Loading summary
Transcript46 lines
- [00:01]
Sponsor Announcer
This message comes from Pemco Mutual Insurance Company. Their mission is to help customers worry less and live more. So they're sharing prevention tips that empower you to prevent some of life's pitfalls before they happen. Visit pemco.com prevention you're listening to LifeKit from NPR.
- [00:22]
Marielle Segarra
Hey everybody, it's Marielle. So it's that time again. Time to file your taxes. If you're getting a refund, maybe you've already done that. If not, maybe you're waiting until the very last minute. Either way, the deadline to file and pay what you owe is April 15th. I will say pretty much everybody I know dreads the filing part because it involves paperwork and numbers, but also because it's scary. Most of us didn't learn how to do our taxes in school, and so you may worry you're not doing it right and that you're going to get hauled off in handcuffs because you forgot to report one of your 1099s. That isn't going to happen, by the way. So let's all take a big deep breath together for this episode of Life Kit. We collected tax questions from listeners and I posed them to two tax attorneys, Hanna Borukov and Leo Gabovic, partners at the firm Boruchov Gabovich and Associates PC. I asked them your questions and added in some more in the hopes that we could make tax time little easier for all of us.
- [01:37]
Sponsor Announcer
This message comes from Schwab At Schwab, how you invest is your choice, not theirs. That's why when it comes to managing your wealth, Schwab gives you more choices. You can invest and trade on your own. Plus get advice and more comprehensive wealth solutions to help meet your unique needs. With award winning service, low costs and transparent advice, you can manage your wealth your way at Schwab. Visit schwab.com to learn more.
- [02:05]
This message comes from Pemco Mutual Insurance Company. You know that moment when things take an unexpected turn and you get that sudden sinking feeling that maybe it could have been avoided? Pemco Insurance wants to help you avoid that feeling by sharing prevention tips that empower you to prevent some of life's preventable pitfalls? Because Pemco's commitment to their customers goes beyond the moment of acclaim, it's about being with their customers every day. More@pemco.com Prevention this message comes from NPR's sponsor, IKEA. IKEA is hitting the snooze button on everything but rest and sleep. Why not turn your bedroom into the space to decompress Shop the IKEA range of comfy beds, pillows, mood lighting, and so much more. Every time you step in there, it's nothing but me time. Sounds like a dream, right? IKEA has what you need to design a bedroom you'll never want to leave. Create your comfy, blissful bedroom today with the IKEA 6 Sleep Essentials. Shop in store or go to ikea-usa.com sleep this message comes from Thuma. Create your oasis with Thuma, a modern design company that specializes in furniture and home goods by stripping away everything but the essential. Thuma makes elevated beds with premium materials and intentional details with clean lines, subtle curves and minimalist style. The Thuma Bed collection is available in four signature finishes to match any design aesthetic. To get $100 towards your first bed purchase, go to Thuma Co NPR all.
- [03:38]
Marielle Segarra
Right, so let's start here. When do y'all recommend that people have an accountant file their taxes versus just doing TurboTax or Free Tax USA, one of the online softwares.
- [03:48]
Leo Gabovic
In my opinion, if you've just got a W2, even if you have a W2, and let's see, you have a few like common kind of deductions, where you've got kids, you've got real estate, property taxes, things like that. Even in those cases, the software today is so intelligent and easy to use. I tell people all the time, hey, just use that for yourself. There's no reason to pay an accountant hundreds of dollars when you could really just spend half an hour and just get it done for your. Where I highly recommend it is if you have your own business or even if you're a freelancer, you're on a 1099 basis, something like that. You want an accountant involved. Even if you know you're not breaking the bank, you want to have somebody who's knowledgeable, who'll guide you and set you up for success.
- [04:39]
Marielle Segarra
Since we're talking about freelance, another question that came up. If you have freelance income, maybe it's a small amount, like $150 or something, and you didn't get a 1099 form for it in the mail, do you still have to report it when you file your taxes? And just explain what is a 1099 in this case?
- [04:58]
Hanna Borukov
When you're talking about a freelancer, it would be like an independent contractor instead of getting a W2. So you're not on a salary, you're not an employee, you're an independent contractor. You get what's called 1099. It is a form that will get sent to you in the mail. If it's over a certain amount that was paid over to you over the course of the year, and you're supposed to use that to report on your. When you file your taxes and it.
- [05:19]
Marielle Segarra
Comes from the company that paid you that hundred and fifty dollars or whatever.
- [05:22]
Hanna Borukov
Yes, yes.
