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

How Annual Bonuses Are Taxed — 7 Common Questions Answered

Everybody loves an annual bonus. Not everyone understands how bonuses affect their tax returns, however, or even what is considered to be a bonus by the Internal Revenue Service (IRS).

Sometimes, when people receives an annual bonus from their employer, they are surprised at how small it is after tax. They may even wonder if their employer correctly calculated the withholding tax.

Following are some common questions about bonuses and the IRS, along with the answers you need to know.

Why does my employer withhold more from my bonus than from regular pay?

If you receive a bonus or other supplemental income separate from your regular pay, your employer must use an IRS-approved method to determine how much tax should be withheld.

Your employer calculates the withholding amount based on your pay, the time period, and the information on the IRS Form W-4 you filled out.

Alternatively, your employer has the option of withholding a flat 25 percent income tax from your bonus amount.

Are bonuses subject to payroll taxes?

Yes, you and your employer must pay payroll taxes on bonuses, just as you do with your regular pay.

Could my employer have made a mistake?

It happens. If your payroll department calculates withholding tax by hand, they could inadvertently read the wrong column or look at an incorrect form.

Even companies that use payroll software or services can accidentally enter the wrong information.

Most of the time, however, the withholding tax on bonuses is calculated according to IRS rules. If you have questions about the amount withheld from your bonus, the best first step is to talk to your payroll department.

I’m sure they withheld more tax than necessary. What can I do?

Assuming your employer calculated the bonus withholding correctly, you cannot get the withheld tax back from the IRS until you file next year’s tax return.

An easy way to even out the amount you have withheld is to file a new Form W-4. Adjusting your withholdings can reduce the amount of tax withheld from your pay for the rest of the year. Be sure to file another Form W-4 next year or whenever you need to adjust it again.

How can I prevent overwithholding from my bonus next year?

The easiest way to have less tax withheld from your bonus and your regular pay is to claim additional withholding allowances on Form W-4. Ask for a new form from your payroll department or get one from the IRS website.

Keep in mind that you can claim as many allowances as you need to in order to have the correct amount withheld from your pay.

You are not limited to the number of dependents you have or to the amount you calculate on the IRS worksheet.

Ask your payroll department how long it takes for a new Form W-4 to take effect, and submit the new form before you expect a bonus check. Do not send the form to the IRS.

You can file another Form W-4 after you receive your bonus, or at any time during the year when you need to change your withholding amount.

What counts as a bonus for tax purposes?

A bonus, according to the IRS, is any payment made from an employer to an employee that is in addition to regular compensation.

It can be cash or non-cash. A holiday bonus is taxable, even if it is presented as a gift. If you receive a small non-cash holiday gift from your employer, such as a ham or popcorn tin, you don’t have to claim it as a bonus, however.

The IRS specifically excludes such “de minimus fringe benefits” from taxation.

Can getting a bonus bump me into a higher tax bracket?

It’s possible that a bonus, or an increase in pay, can put you in a higher tax bracket. That means you will pay a higher tax rate on each additional dollar you earn.

Some people think they may actually have less after-tax income because of a bonus, but this is not true.

Being in a higher tax bracket does not change the rate you pay on everything you earn – only the rate you pay on taxable income that exceeds a certain amount.

So, relax and enjoy your bonus!

If You Get an IRS Notice, Here’s What to Do

Each year the IRS mails millions of notices and letters to taxpayers. If you receive a notice from the IRS, here is what you should do:

• Don’t Ignore It. You can respond to most IRS notices quickly and easily. It is important that you reply right away.

• Focus on the Issue. IRS notices usually deal with a specific issue about your tax return or tax account. Understanding the reason for your notice is important before you can comply.

• Follow Instructions. Read the notice carefully. It will tell you if you need to take any action to resolve the matter. You should follow the instructions.

• Correction Notice. If it says that the IRS corrected your tax return, you should review the information provided and compare it to your tax return.

  If you agree, you don’t need to reply unless a payment is due.

  If you don’t agree, it’s important that you respond to the IRS. Write a letter that explains why you don’t agree. Make sure to include information and any documents you want the IRS to consider. Include the bottom tear-off portion of the notice with your letter. Mail your reply to the IRS at the address shown in the lower left part of the notice. Allow at least 30 days for a response from the IRS.

