Tax tidbits

Some Tips to Remember Before You Pay the IRS

Oct 7th 2019
Share this content

In eleven previous columns, I discussed my use of “tax tidbits” to enliven conversations when talking taxes with clients or speaking to groups like business owners and home sellers. The tidbits discuss IRS rulings, law changes, court decisions and tactics that trim taxes for this year and even future years.

I‘d like to share more of my favorites with you here

The origins of our tax system: Income taxes are a pervasive and everyday part of our financial lives and a central issue in presidential campaigns. While they seem to have been around forever, they haven’t. Their debut is relatively recent. 

Abraham Lincoln created the Bureau of Internal Revenue, the predecessor of today’s Internal Revenue Service, and introduced the first U.S. income taxes in 1862 to pay for some of the North’s Civil War expenses. The Confederacy also imposed income taxes. After all, military wars, especially big ones, have to be paid for; at least, that used to be a fact of life.

Mr. Lincoln’s levies fell mainly on the well-to-do, as there was an exemption from taxes for the first $600 of income. Once beyond that amount, the maximum rate topped off at 5 percent. The taxes were temporary, not becoming permanent until the ratification in 1913 of the Sixteenth Amendment to the U.S. Constitution.

Paying the IRS: Handle checks with care. Stop before you drop a check to the IRS into the mail. Follow these tips to protect your bank account and save yourself the aggravation of trying to track down a misplaced payment.             

Annotate your check before mailing it to the IRS. Always provide the reason for the payment, the form number, and tax year on the front of the check—for instance, "balance due on 2018 Form 1040" or “2019 estimated payment.”  Also include your daytime telephone number and Social Security number (joint filers should enter the number shown first on their return) or, if you operate a business, your employer identification number.             

Pay with separate checks for separate payments. Also, note all necessary information (reason for the payment, form number, etc.) on each one when you pay two different taxes at once, such as past-due income taxes and interest for an earlier year, along with an estimated tax payment for this year. Writing separate checks will make it much easier for the IRS to identify and credit you with the payments if the checks inadvertently become prematurely separated from the accompanying correspondence or return.

Overlooking this simple step may confuse the computers and, at a minimum, direct attention to your return and require otherwise avoidable correspondence with the government’s most unpopular agency. Even worse, it may cause those relentless computers to erroneously charge you with nondeductible penalties for failing to make timely payments. 

Question: I live with my wife in a house that is owned by my parents. There’s still a mortgage on it. My wife and I make the monthly payments and also pay the real estate taxes. Should the write-offs for mortgage interest and property taxes be claimed as itemized deductions on Form 1040’s Schedule A by me or by my parents? I’ve gotten conflicting answers.

There’s another snag if it’s my folks who are entitled to the deductions. As of now, my parents intend to use the standard deduction for filers who don’t itemize. Does that mean the deductions are wasted from a tax standpoint?. 

Answer: They can be claimed only by the person who is legally obligated to pay those expenses—usually, that’s the property owner. Result: No one gets to write them off. You and your wife can’t, because they’re not your obligations. Your parents can’t, unless they make the payments and decide to itemize.  

Look for more tidbits in subsequent columns.

Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 300 and counting). 

Replies (1)

Please login or register to join the discussion.

By TxTaxGal
Oct 19th 2019 17:30 EDT

Actually, the parents can write off the interest and taxes. The property is a rent house plain and simple. The parents own the property, and although the children are paying the expenses directly, it's the same as if they paid their parents "rent" and the parents paid the bills.

I've done this numerous times with customers whose children are in property owned by them. I was audited on this point one time and it passed; in fact, the examiner exclaimed wow! I'm doing this very thing and I can see I need to go back and amend my last three returns!

Always keep an eye on the legal loopholes!

Thanks (0)