- [05:23]
Marielle Segarra
But they don't have to send you a 1099 if it was under a certain threshold. Right. If it was under a certain amount of money.
- [05:31]
Leo Gabovic
Right. They don't have to give you a 1099 if it's under a certain threshold. But if you're above the minimum filing threshold that you have to file a tax return, even if you didn't get a 1099, you're supposed to report all income that you receive. So, yeah, even if you didn't get a 1099 for that $150, legally, you're supposed to report it. From a practical perspective, I wouldn't recommend people do this, but I have to say that, yeah, without a 1099 present, the IRS is not made aware of that transaction. If you want to take the risk of not reporting it, you can take that risk. But if you get audited, you would still have had to pay the tax on that $150.
- [06:09]
Marielle Segarra
What happens if you don't report something like that? Like a hundred, like, I'm talking about small amounts, you know, but like, if, let's say you got audited and, and then the IRS was like, somehow found out that you made $150 at this job and like, what is the, what is the penalty?
- [06:27]
Hanna Borukov
So in that case, I mean, the likelihood of an auditor scrutinizing $150 is extremely low because they're limited in manpower and they're, they're not looking for 150 bucks. They're looking for much larger sums of unreported income.
- [06:42]
Leo Gabovic
I will say that not necessarily the $150, but I've absolutely seen taxpayers who might have missed, you know, $1,500, 1099 getting a letter in the mail saying, hey, you missed this and we've adjusted your return so now you owe us another $300 or $400 in tax and interest and usually a CO equal almost amount of penalties by that point, where it'll probably be another $400 in penalties. You know, the good thing is cases that you mentioned before, if someone didn't get a 1099, they legitimately forgot about it. They tell the IRS when they get that letter, hey, whoops, I didn't realize I had that 1099, I'm a W2 or I've got so many 1099s, you know, something that's legitimate. The IRS is going to waive the penalty, but, but you still have to pay the tax. So that's kind of what it boils down to.
- [07:34]
Marielle Segarra
I've seen a lot of memes around tax time that are like, the IRS is like, tell us how much you owe and pay us. And then you're like, well, you know, how much I owe, how much? And they're like not telling you, guess first and then you pay. And then they're like wrong. You know, like, that's always, that always has felt really strange to me. And I think to a lot of people, like, why doesn't the IRS just send you a bill?
- [08:02]
Leo Gabovic
Right. Other governments, you know, other countries, some of them do do it that way, which sure seems intelligent to me. I think there are some benefits to the system that we have especially for, you know, a lot of the, not the typical W2, you know, standard deduction filers. I think a big reason for why it is the way it is is because of lobbying. I mean, there's a lot of money in tax preparing. Honestly, I think the lobbyists don't want to push the IRS away from that. And on that note, I mean, technically, if you don't file your return in a lot of cases, especially if they have a 1099, a W2 on file, they'll file what's known as a substitute return, which is just going to have exactly whatever they have on file. So if they've got a W2, they'll assume that's the amount of income you made and they'll give you the standard deduction because obviously they're not going to go rooting around and deciding what deductions you'd be entitled to and that's that. But of course, the catch is that when you non file, you get hit with all sorts of non filing and late payment penalties and all of that. And the IRS really wants to encourage people to file to the point that the failure to file penalties are harsher than the failure to pay penalties.
- [09:12]
Marielle Segarra
So it sounds like the piece of advice for people around tax time also is you should file your taxes or you can also get an extension. Right? You can file for an extension and you have until October of that year to file your tax return, but you still have to pay now. Right. Which means you kind of have to do the work of estimating how much you owe.
- [09:37]
Sponsor Announcer
Right.
- [09:37]
Hanna Borukov
But also you can amend your returns Right. So if there's any sort of errors that you catch later on, do that.
- [09:43]
Marielle Segarra
Okay, got you. So if you filed and then you realized you forgot to include some investment. This happened to me, actually. I filed my taxes, and then I had a certain kind of investment account for the first time, and I forgot that you're supposed to report the income from that. And then I went back and amended my return, and I sent the IRS more money, and then they sent me back the money, and they said, no, no, you got it right the first time. And I was like, no, I think you're wrong. And this is actually something that, like, someone emailed us about as well. They got money back from the irs, but they're like, I don't get it. Why did you send me this money back if that happens? If you file your taxes and the IRS or your state is actually like, no, you overpaid. Here's your money back. That's the end of it. Right. It's legally yours to keep, even if you think that they're wrong.
