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Archive | Tax Time

Software Or Tax Pro: What the difference can mean for you

Doing it yourself, even with the help of the latest technology, may not be the wisest course when it comes to figuring out your taxes. Sometimes, finances need a human touch—and brain.

(NAPS) According to the National Taxpayer Advocate, nearly 60 percent of taxpayers hire paid preparers to do their taxes. With all the tax software programs out there, why do so many people turn to a professional?

“It really depends on the situation,” explained Rich Rhodes, EA, an enrolled agent in Ohio. “Young, single adults with one or two W-2s can probably do fine with tax software, but what if you’re married, own a home, have kids, are going to college or have kids going to college? There are plenty of confusing tax traps just waiting for you.”

A knowledgeable tax pro should actually save you money because he or she will interview you in person and ask a lot of questions to determine for which deductions you may qualify. Tax laws change every year and, if it’s not your full-time job, it’s hard to keep up. 

Here are just a few areas where you could be missing out on saving money on taxes.

Education and child care. The IRS publication explaining the variety of education credits alone is 94 pages long. How about childcare expenses? That publication is a “quick read” at only 19 pages. Now consider this: Those two publications cover just two line items on most 1040 forms.

Volunteer expenses. Rhodes points out that if you are a Scout leader, volunteer in your church or food bank, deliver books to a hospital or meals to seniors, many of your volunteer expenses, including mileage, may be deductible.

Job-related expenses. Perhaps you’re a traveling nurse. Do you wear a uniform? Do you carry protective glasses and a stethoscope for which you’re not reimbursed? Do you have to renew a license or take continuing education courses to maintain a license? Job-related expenses may also be deductible on your tax return.

Filing status. Married people don’t always file jointly. There are many reasons why filing separately might be a good idea and many why it might be a bad one.

Are you paying off student loans? Wondering if you should contribute to a Traditional IRA? Paying alimony? You don’t even have to itemize deductions because these items can reduce your income and that reduces your tax bill. All these are questions that can affect the amount of taxes you have to pay—and a wrong answer can cost you money. Hiring a tax professional is a solid investment. 

Tax professionals such as enrolled agents are licensed and required to take continuing education courses every year to stay up-to-date on all the latest tax changes. In fact, EAs are known as America’s tax experts. They’re the only federally licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS. Those who are members of the National Association of Enrolled Agents must also adhere to a stringent Code of Ethics and Rules of Professional Conduct.

Learn More

To find an EA nearby, you can use the “Find a Tax Expert” directory on www.eatax.org.

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Understanding the 2018 Tax Act

 

From Action Tax Service

The 2018 Tax Act officially titled the “Tax Cut and Job Act of 2017” will dramatically affect everyone’s tax returns. It has provisions that will eliminate deductions that we have grown accustomed to seeing such as the amount we claim for each exemption while it also increases the amount of some credits such as the Child Tax Credit that will offset the loss of the exemption amount. At a little over 1,000 pages, it has a tremendous amount of detail but ultimately we believe that almost everyone will see a decrease in tax for 2018 over 2017. Let’s go over what I would call as the Top Ten main provisions that will affect millions of taxpayers. 

1.  Increase the Standard Deduction.  The Standard Deduction is increased for single and married filing separate taxpayers from $6,350 to $12,000.  Joint filers and qualifying widows or widowers will increase from $12,700 to $24,000.  Head of household filers will increase from $9,350 to $18,000.  This provision will dramatically reduce the number of taxpayers who itemize deductions.

2.  Eliminate Exemption Amount.  The Exemption amount of $4,050 is no longer allowed. The increased Standard Deduction will offset this loss.

3.  Increase Child Tax Credit.  The current Child Tax Credit of $1,000 is increased to $2,000.  Up to $1,400 of that amount is refundable; an increase from the current $1,000.  

4.  Family Tax Credit. A new nonrefundable credit of $500 is added for 2018.   The $500 is allowed for each dependent who is not eligible for the Child Tax Credit.  Those dependents would be family members age 17 or older and could include dependent parents and adult disabled children.  

5.  Limited Deductions for Property Tax, Sales Tax, and State Income Tax. All of these deductions as a group will be limited to $10,000. There is no limit currently.

6.  Mortgage Interest Paid Limited. In 2018, mortgage interest paid on acquisition debt of up to $750,000 will be the rule. The limit now is $1,000,000. The $1,000,000 rule will apply to future years for contracts in place as of 12/15/17. 

