Have not yet filed your 2013 federal tax return? If not, you need to act quickly because your return must be filed by April 18, 2017. Otherwise, you forfeit your refund, and the money becomes the property of the U.S. Treasury.
The IRS estimates that more than 1 million taxpayers have not filed their 2013 tax returns and that more than $1 billion of unclaimed refunds are available for those taxpayers. The IRS estimates that these taxpayers will have an average refund of $763.
By failing to file a return, people stand to lose more than just refunds for taxes withheld or paid during 2013. In addition, many low- and moderate-income workers did not claim the Earned Income Tax Credit (EITC), which helps individuals and families with incomes below certain thresholds. For unmarried individuals in 2013, these thresholds were $46,227 for those with three or more children, $43,038 for those with two children, $37,870 for those with one child, and $14,340 for those with no children. Each amount is $5,340 more for married joint filers. In addition, parents who are eligible to claim the refundable portion of the child tax credit and the American Opportunity Tax Credit (education tax credit) will forfeit those benefits if they don’t file a return.
When filing a 2013 return, the law requires that the return be properly addressed, mailed and postmarked by April 18th. There is no late-filing penalty for those who qualify for a refund.
As a reminder, taxpayers seeking a 2013 refund should know that their checks will be held if they have not also filed tax returns for 2011 and 2012. In addition, their refunds will first be applied to any amounts that they still owe to the IRS and may be used to offset unpaid child support or past-due federal debts caused by student loans, repayment of unemployment compensation and state taxes owed.
Contact Dagley & Co. with any questions, or make your tax appointment today.
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Did you know, direct deposit is the quickest way to obtain your refund? At Dagley & Co., we don’t recommend waiting around for your paper check in the mail. We’ve broke down the crucial info to be aware of when it comes to finally receiving your hard-earned tax refund:
- Speed—When combining e-file with direct deposit, the IRS will likely issue your refund in no more than 21 days.
- Security—Direct Deposit offers the most secure method of obtaining your refund. There is no check to lose. Each year, the U.S. Post Office returns thousands of refund checks to the IRS as un-deliverable mail.
Direct deposit eliminates un-deliverable mail and is also the best way to guard against having a tax refund check stolen.
- Easy—Simply provide this office with your bank routing number and account number when we prepare your return and you’ll receive your refund far more quickly than you would by check.
- Convenience— The money goes directly into your bank account. You won’t have to make a special trip to the bank to deposit the money yourself.
- Eligible Financial Accounts – You can direct your refund to any of your checking or savings accounts with a U.S. financial institution as long as your financial institution accepts direct deposits for that type of account and you provide valid routing and account numbers. Examples of savings accounts include: passbook savings, individual development accounts, individual retirement arrangements, health savings accounts, Archer MSAs, and Coverdell education savings accounts.
- Multiple Options—You can deposit your refund into up to three financial accounts that are in your name or your spouse’s name if it is a joint account. You can’t have part of the refund paid by paper check and part by Direct Deposit. With the split refund option, taxpayers can divide their refunds among as many as three checking or savings accounts at up to three different U.S. financial institutions. Check with your bank or other financial institution to make sure your Direct Deposit will be accepted.
- Deposit Can’t Be to a Third Party’s Bank Account—To protect taxpayers from scammers, direct deposit tax refunds can only be deposited into an account or accounts owned by the taxpayer. Therefore, only provide your own account information and not account information belonging to a third party.
- Fund Your IRA—You can even direct a refund into your IRA or myRA account.
To set up a direct deposit, you will need to provide the bank routing number (9 digits) and your account number for each account into which you wish to make a deposit. Be sure to have these numbers available at your appointment.
For more information regarding direct deposit of your tax refund and the split refund option, Dagley & Co. would be happy to discuss your options with you at your tax appointment.
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Tax fraud is currently a huge issue which has cost the government billions of tax dollars. New laws are taking effect that clamp down on individuals who have fraudulently claimed the American Opportunity Tax Credit (AOTC), the Child Tax Credit (CTC) or the Earned Income Tax Credit (EITC). Details on these credits are as follows:
- The AOTC is the college tuition credit for low-income families that provides a credit for each eligible student equal to 100% of the first $2,000 and 25% of the next $2,000 spent on college tuition and related expenses; the maximum credit is $2,500, of which 40% is refundable. The credit is phased out depending on income.
