns by mail. They send in their 1040 forms, page after page of labor and broken pencils, sent via snail mail. Well that’s their prerogative so the IRS does accept paper forms of the federal tax return. The IRS address for mailing income tax returns is found here on the IRS website. It depends on which state the return is mailed from. The address on all of the IRS address is the same for the first two lines:
Department of the Treasury
Internal Revenue Service
It’s the city, state and zip that changes. There are five places across the country that process paper income tax returns:
- Atlanta, GA 39901
- Andover, MA 05501
- Kansas City, MO 64999
- Austin TX 73301
- Fresno, CA 93888
Where to Mail Other Tax Forms
But tax returns aren’t the only things that periodically need to get mailed to the IRS…sometimes business tax forms must be mailed, as well as payments and reports. For example, IRS Form 941, Employer’s Quarterly Federal Tax Return, is a short form that’s mailed four times a year to the IRS. Since it’s a simple form to fill out, many business owners still simply print it out from the IRS website, fill it out, then mail it to the IRS address that corresponds to their home state. Those addresses can be found here on the IRS website.
But that’s only a list of addresses for the 941. For a complete guide to IRS addresses and where to mail what form, go here to the page titled Where to File Tax Returns- Addresses Listed by Return Type. So you can click on the “9” link for any tax form that begins with “9” e.g. the 941.
Also, IRS addresses are found in the instruction booklet for any particular form you’re working on. Pretty easy to type the name of the form into a search engine and find the instructions online, form the IRS website.
IRS Tax Brackets
The IRS Tax Brackets for 2014 have been released, and we’re holding at a lucky seven different brackets. To see which of them you fall into, check the 2014 tax brackets below. The range is from 10% to 39.6% but remember that whatever bracket your income falls into, that’s not the rate you’ll be paying on all your income. Why? It’s called progressive tax rates. More on that later but first the 2014 IRS Tax Brackets, as promised…
2014 IRS Tax Brackets
||Married Filing Jointly
||Married Filing Separately
||Head of Household
||$9,076 – $36,900
||$18,151 – $73,800
||$9,076 – $36,900
||$12,951 – $49,400
||$36,901 – $89,350
||$73,801 – $148,850
||$36,901 – $74,425
||$49,401 – $127,550
||$89,351 – $186,350
||$148,851 – $226,850
||$74,426 – $113,425
||$127,551 – $206,600
||$186,351 – $405,100
||$226,851 – $405,100
||$113,426 – $202,550
||$206,601 – $405,100
||$405,101 – $406,750
||$405,101 – $457,600
||$202,551 – $228,800
||$405,101 – $432,200
||$406,751 and up
||$457,601 and up
||$228,801 and up
||$432,201 and up
As you can see, the “lucky” ones who get to pay in the almost 40% bracket are those who make quite a bit of money each year. And the truly lucky, no sarcasm involved, are those who make less than $9,075 per year, for a single person. Many of us will be caught somewhere in the 15% and 25% tax rates since the medial annual income falls in those brackets. If you make in the high thirties then you may feel a compulsion to try and get yourself into a lower tax bracket by investigating what tax deductions you may be eligible for. You could be right on the edge, meaning a few well-placed tax deductions could mean the difference between a 15% tax bracket and a 25% tax bracket. You could save a few hundred dollars.
The Progressive Tax: Why Your Tax Bracket May Not Mean What You Think it Means
In the example above, we mentioned moving from the 25% to the 15% tax bracket and saving money. However, to truly understand what this means and what it doesn’t, make sure you understand how the progressive tax works and how it affects your IRS tax bracket.
If you are single and make $38,000 income for 2014, you will be in the third tax bracket at 25%. However, you will not be paying the IRS 25% of your income. You’ll be paying on all the brackets, up to the 25% bracket. You’ll pay 10% of $9,075, then 15% on the amount above that up to $36,900, and then only the last bit above that amount falls into your top tax bracket, which is 25%. Therefore, you’ll only be paying 25% of $1,100 to the IRS in income tax.
This is called the progressive tax system. The opposite would be called the flat tax which means you’d just pay 25% of your entire income to the IRS. As you can now see, the Progressive tax system is much, much nicer on the wallet!