7.  Tuition Deduction Eliminated. The Tuition and Fees Deduction of up to $4,000of qualifying Tuition and Fees is no longer allowed.  This deduction worked in conjunction with the Education Credits.

 8.  Tax Rates Decreased. There will still be 7 Individual Tax Rates ranging from 10% up to a maximum of 37%. For the most part, the rates are decreased by 2-3%.  The result is that total income tax for a taxpayer with the same amount of income subject to tax in 2018 should be lower than the same number for 2017.  

9. Miscellaneous Itemized Deductions Eliminated. The 2% Miscellaneous Itemized Deductions such as Investment Expenses, Tax Preparation Fees, and Out of Pocket Employee Business Expenses will no longer be deductible.

10. Corporate Tax Rates Reduced. The Corporate Tax Rates have been reduced across the board to 21%. This lower rate will apply to tax years beginning after December 31, 2017.  

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Families eligible for homestead property tax credit 

 

Average tax credit was $521 for 2016 tax year

Working families and individuals with a household income of $50,000 or less a year may be eligible for a Homestead Property Tax Credit, according to the Michigan Department of Treasury.

Michigan’s Homestead Property Tax Credit can help taxpayers if they are a qualified homeowner or renter and meet certain requirements. For most people, the tax credit is based on a comparison between property taxes and total household income, with homeowners paying property taxes directly and renters paying them indirectly with their rent.

“Homestead Property Tax Credits provide tax relief for Michigan’s working families and individuals,” said Deputy State Treasurer Glenn White, head of Treasury’s Tax Administration Group. “These tax credits can reduce tax owed and may provide a refund.”

During the 2016 tax year, more than 1 million taxpayers claimed the Homestead Property Tax credit, totaling more than $532 million with an average credit at $521.

Taxpayers may claim a Homestead Property Tax Credit if ALL the following apply:

  • Your homestead is in Michigan
  • You were a resident of Michigan for at least six months during the year
  • You own or are contracted to pay rent and occupy a Michigan homestead on which property taxes were levied
  • If you own your home, your taxable value is $135,000 or less (unless unoccupied farmland)
  • Your total household resources are $50,000 or less

Taxpayers who are required to file a state income tax return should claim the Homestead Property Tax Credit with their return. Taxpayers may file a Homestead Property Tax Credit claim by itself.

To learn more about the Homestead Property Tax Credit, the forms required to obtain the credit or state income taxes, go to www.michigan.gov/incometax and click on “Credits and Exemptions” at the bottom of the page. 

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Itemize or take standard deduction for tax year 2017

 

IRS Tax Tip 2018-28

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 when they file their 2017 tax return. Before choosing to take the standard deduction or itemize, it’s a good idea to figure deductions using both methods and choose the method with the most benefit. The IRS offers the following tips to help taxpayers decide:

• Figure Itemized Deductions. Taxpayers who itemize basically add up the year’s deductible expenses to arrive at their total deduction. Deductions include: 

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 and employee business expenses above certain amounts

• Know the Standard Deduction. For taxpayers who don’t itemize, the standard deduction for 2017 depends on their filing status:   o Single — $6,350

Married Filing Jointly — $12,700

Head of Household — $9,350

Married Filing Separately — $6,350

Qualifying Widow(er) — $12,700

If a taxpayer is 65 or older, or blind, the standard deduction is more, but may be limited if another person claims that taxpayer as a dependent.

  • Use IRS Free File. Taxpayers who earned $66,000 or less in 2017 qualify to use free, brand-name software to prepare and file their federal tax returns electronically. IRS Free File software helps taxpayers determine if they should itemize. Taxpayers who can’t use Free File have other e-file options.
  • Check the Exceptions. There are some situations where the law doesn’t allow people to claim the standard deduction. This rule applies to married taxpayers who file separate returns, and either spouse itemizes. In this case, the standard deduction is zero and they should itemize any deductions.
  • Use IRS.gov Tool. Use the Interactive Tax Assistant on IRS.gov. There are several tools that can help people determine whether to itemize or take the standard deduction.  
  • File the Right Forms. For taxpayers 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.

More Information:

Publication 501, Exemptions, Standard Deduction, and Filing Information

Publication 17

Taxpayer Bill of Rights: #3, The Right to Pay No More than the Correct Amount of Tax

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Steps victims can take to minimize effect of data theft

 

Tax tip 2018-27

Every day, the theft of personal and financial information puts people at risk of identity theft. Generally, thieves try to use the stolen data as quickly as possible to:

  • Sell the information to other criminals.
  • Withdraw money from a bank account.
  • Make credit card purchases.
  • File a fraudulent tax return for a refund using victims’ names.

