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Archive | Tax Time

What’s Taxable, Non-Taxable Income?

All income is taxable unless a law specifically says it isn’t. Here are some basic rules you should know to help you file an accurate tax return:

Taxable income. Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is normally taxable.

Some types of income are not taxable except under certain conditions, including:

Life insurance. Proceeds paid to you upon the death of an insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount you get that is more than the cost of the policy is taxable.

Qualified scholarship. In most cases, income from a scholarship is not taxable. This includes amounts used for certain costs, such as tuition and required books. On the other hand, amounts you use for room and board are taxable.

Other income tax refunds. State or local income tax refunds may be taxable. You should receive a Form 1099-G from the agency that paid you. They may have sent the form by mail or electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some items that are usually not taxable:

Gifts and inheritances

Child support payments

Welfare benefits

Damage awards for physical injury or sickness

Cash rebates from a dealer or manufacturer for an item you buy

Reimbursements for qualified adoption expenses

For more on this topic see Publication 525, Taxable and Nontaxable Income. You can get it at IRS.gov/forms anytime.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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Social Security benefits may be taxable

If you receive Social Security benefits, you may have to pay federal income tax on part of your benefits. These IRS tips will help you determine if you need to pay taxes on your benefits.

Form SSA-1099.  If you received Social Security benefits in 2015, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.

Only Social Security.  If Social Security was your only income in 2015, your benefits may not be taxable. You also may not need to file a federal income tax return. If you get income from other sources you may have to pay taxes on some of your benefits.

Free File.  Use IRS Free File to prepare and e-file your tax return for free. If you earned $62,000 or less, you can use brand-name software. The software does the math for you and helps avoid mistakes. If you earned more, you can use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It’s best for people who are used to doing their own taxes. Free File is available only by going to IRS.gov/freefile.

Interactive Tax Assistant.  You can get answers to your tax questions with this helpful tool and see if any of your benefits are taxable.  Visit IRS.gov and use the Interactive Tax Assistant tool.

Tax Formula.  Here’s a quick way to find out if you must pay taxes on your Social Security benefits: Add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.

Base Amounts.  The three base amounts are:

$25,000 – if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2015

$32,000 – if you are married filing jointly

$0 – if you are married filing separately and lived with your spouse at any time during the year

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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Seven tips to avoid Presidents Day rush

WASHINGTON—The period around Presidents Day marks the peak busy season for IRS toll-free phone service, but there are faster ways to find answers to your questions. The Internal Revenue Service provides tools and apps on IRS.gov that can help many of taxpayers get answers immediately online.

Traditionally, the Tuesday after Presidents Day is the busiest day of the year for phone calls. The IRS will staff the toll-free lines on Saturday, February 13 and Monday, February 15, the Presidents Day holiday in an effort to answer more taxpayer calls.

The hours of operations are 9 a.m. to 5 p.m. local time on Saturday and 7 a.m. to 7 p.m. local time on Monday.

But on IRS.gov, taxpayers can, among many things, check the status of their refund, request a copy of their tax transcript or get an answer to their tax questions around the clock.

The entire week of the Presidents Day holiday marks a peak time for the IRS,” said IRS Commissioner John Koskinen. “We’re keeping our phones open over part of the holiday weekend to manage the increased demand.”

To save time and find answers faster, taxpayers should make IRS.gov their first stop. A good place to start is the “IRS Services Guide” for a quick overview of online services and resources. IRS information and some tools also are in Spanish.

Here are some of the most common reasons people call us over Presidents Day holiday week and the faster and easier ways to get answers:

Want to know where your refund is?

More than 90 percent of refunds are issued in less than 21 days. IRS representatives will not provide individual refund information before then. Taxpayers can easily find information about their refund by using the Where’s My Refund? tool. It’s available on IRS.gov and on the Smartphone app, IRS2Go. Where’s My Refund? provides taxpayers with the most up-to-date information available. Taxpayers must have information from their current, pending tax return to access their refund information. Refund information is updated just once a day, generally overnight, so there’s no need to check more than once a day.

