October 2023 Tax Tips and More

October 2023

Upcoming dates:

October 16

 - Filing deadline for extended 2022 individual and C corporation tax returns

October 31

 - Halloween

The IRS is NOT Always Right

Think twice about automatically paying the amount due on a notice

Here are several quotes from actual IRS correspondence that serves as evidence that our national tax collection agency is not always right:

• Thank you for your correspondence. We currently do not have a copy of the correspondence we sent to you regarding your child's tax return.

• Our records show we received a 1040X...for the tax year listed above. We're sorry but we cannot find it.

• Our records show you owe a balance due of $0.00. If we do not receive it within 30 days, appropriate collection steps will be taken.

• Payment is due on your account. Please submit payments on or before June 31 to avoid late payment penalties and interest.

It's pretty tough to pay a balance due of $0 on June 31st when June only has 30 days. The message should be clear. If you receive a notice from the IRS, do not automatically assume it is correct and submit payment to make it go away. Here are some suggestions for how to handle a letter you may receive from the IRS or other taxing authority:

1. Stay calm. This is easier said than done, but remember the IRS sends out millions of notices each year. The vast majority of them correct simple oversights or common filing errors.

2. Open the envelope. You would be surprised at how often clients are so stressed by receiving a letter from the IRS that they cannot bear to open the envelope. If you fall into this category try to remember that the first step in making the problem go away is to open the correspondence.

3. Carefully review. Review the letter. Try to understand exactly what the IRS thinks needs to be changed and determine whether or not you agree with their findings. Unfortunately, the IRS rarely sends correspondence to correct an oversight in your favor, but it sometimes happens.

4. Respond timely. The correspondence received should be very clear about what action the IRS believes you should take and within what time frame. Delays in responses could generate penalties and additional interest payments.

5. Get help. Getting assistance from someone who deals with this all the time makes the process go much smoother.

6. Correct the IRS error. Once the problem is understood, a clearly written response with copies of documentation will cure most of these IRS correspondence errors. Often the error is due to the inability of the IRS computers to conduct a simple reporting match. Pointing the information out on your tax return might be all it takes to solve the problem.

7. Certified mail is your friend. Any responses to the IRS should be sent via certified mail or other means with proof of delivery. This will provide evidence of your timely correspondence. Lost mail can lead to delays, penalties, and additional interest on your tax bill.

8. Don't assume it will go away. Until a definitive confirmation that the problem has been resolved is received, assume the IRS still thinks you owe the money. If no correspondence confirming the correction is received, a written follow-up will be required.

Receiving a letter from the IRS is never fun. Please call if you have questions or need assistance.

5 Great Money Ideas

Here are 5 great money tips to help you get ahead or move into a better financial position.

1. Make savings automatic. Take steps to make your savings happen automatically. Setting up automatic transfers for a certain day of the month or payday can help you shore up regular savings before the money gets spent elsewhere. Fortunately, most banks make it easy to set up automatic transfers for a day that works for you.

2. Pay down debt. Data from the Federal Reserve shows the average interest rate on credit card accounts was 22.16% in May 2023. At that rate, paying down $10,000 in debt with a monthly payment of $200 would take 134 months and cost $16,654 in interest alone. If you have high interest debt, consider paying it down as fast as you can.

3. Upgrade your savings accounts. While interest rates on loans and other debt are sky high, higher rates give you the chance to earn more on your savings. In fact, many of the best certificates of deposit (CDs) and high-yield savings accounts are offering yields of more than 5.00% right now with reasonable minimum balance requirements. But read the fine print - there may be hidden fees lurking at some banks.

4. Boost retirement contributions. Take advantage of time and compound interest right now by increasing your contributions to a 401(k), traditional IRA or a Roth IRA. In 2023 you can contribute up to $22,500 in a 401(k) ($30,000 if 50 or older), and up to $6,500 in an IRA ($7,500 if 50 or older).

5. Create and use a monthly budget. Finally, consider writing up a monthly budget or spending plan that ensures each dollar you earn is allocated to a specific goal or category. From there, track your spending throughout the month to see how your actual purchases and bills align with the plan you've created. Make tweaks to your budget accordingly and look for opportunities to cut spending in categories you have some control over, like dining and entertainment.

These great money tips can provide a financial boost to you and your family, regardless of the economy's ups and downs.

As always, please pass this newsletter to anyone who may find it valuable and call if you have any questions or concerns.

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