- The CTC is a tax credit of $1,000 for each of the taxpayer’s qualifying dependent children. A portion of the credit that is not used to offset the taxpayer’s tax liability can be refundable; the refund is based in part on the number children in the family and in part on the taxpayer’s earned income. This credit may also be phased out for higher-income taxpayers.
- The EITC is a refundable credit awarded to low-income taxpayers who work. The credit is based on the amount of the taxpayer’s income that comes from working as well as on total income and on number of children. In 2016, this credit can be worth as much as $6,269.
We have your rundown of some of the new provisions that the government has put in place to defend against fraud:
Retroactive Claims – Individuals are now prevented from retroactively claiming the AOTC, CTC or EITC if the individual, dependent child or student for whom the credit is claimed does not have a taxpayer identification number (TIN). In other words, the TIN must be issued prior to the due date for filing the original return in the tax year for which the credit is claimed; the IRS will deny the credit if the TIN is not issued on time. In most cases, the TIN is a Social Security number.
Disallowance Periods – When a taxpayer improperly claims the AOTC, CTC or EITC (either fraudulently or recklessly), he or she will be barred from claiming that credit for a period of time. The disallowance periods are 10 years for fraud and 2 years for reckless or intentional disregard of rules and regulations.
Preparer Due Diligence Requirements – In the past, paid tax preparers have always abided by a set of due-diligence guidelines for EITC qualification before including that credit on any return that they prepared. These due-diligence requirements have been expanded to include the CTC and the AOTC. This adds additional work for paid preparers and increases their liability for errors, as each disallowed credit could be subject to a $510 preparer penalty.
1098-T Required to Claim Education Credits – Education credits can no longer be claimed unless the taxpayer includes the employer identification number of the educational institution to which the tuition was paid. This number, as well as the other information needed to determine the credit, can be found on the Form 1098-T (Tuition Statement) issued by the educational institution. The new rules require that the taxpayer (or the dependent who is a student) receive a 1098-T form to claim the credit, although some exceptions are provided.
Refunds that Include the EITC or CTC Will Be Purposely Delayed – Refunds from returns that include an EITC or a refundable CTC will not be issued prior to February 15th, which gives the IRS additional time to verify the validity of the credit claims and to match them against the taxpayers’ income amounts and the informational returns that are filed with the IRS to verify tuition.
If you have questions related to any of the foregoing safeguards, the delayed refunds or the credits themselves, please give Dagley & Co. a call.
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“Do I have to file a tax return?” is a question heard a lot during this time of year. The answer to this popular question is a lot more complicated than many would think. To understand, one must realize the difference between being required to file a tax return vs. the benefit of filing a tax return even when it’s not required to file. We’ve put together a comprehensive description for your better understating:
When individuals are required to file-
- Generally, individuals are required to file a return if their income exceeds their filing threshold, as shown in the table below. The filing thresholds are the sum of the standard deduction for individual(s) and the personal exemption for the taxpayer and spouse (if any).
- Taxpayers are required to file if they have net self-employment income in excess of $400, since they are required to file self-employment taxes (the equivalent to payroll taxes for an employee) when their net self-employment income exceeds $400.
- Taxpayers are also required to file when they are required to repay a credit or benefit. For example, if a taxpayer acquired health insurance through a government marketplace and received advanced premium tax credit (APTC) they are required to file a return whether or not they are otherwise required to file. A return is required in order to reconcile the APTC with the premium tax credit they entitled based upon their household income for the year. So generally if you receive a 1095-A you are required to file.
- Filing is also required when a taxpayer owes a penalty, even though the taxpayer’s income is below the filing threshold. This can occur, for example, when a taxpayer has an IRA 6% early withdrawal penalty or the 50% penalty for not taking a required IRA distribution.
2016 – Filing Thresholds
Filing Status Age Threshold
Single Under Age 65 $10,350
Age 65 or Older 11,900
Married Filing Jointly Both Spouses Under 65 $20,700
One Spouse 65 or Older 21,950
Both Spouses 65 or Older 23,200
Married Filing Separate Any Age 4,050
Head of Household Under 65 $13,350
65 or Older 14,900
Qualifying Widow(er) Under 65 $16,650
with Dependent Child 65 or Older 17,900
When it is beneficial for individuals to file-
There are a number of benefits available when filing a tax return that can produce refunds even for a taxpayer who is not required to file:
- Withholding refund – A substantial number of taxpayers fail to file their return even when the tax they owe is less than their prepayments, such as payroll withholding, estimates, or a prior over-payment. The only way to recover the excess is to file a return.