Victims of a data loss should follow these steps to minimize the effect of the theft:

  • Try to determine what information the thieves compromised. Compromised information may include emails and passwords, or more sensitive data, such as name and Social Security number.
  • Take advantage of credit monitoring services when offered by the affected organization.
  • Place a freeze on credit accounts to prevent access to credit records. It varies by state, but there may be a fee to place a freeze on an account. At a minimum, victims should place a fraud alert on their credit accounts by contacting one of the three major credit bureaus. A fraud alert isn’t as secure as a freeze, but it’s free.
  • Reset passwords on online accounts, especially those of financial sites and email and social media accounts. Use different passwords for each account. Some experts recommend at least 10-digit passwords, mixing letters, numbers and special characters. Victims may also wish to consider using a password manager or app.
  • Use multi-factor authentication, when available. Some financial institutions, email providers and social media sites allow users to set their accounts for multi-factor authentication, which requires a security code, usually sent as a text to their mobile phone, in addition to a username and password.

All taxpayers should keep a copy of their tax return. Taxpayers using a software product for the first time may need their Adjusted Gross Income 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 at irs.gov.

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Scam Alert: Watch out for erroneous refunds 

 

Beware of fake calls to return money to a collection agency  

WASHINGTON – The Internal Revenue Service is warning taxpayers of a quickly growing scam involving erroneous tax refunds being deposited into their bank accounts. The IRS also offered a step-by-step explanation for how to return the funds and avoid being scammed.

Following up on a Security Summit alert issued Feb. 2, the IRS issued this additional warning about the new scheme after discovering more tax practitioners’ computer files have been breached. In addition, the number of potential taxpayer victims jumped from a few hundred to several thousand in just days. The IRS Criminal Investigation division continues its investigation into the scope and breadth of this scheme.

These criminals have a new twist on an old scam. After stealing client data from tax professionals and filing fraudulent tax returns, these criminals use the taxpayers’ real bank accounts for the deposit.

Thieves are then using various tactics to reclaim the refund from the taxpayers, and their versions of the scam may continue to evolve.

Different Versions of the Scam

In one version of the scam, criminals posing as debt collection agency officials acting on behalf of the IRS contacted the taxpayers to say a refund was deposited in error, and they asked the taxpayers to forward the money to their collection agency.

In another version, the taxpayer who received the erroneous refund gets an automated call with a recorded voice saying he is from the IRS and threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of their Social Security Number. The recorded voice gives the taxpayer a case number and a telephone number to call to return the refund.

As it did last week, the IRS repeated its call for tax professionals to step up security of sensitive client tax and financial files files.

The IRS urged taxpayers to follow established procedures for returning an erroneous refund to the agency. The IRS also encouraged taxpayers to discuss the issue with their financial institutions because there may be a need to close bank accounts. Taxpayers receiving erroneous refunds also should contact their tax preparers immediately.

Because this is a peak season for filing tax returns, taxpayers who file electronically may find that their tax return will reject because a return bearing their Social Security number is already on file. If that’s the case, taxpayers should follow the steps outlined in the Taxpayer Guide to Identity Theft. Taxpayers unable to file electronically should mail a paper tax return along with Form 14039, Identity Theft Affidavit, stating they were victims of a tax preparer data breach.

Here are the official ways to return an erroneous refund to the IRS.

Taxpayers who receive the refunds should follow the steps outlined by Tax Topic Number 161 – Returning an Erroneous Refund. The tax topic contains full details, including mailing addresses should there be a need to return paper checks. By law, interest may accrue on erroneous refunds.

If the erroneous refund was a direct deposit:

Contact the Automated Clearing House (ACH) department of the bank/financial institution where the direct deposit was received and have them return the refund to the IRS.

Call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) to explain why the direct deposit is being returned.

If the erroneous refund was a paper check and hasn’t been cashed:

Write “Void” in the endorsement section on the back of the check.

Submit the check immediately to the appropriate IRS location listed below. The location is based on the city (possibly abbreviated) on the bottom text line in front of the words TAX REFUND on your refund check.

Don’t staple, bend, or paper clip the check.

Include a note stating, “Return of erroneous refund check because (and give a brief explanation of the reason for returning the refund check).”

The erroneous refund was a paper check and you have cashed it:

Submit a personal check, money order, etc., immediately to the appropriate IRS location listed below.