- [10:34]
Hanna Borukov
Well, they make mistakes, too. So you can cash that check and put it in your bank account. And there could be a situation where they come back again months later or years later and say, we made a mistake. We're going to make an adjustment. They can make changes, and then you might owe again.
- [10:50]
Leo Gabovic
And what I will say about that is that, you know, depending on the amount, you may want to get an attorney involved if it gets to that point.
- [10:57]
Marielle Segarra
All right, so another question. A lot of people are working remotely these days, and they might live in a state that doesn't have an income tax, like Texas or Florida. Right. But their company is located in a state that does have an income tax, like New Jersey or New York. And they're wondering, do I have to pay income taxes because my company is located in a state that has them.
- [11:21]
Leo Gabovic
Yeah. So with COVID there have been a lot of different regulations amongst the states. New York is particularly aggressive about it. So there's something known as the. At least in New York, as the convenience of the employer rule. And this kind of rule, from what I've seen, what it effectively means is if you are working out of the state for a New York employer purely for your benefit, you still have to pay those New York state income taxes. So somebody living in New Jersey remotely working for a New York employer, New York's position is going to be that, hey, you need to be paying taxes on this New York source income, as.
- [12:02]
Marielle Segarra
They see it, is that what's referred to as a Non resident income tax.
- [12:06]
Leo Gabovic
Non resident income tax return.
- [12:08]
Marielle Segarra
Yeah, yeah, yeah. Okay. So if you are being taxed by a state where you don't live, do you also need to pay income taxes in your home state?
- [12:17]
Leo Gabovic
It depends on the state. What it really boils down to is right, hey, should this income be taxable by our state? Is it being sourced from our state? And I guess that's the best way that I can kind of explain it is if you're trying to separate yourself from being taxed by a certain state that you might work in, if at all possible, you'd have to kind of show why your income is not necessarily sourced from business in that state.
- [12:41]
Marielle Segarra
Okay. And I should say here, you can often get a tax credit in your estate to offset whatever you paid in income taxes to another state. This stuff just gets kind of complicated. So another question for you. Let's say you file your taxes and you realize, oh, I am not getting money back. I am not striking even I owe money. What can people do if they can't afford their tax bill?
- [13:04]
Hanna Borukov
Yes. So if you can't afford to pay in full, which is a lot of people, there are options. So there's an installment agreement you can apply for. And there are different types of installment agreements, but with an installment agreement, typically it's what, 72 months is like max term. You divide how much you owe by that term. So that's just straight payment plan. There are also options if you can't afford to pay on a payment plan divided over the certain number of months, you can do what's called a partial pay installment agreement, which is not what you actually owe, but what you can afford to pay. Another option is what's called an offering compromise. So an offering compromise is a deal with the government where you say, okay, I owe $50,000. There's no way I can pay $50,000. You actually compromise not just the tax, but the interest and the penalty. So the total dollar amount. And then there's also another option called currently non collectible status. So if you have really, really $0, you might have health issues. You know, let's say you're ill, or let's say you're retired, you don't have income coming in, the amount is still owed. However, you're not making payments on it, they're not collecting against you.
- [14:13]
Marielle Segarra
I'm wondering what is the first step for somebody who realizes that they're in this situation? I mean, they might not have an accountant or lawyer. They might just have like filed their taxes through an online software should they get professional help?
- [14:29]
Hanna Borukov
Well, yeah, so it depends on how much that's owed and how much they, they have the ability to pay. If it's an amount that they think is manageable, they could set up their own payment plan online. They can always call, there is a phone number for the irs. The wait times can be a bit long. And you know, in terms of getting a tax professional involved really depends on the complexity of the issue. So you gotta think, how much is it gonna cost to hire an accountant, how much is it gonna cost to hire an attorney versus doing it myself, and how much that's owed. So you have to balance that.
- [15:02]
Leo Gabovic
I just wanted to add that there's a wonderful resource both on the IRS and the state level known as Taxpayer Advocate. They kind of oversee, you know, some of the functions of the irs, of the state tax department. And at least on the IRS level, they can even issue taxpayer advocate orders to basically say, hey irs, you need to help out a taxpayer. And the reason why I like taxpayer advocate is they're super straightforward one page forms generally, hey, describe what your issue is and what do you want us to do about it. And you know, aside from the fact that they're super helpful, people think of the IRS as like this scary place. But Taxpayer advocate, they're your friends. You'll get an advocate assigned, they will call you, they will send you a letter, let you know what's going on.
