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Filing For a Tax Extension to Meet Deadline Time

Paying-taxesAlthough taxpayers have an extra weekend to prepare and file individual income tax returns due to the Friday April 15th federal holiday, the Monday April 18th deadline arrives with the same rules.  You must file your 2015 individual income tax return by the deadline or face penalties as well as additional penalties and interest charges on any unpaid taxes owed.

Even if you’re filing an extension allowing up to six months more time to complete and file your final return, you are still required to pay the estimated taxes you owe by the April 18th deadline.

Filing an Extension

At this point, there are only a few more days to complete your tax return on or before the deadline.  If you have a complicated return and have not yet submitted tax information to your tax preparation professional, requesting an extension of time to file may be your best option.

Form 4868 is the application you need for an automatic extension of time to file your federal individual income taxes.  The IRS will give you up to October 17, 2016 to file your 2015 individual income tax return before new late filing penalties will be assessed. You may file it any time before the extension expires.  Qualifying taxpayers who are out of the country are allowed two extra months to file and pay taxes owed without facing a penalty.  Those taxpayers include citizens who are in the military serving outside the country or live and/or work outside the United States and Puerto Rico. (Read more about military service tax benefits by clicking here.)

If you request an extension, you will still owe interest on any tax that was not paid by the regular due date, even if you qualify for the two-month extension to file your return. (Find out more about the penalties you may face by clicking here to read The Price of Missed Tax Deadlines.)

One way to escape having to file the extension request tax form is to pay the taxes you owe through an IRS venue such as Direct Pay, EFTPS or using your own credit card on irs.gov.  When you pay all that you owe online by the deadline through these venues you will receive a confirmation number for your records and do not have to file the Form 4868.  However, you will need to file your tax return as soon as you can.  On that return you will be asked to share your confirmation of paying your taxes by the deadline.  You still face a late filing penalty, but will not have to pay penalty and interest on the taxes owed. (For information about ways to pay the tax you owe, click here to read Tax Payment Options to Meet Deadline Date.)

Businesses may also apply for an extension of time to file tax returns under certain circumstances, such as being in the middle of declaring bankruptcy. Form 7004 provides a tool to request a 5-month or 6-month extension of time without paying a late filing penalty. Form 1138 allows certain corporations an extension of time to file if the entity is expecting a net operating loss carryback that cannot be calculated by the designated tax deadline date.

If you have any questions about filing an extension or meeting your tax deadline obligation, please contact us at McRuer CPAs for more information.


The Price of Missed Tax Deadlines

Ouch! When you don’t file and don’t pay your income taxes on time, you’re going to pay a price in penalties and interest that will apply to the taxes you owe and the time it takes you to file your return. These penalties and interest charges begin the day after you miss the deadline...AND like the Energizer Bunny, they keep adding and adding and adding to the amount you owe until the taxes owed are paid in full and the required tax returns are filed.Money-1ccc

Interest - If you don’t pay your taxes by the deadline, interest begins right away on the amount of tax you owe.  It adds up until the day you pay the tax owed.  Even if you had what the IRS would determine as a “good reason” for not paying on time, you will still owe the interest on any outstanding amount.  Interest is charged in addition to penalties assessed.

Late Payment Penalty - Even if you make a partial payment of the taxes you owe by the tax deadline date, you will still be assessed a penalty for paying any remaining balance late.  The late payment penalty is usually ½ of 1% of any tax that is owed.  The penalty is charged for each month or part of a month the tax remains unpaid. The maximum penalty charged is 25% of what is owed.

The late payment penalty will not be charged if you can prove to the IRS that you have a reasonable cause for not paying on time.  A reasonable cause must be documented and could include things such as serious illness or incapacitation, a natural disaster or fire, the inability to obtain records, and the unavoidable absence or death of a member of the taxpayer’s family that causes a delay in completing a tax return.  However, the lack of funds to pay taxes cannot be used as an excuse to file late or fail to file a return.

Late Filing Penalty - A late filing penalty is charged even when you request an extension. The penalty is usually 5% of the amount due for each month or part of a month your return is late.  This penalty is assessed on top of the late payment penalty and in addition to interest charged on outstanding taxes.  The maximum penalty for filing late is 25%.  If your return is more than 60 days late, the minimum penalty is $135 or the balance of the tax due on your return, whichever is smaller.  Again, you may avoid this penalty if you have a reasonable cause.

