Tax Rules for Children with Investment Income

Children who receive investment income are subject to special tax rules that affect how parents must report a child’s investment income. Some parents can include their child’s investment income on their tax return while other children may have to file their own tax return. If a child cannot file his or her own tax return for any reason, such as age, the child’s parent or guardian is responsible for filing a return on the child’s behalf.

Here’s what you need to know about tax liability and your child’s investment income.

1. Investment income normally includes interest, dividends, capital gains and other unearned income, such as from a trust.

2. Special rules apply if your child’s total investment income in 2015 is more than $2,100 ($2,000 in 2014). The parent’s tax rate may apply to a part of that income instead of the child’s tax rate.

3. If your child’s total interest and dividend income are less than $10,500 ($10,000 in 2014), then you may be able to include the income on your tax return. If you make this choice, the child does not file a return. Instead, you file Form 8814, Parents’ Election to Report Child’s Interest and Dividends, with your tax return.

4. If your child received investment income of $10,500 or more in 2015 ($10,000 in 2014), then he or she will be required to file Form 8615, Tax for Certain Children Who Have Investment Income of More Than $2,100, with the child’s federal tax return for tax year 2015.

In addition, starting in 2013, a child whose tax is figured on Form 8615, Tax for Certain Children Who Have Unearned Income, may be subject to the Net Investment Income Tax. NIIT is a 3.8 percent tax on the lesser of either net investment income or the excess of the child’s modified adjusted gross income that is over a threshold amount.

If you have any questions about tax rules for your child’s investment income in 2015, don’t hesitate to call our office.

Hold On to Your Tax Returns; Options for Students, Others to Get Help with Tax Information

The IRS recommends that you always keep a copy of your tax return for your records. You may need copies of your filed tax returns for many reasons. For example, they can help you prepare future tax returns. You’ll also need them if you have to amend a prior year tax return. You often need them when you apply for a loan to buy a home or to start a business. You may need them if you apply for student financial aid.

If you can’t find your copies, the IRS can provide a transcript of the tax information you need, or a copy of your tax return. Here’s more information, including how to get your federal tax return information from the IRS:

• Transcripts are free and you can get them for the current year and the past three years. In most cases, a transcript includes the tax information you need.
• A tax return transcript shows most line items from the tax return that you filed. It also includes items from any accompanying forms and schedules that you filed. It doesn’t reflect any changes you or the IRS may have made after you filed your original return.
• A tax account transcript includes your marital status, the type of return you filed, your adjusted gross income and taxable income. It does include any changes that you or the IRS made to your tax return after you filed it.
• You can order your free transcripts online, by phone, by mail or fax at this time.
• The IRS has temporarily stopped the online functionality of the Get Transcript application process on the IRS.gov website that delivered your transcript immediately. The IRS is making modifications and further strengthening security for the online service. While you can still use the Get Transcript tool to order your transcript, the IRS will send it to you via mail to the last address we have on file for you.

• To order your transcript online and have it delivered by mail, go to IRS.gov and use the Get Transcript tool.
• To order by phone, call 800-908-9946 and follow the prompts.
• To request an individual tax return transcript by mail or fax, complete Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses and individuals who need a tax account transcript should use Form 4506-T, Request for Transcript of Tax Return.
• You should receive your transcript within five to 10 days from the time the IRS receives your request. Please note that ordering your transcript online or over the phone are the quickest options.
• Keep in mind that the method you used to file your return and whether you have a refund or balance due affects your current year transcript availability. Use this chart to determine when you can order your transcript.
• If you need a copy of your filed and processed tax return, it will cost $50 for each tax year. You should complete Form 4506, Request for Copy of Tax Return, to make the request. Mail it to the IRS address listed on the form for your area. Copies are generally available for the current year and past six years. You should allow 75 days for delivery.

Mortgage Applicants. If you are applying for a mortgage, most mortgage companies only require a tax return transcript for income verification purposes and participate in our IVES (Income Verification Express Service) program. If you need to order a transcript, please follow the process described above and have it mailed to the address we have on file for you. Please plan accordingly and allow for time for delivery.

