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Archive | Tax Time

Know these facts before deducting a charitable donation

 

If taxpayers gave money or goods to a charity in 2016, they may be able to claim a deduction on their federal tax return. Taxpayers can use the Interactive Tax Assistant tool, Can I Deduct my Charitable Contributions?, to help determine if their charitable contributions are deductible.

Here are some important facts about charitable donations:

Qualified Charities. Taxpayers must donate to a qualified charity. Gifts to individuals, political organizations or candidates are not deductible. To check the status of a charity, use the IRS Select Check tool.

Itemize Deductions. To deduct charitable contributions, taxpayers must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with a federal tax return.

Benefit in Return. If taxpayers get something in return for their donation, they may have to reduce their deduction. Taxpayers can only deduct the amount that exceeds the fair market value of the benefit received. Examples of benefits include merchandise, meals, tickets to events or other goods and services.

Type of Donation. If taxpayers give property instead of cash, their deduction amount is normally limited to the item’s fair market value. Fair market value is generally the price they would get if the property sold on the open market. If they donate used clothing and household items, those items generally must be in good condition or better. Special rules apply to cars, boats and other types of property donations.

Noncash Charitable Contributions. File Form 8283, Noncash Charitable Contributions, for all noncash gifts totaling more than $500 for the year. Complete section-A for noncash property contributions worth $5,000 or less. Complete section-B for noncash property contributions more than $5,000 and include a qualified appraisal to the return. Taxpayers may be able to prepare and e-file their tax return for free using IRS Free File. The type of records they must keep depends on the amount and type of their donation. To learn more about what records to keep, see Publication 526, Charitable Contributions.

Donations of $250 or More. If taxpayers donated cash or goods of $250 or more, they must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether they received any goods or services in exchange for the gift.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at https://www.irs.gov/individuals/electronic-filing-pin-request.

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Top ten adoption tax credit facts to consider

 

Taxpayers who have adopted or tried to adopt a child in 2016 may qualify for a tax credit. Here are ten important things about the adoption credit:

The Credit. The credit is nonrefundable, which may reduce taxes owed to zero. If the credit exceeds the tax owed, there is no refund of the additional amount. In addition, if an employer helped pay for the adoption through a written qualified adoption assistance program, that amount may reduce any taxes owed.

Maximum Benefit. The maximum adoption tax credit and exclusion for 2016 is $13,460 per child.

Credit Carryover. If the credit exceeds the tax owed, taxpayers can carry any unused credit forward. For example, the unused credit in 2016 can reduce taxes for 2017. Use this method for up to five years or until the credit is fully used, whichever comes first.

Eligible Child. An eligible child is an individual under age 18 or a person who is physically or mentally unable to care for themselves.

Qualified Expenses. Adoption expenses must be reasonable, necessary and directly related to the adoption of the child. Types of expenses may include adoption fees, court costs, attorney fees and travel.

Domestic or Foreign Adoptions. Taxpayers can usually claim the credit whether the adoption is domestic or foreign. However, there are different rules regarding the timing of expenses for each type of adoption.

Special Needs Child. A special rule may apply if the adoption is of an eligible U.S. child with special needs. Under this special rule, taxpayers can claim the tax credit, even if qualified adoption expenses were not paid.

No Double Benefit. In some instances both the tax credit and the exclusion may be claimed but not for the same expenses.

Income Limits. The credit and exclusion are subject to income limitations. These may reduce or eliminate the claimable amount..

IRS Free File. Use IRS Free File to prepare and e-file federal tax returns for free. File Form 8839, Qualified Adoption Expenses, with Form 1040. Free File is only available on IRS.gov/freefile.

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Understanding the child and dependent care tax credit

 

The IRS urges people not to overlook the Child and Dependent Care Tax Credit. Eligible taxpayers may be able claim it if they paid for someone to care for a child, dependent or spouse last year.

Taxpayers can use the IRS Interactive Tax Assistant tool, Am I Eligible to Claim the Child and Dependent Care Credit?, to help determine if they are eligible to claim the credit for expenses paid for the care of an individual to allow the taxpayer to work or look for work.