Now, let’s also consider the penalties and interest owed on any late state and local tax filings or taxes owed.  Sometimes taxpayers forget that tax deadlines also apply to state and local tax filings. States, counties and municipalities have different ways of assessing and collecting taxes and also enforce penalties for failure to file, failure to file on time and failure to pay taxes.  All of this can add up very quickly.

Another issue taxpayers sometimes miss is that all the different penalties and interest charges are independent of each other and may be added one on top of the other to the original tax obligation.  They also don't go away. New tallies on remaining balances continue to calculate until all obligations are met.  This is how the interest and penalties can add up making paying on time and in full as well as filing on time a much better choice.

The longer you wait to settle current or past tax issues with late filings and payments, the more it will cost you in money and anxiety. There are ways to ease the burden. If you need more information on how much you may owe for not filing or not paying your taxes on time, please contact us at McRuer CPAs.  We’ll help you figure the cost as well as your options to pay any penalties and interest you may owe.

Tax Payment Options to Meet Deadline Date

The IRS says more than 70 percent of taxpayers will receive tax refunds this year due to tax credits and having too much of their income withheld.  Last year’s average tax refund was $2,797 and it’s expected to be close to the same average for this year’s tax season.

Meanwhile, for the rest of taxpayers who owe taxes there are new and faster ways to pay.  The IRS offers several online or direct-call opportunities to pay taxes even without filing on time. 

Paying-moneyThe Direct Pay option allows individuals to pay their outstanding taxes or estimated taxes directly from a checking or savings account.  A taxpayer receives an immediate confirmation of payment if making an instant payment or can schedule a payment to be made at a later time or at future intervals.  The IRS system does not store the payment information after the transaction to avoid online hackers.  See a previous ReSource article Another Cyberattack on Taxpayer Information for more information about tax-related identity theft occurring through IRS systems.

For the first time there’s a new cash payment option for taxpayers in partnership with two online payment processing companies including OfficialPayments.com and PayNearMe.  Individuals may now use up to $1,000 cash per day to pay outstanding taxes if they do not have or do not want to use a bank account or credit card.  Payments can be made at more than 7,000 participating 7-Eleven convenience stores across the country.

The IRS still promotes that the easiest way to pay individual and business taxes is through the Department of Treasury’s Electronic Federal Tax Payment System or EFTPS.  A relatively new feature to this online registration payment method is the EFTPS Voice Response System.  Both services are offered for free with no extra fees charged for processing and scheduling regular payments.

Through EFTPS a taxpayer can use the internet, phone or mobile device to make, schedule and review tax payments any time of day.  Businesses and individuals can schedule payments up to a year in advance. Payments can be changed or cancelled up to two days before the scheduled transaction date. This method provides a way to pay all types of federal taxes from individual to business federal income taxes, employment taxes, estimated taxes and excise taxes.

Should a taxpayer prefer to use a credit or debit card to pay taxes, the IRS accepts payments from Visa, MasterCard, American Express and other card vendors.  The taxpayer must submit the payment information through IRS-approved secure credit card processing companies.  Each processing company charges a fee for the transaction.  The system is not designed to accept high balance tax payments nor federal tax deposits. Generally, the payments are limited to 2 per year for individuals and 2 per quarter for estimated tax payments.  The providers are Pay1040.com, PayUSATax.com and OfficialPayments. You can review the the IRS-approved options by clicking here.

We’ve explained a lot about federal income taxes, but don’t forget that you also have state and local tax obligations and deadlines.  Each state, county and municipality has different ways of accepting tax filings and payments.  Most have online payment programs in place.  Check with your state and local tax collector’s office online or by phone if you have questions about how, when and where to file your tax return and make tax payments as needed.

If you continually receive tax refunds, it may be a sign that you’re having too much withheld.  The money could be put to better use than loaning it to the government for free.  On the other hand, if you owe taxes every year that you did not expect, you may benefit from strategic tax planning that could lessen your tax burden or provide a more consistent tax payment structure that could ease tax deadline pressures. 

At McRuer CPAs it is our goal to make certain you pay only the taxes you owe. Contact us to set up a tax review session with one of our tax preparation experts.


Tax Freedom Day Federal and State

The Tax Foundation has released its summary on Tax Freedom Day. It reveals that April 24th is the day this year that marks theoretically how long all Americans must work to earn enough income to pay the nation’s total tax bill.

A Wikipedia entry describes how Tax Freedom Day is calculated; “Every dollar that is officially considered income by the government is counted, and every payment to the government that is officially considered a tax is counted.” The specific date is determined by adding up all federal, state, and local taxes and then dividing that number by the nation’s income.

