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Tag Archive | "IRS"

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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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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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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State Police warns of telephone scam


MSP-logo

The Michigan State Police Lakeview Post would like to remind citizens to never provide personal information via email, telephone, and/or social media.

Troopers from the Michigan State Police Lakeview Post have received several calls from citizens advising they have received unsolicited calls from unknown subjects advising citizens that they owe money to the Internal Revenue Service.  The unknown callers are advising citizens that they have warrants for their arrest and to meet them at specified locations with money or they will be subject to arrest.

The IRS advises if you receive contact of this nature and suspect the caller is not an IRS employee:  1) Ask the caller for their name, badge number, call back number and caller ID if available.  2)  Call 1-800-366-4484 to determine if the caller is an IRS employee with legitimate need to contact you. If the person calling you is an IRS employee, call them back. If not, report the incident to the IRS at 1-800-366-4484.

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


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(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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Be especially mindful with your W-2’s


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From the BBB of Western Michigan

Recently a BBB Accounts Payable Staff Member received an email from me, Phil Catlett, CEO of BBB, requesting that she wire money immediately, and to send a reply email to receive further details about where to send the funds. And had she responded to that email it would obviously have never reached me, it’d be headed to some scammer from who knows where.

The past couple of years, BBB has been hearing about scammers targeting W-2 employee tax forms.

W-2 forms have everything needed to file a fraudulent tax refund request, including the employer name, employer ID, address, taxpayer address, Social Security number and information about 2016 wages and taxes withheld.

The IRS just issued a warning that scammers are seeking W-2 information in order to file fraudulent tax refund requests. School districts, healthcare organizations, chain restaurants, temporary staffing agencies, tribal organizations and nonprofits are all mentioned in the IRS information as targets.

It could happen to any of us, but scammers don’t just stop after they get access to your sensitive information. The IRS reports that after they get your personal information, the W-2 scammers send an email to the payroll or comptroller of a company requesting that a wire transfer be made to a certain account.

“This is one of the most dangerous email phishing scams we’ve seen in a long time,” said the IRS Commissioner. “Although not tax related, the wire transfer scam is being coupled with the W-2 scam email, and some companies have lost both employees’ W-2s and thousands of dollars.” It is also being reported that scammers are selling 2016 employee W-2 forms that were stolen from victim organizations, peddling individual W-2 tax records for anywhere between $4 and $20 apiece.

But the simplest and best way for individuals to avoid becoming a victim of tax refund fraud is to file your taxes before criminals do it. To reduce risk of businesses being hit by these frauds, use two-factor authentication for email, such as telephone calls to verify significant banking transactions.  BBB advises that any information about employee activities listed on your websites or in social media can make you more vulnerable as well.

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Five things to know about the child tax credit


 

The Child Tax Credit is a tax credit that may save taxpayers up to $1,000 for each eligible qualifying child. Taxpayers should make sure they qualify before they claim it. Here are five facts from the IRS on the Child Tax Credit:

1. Qualifications. For the Child Tax Credit, a qualifying child must pass several tests:

  • Age. The child must have been under age 17 on Dec. 31, 2016.
  • Relationship. The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother or half-sister. The child may be a descendant of any of these individuals. A qualifying child could also include grandchildren, nieces or nephews. Taxpayers would always treat an adopted child as their own child. An adopted child includes a child lawfully placed with them for legal adoption.
  • Support. The child must have not provided more than half of their own support for the year.
  • Dependent. The child must be a dependent that a taxpayer claims on their federal tax return.
  • Joint return. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
  • Citizenship. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
  • Residence. In most cases, the child must have lived with the taxpayer for more than half of 2016.

The IRS Interactive Tax Assistant tool – Is My Child a Qualifying Child for the Child Tax Credit? – helps taxpayers determine if a child is a qualifying child for the Child Tax Credit. Visit https://www.irs.gov/uac/is-my-child-a-qualifying-child-for-the-child-tax-credit.

2. Limitations. The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate a taxpayer’s credit depending on their filing status and income.

3. Additional Child Tax Credit If a taxpayer qualifies and gets less than the full Child Tax Credit, they could receive a refund, even if they owe no tax, with the Additional Child Tax Credit.