Eight other key points about this credit include:

  1. 1. Work-Related Expenses. The care must have been necessary so a person could work or look for work. For those who are married, the care also must have been necessary so a spouse could work or look for work. This rule does not apply if the spouse was disabled or a full-time student.
  2. 2. Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can be a child under age 13. A qualifying person can also be a spouse or dependent who lived with the taxpayer for more than half the year and is physically or mentally incapable of self-care.
  3. 3. Earned Income. A taxpayer must have earned income for the year, such as wages from a job. For those who are married and file jointly, the spouse must also have earned income. Special rules apply to a spouse who is a student or disabled.
  4. 4. Credit Percentage / Expense Limits. The credit is worth between 20 and 35 percent of allowable expenses. The percentage depends on the income amount. Allowable expenses are limited to $3,000 for paid care of one qualifying person. The limit is $6,000 if the taxpayer paid for the care of two or more.
  5. 5. Dependent Care Benefits. Special rules apply for people who get dependent care benefits from their employer. Form 2441, Child and Dependent Care Expenses, has more on these rules. File the form with a tax return.
  6. 6. Qualifying Person’s SSN. The Social Security number of each qualifying person must be included to claim the credit.
  7. 7. Care Provider Information. The name, address and taxpayer identification number of the care provider must be included on the return.
  8. 8. IRS Free File. Taxpayers are encouraged to use IRS Free File to prepare and e-file their federal tax returns, including Form 2441. Free File is easy, fast and available only at IRS.gov/freefile.

Taxpayers who pay someone to come to their home and care for their dependent or spouse may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer’s Tax Guide.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at https://www.irs.gov/individuals/electronic-filing-pin-request.

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Tips to avoid tax scams

 

Attorney General Bill Schuette reminds residents that the IRS will never ask for personal information by phone or email

LANSING – With tax season entering full swing, Michigan Attorney General today issued an updated consumer alert with tips to avoid the latest tax scams and IRS related scams. The Attorney General’s Consumer Protection Team often sees an uptick in tax related scams during the early spring months.

“Tax season is the time of year that scam artists and crooks look forward to,” said Schuette. “Whether it is someone posing as an IRS agent, or as a tax preparer, you can never be too cautious with your personal information. If you believe you are the victim of identity theft, contact law enforcement immediately.”

Schuette noted that the IRS will never contact you asking for personal information by phone or email. Schuette encourages any residents who believe they have received fraudulent calls or emails to contact the IRS directly.

Below is a detailed list of things the IRS will never ask you to do:

*Demand payment without any chance to appeal or question the amount due

*Threaten to have you arrested

*Require a specific payment method, like a pre-paid debit card or wire transfer

*Ask for your bank account number

Phone Scams to Watch For:

*A high pressure call that threatens legal action which can only be avoided by immediate payment.

*A caller identifies themselves as an IRS employee and tells the targeted victim that they are eligible for a sizable rebate for filing taxes early if they submit bank account information for direct deposit of the rebate or refund.

*A person claiming to be an IRS employee indicates the IRS sent a check that has not been cashed and the IRS needs to verify the individual’s bank account number.

IRS Email Scams to Watch For:

*Using the official IRS logo.

*Using whole sections of text from the IRS’s website.

*Using a fake “from” address that looks similar to the IRS.

*Using forms with numbers similar to those the IRS already uses.

The IRS will never contact you via email so don’t be fooled.

What to Do if You Get an Email or Phone Call Claiming to Come From the IRS:

*If you don’t owe taxes, hang up immediately or delete the email without opening it. Report any suspicious solicitation to the Treasury Inspector General for Tax Administration hotline at 800-366-4484.

*If you do owe on your taxes, call the IRS at 800-829-1040 if you need federal tax assistance.

*Do not click on any links embedded in a suspicious email.

*You may forward emails to phishing@irs.gov, the address established by the IRS to receive, track, and shut down these scams. Detailed instructions for how to send the emails are available through the IRS. You may not receive an individual response to your email because of the volume of reports the IRS receives each day.

*Report misuse of the IRS name, logo, forms, or other IRS property to the Treasury Inspector General hotline at 800-366-4484.

*The only genuine IRS website is www.irs.gov. You should never get to this site using a link embedded into an email. Instead enter the address in your browser. A website link embedded into an email can easily take you to a fake site.