The Tax Foundation summary reports Americans will pay $3.3 trillion in federal taxes and $1.6 trillion in state and local taxes. That’s a total tax bill of nearly $5 trillion adding up to 31% of the nation’s income. The reports says, "Americans will collectively spend more on taxes in 2016 than they will on food, clothing, and housing combined.”

This year’s April 24th Tax Freedom Day is 114 days into the year (excluding Leap Day). It is one day earlier than last year, due to slightly lower federal tax collections.

If you add annual federal borrowing into the mix, that is, future taxes owed, Tax Freedom Day would occur 16 days later on May 10.

FreedomStates have different State Tax Freedom Days because they each have different tax policies. The taxation and income variances translate into higher-income and higher-tax states celebrating the date later while lower-income and lower-tax states hit the mark sooner. For example, Mississippi has the lowest average tax burden and the tax freedom day for its residents is April 5th this year. Connecticut and New Jersey’s tax freedom days are much later on May 21 and May 12, respectively.

McRuer CPAs clients in the central Midwest see the following State Tax Freedom Days: April 12 for Missouri, April 14 for Iowa and Nebraska, April 13 for Arkansas, and April 19 for Kansas.

To find out more about Tax Freedom Day click here to read the Tax Foundation’s Summary Report.


Internet Sales Tax Still on the Burner

The use of the Internet can no longer be taxed, but the debate over taxing what is purchased over the Internet remains heated and unsettled.

The Permanent Internet Tax Freedom Act, signed into law in February, permanently bans any state and local taxes on Internet access. The measure also prohibits taxes on Internet-related digital goods and services, thereby ending nearly 20 debate and moratorium extensions on the matter.

Seven states that had been allowed to temporarily charge an access tax due to a grandfather clause must now phase out those taxes by 2020. The states include Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas and Wisconsin.

Sales tax calculatorSupporters of the new law say it will guarantee Americans will never have to pay taxes on the service that connects them to the Internet. Federal Communications Commissioner Ajit Pai has put it this way, “Americans need and want the certainty that the digital world will be spared the taxman.”

While Internet connection and operation services can no longer be charged access taxes, most states continue to push for a variety of sales taxes on Internet purchases. Arguments are that the taxes will protect brick-and-mortar businesses from unfair competition. The most recent legislation on this sales taxes issue is called the Marketplace Fairness Act.

The Marketplace Fairness Act would enable states to not only collect sales taxes on Internet purchases but to also impose taxes specifically on remote retailers who have no physical presence in their state. The act requires states to adopt simplified sales tax laws.

As debate has dragged on for years, technology has improved, making it much easier to track online purchases across state lines and then assess and collect sales taxes. Dozens of states are seeking to impose sales taxes on Internet purchases made within their borders. This would subject an online purchase to the same state and local taxes a product or service would have been charged at a local store. Some states are debating proposals that would tax third-party delivery services, targeting major online retailers who use regional shipping centers with massive inventories.

While purchasing tax-free products online provides an immediate cost savings for consumers, supporters of online taxes say the long-term effects of tax-free purchases are painful and deep. They argue that sales taxes generally range between 5 to 10 percent. Local businesses must impose and collect them from customers, so they suffer a 5 to10 percent price disadvantage to Internet retailers who are not required to collect sales taxes. The effects on business range from suffering lower profits to being forced out of business. Internet sales tax proponents say it’s not about supporting taxes in general, but rather about ensuring local job and business growth.

Currently, there is no uniform way to confirm the quantity and scope of tax-free online sales, which makes it difficult to accurately predict sales tax revenues for local and state budget planning. Meanwhile, the ban on Internet access and use taxes will cost states that are currently imposing some type of user fee an estimated $561 million annually. It’s expected that these states will step up their push for sales taxes to make up the difference, but there’s no agreement on the most effective tax rate.

Those who oppose online sales taxes say it’s all about grabbing more tax revenues to facilitate bigger government. They claim taxes charged on out-of-state purchases force those companies to collect taxes without representation. There is also concern that the federal government would enact a law compelling all states to collect a set rate rather than allowing each state to determine its own tax formula.

Some economists add that competition provides the best products at the best prices. They point out that the Internet and sophisticated transportation networks now allow for better consumer choices than ever before and that business is growing. They say sales taxes on those choices would be like an artificial and unnecessary price increase that would affect jobs and economies negatively.