Disaster Victims. If you live in a federally declared disaster area, you can get a free copy of your tax return. Visit IRS.gov for more disaster relief information.

Financial Aid Applicants. If you are applying for financial aid, you can use the IRS Data Retrieval Tool on the FAFSA website to import your tax return information to your financial aid application. The temporary shutdown of the Get Transcript tool does not affect the Data Retrieval Tool. You may also click on their help page for more information.

If you need a copy of your transcript you should follow the information above to request it as soon as possible. It takes 5 to 10 calendar days for transcripts to arrive at the address the IRS has on file for you.

Identity Theft Victims. Did you receive a notice from the IRS about a suspicious return? Has the IRS notified you that it did not accept your e-filed return because of a duplicate Social Security Number? If you answered yes to either question, then you may be a victim of tax-related identity theft. If you are a tax-related identity theft victim you first need to file the Identity Theft Affidavit. If you are waiting for the IRS to resolve your case but need a transcript, you will need to call our Identity Protection Specialized Unit line to process your request. You can call the Unit at 800-908-4490. For more information please review our Taxpayer Guide to Identity Theft.

Tax forms are available 24/7 on IRS.gov/forms. You can also call 800-829-3676 to get them by mail.

If you have any questions about your personal taxes, please feel free to contact our office.

Source: IRS

Ten Key Tax Facts about Home Sales

In most cases, gains from sales are taxable. But did you know that if you sell your home, you may not have to pay taxes? Here are ten facts to keep in mind if you sell your home this year.

1. Exclusion of Gain.  You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.
2. Exceptions May Apply.  There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, see Publication 523, Selling Your Home.
3. Exclusion Limit.  The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
4. May Not Need to Report Sale.  If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
5. When You Must Report the Sale.  You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the Net Investment Income Tax on IRS.gov.
6. Exclusion Frequency Limit.  Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.
7. Only a Main Home Qualifies.  If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
8. First-time Homebuyer Credit.  If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, see Publication 523.
9. Home Sold at a Loss.  If you sell your main home at a loss, you can’t deduct the loss on your tax return.
10. Report Your Address Change.  After you sell your home and move, update your address with the IRS. To do this, file Form 8822, Change of Address. You can find the address to send it to in the form’s instructions on page two. If you purchase health insurance through the Health Insurance Marketplace, you should also notify the Marketplace when you move out of the area covered by your current Marketplace plan.

Additional IRS Resources:

Publication 5152: Report changes to the Marketplace as they happen.

If you have any questions about your personal taxes, please feel free to contact our office.

Source: IRS

Find Out if Your Health Coverage is Qualifying Coverage under the Health Care Law

The Affordable Care Act requires you and each member of your family to have qualifying health care coverage, qualify for an exemption from the responsibility to have minimum essential coverage, or make an individual shared responsibility payment when you file your federal income tax return. For purposes of ACA, qualifying health care coverage is also known as minimum essential coverage.

Minimum essential coverage includes:

Health plans offered in the individual market – plans offered by a health insurance issuer licensed by a state, including a qualified health plan offered through the federally-facilitated or a state-based Health Insurance Marketplace

Grandfathered health plans – plans that were in existence on March 23, 2010 and haven’t been changed in ways that substantially cut benefits or increase costs for consumers – for more information, visit HealthCare.gov

Government-sponsored programs

• Medicare Part A
• Medicaid, except for certain programs
• The Children’s Health Insurance Program, better known as CHIP
• Coverage under the TRICARE program, except for certain programs
• Coverage consisting of the medical benefits package for eligible veterans
• Civilian Health and Medical Program of the Department of Veterans Affairs
• Comprehensive health care for children suffering from spina bifida who are the children of Vietnam veterans and veterans of covered service in Korea
• A health plan for Peace Corps volunteers
• The Non-appropriated Fund Health Benefits Program of the Department of Defense

Employer-sponsored plans – coverage that you have through your employer, including:

• A plan or coverage offered in the small or large group market within a state
• A self-insured group health plan for employees
• The Non-appropriated Fund Health Benefits Program of the Department of Defense
• A governmental plan, such as the Federal Employees Health Benefits Program
• COBRA coverage
• Retiree coverage

Other coverage designated by the Department of Health and Human Services

• Coverage under Medicare Part C – Medicare Advantage
• Refugee Medical Assistance
• Employer coverage provided to business owners who are not employees
• Coverage under a group health plan provided through insurance regulated by a foreign government if it meets certain requirements

Minimum essential coverage does not include coverage that may provide limited benefits.

