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Taxes

Q&A: Foreign tax credit delays substantial IRS refund

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Dear Liz: My tax professional submitted amended tax returns for 2023, 2022 and 2021 a year ago. I’m supposed to receive a nice refund for those years but I have heard nothing from the IRS and cannot get any information from its website. I asked my tax professional about it and she said the foreign tax credit claimed on the amended returns must be reviewed by the foreign tax department, which is very far behind. This just feels like a black hole. The IRS wants me to pay my taxes but drags its feet on giving me my refund.

Answer: The foreign tax credit is designed to prevent double taxation. If you earn income abroad, you may be able to deduct taxes paid to another country on your U.S. tax return.

Unfortunately, this is an area where there has been substantial fraud and noncompliance. That raises the odds of a manual review and potential audit. The fact that you’re claiming large refunds, and doing so by amending returns, also increases the chance your filings will be scrutinized.

Still, a year is a long time to wait. Consider reaching out to the Taxpayer Advocate Service, which may be able to help you break the logjam.

Q&A: IRS tax payment problem can be frustrating to fix

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Dear Liz: In a recent column, you advised people to pay IRS tax bills online. Have you done this yourself? The wording of the choices to click on can be confusing. I tried to help my son pay online last year. We evidently chose the wrong type of tax and it went to “la la land.” He got late letters and fines. It took quite a while to get it rectified because you are on hold for HOURS. Who has time for that? Next year I’ll have him mail it and take our chances.

Answer: I’ve made exactly the mistake you describe and am aware of how frustrating it can be trying to get the situation rectified. But dealing with mail theft and check fraud is frustrating too.

Both of us would have benefited from consulting a tax pro first to ensure we were clicking the right buttons. A tax pro can also help in straightening out a snafu. The IRS was understaffed and struggling to answer its phones even before the government shutdown, but the dedicated number for tax pros often has shorter wait times than the one for the general public.

Q&A: Electronic tax payments don’t require paper forms

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Dear Liz: You recently answered a reader whose check to the U.S. Treasury had been stolen and forged to another recipient. You suggested sending electronic checks instead. However, our accountant gives us forms that I thought needed to be included with a paper check to ensure the correct accounting of our taxes. Can we just send a check from our bank with the last four digits of our SSNs in the memo field?

Answer: It’s unfortunate your accountant hasn’t walked you through the relatively simple process of paying your taxes online. The electronic systems match your payment with your return. You only need to send in paper forms or vouchers if you’re also sending paper checks.

And you shouldn’t be sending checks in the mail if you can possibly avoid it. Given the surge in mail theft and check fraud, it really is past time to switch to electronic payments.

Q&A: How to avoid or reduce taxes on required minimum distributions

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Dear Liz: I’m confused about required minimum distributions from my retirement accounts. I’d like to avoid taxes on my withdrawals, but it seems there is no way to avoid them. Please give me some guidance.

Answer: If you got a deduction for contributing this money, and you want to keep the funds you’re required to withdraw, then yes, you have to pay taxes on these distributions.

Required minimum distributions from retirement accounts currently have to start at age 73. There are a few exceptions. Roth accounts don’t offer deductions on contributions and also don’t have RMDs. You can postpone RMDs from a workplace plan such as a 401(k) or 403(b) as long as you’re still working for the employer that sponsors the plan, the plan offers this “still working” option, and you don’t own 5% or more of the company.

If you don’t need the money, you could consider donating your required minimum distribution to charity. Known as “qualified charitable distributions,” these donations can start as early as age 70½. As long as the money goes directly from an IRA to a qualified nonprofit, you can avoid paying taxes on the distribution. For 2025, the maximum qualified charitable distribution is $108,000 per individual. (You can’t make a qualified charitable distribution from a workplace plan, but you can roll some or all of the account into an IRA and make the donation from there.)

Sometimes RMDs can be large enough to catapult savers into a higher tax bracket and trigger higher Medicare premiums. If that’s the case, and you’re still a few years away from starting RMDs, consider talking to a tax pro about ways to manage the tax bill. Starting distributions early or converting some funds to a Roth IRA might be options.