• Premium Tax Credit. The IRS may send you a letter asking you to clarify or verify your premium tax credit information. The letter may ask for a copy of your Form 1095-A, Health Insurance Marketplace Statement. You should follow the instructions on the letter that you receive. This will help the IRS verify information and issue the appropriate refund.

• No Need to Visit IRS. You can handle most notices without calling or visiting the IRS. If you do have questions, call the phone number in the upper right corner of the notice. You should have a copy of your tax return and the notice with you when you call.

• Keep the Notice. Keep a copy of the notice you get from the IRS with your tax records.

Watch Out for Scams. Don’t fall for phone and phishing email scams that use the IRS as a lure. The IRS first contacts people about unpaid taxes by mail – not by phone. The IRS does not initiate contact with taxpayers by email, text or social media.

If you have received a letter in the mail from the IRS and you have questions, please feel free to contact our office. We would be glad to help you get your taxes sorted out.

Source: IRS

 

Five Key Points About Children With Investment Income

Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five key points to keep in mind if your child has investment income:

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

2. Parent’s tax rate. If your child’s total investment income is more than $2,000 then your tax rate may apply to part of that income instead of your child’s tax rate. See the instructions for Form 8615, Tax for Certain Children Who Have Unearned Income.

3. Parent’s return. You may be able to include your child’s investment income on your tax return if it was less than $10,000 for the year. If you make this choice, then your child will not have to file his or her own return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends, for more.

4. Child’s return. If your child’s investment income was $10,000 or more in 2014 then the child must file their own return. File Form 8615 with the child’s federal tax return.

5. Net Investment Income Tax. Your child may be subject to the Net Investment Income Tax if they must file Form 8615. Use Form 8960, Net Investment Income Tax, to figure this tax.

Refer to IRS Publication 929, Tax Rules for Children and Dependents, for complete details on this topic.

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

Source: IRS

Reporting Gambling Income and Losses on Your Tax Return

If you play the ponies, play cards or pull the slots, your gambling winnings are taxable. You must report them on your tax return. If you gamble, these IRS tax tips can help you at tax time next year:

1. Gambling income.  Income from gambling includes winnings from the lottery, horse racing and casinos. It also includes cash and non-cash prizes. You must report the fair market value of non-cash prizes like cars and trips.

2. Payer tax form.  If you win, the payer may give you a Form W-2G, Certain Gambling Winnings. The payer also sends a copy of the W-2G to the IRS. The payer must issue the form based on the type of gambling, the amount you win and other factors. You’ll also get a form W-2G if the payer must withhold income tax from what you win.

3. How to report winnings.  You normally report your winnings for the year on your tax return as “Other Income.” You must report all your gambling winnings as income. This is true even if you don’t receive a Form W-2G.

4. How to deduct losses. You can deduct your gambling losses on Schedule A, Itemized Deductions. The amount you can deduct is limited to the amount of the gambling income you report on your return.

5. Keep gambling receipts.  You should keep track of your wins and losses. This includes keeping items such as a gambling log or diary, receipts, statements or tickets.

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

Tax Tips for Members of the Military

 

Special tax benefits apply to members of the U. S. Armed Forces. For example, some types of pay are not taxable. And special rules may apply to some tax deductions, credits and deadlines. Here are ten of those benefits:

1. Deadline Extensions. Some members of the military, such as those who serve in a combat zone, can postpone some tax deadlines. If this applies to you, you can get automatic extensions of time to file your tax return and to pay your taxes.

2. Combat Pay Exclusion. If you serve in a combat zone, certain combat pay you get is not taxable. You won’t need to show the pay on your tax return because combat pay isn’t included in the wages reported on your Form W-2, Wage and Tax Statement. Service in support of a combat zone may qualify for this exclusion.

3. Earned Income Tax Credit. If you get nontaxable combat pay, you may choose to include it to figure your EITC. You would make this choice if it increases your credit. Even if you do, the combat pay stays nontaxable.