- [15:46]
Marielle Segarra
They're like the social workers of the irs.
- [15:48]
Leo Gabovic
Yeah, essentially. And the reason why I'm such a huge fan of them too is, you know, when I used to work at the State Tax Department Office of counsel was in this building. We were on one floor and taxpayer advocates office was literally just hallway right across from us. And I can't tell you how many times I had advocates literally walk up to me at my desk, hey, you're working on this case or you've got this case coming down the pipeline before I even knew about it. And I'm helping this taxpayer. And here's the issue, and this is what we want you to do about it. And to have that kind of advocacy for zero doll is phenomenal.
- [16:19]
Marielle Segarra
That's really good to know. And if someone does want to hire an accountant or a tax attorney for whatever reason, not necessarily because they owe money this year, but they're just looking for someone to help them with their taxes or tax issue. How do you do your research? How do you find a good accountant or attorney?
- [16:39]
Hanna Borukov
I would say look at their qualifications, make sure that they are licensed because people had returns done by what they thought was a CPA was in fact a non accredited individual that just, just some guy. Just some guy. And you know, that caused a lot of nightmares for the unsuspecting taxpayer that hired that guy. So don't end up in that situation, but definitely look at the credentials of the person of their firm. Is it reputable? And that's how I would look for them. Yeah.
- [17:11]
Leo Gabovic
The only other thing that I would want to add is that enrolled agents are a great resource for some people. Enrolled agents are individuals who are qualified to have taken tests before the IRS to essentially be tax preparers and represent people before the irs. So you don't need to be a cpa, you don't need to be an attorney. And there are a lot of really smart enrolled agents. And you know, I tell people to look for those as well. Where if you're looking for an accountant and you might not need one or might not necessarily be able to afford the cost of what a CPA costs, enroll agents are a great option because they generally charge even less than the CPA does. And again, if you know that $250 or $300 for your return gives you that peace of mind, then great, pay an enrolled agent to help out.
- [18:02]
Marielle Segarra
All right, Hannah, Leo, thank you so much for this.
- [18:06]
Hanna Borukov
Thank you for having us.
- [18:06]
Leo Gabovic
Thank you for having us.
- [18:09]
Marielle Segarra
Okay, it's time for a recap. A few takeaways from our conversation. One is to file your taxes by the deadline to avoid penalties and interest. You can probably do this on your own or using free tax software if you have a simple situation like you just have a W2, but you might want to hire an accountant if you freelance or own your own business. Number two, if you work remotely, pay close attention to the state tax laws where you work and where you live. Because you might have to to pay income taxes in two states, but in some cases you can get a tax credit to make up for that double payment. And number three, if you can't afford your tax bill, there are several options available to you. Payment plans coming to a compromise with the irs. Non collectible status. If you need help figuring all this out, you can reach out to Taxpayer Advocate. It's an independent organization within the IRS that can help you understand your rights, communicate with the agency and figure out next step steps. And if you're having problems with your state taxes, your state might have a taxpayer advocate office too. For more life kit, check out our other episodes. We've got tips on lowering your next tax bill and advice on paying off your debt. You can find those@npr.org LifeKit and if you love Life Kit and you want even more, subscribe to our newsletter@npr.org lifekitnewsletter and just a reminder that signing up for Life Kit plus is a great way to support our show and public media. And you'll get to listen to every episode sponsor free. So please go find out more@plus.NPR.org LifeKit this episode of Life Kit was produced by Margaret Serino. Our visuals editor is Beck Harlan and our digital editor is Malika Grieb. Meghan Keane is our supervising editor and Beth Donovan is our executive producer. Our production team also includes Andy Taegle, Claire Marie Schneider and Sylvie Douglas. Engineering support comes from Patrick Murray. I'm Marielle Segarra. Thanks for listening.
- [20:08]
Sponsor Announcer
This message comes from Best Western Hotels and Resorts. From adventures to new places, Best Western has you covered. With over 4,000 hotels worldwide, you're sure to find the right hotel for your next getaway. Life's a trip. Make the most of it@bestwestern.com this message.
- [20:25]
Comes from NPR sponsor Viori a new perspective on performance apparel. Check out the latest Dream Knit collection by visiting viori.com NPR for 20% off your first purchase. Exclusions apply. Visit the website for full terms and conditions.
- [20:42]
This message comes from Warby Parker. What makes a great pair of glasses at Warby Parker? It's all the invisible extras without the extra cost, like free adjustments for life. Find your pair@warbyparker.com or visit one of their hundreds of stores around the country.