For more information about minimum essential coverage, visit IRS.gov/aca and HealthCare.gov.

If you have any questions, please contact our office.

Source: IRS

Tips on Travel While Giving Your Services to Charity

Do you plan to donate your services to charity this summer? Will you travel as part of the service? If so, some travel expenses may help lower your taxes when you file your tax return next year. Here are several tax tips that you should know if you travel while giving your services to charity.

• Qualified Charities.  In order to deduct your costs, your volunteer work must be for a qualified charity. Most groups must apply to the IRS to become qualified. Churches and governments are qualified, and do not need to apply to the IRS. Ask the group about its IRS status before you donate. You can also use the Select Check tool on IRS.gov to check the group’s status.

• Out-of-Pocket Expenses.  You may be able to deduct some costs you pay to give your services. This can include the cost of travel. The costs must be necessary while you are away from home giving your services for a qualified charity. All  costs must be:

o Unreimbursed,

o Directly connected with the services,

o Expenses you had only because of the services you gave, and

o Not personal, living or family expenses.

• Genuine and Substantial Duty.  Your charity work has to be real and substantial throughout the trip. You can’t deduct expenses if you only have nominal duties or do not have any duties for significant parts of the trip.

• Value of Time or Service.  You can’t deduct the value of your services that you give to charity. This includes income lost while you work as an unpaid volunteer for a qualified charity.

• Deductible travel.  The types of expenses that you may be able to deduct include:

o Air, rail and bus transportation,

o Car expenses,

o Lodging costs,

o The cost of meals, and

o Taxi or other transportation costs between the airport or station and your hotel.

• Nondeductible Travel.  Some types of travel do not qualify for a tax deduction. For example, you can’t deduct your costs if a significant part of the trip involves recreation or a vacation.

For more on these rules, see Publication 526, Charitable Contributions.

If you have any questions about your personal or business taxes, please feel free to contact our office.

Source: IRS

A New Twist on IRS Audits

The IRS has recently been sending out examination letters that limit the amount of time the taxpayer is given to respond.  These are known as Short Timeframe Audits.  In some cases, as little as 15 days are provided for you to contact the IRS and provide the requested documents.

The Short Timeframe Audit usually begins with IRS Letter 3572, which is a request for an appointment.  If you do not contact the IRS within the initial 10 days, a second IRS letter (Letter 5262) is sent with an examination report and a 15-day time limit to respond.  Additional tax years are oftentimes opened for audit at this time.  It has been reported that, in some instances, both IRS letters are mailed out on the same date, giving you just 15 days total to respond.  If you do not contact the IRS within the 15-day time period, the case is closed and sent to the Notice of Deficiency unit – thereby losing your option for a local appeal.

If you have moved since your tax return was filed, or are on vacation or an extended business trip, or in the hospital, you may very well not even see the letters until the due dates have already passed.  What should you do?

First of all, do not ever procrastinate contacting your tax accountant when you receive one of these letters, or any correspondence from the IRS for that matter!  Contact us immediately and begin gathering the requested documents.  We will likely need to prepare a Power of Attorney for you to sign giving us permission to speak to the IRS on your behalf.  Even if the time limit has passed for the second IRS letter, we can find out if the case is still with the examiner and possibly open it up.  If the case has been closed and sent on to the Notice of Deficiency unit, it will be a much longer process to deal with – as long as 12 to 24 months.

If you need help with an IRS notice, please contact us and we help you get things sorted out.