4. Moving Expense Deduction. You may be able to deduct some of your unreimbursed moving costs. This applies if the move is due to a permanent change of station.

5. Uniform Deduction. You can deduct the costs of certain uniforms that regulations prohibit you from wearing while off duty. This includes the costs of purchase and upkeep. You must reduce your deduction by any allowance you get for these costs.

6. Signing Joint Returns. Both spouses normally must sign a joint income tax return. If your spouse is absent due to certain military duty or conditions, you may be able to sign for your spouse. In other cases when your spouse is absent, you may need a power of attorney to file a joint return.

7. Reservists’ Travel Deduction. If you’re a member of the U.S. Armed Forces Reserves, you may deduct certain costs of travel on your tax return. This applies to the unreimbursed costs of travel to perform your reserve duties that are more than 100 miles away from home.

8. Nontaxable ROTC Allowances. Active duty ROTC pay, such as pay for summer advanced camp, is taxable. But some amounts paid to ROTC students in advanced training are not taxable. This applies to educational and subsistence allowances.

9. Civilian Life. If you leave the military and look for work, you may be able to deduct some job hunting expenses. You may be able to include the costs of travel, preparing a resume and job placement agency fees. Moving expenses may also qualify for a tax deduction.

10. Tax Help. Although most military bases offer free tax preparation and filing assistance during the tax filing season, you may need to contact an accounting professional during other times of the year. Don’t hesitate to contact the office with any questions you have about your taxes–no matter what time of the year it is.

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

Include a Few Tax Items in Your Summer Wedding Checklist

If you’re preparing for summer nuptials, make sure you do sometax planning as well. A few steps taken now can make tax time easier next year. Here are some tips from the IRS to help keeptax issues that may arise from your marriage to a minimum:

• Change of name. All the names and Social Security numbers on your tax return must match your Social Security Administration records. If you change your name, report it to the SSA. To do that, file Form SS-5, Application for a Social Security Card. The easiest way for you to get the form is to download and print it on SSA.gov. You can also call SSA at 800-772-1213 to order the form, or get it from your local SSA office.
• Change tax withholding. When you get married, you should consider a change of income tax withholding. To do that, give your employer a new Form W-4, Employee’s Withholding Allowance Certificate. The withholding rate for married people is lower than for those who are single. Some married people find that they do not have enough tax withheld at the married rate. For example, this can happen if you and your spouse both work. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4. See Publication 505, Tax Withholding and Estimated Tax, for more information. You can get IRS forms and publications on IRS.gov/forms at any time.
• Changes in circumstances. If you receive advance payments of the premium tax credit you should report changes in circumstances, such as your marriage, to your Health Insurance Marketplace. Other changes that you should report include a change in your income or family size. Advance payments of the premium tax credit provide financial assistance to help you pay for the insurance you buy through the Health Insurance Marketplace. Reporting changes in circumstances will allow the Marketplace to adjust your advance credit payments. This adjustment will help you avoid getting a smaller refund or owing money that you did not expect to owe on your federal tax return.
• Change of address. Let the IRS know if you move. To do that, file Form 8822, Change of Address, with the IRS. You should also notify the U.S. Postal Service. You can change your address online at USPS.com, or report the change at your local post office.
• Change in filing status. If you are married as of Dec. 31, that is your marital status for the entire year for taxpurposes. You and your spouse can choose to file your federal tax return jointly or separately each year. It is a good idea to figure the tax both ways so you can choose the status that results in the least tax.

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

Source: IRS

Read This Before Tossing Old Tax Records

Now that your taxes have been completed for 2014, you are probably wondering what old tax records can be discarded. If you are like most taxpayers, you have records from years ago that you are afraid to throw away. It would be helpful to understand why the records must be kept in the first place.

Generally, we keep tax records for two basic reasons: (1) in case the IRS or a state agency decides to question the information reported on our tax returns, and (2) to keep track of the tax basis of our capital assets so that the tax liability can be minimized when we dispose of them.