Free Tax Help and Exclusions for Military

American military on dutyThe Volunteer Income Tax Assistance (VITA) program is offering free tax help to members of the military and their families.  The assistance is available both on and off base, including sites located overseas.

VITA provides tax help through staff that has been specially trained to handle military-related tax issues.  Some of those issues include tax benefits for serving in a combat zone, unique tax filing and payment deadlines based on service status, child and dependent card tax credits and military-specific Earned Income Tax Credit (EITC) rules.

When things are more dangerous, there are income tax benefits.  Serving in a combat zone or in an area  where imminent danger exists qualifies a service member for income tax exclusions on extra income they receive.

This applies on a monthly income basis, so any pay received during any part of a month of service in a combat zone may be excluded.  The combat pay exclusion for commissioned officers is capped at the highest enlisted pay, including any hostile fire or imminent danger pay received.

When an enlisted person serving in a combat zone decides to reenlist, that person receives a reenlistment bonus.  That bonus is also excluded from gross income if it is received when the person was serving in a combat zone.

Income received outside a combat zone is not excluded from income unless the pay is designated as Imminent Danger Pay (IDP) and Hostile Fire Pay (HFP). It is extra pay to personnel who serve in an area to provide direct support of military operations in a combat zone or an area that is designated as particularly dangerous.  The Department of Defense lists those particular areas and the time for which the hostile fire pay is issued.

Military duty in areas of the world that have extremely low quality of life, or QoL, may qualify for QoL extra pay, but that extra income may not be excluded from income tax.

If a service member is hospitalized by an injury or serious illness while serving in a combat zone or IDP, their income is not subjected to tax for the duration of their hospitalization up to two years.  Disability benefits and other kinds of income related to a service member’s injuries or illness may also receive specialized tax treatment. 

While no areas are listed as designated current combat pay zones so far this year, there are dozens of locations in the world designated as Imminent Danger Pay Areas.  Each service branch is responsible for certifying a person’s entitlement to the military pay exclusion on the Form-W2 that is submitted to the IRS.

The current IDP rate is $7.50 per day, with a maximum of $225 per month.  You can imagine how helpful it is for that extra pay for serving under extreme risk to be protected from income tax.  This kind of hazardous duty pay has been a heated debate topic for many years as America’s armed forces have been stretched across the globe into many hostile areas and the Department of Defense struggles with budget cuts.

All of these military tax programs and more are overseen by the Armed Forces Tax Council (ATFC) which provides worldwide assistance to military personnel.  If you have questions about this or past tax years and your ability to qualify for military service-related tax exclusions or credits, contact us at McRuer CPAs for more information.


Quick Tip To Watch For Social Security Fraud

my Social Security

Whether you receive Social Security benefits or not, you may want to make a habit of checking your Social Security Statement at least once a year.  Think about it: Are you sure no one else is using your Social Security number?

Create a “my Social Security account to watch out for:

  • Identity Theft
  • Tax-Related Fraud
  • Benefits Fraud

Go to this link to sign up:  https://www.socialsecurity.gov/myaccount/ 


State-Managed Retirement Savings Accounts Now in 27 States

Retirement jar 1Several states are working on plans to help workers save for retirement. The Bureau of Labor Statistics shows that only about half of full-time workers employed by small businesses or organizations have access to an employer-based retirement plan. By comparison, the numbers show 85 percent of Americans who work for employers with 100 or more employees do have access to an employer-provided retirement plan or benefits program.

To help close the gap, some states are providing access for eligible workers to state-managed individual retirement accounts funded by automatic deductions from the worker’s paychecks.  For example, in 2017 Illinois will launch the Secure Choice Retirement Savings Program, which gives workers a retirement plan option. Full-time employees working for qualified businesses (who do not already provide retirement benefits) will be automatically enrolled into a direct deduction retirement savings plan with a minimum three percent deduction each paycheck.  The employee can choose to have more withheld or to opt out of the program entirely. The money is deposited into a Roth IRA.

The Pension Rights Center in Washington, DC has been monitoring the development of state-administered retirement plans for private-sector workers. It shows that currently 27 states have already approved or are debating proposals to launch state-based retirement plans including: Arizona, California, Colorado, Connecticut, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, Oregon, Rhode Island, Utah, Vermont, Virginia, Washington, West Virginia and Wisconsin.

