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Five Things to Know about Estimated Taxes and Withholding

With 10 million taxpayers a year facing estimated tax penalties, the IRS offers some simple tips to help prevent a surprise at tax time.

People pay taxes on income through withholding on their paycheck or through estimated tax payments. Taxpayers who pay enough tax throughout the year can avoid a large tax bill and penalties when they file their return.

Taxpayers should make estimated tax payments if:

  • The tax withheld from their income does not cover their tax for the year.

  • They have income without withholdings. Some examples are interest, dividends, alimony, self-employment income, capital gains, prizes or awards.

Here are five actions taxpayers can take to avoid a large bill and estimated tax penalties when they file their return. They can:

  • Use Form 1040-ES. Individuals, sole proprietors, partners and S corporation shareholders can use  this form to figure estimated tax. This form helps someone calculate their expected income, taxes, deductions and credits for the year. They can then figure their estimated tax payments. 
     

  • Use the Withholding Calculator on IRS.gov. This tool helps users figure how much money their employer should withhold from their pay so they don’t have too much or too little tax withheld. The results from the calculator can also help them fill out their Form W-4. Taxpayers whose income isn’t paid evenly throughout the year, can check Publication 505 instead of the calculator.
     

  • Have more tax withheld. Taxpayers with a regular paycheck can have more tax withheld from it. To do this, they must fill out a new Form W-4 and give it to their employer. This is a good option for taxpayers who participate in a sharing economy activity as a side job or part-time business.
     

  • Use estimated payments to pay other taxes. Self-employed individuals can make estimated tax payments to pay both income tax and self-employment tax. Self-employment tax includes Social Security and Medicare.
     

  • Use Form W-4P. Generally, pension and annuity plans withhold tax from retirees’ payments. Recipients of these payments can adjust their withholding using Form W-4P and give it to their payer.

IRS.gov has the Latest Information for Taxpayers in Disaster Areas

Taxpayers who live in an area affected by one of the many disasters this year can visit IRS.gov. The website has details about tax relief that might benefit them. The Tax Relief in Disaster Situations page on IRS.gov has resources that can walk taxpayers through information related to these disasters:

The IRS also issues local news on the Tax Relief in Disaster Situations page. This includes frequently asked questions and news releases. For instance, taxpayers affected by the wildfires in California can find information about tax relief available to them.

Taxpayers who live in a federally declared disaster area who want to file a 2016 tax return electronically should do so by Saturday, Nov. 18, 2017. These taxpayers will still be able to file paper tax returns after that date.

Tips for Business Owners Who Need to Reconstruct Records After a Disaster

After a disaster, many business owners might need to reconstruct records to prove a loss. This may be essential for tax purposes, getting federal assistance, or insurance reimbursement. 

Here are four tips for businesses that need to reconstruct their records:

  • To create a list of lost inventories, business owners can get copies of invoices from suppliers. Whenever possible, the invoices should date back at least one calendar year.

  • For information about income, business owners can get copies of last year’s federal, state and local tax returns. These include sales tax reports, payroll tax returns, and business licenses from the city or county. These will reflect gross sales for a given period.

  • Owners should check their mobile phone or other cameras for pictures and videos of their building, equipment and inventory.

  • Business owners who don’t have photographs or videos can simply sketch an outline of the inside and outside of their location. For example, for the inside the building, they can draw out where equipment and inventory was located. For the outside of the building, they can map out the locations of items such as shrubs, parking, signs, and awnings.

National Tax Security Awareness Week: Recognize Phishing Email Scams

The IRS reminds people to be on the lookout for new, sophisticated email phishing scams. These scams not only endanger someone’s personal information, but they can also affect a taxpayer’s refund in 2018.

This tip is part of National Tax Security Awareness Week. The IRS is partnering with state tax agencies, the tax industry and groups across the country to remind people about the importance of data protection.

Phishing attacks use email or malicious websites to get personal information from the user.

 

In many cases, the criminal fools someone into believing the phishing email is from someone they trust. The emails often have the look and feel of authentic communications. These targeted messages can trick even the most cautious person into doing something that may compromise data.

People should be vigilant and skeptical. Even if the email is from a known source, people should use caution because cybercrooks are very good at mimicking trusted businesses, friends and family.

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Here are six examples of email phishing scams:

  • Emails requesting personal information. The thief might ask for bank account numbers, passwords, credit cards and Social Security numbers. This is the most common way thieves steal data.  

  • An email urgently warning the recipient to update online financial accounts at a hyperlink provided in the email. The link goes to a fake site.  

  • A message with an email address spoofing a familiar address to look like trusted businesses, friends and family. The fake address has a slight change in text, such as name@example.com vs narne@example.com. Merely changing the “m” to an “r” and “n” can trick people.  

  • Emails saying the recipient has a tax refund waiting at the IRS or that the IRS needs information about insurance policies. The IRS doesn't initiate spontaneous contact with taxpayers by email to request personal or financial information.  

  • The message has hyperlinks that take someone to a fake site. In one example, the email says: “Following recent calculations, we notice that you are eligible to receive a tax refund. In order to start the refund procedure, please visit this link and follow the steps required.” The link goes to a fake site. The IRS doesn’t send emails asking for refund verification.  

  • The message includes a PDF attachment that may download malware or viruses. Never open an attachment from a suspicious email address.