Friday, March 24, 2017

Taxing Social Security

          Can it be possible to pay Federal Income Tax on Social Security benefits? The short answer is: yes. There are situations where this can happen. Beyond this fact, there are a number of States that also might tax Social Security income. Here are a few points to keep in mind.

          States that do not have their own Income Tax will obviously not tax Social Security income. So if you live, or are planning to move to, a State like Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, or Wyoming, this will not be an issue. Other States give an exemption to Social Security income. This is true for States like Alabama, California, Delaware, Hawaii, Idaho, Maine, Massachusetts, Oklahoma, and Oregon. However, Minnesota, North Dakota, Vermont and West Virginia will apply Federal guidelines to Social Security income. States like Colorado, Connecticut, Kansas, North Dakota, and Utah can apply State Income Taxes to Social Security income.
          Even with what has been discussed above, there are ways to protect this income. There are many options no matter where you live and a qualified Tax Professional can guide you each step in the process.

Monday, March 20, 2017

Keeping Up With the Speed of Change

         It seems today, that the only constant that we can rely on is change. Whether that is true or not, there are many things that we do need to be aware of, and adjust to. One example is a new proposed budget for the IRS. It could be reduced to $9.65 Billion. This could be difficult for one of few Federal agencies that pays for itself.
          It would seem that the IRS and the Treasury Department as a whole are under stress. The first effect has been the closing of many walk-in IRS assistance centers and longer waits for phone customer service. Budgetary reasons were given for the lower than expected level of individual Tax Return audits and Criminal Investigations. This could be just the next step in a series of budget cuts over the past few years. With challenges that continue to grow from fraud, crime, and people who try to creatively avoid paying taxes, the IRS does its best to keep up.

Friday, March 17, 2017

Extra Money Waiting to be Claimed

        The IRS is doing their best to make Taxpayers aware that there is about $1 Billion in unclaimed refunds from 3 years ago. So there are a number of people who did not file a Tax Return in 2013 and have until April 18, 2017 to claim what is theirs. After this date, the funds become property of the US Treasury. There is no penalty for filing a late Tax Return if you are due a Refund. Would you like to find out how?

          A Federal Tax Return must be filed, and it must be the correct form used at that time. They must also use all the correct financial information from the year 2012, which may take a little effort. Often, those who find themselves in these situations are those who did know they qualified for tax credits, or thought they made too little to file a Tax Return. It might be worthwhile to see if your refund is part this $1 Billion.
          It’s estimated that California, Texas, and Florida are the states with the highest number of Tax Refunds to be claimed. Those living in Alaska and Wyoming would be owed the most. This might be a situation where a Tax Professional could bring things into focus. What do you think?

Monday, March 13, 2017

Has It Ended?

The IRS has stated that filling out line 61 on Federal Tax Returns is no longer required. What is the significance of this 1 line? This was the line that was added due to the Affordable Care Act (Obamacare) and its requirement that all carry health coverage. In the past, if the answer was “No”, there would be a penalty given. If an answer was not given, it would be considered a “silent return” and rejected.
          All returns filed this year will be treated differently. Taxpayers may continue answer the question, but if they do not, their returns will continue to be processed. This is most likely due to an Executive Order signed on the first day of the Trump administration. Keep in mind that the Affordable Care Act is still in effect and any Returns that withhold information from Line 61 could still be penalized at a later date.

Friday, March 10, 2017

Which Choice is Best?

         Should I make a standard deduction or should I itemize? This is a question that many have asked every year during Tax Season. Every situation is different, so here are some key points to keep in mind making this choice.

When making the choice of a Standard Deduction, the amount is based on the Taxpayer’s filing status for 2016. For example, if the status chosen is “Single” or “Married Filing Separately” then the deduction amount is $6,300. If they qualify as “Head of Household” then the amount is $9,300. However there are exceptions to these amounts. If the Taxpayer can be claimed as a dependent, then the amounts will be lower. They will be much higher if the Taxpayer is over 65.

Itemized Deductions require a lot of paper work and attention to detail but might be worth the effort. Some of the expenses that can be listed are: real estate and personal property taxes, home mortgage interest, and gifts to charities. It is also possible to itemize state and local income taxes OR sales taxes. They can never be listed together. Other expenses can qualify, but there are limits that need to be observed. Your Tax Professional would be able to guide you through this process.

Monday, March 6, 2017

A Special Tax Gift for Parents

          Children are gifts to their parents in a variety of ways. That is also true when it comes to filing Tax Returns. Here are a few tax benefits that parents can claim that relate to their children.
          If a parent paid for the care of their child under the age of 13 so they could work or look for work, this may qualify for the Child and Dependent Care Credit. Adoptive parents can also claim the Adoption Credit for certain costs related to the adoption process.

         The Child Tax Credit has specific points that need to be addressed. To claim this credit, the child must be under 17, as of December 31, 2016. The child can be the Taxpayer's child, stepchild, sibling, stepbrother or sister, grandchild, and even niece or nephew. They can also be an adopted child or a child lawfully placed for adoption. They must be a dependent that is claimed on the Taxpayer's Federal Tax Return. This child should have lived with the Taxpayer for more than half of 2016 and must be a US citizen, US national, or US resident alien. Parents seem to earn special consideration when it comes to taxes. What do you think?

Friday, March 3, 2017

Crime Really Causes People to Pay - A Lot, Part 2

         While the vast majority of Taxpayer’s are honest and give all the necessary factual information when it comes to their Tax Returns, there are a few who do not. They see opportunities to use Credits falsely and increase fraudulent expenses and deductions. While they may gain in the short-term, the IRS looks at a bigger picture.
          There is a list of typical tax scams that the government is always looking out for. Their systems are checking the past 3 years’ worth of Tax Returns for these trends and will start an audit if something looks suspicious. They will add more years of tax filings if more errors are found. The penalties that can be applied are fairly severe.
          If it is determined that the Tax Return is “frivolous” or “contains information clearly showing that the tax reported is incorrect”, the fine from this determination is $5,000. That would be added to the Tax that is still owed. If this is the result of Tax Fraud, a separate percentage penalty would be added. Criminal prosecution and jail time could result from these actions. It would seem that the best defense against an audit is to file an honest Tax Return.