Last September, the Government Accountability Office (GAO) published a report detailing how “half of private sector workers, especially those who are low-income or employed by small firms, lack coverage from a workplace retirement savings program primarily because they do not have access.” The GAO is recommending ways that the federal government can make it easier for states to manage such plans, while not placing a financial or administrative burden on small business.


Money Fights and Millennials

A new survey of Millennial couples says choices about finances are among the top reasons they argue. There are 80 million Millennials in the U.S. alone, and they are expected to be spending up to $200 billion annually by 2017. This is the reason business, political and social experts are keeping a close eye on their habits and lifestyle choices.

Millennials are the generation generally born in the mid 1980s and up to the early 2000s.  In a joint effort, the American Institute of CPAs (AICPA) and the Ad Council surveyed couples who were between 25 to 34 years of age, employed, and married or living with a partner.  The results revealed 88% say financial decisions cause tension. Of that number, 31% say they argue about money weekly, and 20% say they argue about finances daily.

Couple fight over moneyExperts define Millennials as racially diverse, sociable (especially active on social networks), community-minded, health conscious and more liberal politically. They are apt to spend money on higher-priced goods if the products or services are connected to a “good cause” or a “healthy standard.” The problem, the survey shows, is that while Millennials seem to enjoy discussing and supporting important issues with their dollars, they fail to share their feelings and habits about money with the person they are closest to and who would be the most affected. When asked, less than 50% said they had discussed finances in detail with their loved one before marriage.

Many Millennials today enter into long-term relationships already burdened with high monthly expenses connected to credit card bills and higher education loans. Even though the survey results showed nearly half of the couples paid an equal share of household expenses, the couples said their partner had different financial habits and debt issues that made saving difficult.

The National CPA Financial Literacy Commission warns Millennials that greater spending power comes with a greater responsibility to understand a potential partner’s financial values and beliefs. A news release emphasizes, “We encourage couples to have a serious conversation about their financial hopes and dreams and the steps they need to take to get there.”

The AICPA features a “Feed the Pig” website that provides tips for Millennial couples to help them think beyond the honeymoon phase to daily money matters. If you are thinking about getting married or want to confirm financial choices to build a better financial future as a couple, contact us at McRuer CPAs.


Kids and Tax Breaks: The "Perfect" Match

If you have kids, you have tax breaks, maybe more than you know. In 2015, Congress passed “Tax Extenders” legislation and within it were three permanent extensions related to children. These tax breaks are out there to be taken, so we are providing a summary version to help you determine if you can use them.

The $1,000 child tax credit that so many taxpayers claim, and even count on, is not going to reduce or disappear. Having survived through extensions since the amount was set in 2003, it will now always be $1,000 per child.

My Family_jpgIt will help to know the following information for the next child-related benefit:  A 2009 refundable credit of 15% of earned income in excess of $3,000 was slated to jump to a qualifying amount of $10,000 in 2017.  Not any more—the $3,000 threshold has also been made permanent, providing extra help for millions of families.

Have kids in college? Once again there’s “forever” help, as related credits have been ensured and thresholds lowered through the Enhanced American Opportunity Tax Credit extension. Taxpayers can count on a $2,500 tax credit for four years of post-secondary education, instead of the $1,800 credit that would have taken place in 2017. Lower qualifying thresholds would have also happened in 2017, and now they will stay at $80,000 (single) and $160,000 (married, filing jointly).

And, did you know that there are other child credits in the tax system that you might qualify for like child and dependent care expenses and even summer day camps? If you didn’t, be assured that we do and are ready to help you see if you qualify.

If you need more information, please contact one of our tax preparation experts at McRuer CPAs.


Another Cyberattack on Taxpayer Information

There was another cyberattack on the IRS attempting to generate and steal E-file PINs. The agency reports it discovered and stopped an automated attack that was using stolen Social Security numbers to attempt to generate the PINS. This is the second time in less than three weeks that the IRS has admitted its updated E-file system has been plagued by an incident.

E-file PINs are used by taxpayers to electronically file tax returns. A PIN is also assigned to taxpayers who use the online Electronic Federal Tax Payment System (EFTPS). E-filing is used by both individual and business taxpayers. A PIN is typically made up of four numbers and must be used with the correct Social Security number to log in to web-based systems to file returns, make payments, adjust taxpayer information and more.

1 cyber securityAn IRS statement says the most recent incident occurred on February 8th using malware. It says a review by cybersecurity experts estimates the unauthorized attempts to receive PINs involved 464,000 stolen Social Security numbers, of which 101,000 SSNs were successful at accessing an E-file PIN. A common tax-related scam uses the stolen information to file false tax returns claiming fraudulent refunds.