- Earned Income Tax Credit (EITC) – If you worked and did not make a lot of money, you may qualify for the EITC. The EITC is a refundable tax credit, which means you could qualify for a tax refund. The refund could be as high as several thousand dollars even when you are not required to file.
- Additional Child Tax Credit – This refundable credit may be available to you if you have at least one qualifying child.
- American Opportunity Credit – The maximum for this credit for college tuition paid per student is $2,500, and the first four years of post-secondary education qualify. Up to 40% of the credit is refundable when you have no tax liability, even if you are not required to file.
- Premium Tax Credit – Lower-income families are entitled to a refundable tax credit to supplement the cost of health insurance purchased through a government Marketplace. To the extent the credit is greater than the supplement provided by the Marketplace, it is refundable even if there is no other reason to file.
For more information about filing requirements and your eligibility to receive tax credits, please contact Dagley & Co. for more information. We recommend not procrastinating, no matter what your stance on filing may be!
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Are you a wage earner with that being your primary source of income? Did you receive a very large refund, or even owe money, after your taxes? Your employer may not be withholding the correct amount of tax, but it probably isn’t their fault. Sure, you like a big refund, but you have to remember you are only getting your own money back that was over-withheld in the first place. Why not bank it and have access to it all year long instead of providing Uncle Sam with an interest-free loan?
Employers withhold tax based upon the information you provide them on Form W-4, and to adjust your withholding you will need to provide your employer with an updated W-4. Although the W-4 appears to be an easy form to fill out, this is where many taxpayers go wrong because they have other income, itemize their deductions or qualify for various tax credits.
You can solve this problem by using the IRS’s online W-4 calculator that helps taxpayers determine the correct amount of allowances to claim on their W-4. It takes into account a variety of issues, including itemized deductions, other income, tax credits, and tax already withheld.
You will need the following available before using the IRS calculator: Your (and your spouse’s if you file jointly) most recent pay stub AND A copy of your most recent income tax return.
You will be required to estimate some values, so remember the results are only going to be as accurate as the input you provide.
Click Here To Access The IRS Withholding Calculatorhttp://apps.irs.gov/app/withholdingcalculator/index.jsp
Once you have determined the filing status and allowances to claim using the IRS calculator, download a copy of Form W-4, Employee’s Withholding Allowance Certificate, fill it in and give it to your employer.
Caution: If you are uncomfortable using the IRS’s online calculator, don’t understand some of the terminology, or have multiple jobs or a working spouse, you may need professional help to determine the correct number of W-4 allowances. Also the federal W-4 allowances may not translate properly for your state withholding.
Tip: Once your employer has implemented the new W-4 allowance, double-check the withholding to make sure it is approximately what you had intended. It is not uncommon for errors to occur in an employer’s payroll department that could lead to unpleasant surprises at tax time.
If you are self-employed, you generally pay estimated taxes instead of having payroll withholding. You may be self-employed and also have salaried employment, or your spouse may have payroll income or be self-employed. There are a multitude of possible combinations. If so, the IRS withholding calculator is not suitable for your needs, and you will probably need professional assistance in determining a combination of estimated taxes and payroll withholding.
Please call Dagley & Co. for assistance in preparing your W-4s and determining your estimated tax payments.
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If you’re struggling with your money, then no doubt you may be excited about your upcoming potential tax refund.
However, that excitement may be premature if you have outstanding federal or state debts. The Treasury Department’s Bureau of the Fiscal Service (BFS) issues federal tax refunds, and Congress authorizes BFS to reduce your refund through its Treasury Offset Program (TOP) to pay:
- Past-due child and parent support;
- Federal agency non-tax debts;
- State income tax obligations; or
- Certain unemployment compensation debts owed to a state.
If you owe a debt that’s past due, it can reduce your federal tax refund and all or part of your refund may go to pay your outstanding federal or state debt if it has been submitted for tax refund offset by an agency of the federal or state government.
If you have an outstanding debt and want to be proactive, you can contact the agency with which you have a debt to determine if your debt was submitted for a tax refund offset. You may call BFS’s TOP call center at 800-304-3107 or TDD 866-297-0517, Monday through Friday, 8:30 a.m. to 6 p.m. EST.