For general consumer protection questions or complaints, you may reach the Attorney General’s Consumer Protection Division at:

P.O. Box 30213

Lansing, MI 48909

517-373-1140

Fax: 517-241-3771

Toll free: 877-765-8388

Online Complaint Form http://www.michigan.gov/ag

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Get credit for making a home energy efficient

 

Taxpayers who made certain energy efficient improvements to their home last year may qualify for a tax credit this year. Here are some key facts to know about home energy tax credits:

Non-Business Energy Property Credit

Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items added to a taxpayer’s main home last year. Qualified improvements include adding insulation, energy-efficient exterior windows and doors, and certain roofs. Do not include the cost to install these items.

The other part of the credit is not a percentage of the cost. It includes the installation costs of certain high-efficiency heating and air-conditioning systems, high-efficiency water heaters and stoves that burn biomass fuel. The credit amount for each type of property has a different dollar limit.

This credit has a maximum lifetime limit of $500. Taxpayers may only use $200 of this limit for windows.

A taxpayer’s main home must be located in the U.S. to qualify for the credit. The non-business energy property credit is only available for existing homes.

Be sure to have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. Taxpayers can use this to claim the credit. Do not attach it to a tax return. Keep it with tax records.

Taxpayers may claim the credit on their 2016 tax return if they didn’t reach the lifetime limit in past years. Under current law, Dec. 31, 2016, was the deadline for qualifying improvements to the taxpayer’s main U. S. home.

Residential energy efficient property credit

This tax credit is 30 percent of the cost of alternative energy equipment installed on or in a home. This includes the cost of installation.

Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.

There is no dollar limit on the credit for most types of property. If the credit is more than the tax owed, carry forward the unused portion of this credit to next year’s tax return.

The home must be in the U.S. It does not have to be a taxpayer’s main home, unless the alternative energy equipment is qualified fuel cell property. The residential energy efficient property credit is available for both existing homes and homes under construction.

This credit is available through 2016.

Use Form 5695, Residential Energy Credits, to claim these credits. For more information on this topic, refer to the form’s instructions. Get IRS forms anytime on IRS.gov/forms.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

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Five tax tips on unemployment benefits

 

From IRS.gov

Taxpayers who received unemployment benefits need to remember that it may be taxable. Here are five key facts about unemployment:

Unemployment is Taxable. Include all unemployment compensation as income for the year. Taxpayers should receive a Form 1099-G, Certain Government Payments, by Jan. 31. This form shows the amount received and the amount of any federal income tax withheld.

There are Different Types. Unemployment compensation includes amounts paid under federal law or state law as well as railroad, trade readjustment and airline deregulation laws. Even some forms of disability payments can count. For more information, see IRS Publication 525.

Union Benefits May be Taxable. Benefits received from regular union dues as income might be taxable. Other rules may apply if a taxpayer contributed to a special union fund and those contributions to the fund are not deductible. In this case, report only income exceeding the amount of contributions made.

Tax May be Withheld. Those who receive unemployment can choose to have federal income tax withheld by using Form W-4V, Voluntary Withholding Request. Those choosing not to have tax withheld may need to make estimated tax payments during the year.

Visit IRS.gov for Help. Taxpayers facing financial difficulties should visit the IRS.gov page: “What Ifs” for Struggling Taxpayers. This page explains the tax effect of various life events such as job loss. For those who owe federal taxes and can’t pay, the Payments tab on IRS.gov provides some options. In many cases, the IRS can take steps to help ease financial burden.

Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at https://www.irs.gov/individuals/electronic-filing-pin-request.

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Window closing on 2013 tax refunds

 

The Internal Revenue Service announced Wednesday that unclaimed federal income tax refunds totaling more than $1 billion may be waiting for an estimated 1 million taxpayers who did not file a 2013 federal income tax return.

To collect the money, taxpayers must file a 2013 tax return with the IRS no later than this year’s tax deadline, Tuesday, April 18.

“We’re trying to connect a million people with their share of 1 billion dollars in unclaimed refunds for the 2013 tax year,” said IRS Commissioner John Koskinen. “People across the nation haven’t filed tax returns to claim these refunds, and their window of opportunity is closing soon. Students and many others may not realize they’re due a tax refund. Remember, there’s no penalty for filing a late return if you’re due a refund.”