Didn’t get a W-2?

Employers are required to send their employees a Form W-2, Statement of Earnings, by January 31. Employees should allow enough time for their form to be mailed to their address of record. If form W-2 is not received by the end of February, employees should first contact their employer to ensure they have the correct address on file.

After exhausting all options with the employer, employees may contact the IRS and we will send a letter to the employer. However, we would urge you to wait until the end of February to avoid long wait times on the telephone.

Need a copy of your tax return or transcript?

Taxpayers can easily order a return or transcript on the IRS.gov website, or by mailing us a completed Form 4506-T. See our Get Transcript application to have a transcript mailed to you. More information on these options is available at IRS.gov.

Ordering a tax return or tax transcript does not mean a taxpayer will get their refund faster. The two are not connected in any way. IRS transcripts are often used to validate income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation.

Wondering how the Affordable Care Act will affect you?

This year almost all taxpayers must do something related to health care reporting requirements. The majority of taxpayers—more than three out of four—will simply need to check a box to verify they have health insurance coverage. For the minority of taxpayers who will have to do more, IRS.gov/aca features useful information and tips regarding the premium tax credit, the individual shared responsibility requirement and other tax features of the ACA. Publication 5201, The Health Care Law and Your Taxes, also provides a snapshot of ACA requirements.

Need answers to tax law questions?

Questions about what filing status means, whether to file a tax return or who can be claimed as a dependent? There’s the Interactive Tax Assistant that takes you through a series of questions just like one of our customer service representatives would. You can also do a keyword search on IRS.gov; use Publication 17, the annual, searchable income tax guide; or the IRS Tax Map, which allows search by topic or keyword for single-point access to tax law information by subject.

Can’t pay a tax bill?

For taxpayers whose concern is a tax bill they can’t pay, the Online Payment Agreement tool can help them determine in a matter of minutes whether they qualify for an installment agreement with the IRS. And for those whose tax obligation is even more serious, the Offer in Compromise Pre-Qualifier can help them determine if they qualify for an offer in compromise, an agreement with the IRS that settles their tax liability for less than the full amount owed.

Need help preparing your taxes?

Free tax return preparation help is available nationwide from volunteers and on IRS.gov with Free File. Local community partners operate roughly 13,000 Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites nationwide. Find a location nearby by searching “Free Tax Help” on IRS.gov.

IRS Free File is offered by 13 tax software companies that make their brand-name products available for free to the 70 percent of taxpayers who earned $62,000 or less last year. Free File Fillable Forms is available for households whose earnings are more than $62,000 and are comfortable preparing their taxes.

Taxpayers may also use our searchable directory on IRS.gov for help on finding a tax professional with credentials and select qualifications to help them prepare their tax returns.

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Missing Form W-2? IRS can help


Most people get their W-2 forms by the end of January. Form W-2, Wage and Tax Statement, shows your income and the taxes withheld from your pay for the year. You need it to file an accurate tax return.

If you haven’t received your form by mid-February, here’s what you should do:

• Contact your Employer. Ask your employer (or former employer) for a copy. Be sure they have your correct address.

• Call the IRS. If you are unable to get a copy from your employer, you may call the IRS at 800-829-1040 after Feb. 23. The IRS will send a letter to your employer on your behalf. You’ll need the following when you call:

**Your name, address, Social Security number and phone number;

**Your employer’s name, address and phone number;

**The dates you worked for the employer; and

**An estimate of your wages and federal income tax withheld in 2015. You can use your final pay stub for these amounts.

• File on Time. Your tax return is normally due on or before April 18, 2016. Use Form 4852, Substitute for Form W-2, Wage and Tax Statement, if you don’t get your W-2 in time to file. Estimate your wages and taxes withheld as best as you can. If you can’t get it done by the due date, ask for an extra six months to file. Use Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to request more time. You can also e-file a request for more time. Do it for free with IRS Free File.