If your debt was submitted for offset, BFS will reduce your refund as needed to pay off the debt and send it to the agency you owe. Any portion of your remaining refund after offset is issued in a check or is direct deposited as originally requested on the return.
If you choose to wait and see what happens when you file your return, BFS will send you a notice if an offset occurs. If you wish to dispute the amount taken from your refund, you will have to contact the agency that submitted the offset claim. It will be shown on the notice you will receive from the BFS.
If you filed a joint tax return, and only one spouse is responsible for the debt, the other spouse may be entitled to part of or all the refund. To request the refund of the spouse that is not responsible for the offset, you can file Form 8379, Injured Spouse Allocation. The benefits provided under the injured spouse allocation will generally not apply if you reside in a community property state.
Please contact Dagley & Co. if have you have questions about refund offsets. You’ll find our information at the bottom of this page.
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Did you know that your age can affect your tax liability? That’s right – depending on the number of candles on this year’s birthday cake, you may get a gift from Uncle Sam when you file your tax return. In some situations, the gift may not be because you reached a certain age, but will be the result of the age your dependent(s) or spouse turned this year. Unfortunately, not all of Uncle Sam’s gifts will be welcomed, because some birthdays mark the end of eligibility for certain credits or exclusions of income and others signal the start of needing to include retirement benefits in income.
Under common law, a person attains a given age on the day before his or her birthday, which can impact the taxpayer’s return for certain age-related tax issues. For example, a taxpayer whose 65th birthday is on January 1 is considered to be age 65 as of December 31 of the prior year, and eligible for an additional standard deduction amount for the prior year. However per an IRS ruling on several tax provisions—which are discussed in this article—involving children, the child attains a given age on the actual date the child was born, instead of the day before.
If you or someone in your tax family attains one of the following ages this year, here’s how your tax return may be impacted:
Age 0 – Well, OK, zero isn’t really an age; but, if your dependent is born in 2015, you can claim a $4,000 exemption allowance for the child. Exemptions are subtracted from your gross income to determine your taxable income, and your taxable income determines your marginal tax bracket. So, for example, if you are in the 25% tax bracket, each exemption allowance reduces your tax by $1,000.
Age 13 – If you qualify to claim a credit for child care expenses that you pay so that you (or if married filing a joint return, you and your spouse) can work or look for work, and the qualifying child who is your dependent turns 13 years old in 2015, only the expenses for care up to the date of the child’s 13th birthday will be eligible for the credit. Similarly, if you receive dependent care benefits from your employer, the value of those benefits is excludable from your income only for care before the child turns 13. An exception to the age limit applies if the dependent child is not physically or mentally able to care for himself or herself.
Age 17 – One of the requirements for the child tax credit is that the qualifying child be younger than 17 at the end of the tax year. Thus, if your child turns 17 during 2015, you will not be allowed to claim the child tax credit for this child for 2015 or any future year. The amount of the credit is $1,000 per eligible child, subject to a phase-out based on your adjusted gross income (AGI).
Age 18 – To claim an adoption credit for expenses you paid to adopt a child, the child must have been younger than 18 at the time you paid or incurred the expenses. A child turning 18 during the year is an eligible child for the part of the year he or she was younger than 18. The age limitation does not apply if the person you adopted is physically or mentally unable to take care of himself or herself.
Age 19 – To be a qualifying child for dependency purposes, the child must be younger than 19 as of the end of the year (or younger than 24 if a full-time student). So, if your child’s 19th birthday was in 2015 and he or she is not a full-time student for some part of at least 5 months during the year, you can’t claim the child as a dependent under the definition of a qualifying child. (Once again, the age limitation does not apply for a child who is unable to physically or mentally provide self-care.) Depending upon both the child’s income and who provided the majority of the child’s support, you may be able to use a different definition to claim the dependency.
Age 24 – If you’ve been claiming your older-than-18 child as a dependent based on the child being a full-time student who doesn’t provide more than half of his or her own support, you won’t be able to claim the child’s dependency under that rule starting in the year the child has his or her 24th birthday. Depending on the child’s gross income and other factors, you may still be entitled to the dependency exemption, but under the “other” dependent rules and not the “qualifying child” rules.