Because of a new tax-law change, the IRS cannot issue refunds before Feb. 15 for tax returns that claim the Earned Income Tax Credit (EITC) or the ACTC. This applies to the entire refund, even the portion not associated with these credits. The IRS will begin to release EITC/ACTC refunds starting Feb. 15. However, the IRS expects these refunds to be available in bank accounts or debit cards at the earliest, during the week of Feb. 27. This will happen as long as there are no processing issues with the tax return and the taxpayer chose direct deposit. Read more about refund timing for early EITC/ACTC filers.

4. Schedule 8812. If a taxpayer qualifies to claim the Child Tax Credit, they need to check to see if they must complete and attach Schedule 8812, Child Tax Credit, with their tax return. Taxpayers can visit IRS.gov to view, download or print IRS tax forms anytime.

5. IRS E-file. The easiest way to claim the Child Tax Credit is with IRS E-file. This system is safe, accurate and easy to use. Taxpayers can also use IRS Free File to prepare and e-file their taxes for free. Go to IRS.gov/filing to learn more.

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 https://www.irs.gov/individuals/electronic-filing-pin-request.

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Four tax changes that could impact your 2016 return


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(BPT) – With tax filing season upon us, it’s a good idea to educate yourself on what’s changed since last year. While it’s been a relatively quiet year in terms of new tax laws, there are a handful of items for which you’ll want to prepare.

1. The Tax Deadline is April 18.

This year, the deadline to file returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. That’s because the April 15 falls on a Saturday and Emancipation Day, the anniversary of the abolition of slavery, is recognized on Monday, April 17, 2017 and is a holiday in the District of Columbia. For tax-filing purposes, the IRS treats this day as a federal holiday.

2. Delayed refunds for some early filers.

If you claim the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) this year, you’ll have to wait until after mid-February to get your refund. The Protecting Americans from Tax Hikes (PATH) Act, passed in late 2015, says the IRS cannot issue credits or refunds for an overpayment before Feb. 15, 2017 to any filer who claims the EITC or ACTC.

The delay gives the IRS more time to review income tax returns – and prevent the agency from inadvertently processing fraudulent returns. Fraudsters file bogus returns before the actual filer can complete their taxes and often claim credits like the EITC and ACTC.

Both the EITC and ACTC are refundable tax credits. That means they are beneficial even after reducing your tax liability to zero. If the amount of these credits is more than the amount of taxes due, you’ll get the difference back as a refund. Savvy criminals know this – and input numbers to make it look like they should get more money back.

If you don’t file either of these credits, the IRS says your refund will likely get processed in the typical time frame of 21 days.

3. Don’t be surprised if your state asks for your driver’s license number or state ID.

Depending on the state in which you live, you may be asked to provide your driver’s license number (DLN) or state ID number when you file your 2016 state return. This is part of a broad effort by the IRS, states and the entire tax industry to lessen the risk of tax-related identity theft. Identity thieves may have personal information such as your name and Social Security number, but not your DLN. The additional information helps states verify you are who you say you are.

“Some states, such as Alabama, will ask taxpayers who e-file to provide both the DLN as well as date of issue, expiration number and issuing state,” says Mark Jaeger, director of Tax Development for TaxAct. “If you use a DIY tax solution like TaxAct, you’ll be prompted to enter the information required by your state as you prepare your return.”

Implementing additional identity verification measures, such as requesting a filer’s DLN and related information, can help curtail the number of fraudulent returns states process this year. The IRS now requests this information, but it is not required to electronically file a federal return.

4. Affordable Care Act (ACA) forms may be late this year, but don’t wait to file your return.

By now, you’re probably accustomed to receiving ACA-related forms reporting whether you and members of your household met health insurance coverage requirements established by the ACA for the prior year. What’s new this year is when you’ll receive some of those forms.

The deadline for companies and insurers to issue Forms 1095-B and 1095-C to individuals has been delayed this year. Employers and insurance providers must mail your forms by March 2, 2017, considerably later than the original Jan. 31 deadline.

“Remember, you don’t need to file these forms with your return,” Jaeger says. “However, the forms can be helpful in identifying coverage months if the entire tax household did not have full-year health insurance coverage. Once you receive the applicable form, keep it with your other tax documents. The IRS gets their own copy so you don’t need to attach it to your return.”

Keep up to date with a little help from your friends.

Staying abreast of tax changes before you file your return can be tough. Fortunately, taxpayers can turn to a number of resources, including TaxAct, for help.

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