If you no longer have access to a copy of the check, call the IRS toll-free at 800-829-1040 (individual) or 800-829-4933 (business) (see telephone and local assistance for hours of operation) and explain to the IRS assistor that you need information to repay a cashed refund check.

Write on the check/money order: Payment of Erroneous Refund, the tax period for which the refund was issued, and your taxpayer identification number (social security number, employer identification number, or individual taxpayer identification number).

Include a brief explanation of the reason for returning the refund.

Repaying an erroneous refund in this manner may result in interest due the IRS.

IRS mailing addresses for returning paper checks

For your paper refund check, here are the IRS mailing addresses to use based on the city (possibly abbreviated). These cities are located on the check’s bottom text line in front of the words TAX REFUND:  

ANDOVER – Internal Revenue Service, 310 Lowell Street, Andover MA 01810

ATLANTA – Internal Revenue Service, 4800 Buford Highway, Chamblee GA 30341

AUSTIN – Internal Revenue Service, 3651 South Interregional Highway 35, Austin TX 78741

BRKHAVN – Internal Revenue Service, 5000 Corporate Ct., Holtsville NY 11742

CNCNATI – Internal Revenue Service, 201 West Rivercenter Blvd., Covington KY 41011

FRESNO – Internal Revenue Service, 5045 East Butler Avenue, Fresno CA 93727

KANS CY – Internal Revenue Service, 333 W. Pershing Road, Kansas City MO 64108-4302

MEMPHIS – Internal Revenue Service, 5333 Getwell Road, Memphis TN 38118

OGDEN – Internal Revenue Service, 1973 Rulon White Blvd., Ogden UT 84201

PHILA – Internal Revenue Service, 2970 Market St., Philadelphia PA 19104

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Five things to remember about exemptions and dependents 

 

Most taxpayers can claim one personal exemption for themselves and, if married, one for their spouse. This helps reduce their taxable income on their 2017 tax return. They may also be able to claim an exemption for each of their dependents. Each exemption normally allows them to deduct $4,050 on their 2017 tax return. While each is worth the same amount, different rules apply to each type.

Here are five key points for taxpayers to keep in mind on exemptions and dependents when filing their 2017 tax return:

1. Claiming Personal Exemptions. On a joint return, taxpayers can claim one exemption for themselves and one for their spouse. If a married taxpayer files a separate return, they can only claim an exemption for their spouse if their spouse meets all of these requirements. The spouse:

  • Had no gross income.
  • Is not filing a tax return.
  • Was not the dependent of another taxpayer.

2. Claiming Exemptions for Dependents.  A dependent is either a child or a relative who meets a set of tests. Taxpayers can normally claim an exemption for their dependents. Taxpayers should remember to list a Social Security number for each dependent on their tax return.

3. Dependents Cannot Claim Exemption. If a taxpayer claims an exemption for their dependent, the dependent cannot claim a personal exemption on their own tax return. This is true even if the taxpayer does not claim the dependent’s exemption on their tax return.

4. Dependents May Have to File a Tax Return. This depends on certain factors like total income, whether they are married, and if they owe certain taxes.

5. Exemption Phase-Out.  Taxpayers earning above certain amounts will lose part or all the $4,050 exemption. These amounts differ based on the taxpayer’s filing status.

The IRS urges taxpayers to file electronically. The software will walk taxpayers through the steps of completing their return, making sure all the necessary information is included about dependents. E-file options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.

Taxpayers can get questions about claiming dependents answered by using the Interactive Tax Assistant tool on IRS.gov. The ITA called Whom May I Claim as a Dependent will help taxpayers determine if they can claim someone on their return.

More Information:

Publication 17, Your Federal Income Tax 

Publication 501, Exemptions, Standard Deduction and Filing Information.

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Many people in rural areas can benefit from EITC

 

From IRS.gov

The IRS wants taxpayers living in rural communities to be aware of the earned income tax credit and correctly claim it if they qualify. Many qualified individuals and families who live in rural areas don’t claim the EITC. There are many reasons for this. They may:

• Think they are ineligible.

• Not know about the credit.

• Not think they made enough money to qualify.

• Worry about paying for tax preparation services.

The average household income in many small towns and rural areas is below the national average. Because of this, many of these taxpayers may qualify for EITC. Here are some things that people living in these areas should remember about the credit and how it can benefit them:

• Because it’s a refundable tax credit, those who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.

• An eligible taxpayer must have earned income from employment or owning a business or farm and meet basic rules.