• Correct if Necessary. You may need to correct your tax return if you get your missing W-2 after you file. If the tax information on the W-2 is different from what you originally reported, you may need to file an amended tax return. Use Form 1040X, Amended U.S. Individual Income Tax Return to make the change.

Note: Important 2015 Health Insurance Forms

Starting in 2016, most taxpayers will receive one or more forms relating to health care coverage they had during the previous year.

If you enrolled in 2015 coverage through the Health Insurance Marketplace, you should get Form 1095-A, Health Insurance Marketplace Statement by early February.

If you were enrolled in other health coverage for 2015, you should receive a Form 1095-B, Health Coverage, or Form 1095-C, Employer Provided Health insurance Offer and Coverage by the end of March. You should contact the issuer of the form – the Marketplace, your coverage provider or your employer – if you think you should have gotten a form but did not get it.

If you are expecting to receive a Form 1095-A, you should wait to file your 2015 income tax return until you receive that form. However, it is not necessary to wait for Forms 1095-B or 1095-C in order to file.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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Phone scams continue to be a serious threat


WASHINGTON—Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, headlining the annual “Dirty Dozen” list of tax scams for the 2016 filing season, the Internal Revenue Service announced this week.

The IRS has seen a surge of these phone scams as scam artists threaten police arrest, deportation, license revocation and other things. The IRS reminds taxpayers to guard against all sorts of con games that arise during any filing season.

“Taxpayers across the nation face a deluge of these aggressive phone scams. Don’t be fooled by callers pretending to be from the IRS in an attempt to steal your money,” said IRS Commissioner John Koskinen. “We continue to say if you are surprised to be hearing from us, then you’re not hearing from us.”

“There are many variations. The caller may threaten you with arrest or court action to trick you into making a payment,” Koskinen added. “Some schemes may say you’re entitled to a huge refund. These all add up to trouble. Some simple tips can help protect you.”

The Dirty Dozen is compiled annually by the IRS and lists a variety of common scams taxpayers may encounter any time during the year. Many of these con games peak during filing season as people prepare their tax returns or hire someone to do so.

This January, the Treasury Inspector General for Tax Administration (TIGTA) announced they have received reports of roughly 896,000 contacts since October 2013 and have become aware of over 5,000 victims who have collectively paid over $26.5 million as a result of the scam.

“The IRS continues working to warn taxpayers about phone scams and other schemes,” Koskinen said. “We especially want to thank the law-enforcement community, tax professionals, consumer advocates, the states, other government agencies and particularly the Treasury Inspector General for Tax Administration for helping us in this battle against these persistent phone scams.”

Protect Yourself

Scammers make unsolicited calls claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via a phishing email.

Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.

Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.

Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam.

The IRS will never:

Call to demand immediate payment, nor will the agency call about taxes owed without first having mailed you a bill.

Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.

Require you to use a specific payment method for your taxes, such as a prepaid debit card.

Ask for credit or debit card numbers over the phone.

Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

If you don’t owe taxes, or have no reason to think that you do:

Do not give out any information. Hang up immediately.

Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.

Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

If you know you owe, or think you may owe tax:

Call the IRS at 800-829-1040. IRS workers can help you.

Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

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Taxes, ex-spouse benefits and you


By: Vonda VanTil, Social Security Public Affairs Specialist

April 14 is both Ex-Spouse Day and the eve of tax day. These two observances are doubly important if you are an ex-spouse, because Social Security pays benefits to eligible former spouses, and you may need to claim this income on your tax forms.

If you are age 62, unmarried, and divorced from someone entitled to Social Security retirement or disability benefits, you may be eligible to receive benefits based on his or her record. To be eligible, you must have been married to your ex-spouse for 10 years or more. If you have since remarried, you can’t collect benefits on your former spouse’s record unless your later marriage ended by annulment, divorce, or death. Also, if you’re entitled to benefits on your own record, your benefit amount must be less than you would receive based on your ex-spouse’s work. In other words, we’ll pay the higher of the two benefits for which you’re eligible, but not both.