10 Life Events That Require Financial Planning

Sometimes, even the best events in life – a birth, new job or dream relocation – require a financial plan. They might necessitate the need for more insurance coverage, a new budget or guidance from a financial advisor. Here are 10 positive events that should inspire you to do some financial planning:

1. The opportunity to buy a vacation home.

Summer rental homes can represent bliss; a great escape you’ve had every year. Then, the landlord offers a sweet insider price you can’t refuse. Summer homes are often bought as emotions rise at the end of the season. But purchasing a vacation home – especially one that requires rental income to finance – can be a complicated long-term commitment. A financial planner, not a real estate agent, can tell you what to consider.

2. You got that big raise you’ve been counting on for years.

Pay raises are typically small and incremental if they come at all, so getting a big raise is cause for celebration. They also mean it’s time to do some planning to determine how much you should be saving for the future, too. It might be time to bump up your retirement savings.

3. Wedding bells are ringing, finally.

Couples might be marrying later these days than they used to, so when they finally do tie the knot, combining finances can be even more complicated. Prenups might be a buzzkill, but they can help protect each person’s savings and prevent any misunderstandings. They are especially important if either member of the couple is bringing financial responsibilities like children into the marriage.

4. You got your diploma.

Graduates might not think they have enough money to talk to a financial planner. But they face key money choices as they start repaying their share of the overall $1 trillion in college debt with “starter” jobs. They could use help prioritizing payments for credit cards and student loans.

5. You’re relocating.

The 50 states can be as different as moving to another country. Tax rates differ and cost of living can shift dramatically. There are scores of moving-related expenses. This might be the time to see a financial planner (consider national firms with offices in new and old locations) who offers hourly rates for one-time consultations.

6. You just got an inheritance.

Baby boomers stand to inherit significant wealth in the coming years, and receiving lump sums also carries with it financial responsibility. It can raise questions about spending habits, charitable contributions, tax payments and a slew of other concerns. You might want to get help from a professional as you figure out how to handle the money.

7. You’re expecting a new arrival in the family.

When the baby arrives, life inevitably gets more complicated. It could be worth it to fit in some financial planning alongside baby naming or stroller shopping. You might want to open a 529 account, for example, to start paying for college, as well as take out additional life insurance policies.

8. You got a job.

Parents, consider paying a one-time fee to a planner as a gift to your child (and to yourself, since it makes your child more independent). Kids might act like they just want to have fun, but they often need – and even want – guidance during this key life transition.

9. You get offered a generous severance package.

Emotions often run high when your employer offers a big severance package. Some people want to call a lawyer to get more, others a travel agent to get out. It’s important to understand the complex financial issues associated with severance packages. Most plans are immediately taxable, for example, and you want to make sure you understand all the fine print before you sign on the dotted line.

10. You retire.

Retirement is considered the pivotal financial moment in a person’s life. If you haven’t already worked with a financial planner to figure out your plans and budget, then now is the time. In fact, financial advisors urge even clients in their 20’s and 30’s to start planning for this major life transition, to make sure they’re saving enough along the way, during their peak earning years. It’s also a good time to reflect on what you want out of the final third of life.

If you have any questions about your personal finances or starting a budget, please feel free to contact our office.

Review Your Taxes This Summer to Prevent a Surprise Next Spring

Each year, many people get a larger refund than they expected. Some find they owe a lot more tax than they thought they would. If this happened to you, review your situation to prevent another tax surprise. Did you marry? Have a child? Have a change in income? Some life events can have a major effect on your taxes. You can bring the tax you pay closer to the amount you owe. Here are some key IRS tips to help you come up with a plan of action:

• New Job.   When you start a new job, you must fill out a Form W-4, Employee’s Withholding Allowance Certificate and give it to your employer. Your employer will use the form to figure the amount of federal income tax to withhold from your pay. Use the IRS Withholding Calculator on IRS.gov to help you fill out the form. This tool is easy to use and it’s available 24/7.
• Estimated Tax.  If you earn income that is not subject to withholding you may need to pay estimated tax. This may include income such as self-employment, interest, dividends or rent. If you expect to owe a thousand dollars or more in tax, and meet other conditions, you may need to pay this tax. You normally pay it four times a year. Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to figure the tax.
• Life Events.  Check to see if you need to change your Form W-4 or change the amount of estimated tax you pay when certain life events take place. A change in your marital status, the birth of a child or buying a new home can change the amount of taxes you owe. In most cases, you can submit a new Form W–4 to your employer anytime.
• Changes in Circumstances.   If you are receiving advance payments of the premium tax credit, it is important that you report changes in circumstances, such as changes in your income or family size, to your Health Insurance Marketplace. You should also notify the Marketplace when you move out of the area covered by your current Marketplace plan. Advance payments of the premium tax credit help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

For more see Publication 505, Tax Withholding and Estimated Tax.