Age 25 – If you are a lower-income taxpayer who is at least 25 years old before the end of the year, and you do not have a qualifying child, you may be eligible for the earned income credit. If you are married, and file a joint return, either you or your spouse must meet the age requirement. This age requirement for the earned income credit does not apply if you have a qualifying child.
Age 27 – There are various provisions of the Patient Protection and Affordable Care Act that apply to a child younger than 27 (i.e., one who has not had his or her 27th birthday) as of the end of the year. For example, your younger-than-27 child may be included on your health insurance plan, even if the child is not your dependent. If you are self-employed, the premiums you paid for the health insurance coverage of a child younger than 27 can be included as part of the above-the-line deduction of health insurance costs you may be able to deduct.
Age 50 – If you are a qualified public safety employee, such as a police officer or fireman who separates from service after age 50 and takes a distribution from your government employer’s defined benefit pension plan, the 10% early withdrawal penalty will not apply.
Age 55 – If you take a distribution from your employer’s qualified retirement plan after separation from service in or after the year you reach age 55, the distribution is not subject to the 10% penalty that usually applies when distributions are taken before age 59 1/2. To qualify for this exception to the penalty, you must be age 55 or older, and then separate from employment. This provision does not apply to IRAs.
Age 59 1/2 – Once you’ve reached age 59 1/2, distributions from your qualified retirement plans and traditional IRAs are no longer considered to be early distributions and, therefore, are not subject to the 10% early withdrawal penalty. However, in most cases, all of the distribution amount is includible in your income and will be taxed.
Age 62 – Many individuals opt to start receiving their Social Security benefits – albeit at a reduced amount than if they had waited until they reached full retirement age – when they first become eligible to receive the payments, generally at age 62. If this is your first year for collecting SS benefits (whether at age 62 or another age), you may be surprised to learn that part of the benefits may be taxable. Depending on your other income and filing status, 50% to 85% of the benefits may be taxable.
Age 65 – As mentioned above, starting with the year you reach age 65, you are eligible for an additional standard deduction amount. For 2015, the extra amount is $1,550 for a taxpayer filing as single or head of household or $1,250 for those filing married joint, married separate or a qualifying widow(er). There is no extra deduction if you itemize your deductions. If you file a joint return, you and your spouse, if he or she is also age 65 or older, are each allowed the additional amount.
Through 2016, if you itemize deductions and either you or your spouse – if filing a joint return – is age 65 by the end of the year, you need to reduce your medical expenses by only 7.5% of AGI instead of the 10% reduction rate that applies to other taxpayers. If you are subject to the alternative minimum tax, only medical expenses exceeding 10% of your regular AGI are deductible for the AMT computation.
If you’ve been claiming the earned income credit without having a dependent child, you will no longer be eligible for the credit starting in the year you turn 65.
Contributions to a health savings account (HSA) are not permitted once you are entitled to benefits under Medicare, meaning you are eligible for and have enrolled in Medicare. Most individuals become Medicare eligible and enroll at age 65. Contributions to the HSA may continue until the month you are actually enrolled in Medicare.
Age 70 1/2 – If you turned 70 1/2 in 2015, distributions from your traditional IRA must begin by April 1, 2016; otherwise, a minimum distribution penalty can apply. You must continue to take distributions annually. Not only must you take distributions after turning 70 1/2, the law specifies how the minimum distribution is to be calculated. You may take a larger distribution, but the amount in excess of the required minimum distribution amount cannot be used to reduce future required distributions. You are considered age 70 1/2 on the date that is 6 calendar months after the 70th anniversary of your birth.
In general, if you are or were an employee whose employer has a qualified plan, distributions from the qualified plan must begin no later than April 1 of the year following the year in which you attain age 70 1/2 or (except if you are a 5 percent owner), if later, you retire. This “retirement, if later” exception does not apply to IRAs.
If you were required to take your first distribution in 2015 but delay the withdrawal until April 1 of 2016, you will then have two distributions to include in your 2016 income, since the regular 2016 distribution must be taken by December 31 of that year.
You cannot make a contribution to a traditional IRA for the year in which you reach age 70 1/2 or for any later year. Contributions to Roth IRAs, however, are allowed regardless of age provided you have wages, self-employment income or alimony income.
If you or a member of your tax family celebrated a milestone birthday (or half-birthday) this year and you have questions as to how the tax implications of that event will affect your return, please get in touch with us at Dagley & Co.
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