You can apply for benefits on your former spouse’s record even if he or she hasn’t retired, as long as you divorced at least two years before applying. You can also elect to receive only the divorced spouse benefits and delay benefits on your own record after your full retirement age, which may translate to a higher monthly amount for you. If, however, you decide to wait until full retirement age to apply as a divorced spouse, your benefit will be equal to half of your ex-spouse’s full retirement amount or disability benefit. The same rules apply for a deceased former spouse.

The amount of benefits you get has no effect on the benefits of your ex-spouse’s and his or her current spouse. Visit “Retirement Planner: If You Are Divorced” at www.socialsecurity.gov/retire2/divspouse.htm to find all the eligibility requirements you must meet to apply as a divorced spouse.

Vonda VanTil is the public affairs specialist for West Michigan.  You can write her c/o Social Security Administration, 3045 Knapp St NE, Grand Rapids MI 49525 or via email at vonda.vantil@ssa.gov  

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Avoid These Common Tax Mistakes


Nobody’s perfect. Mistakes happen. But if you make a mistake on your tax return, it will likely take the IRS longer to process it. That could delay your refund. The best way to avoid errors is to use IRS e-file. Paper filers are about 20 times more likely to make a mistake than e-filers. IRS e-file is the most accurate way to file your tax return.

Here are eight common tax-filing errors to avoid:

1. Wrong or missing Social Security numbers.  Be sure you enter all SSNs on your tax return exactly as they are on the Social Security cards.

2. Wrong names.  Be sure you spell the names of everyone on your tax return exactly as they are on their Social Security cards.

3. Filing status errors.  Some people use the wrong filing status, such as Head of Household instead of Single. The Interactive Tax Assistant on IRS.gov can help you choose the right status. If you e-file, the tax software helps you choose.

4. Math mistakes.  Double-check your math. For example, be careful when you add or subtract or figure items on a form or worksheet. Tax preparation software does all the math for e-filers.

5. Errors in figuring credits or deductions.  Many filers make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit, and the standard deduction. If you’re not e-filing, follow the instructions carefully when figuring credits and deductions. For example, if you’re age 65 or older or blind, be sure you claim the correct, higher standard deduction.

6. Wrong bank account numbers.  You should choose to get your refund by direct deposit. Be sure to use the right routing and account numbers on your return. The fastest and safest way to get your tax refund is to combine e-file with direct deposit.

7. Forms not signed.  An unsigned tax return is like an unsigned check – it’s not valid. Both spouses must sign a joint return.

8. Electronic filing PIN errors.  When you e-file, you sign your return electronically with a Personal Identification Number. If you know last year’s e-file PIN, you can use that. If you don’t know it, enter the Adjusted Gross Income from the 2013 tax return that you originally filed with the IRS. Do not use the AGI amount from an amended return or a return that the IRS corrected.

If you found this Tax Tip helpful, please share it through your social media platforms. A great way to get tax information is to use IRS Social Media. You can also subscribe to IRS Tax Tips or any of our e-news subscriptions.

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Six tips about employee business expenses


If you paid for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you claim allowable expenses on Schedule A, Itemized Deductions. Here are six tax tips that you should know about this deduction.

1. Ordinary and Necessary.  You can only deduct unreimbursed expenses that are ordinary and necessary to your work as an employee. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is appropriate and helpful to your business.

2. Expense Examples.  Some costs that you may be able to deduct include:

• Required work clothes or uniforms that are not appropriate for everyday use.

• Supplies and tools you use on the job.

• Business use of your car.

• Business meals and entertainment.

• Business travel away from home.

• Business use of your home.

• Work-related education.

This list is not all-inclusive. Special rules apply if your employer reimbursed you for your expenses. To learn more, check out Publication 529, Miscellaneous Deductions. You should also refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.

3. Forms to Use.  In most cases you report your expenses on Form 2106 or Form 2106-EZ. After you figure your allowable expenses, you then list the total on Schedule A as a miscellaneous deduction. You can deduct the amount that is more than two percent of your adjusted gross income.