Additional IRS Resources:

• Publication 5152: Report changes to the Marketplace as they happen.
• IRS Withholding Calculator

If you have any questions about your personal taxes, please feel free to contact our office.

Source: IRS

Keep Track of Miscellaneous Deductions

Miscellaneous deductions can cut taxes. These may include certain expenses you paid for in your work if you are an employee. You must itemize deductions when you file to claim these costs. So if you usually claim the standard deduction, think about itemizing instead. You might pay less tax if you itemize.  Here are some IRS tax tips you should know that may help you reduce your taxes:

Deductions Subject to the Limit.  You can deduct most miscellaneous costs only if their sum is more than two percent of your adjusted gross income. These include expenses such as:

• Unreimbursed employee expenses.
• Job search costs for a new job in the same line of work.
• Some work clothes and uniforms.
• Tools for your job.
• Union dues.
• Work-related travel and transportation.
• The cost you paid to prepare your tax return. These fees include the cost you paid for tax preparation software. They also include any fee you paid for e-filing of your return.

Deductions Not Subject to the Limit.  Some deductions are not subject to the two percent limit. They include:

• Certain casualty and theft losses. In most cases, this rule applies to damaged or stolen property you held for investment.  This may include property such as stocks, bonds and works of art.
• Gambling losses up to the total of your gambling winnings.
• Losses from Ponzi-type investment schemes.

There are many expenses that you can’t deduct. For example, you can’t deduct personal living or family expenses. You claim allowable miscellaneous deductions on Schedule A, Itemized Deductions. For more about this topic see Publication 529, Miscellaneous Deductions.

If you have any questions about your personal taxes, please feel free to contact our office.

Source: IRS

Self-Insured Employers Must File Health Coverage Information Returns

Regardless of size, all employers that provide self-insured health coverage to their employees are treated as coverage providers. These employers must file an annual return reporting certain information for each employee they cover.

As coverage providers, these employers must:

• File a Form 1095-B, Health Coverage, with the IRS, accompanied by a Form 1094-B transmittal. Filers of more than 250 Forms 1095-B must e-file. The IRS allows and encourages entities with fewer than 250 forms to e-file.
• Furnish a copy of the 1095-B to the responsible individual – generally the primary insured, employee, parent or uniformed services sponsor. You may electronically furnish the Form 1095-B.

If a provider is an applicable large employer also providing self-insured coverage, it reports covered individuals on Form 1095-C instead of Form 1095-B. Form 1095-C combines reporting for two provisions of the Affordable Care Act for these employers.

The information reporting requirements are first effective for coverage provided in 2015.  Thus, health coverage providers will file information returns with the IRS in 2016, and will furnish statements to individuals in 2016, to report coverage information in calendar year 2015.

The information that a provider must report to the IRS includes the following:

• The name, address, and employer identification number of the provider.
• The responsible individual’s name, address, and taxpayer identification number, or date of birth if a TIN is not available.  If the responsible individual is not enrolled in the coverage, providers may, but are not required to, report the TIN of the responsible individual.
• The name and TIN, or date of birth if a TIN is not available, of each individual covered under the policy or program and the months for which the individual was enrolled in coverage and entitled to receive benefits.

For more information, see Questions and Answers on Information Reporting by Health Coverage Providers on IRS.gov/aca.  Employers who provide self-insured coverage should review Publication 5125, Responsibilities for Health Coverage Providers. Applicable large employers should review Publication 5196, Reporting Requirements for Applicable Large Employers.

If you have any questions about your health care insurance or business taxes, please feel free to contact our office.

Source: IRS