With certain exceptions, the statute for assessing additional taxes is three years from the return due date or the date the return was filed, whichever is later. However, the statute of limitations for many states is one year longer than the federal law. In addition to lengthened state statutes clouding the recordkeeping issue, the federal three-year assessment period is extended to six years if a taxpayer omits from gross income an amount that is more than 25 percent of the income reported on a tax return. And, of course, the statutes don’t begin running until a return has been filed. There is no limit where a taxpayer files a false or fraudulent return to evade taxes.

If an exception does not apply to you, for federal purposes, most of your tax records that are more than three years old can probably be discarded; add a year or so to that if you live in a state with a longer statute.

Examples – Sue filed her 2011 tax return before the due date of April 15, 2012. She will be able to dispose of most of the 2011 records safely after April 15, 2015. On the other hand, Don files his 2011 return on June 2, 2012. He needs to keep his records at least until June 2, 2015. In both cases, the taxpayers may opt to keep their records a year or two longer if their states have a statute of limitations longer than three years. Note: If a due date falls on a Saturday, Sunday or holiday, the due date becomes the next business day.

The big problem! The problem with the carte blanche discarding of records for a particular year because the statute of limitations has expired is that many taxpayers combine their normal tax records and the records needed to substantiate the basis of capital assets. These need to be separated and the basis records should not be discarded before the statute expires for the year in which the asset is disposed. Thus, it makes more sense to keep those records separated by asset. The following are examples of records that fall into that category:

• Stock acquisition data – If you own stock in a corporation, keep the purchase records for at least four years after the year the stock is sold. This data will be needed to prove the amount of profit (or loss) you had on the sale.
• Stock and mutual fund statements (If you reinvest dividends) – Many taxpayers use the dividends they receive from stocks or mutual funds to buy more shares of the same stock or fund. The reinvested amounts add to the basis in the property and reduce gain when it is finally sold. Keep statements at least four years after the final sale.
• Tangible property purchase and improvement records – Keep records of home, investment, rental property, or business property acquisitions AND related capital improvements for at least four years after the underlying property is sold.

For example, when the large $250,000 and $500,000 home exclusion was passed into law several years back, homeowners became lax in maintaining home improvement records, thinking the large exclusions would cover any potential appreciation in the home’s value. Now that exclusion may not always be enough to cover sale gains, particularly in markets where property values have steadily risen, so records of home improvements are vital. Records can be important, so please use caution when discarding them.

What about the tax returns themselves? While disposing of the back-up documents used to prepare the returns can usually be done after the statutory period has expired, you may want to consider keeping a copy of your tax returns (the 1040 and attached schedules/statements plus your state return) indefinitely. If you just don’t have room to keep a copy of the paper returns, digitizing them is an option.

If you have questions about whether or not to retain certain records, give this office a call first; it is better to make sure, before discarding something that might be needed down the road.

Tax Tips for Students with Summer Jobs

Students often get a job in the summer. If it’s your first job it gives you a chance to learn about work and paying tax. The tax you pay supports your home town, your state and our nation. Here are some tips students should know about summer jobs and taxes:

• Withholding and Estimated Tax.  If you are an employee, your employer withholds tax from your paychecks. If you are self-employed, you may have to pay estimated tax directly to the IRS on set dates during the year. This is how our pay-as-you-go tax system works.
• New Employees.  When you get a new job, you will need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form.
• Self-Employment.  Money you earn doing work for others is taxable. Some work you do may count as self-employment. These can be jobs like baby-sitting or lawn care. Keep good records of your income and expenses related to your work. You may be able to deduct (subtract) those costs from your income on your tax return. A deduction can cut taxes.
• Tip Income.  All tip income is taxable. Keep a daily log to report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your tax return.
• Payroll Taxes.  You may earn too little from your summer job to owe income tax. But your employer usually must withhold social security and Medicare taxes from your pay. If you’re self-employed, you may have to pay them yourself. They count for your coverage under the Social Security system.
• Newspaper Carriers.  Special rules apply to a newspaper carrier or distributor. If you meet certain conditions, you are self-employed. If you do not meet those conditions, and are under age 18, you may be exempt from social security and Medicare taxes.
• ROTC Pay.  If you’re in ROTC, active duty pay, such as pay you get for summer camp, is taxable. A subsistence allowance you get while in advanced training is not taxable.

If you have any questions about your summer job, feel free to contact our office.