• To get the credit, taxpayers must file a tax return, even if they don’t owe any tax or aren’t required to file.

• Single workers without a qualifying child who earn less than $15,010 may qualify for a smaller amount of the credit.

• There are special rules for individuals receiving disability benefits and for members of the military.

• The IRS recommends using the EITC Assistant on IRS.gov to determine eligibility and estimate the amount of credit.

Qualified taxpayers should consider claiming the EITC by filing electronically, which they can do:

• Through a qualified tax professional.

• Using free community tax help sites.

• Themselves, with IRS Free File.

By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the additional child tax credit. The law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC.  The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting Feb. 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

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Beware IRS impersonation scams 


As tax season begins, the Montcalm County Sheriff’s Office is receiving numerous reports of telephone calls from thieves who pretend to be from the IRS. Although these scams take many different forms, the most common scams are phone calls and emails from thieves who use the IRS name, logo or a fake website to try to steal your money. They may try to steal your identity too. 

Be wary if you get an out-of-the-blue phone call or automated message from someone who claims to be from the IRS. Sometimes they say you owe money and must pay right away. Other times they say you are owed a refund and ask for your bank account information over the phone. Don’t fall for it. Here are several tips that will help you avoid becoming a scam victim. 

The real IRS will NOT: 

  • Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail. 
  • Demand tax payment and not allow you to question or appeal the amount you owe. 
  • Require that you pay your taxes a certain way. For example, demand that you pay with a prepaid debit card. 
  • Ask for your credit or debit card numbers over the phone. 
  • Threaten to bring in local police or other agencies to arrest you without paying. 
  • Threaten you with a lawsuit. 

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

  • Contact the Treasury Inspector General for Tax Administration. Use TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident. 
  • You should also report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” to the comments of your report. 

If you think you may owe taxes: 

  • Ask for a call back number and an employee badge number. 
  • Call the IRS at 800-829-1040. IRS employees can help you. 

Email Scams: 

In most cases, an IRS phishing scam is an unsolicited, bogus email that claims to come from the IRS. These scams often use fake refunds, phony tax bills, or threats of an audit. Many scammers even use what appears to be an official IRS logo at the top of their email. Some emails link to sham websites that look real. Don’t be fooled! The scammer’s goal is to lure victims to give up their personal and financial information. If they get what they’re after, they use it to steal a victim’s money and their identity. 

If you get a phishing email, the IRS offers this advice: 

  • Don’t reply to the message. 
  • Don’t give out your personal or financial information. 
  • Forward the email to phishing@irs.gov. Then delete it. 

Don’t open any attachments or click on any links. They may have malicious code that will infect your computer. 

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What to do when an IRS letter arrives in the mail

 

The IRS mails millions of pieces of correspondence every year to taxpayers for a variety of reasons.

Below are some suggestions on how to best handle a letter or notice from the IRS:

Do not panic. Simply responding will take care of most IRS letters and notices.

Most IRS notices are about federal tax returns or tax accounts. Each notice deals with a specific issue and provides specific instructions on what to do. Careful reading is essential.

A notice may likely be about changes to a taxpayers’ account, taxes owed or a payment request. Sometimes a notice may ask for more information about a specific issue or item on a tax return.

If a notice indicates a changed or corrected tax return, review the information and compare it with your original return.

There is usually no need to reply to a notice unless specifically instructed to do so, or to make a payment.

Taxpayers must respond to a notice they do not agree with. Mail a letter explaining why there is a disagreement with the IRS. The address to mail the letter is on the contact stub at the bottom of the notice. Include information and documents for the IRS to consider and allow at least 30 days for a response.

There is no need to call the IRS or make an appointment at a taxpayer assistance center for most notices. If a call seems necessary, use the phone number in the upper right-hand corner of the notice. Be sure to have a copy of the tax return and notice when calling.

Always keep copies of any notices received with tax records.

Be alert for tax scams. The IRS sends letters and notices by mail. IRS does not contact people by email or social media to ask for personal or financial information. The IRS will not demand payment a certain way, such as prepaid debit or credit card. Taxpayers have several payment options for taxes owed.

For more on this topic, visit IRS.gov. Click on the link ‘Respond to a Notice’ at the bottom center of the home page. Also, see Publication 594, The IRS Collection Process. Get IRS.gov/forms at any time.

To make a payment, visit IRS.gov/payments or use the IRS2Go app to make a payment with Direct Pay for free, or by debit or credit card through an approved payment processor for a fee.

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