The IRS estimates the midpoint for potential refunds for 2013 to be $763; half of the refunds are more than $763 and half are less.

In cases where a tax return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If they do not file a return within three years, the money becomes the property of the U.S. Treasury. For 2013 tax returns, the window closes April 18, 2017. The law requires taxpayers to properly address mail and postmark the tax return by that date.

The IRS reminds taxpayers seeking a 2013 refund that their checks may be held if they have not filed tax returns for 2014 and 2015. In addition, the refund will be applied to any amounts still owed to the IRS, or a state tax agency, and may be used to offset unpaid child support or past due federal debts, such as student loans.

By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2013. Many low-and-moderate income workers may have been eligible for the Earned Income Tax Credit (EITC). For 2013, the credit was worth as much as $6,044. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2013 were:

$46,227 ($51,567 if married filing jointly) for those with three or more qualifying children;

$43,038 ($48,378 if married filing jointly) for people with two qualifying children;

$37,870 ($43,210 if married filing jointly) for those with one qualifying child, and;

$14,340 ($19,680 if married filing jointly) for people without qualifying children.

Current and prior year tax forms (such as the Tax Year 2013 Form 1040, 1040A and 1040EZ) and instructions are available on the IRS.gov Forms and Publications page or by calling toll-free: 800- TAX-FORM (800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years 2013, 2014 or 2015 should request copies from their employer, bank or other payer.

Taxpayers who are unable to get missing forms from their employer or other payer should go to IRS.gov and use the “Get Transcript Online” tool to obtain a Wage and Income transcript.  Taxpayers can also file Form 4506-T to request a transcript of their 2013 income. A Wage and Income transcript shows data from information returns we receive such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. Taxpayers can use the information on the transcript to file their tax return.

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Name change? How it impacts taxes

 

A name change can have an impact on taxes. All the names on a taxpayer’s tax return must match Social Security Administration records. A name mismatch can delay a tax refund. Here’s what taxpayers should know if they changed their name:

*Reporting Name Changes. Got married and now using a new spouse’s last name or hyphenate a name? Divorced and now back to using a former last name? In either case, taxpayers should notify the SSA of a name change. That way the new name on IRS records will match the SSA records.

*Making dependent’s name change. Notify the SSA if a dependent had a name change. For example, if a taxpayer adopted a child and the child’s last name changed. If the child does not have a Social Security number, the taxpayer may use an Adoption Taxpayer Identification Number on their tax return. An ATIN is a temporary number. Apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. Visit IRS.gov to get the form.

*Getting a New SS Card. File Form SS-5, Application for a Social Security Card. The form is on SSA.gov or by calling 800-772-1213. The taxpayer’s new card will reflect the name change.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

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Tax tip: Itemize or choose the standard deduction

 

From IRS.gov

Most taxpayers claim the standard deduction when they file their federal tax return. However, some filers may be able to lower their tax bill by itemizing. Find out which way saves the most money by figuring taxes both ways.

The IRS offers the following six tips to help taxpayers decide:

1. Use IRS Free File. Most taxpayers qualify to use free, brand-name software to prepare and file their federal tax returns electronically. IRS Free File is the easiest way to file. Free File software helps taxpayers determine if they should itemize. It files the right tax forms based on the answers the taxpayer provides. Free File software does the math and allows the user to e-file the tax return – for free.

Taxpayers can check on other e-file options if they can’t use Free File.

2. Figure Your Itemized Deductions.  Taxpayers need to add up deductible expenses they paid during the year. These may include expenses such as:

  • Home mortgage interest
  • State and local income taxes or sales taxes (but not both)
  • Real estate and personal property taxes
  • Gifts to charities
  • Casualty or theft losses
  • Unreimbursed medical expenses
  • Unreimbursed employee business expenses

Special rules and limits apply. Visit IRS.gov and refer to Publication 17, Your Federal Income Tax, for more details.

3. Know The Standard Deduction. If a taxpayer doesn’t itemize, then the basic standard deduction for 2016 depends on their filing status. If the taxpayer is:

  • Single – $6,300
  • Married Filing Jointly – $12,600
  • Head of Household – $9,300
  • Married Filing Separately – $6,300
  • Qualifying Widow(er) – $12,600

If a taxpayer is 65 or older, or blind, the standard deduction is higher than the previous amounts. The deduction may be limited if the taxpayer can be claimed as a dependent.