4. Educator Expenses.  If you are a K through 12 teacher or educator, you may be able to deduct up to $250 of certain expenses you paid for in 2014. These may include books, supplies, equipment, and other materials used in the classroom. You claim this deduction as an adjustment on your tax return, rather than as an itemized deduction. This deduction had expired at the end of 2013. A recent tax law extended it for one year, through Dec. 31, 2014. For more on this topic see Publication 529.

5. Keep Records.  You must keep records to prove the expenses you deduct. For what records to keep, see Publication 17, Your Federal Income Tax.

6. IRS Free File.  Most people qualify to use free, brand-name software to prepare and e-file their federal tax returns. IRS Free File is the easiest way to file. These rules can be complex, and Free File software will help you determine if you can deduct your expenses. It will do the math, fill out the forms and e-file your return – all for free. Check your other e-file options if you can’t use Free File.

Visit IRS.gov/forms to view, download or print IRS tax products anytime.

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IRS scams and tax-related ID theft 


IRS will never ask for taxpayers’ personal information by phone or in e-mails

Anybody contacting you claiming to be from the IRS and asking you for personal identifying information is a crook. Every year the IRS issues warnings about rebate or other scams being perpetrated by con artists claiming to work for the agency. The goal of these crooks is to commit identity theft, take control of personal computers, or simply duping people out of cash. IRS scams enable con artists to get bank account information, Social Security numbers, or credit and debit card details that are then used to commit identity theft.

IRS e-mail scams

E-mail continues to be the method of choice for IRS scams. Common e-mail tricks used by these crooks include using:

• the official IRS logo,

• whole sections of text from the IRS’s website,

• a fake “from” address (reported Michigan variations include irs@getrefundnow.com, support@irs.gov, service@irs.jg.gov, tax-refunds@irs.gov and other variations on the irs.gov theme),

• forms with numbers similar to those the IRS already uses, often with a jumble of numbers and letters.

Don’t fall for any e-mail scams! The IRS never initiates e-mails to taxpayers!

Michigan Attorney General Consumer Alerts are available at http://www.mi.gov/ag. Toll free 1-877-765-8388.

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Tax tips for the self-employed


Many people who carry on a trade or business are self-employed. Sole proprietors and independent contractors are two examples of self-employment. If this applies to you, there are a few basic things you should know about how your income affects your federal tax return. Here are six important tips about income from self-employment:

SE Income.  Self-employment can include income you received for part-time work. This is in addition to income from your regular job.

Schedule C or C-EZ.  There are two forms to report self-employment income. You must file a Schedule C, Profit or Loss from Business, or Schedule C-EZ, Net Profit from Business, with your Form 1040. You may use Schedule C-EZ if you had expenses less than $5,000 and meet other conditions. See the form instructions to find out if you can use the form.

SE Tax.  You may have to pay self-employment tax as well as income tax if you made a profit. Self-employment tax includes Social Security and Medicare taxes. Use Schedule SE, Self-Employment Tax, to figure the tax. If you owe this tax, make sure you file the schedule with your federal tax return.

Estimated Tax.  You may need to make estimated tax payments. People typically make these payments on income that is not subject to withholding. You usually pay this tax in four installments for each year. If you do not pay enough tax throughout the year, you may owe a penalty.

Allowable Deductions.  You can deduct expenses you paid to run your business that are both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and proper for your trade or business.

When to Deduct.  In most cases, you can deduct expenses in the same year you paid for them, or incurred them. However, you must ‘capitalize’ some costs. This means you can deduct part of the cost over a number of years.

Visit the Small Business and Self-Employed Tax Center on IRS.gov for all your federal tax needs. You can also get IRS tax forms on IRS.gov/forms anytime.

Additional IRS Resources:

Form 1040-ES, Estimated Tax for Individuals

Publication 505, Tax Withholding and Estimated Tax

Publication 334, Tax Guide for Small Business

Publication 535, Business Expenses

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