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

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!

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.