4. Check the Exceptions. There are some situations where the law does not allow a person to claim the standard deduction. This rule applies if the taxpayer is married filing a separate return and their spouse itemizes. In this case, the taxpayer’s standard deduction is zero and they should itemize any deductions. See Publication 17 for more on these rules.

5. Use the IRS ITA Tool. Go to IRS.gov and use the Interactive Tax Assistant tool. It can help determine whether a taxpayer can use the standard deduction. It can also help a filer figure their eligibility for certain itemized deductions.

6. File the Right Forms.  For a taxpayer to itemize their deductions, they must file Form 1040 and Schedule A, Itemized Deductions. Filers can take the standard deduction on Forms 1040, 1040A or 1040EZ.

All taxpayers should keep a copy of their tax return.  Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

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4 life changes that affect your taxes and how to tackle them

TAX-Four-life-changes

(BPT) – Life changes often mean tax changes. Whether it’s getting married, buying or selling a home, moving abroad or having a baby, misunderstanding the tax and financial implications of these life changes can lead to taxpayers making mistakes or leaving money on the table.

Depending on your situation, there are new tax implications that will impact your benefits, tax bill and how you file. If you experienced a life change in 2016, here is a list of tax implications and how they will affect you.

Marriage

Many couples close the book on their “wedding to-dos” once the last thank you card has been sent, but looking at your new tax situation is an important first step in your married life. There are some instances when getting married can have negative implications for a couple’s tax situation. Once you’re married you must file either as married filing jointly or married filing separately. In some cases, a couple where one spouse earns most of the household income will benefit because their overall tax bracket may decrease. However, a couple with two high earners may find they face a higher tax rate than if each paid tax only on their own income and added the taxes paid.

However, there are some ways to protect against potential negative tax implications. After your marriage is official, update your W-4 with your employer to account for your new marital status. If you’re self-employed or a small business owner, make sure to adjust your quarterly estimated tax payments.

Buying a house

Purchasing a home may open the door to more deductions through itemizing if you weren’t already doing so. Once you become a homeowner, you can deduct many of your home-related costs, including your qualified home mortgage interest, points paid on a loan secured by your home, real estate taxes and private mortgage insurance premiums paid on or before Dec. 31, 2016. If you choose not to itemize, you may benefit from other tax advantages such as penalty-free IRA withdrawals if you are a first-time homebuyer under the age of 59 and a half, or residential energy credits for purchases of certain energy efficient property.

New homebuyers should be on the lookout for Form 1098 Mortgage Interest Statement, which is used to report mortgage interest. This form can help you identify these deductions when completing your Form 1040.

Moving abroad

Are you excited to move abroad, but have no idea what will happen to your taxes and how to file? Many Americans living and working overseas will not owe tax to the IRS because of the foreign earned income exclusion and foreign tax credit. However, even if you qualify for those benefits, you have to file a U.S. tax return each year if you received income over the normal filing threshold.

It is also important to understand your Social Security coverage before moving abroad. Knowing whether your earnings overseas will be subjected to Social Security taxes in the U.S. or the country you are residing in will be an important factor when analyzing the economics of your move.

Having a baby

A new baby means you may be able to take advantage of tax breaks, including the Child Tax Credit (CTC). The CTC is worth up to $1,000 for each qualifying child younger than 17, a portion of which may be refundable as the Additional Child Tax Credit (ACTC) depending on your income. A tax preparer can help you understand the qualifications to determine whether a child is considered qualified for purposes of the CTC. Some of those qualifications include but are not limited to their relationship and residency.

You may also qualify for the Earned Income Tax Credit (EITC) which is a benefit for working people with low to moderate income that reduces the amount of taxes you owe. However, it’s important to note that due to the new “Protecting Americans from Tax Hikes ACT” or PATH Act, this year the IRS is required to hold any refund from those claiming the EITC and ACTC until at least Feb. 15. This delay will be widely felt by tax filers who typically file as soon as the IRS accepts e-filed returns and who normally expect to receive their refund by late January.

To learn more about this new tax law change, how it may delay tax refunds in January and February, and H&R Block’s free solution to this delay, visit www.hrblock.com/refundadvance or make an appointment with a tax professional.

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