Tax Talk

Generally it takes the IRS three weeks to direct deposit the refund on your electronically filed personal tax return. If they mail you the check it takes about eight weeks. Filing on paper will take at a lot longer. There is an easy way to find out where your refund is.

First, go to this link

http://www.irs.gov/Refunds/

You will need to enter the following information

* Your Social Security Number (or Individual Taxpayer Identification Number)

* Your Filing Status

* The exact whole dollar amount of your refund

And VOILA you will get information on what is happening with your refund.

Just remember, if the IRS says they mailed the check last Friday, it probably means that it actually got to the post office next Friday. This is a great argument for having the IRS direct deposit your refund.

If it's been three or more months since you filed your return and you get the message that your return is still being processed, it's time to make a phone call. Call the IRS at 1-800-Tax-1040 (isn't that cute) to try to find out why the return is still being processed. Be prepared to wait on hold for a long time.

You can also get your refund status from the Massachusetts Department of Revenue but you must set up an account with a user name and password.  Just what you need, another password.  Here is the website to start.

Mass WebFile for Income

Good Luck.

You moved on to a new job and rolled your 401(k) over from your old employer to an IRA.  In January of the following year you get a 1099-R form from your old employer and decide that since you rolled it over to another retirement account you do not need to report it on your tax return.

WRONG.

Your old employer sent you the 1099-R form because they are required to do so by the IRS.   It reports distributions made from your 401(k), IRA, or other pension plan. It does not mean that you will pay taxes on the withdrawal.

You are required to report the gross amount you received on Line 15a of Form 1040 for IRA distributions and 16a for all other retirement related distributions  This tells the IRS that you know you got the money, Lines 15b and 16b tell the IRS how much is taxable.  In the circumstances above you would enter zero on these lines to tell the IRS that you did not keep the money.  You will not pay any tax on this type of distribution.  The tax software programs know how to handle this transaction.

What happens if you do not report the receipt of the money on line 15a or 16a?  You will get a letter from the IRS saying that you did not report the income and calculating an obscene amount of taxes that they say is due.

After panicking, send a short letter to the IRS with a copy of the 1099-R and document the rollover into the new account.  Ask that they abate the penalties.  Please see my blog entitled Writing The IRS for tips on how to write the letter.

About 3% of taxpayers get a notice from the IRS each year. Luckily, it's not the same 3% every year. What should you do when you receive a letter? First of all, don't ignore it. That would be a big mistake. The IRS will not forget and will harass you forever.

Most of the time the IRS is asking you about a mistake they think you made on your tax return. Take a deep breath and read the letter. Then read it again because you freaked out just opening the envelope. Compare what they say to what is on your tax return (you did keep a copy of your tax return didn't you).

The IRS sees the majority of the items on your return electronically.The most common correction they suggest is income that is not reported on your return. They might have received a 1099-Int from a bank that does not appear on your return.

They are both right and wrong if they received information that indicates that you sold some stock that was not reported on your return. They will claim that you owe tax on the total amount you received from the sale of the stock. That part is wrong. You only owe tax on the profit you made. You will need to prepare a Schedule D andForm 8949 to support the correct calculation of the tax.

If they are right, sign the notice and send them a check. If they are wrong, and they are 20% of the time, you need to explain why they are wrong.

If they are wrong and you write them back, here is what you DON'T say:
* Don't tell then how stupid they are.
* Don't explain all the circumstances around the transaction or error. (They really don't care that Aunt Sarah is somehow involved.)
* Don't apologize.
* Don't address the envelope to the Infernal Revenue Service.

And here are some DO's.
* Do type the letter. You want them to be able to read your response.
* Do keep the letter short, one page should be enough.
* Do stick to the facts.
* Do be polite.
* Do sign the letter.
* Do respond quickly
* Do thank them for their help, no matter how much it galls you.

If the letter says you are being audited, freak out and call your CPA.