The agency claims “no personal taxpayer data was compromised or disclosed” in this most recent attack and any affected taxpayers are being notified by mail of the incident. However, there is still no confirmed understanding of how the Social Security numbers were stolen in the first place. The first reported incident involving the E-File system occurred on February 3rd when what was described as a “temporary processing system failure” left the agency unable to process electronically filed tax returns for more than 24 hours.

Meanwhile, the IRS has been working with state officials and cybersecurity experts to keep pace with new and increasingly sophisticated tactics to steal taxpayer information. Part of the defense strategy involves the collection of more than 20 data components between the IRS, the taxpayer and tax preparation professionals to ensure a legitimate tax return is being filed and/or a legitimate taxpayer is making a request.

In remarks at a security summit last year, IRS Commissioner John Koskinen said, “Our ability to address the risks posed by cybercrime will require new investments in authentication, monitoring and other cybersecurity technologies.” Koskinen said the cost would be an estimated $281 million. The newly approved 2016 federal budget maintains the IRS budget at fiscal 2015 levels, but there is an opportunity for the additional funding. The agency is being asked to provide more details of how it plans to spend the money and it must ensure the funds are specifically used for the indicated security improvements.

Reporting on the most recent incident, the Journal of Accountancy points out that last summer the IRS Get Transcript system was breached resulting in the theft of the tax data of 334,000 taxpayers. At that time, the IRS offered free credit monitoring services to affected taxpayers and offered them a choice to enroll in the identity theft filing program. Ironically, that program uses PINs along with Social Security numbers for security protection, which brings the cyberattack problem full circle to the most recent attack to generate and steal PINs.

So, as the IRS and cybersecurity experts struggle to keep up with cybercrime and tax-related identity theft, what is a taxpayer to do? There are online resources for more information. Click here for links found in previous The ReSource articles on tax-related identity theft. Also, you may need to develop new habits of checking your credit report annually, your bank and credit card weekly and reviewing your Social Security records for anything suspicious.

If you have any questions or feel you may have been a victim of a tax-related crime, contact us at McRuer CPAs and we’ll help you sort through the details.


IRS Computer Failures Occur

The IRS reports it suffered a temporary computer failure that involved several of its processing systems just two weeks into the federal individual income tax-filing season. The system failure left the agency temporarily unable to process electronically filed tax returns Wednesday, February 3rd, and most of the day Thursday, February 4th.  The IRS began accepting 2015 tax returns for processing January 19th.

Computer hardwareThe agency explained in an online statement it had experienced a "hardware failure" that was "affecting a number of tax processing systems".  Tools that both taxpayers and tax preparers use were not working including the "Where's My Refund" online search tool and the updated e-file system that was just put into practice for 2015 tax returns.  By Thursday morning, the "Where's My Refund" tool and other services were operating again.  However, preparers reported the e-file service was not yet running consistently.

When the incident occurred an agency spokesman said, "Taxpayers can still prepare their returns, and tax preparers will have to hold them until the IRS is able to take them again."  A new statement said it had resumed processing returns by 5pm Thursday and the system outage issues had been resolved.  

The agency continues to say that it expects to meet its goal of processing 90% of refunds within 21 days.  For more information, click here to read the IRS news release.


Warning Signs of Tax-Related Identity Theft

ENews 2016 pic Identify theft Most people don’t know they’ve been a victim of tax-related identity theft until they try to file their legitimate income tax return. Then they discover that a tax return has already been filed using their Social Security number, usually claiming a fraudulent tax refund.

In other cases, the taxpayer receives a letter from the IRS saying it has identified a suspicious return and needs more information. You may be a victim of tax-related identity theft if the IRS notifies you that more than one tax return was filed under your Social Security number, the IRS reveals you received income from an employer for whom you did not work, or the IRS notifies you that you owe additional tax, have had collection actions taken against you or have a refund offset for a year that you did not work.

There are steps to follow if you think you’ve been a victim of tax-related identity theft. First, the Federal Trade Commission (FTC) requests you file a complaint through their website dedicated to fighting identity theft crimes at www.identitytheft.org. You will also be requested to contact one of the three major credit bureaus to place a ‘fraud alert’ on your credit records to prevent anyone (including yourself until things get sorted out) from opening a bank or credit card account or applying for a loan under your Social Security number. You should then close any financial or credit accounts that may have been opened by identity thieves.

You should respond to any IRS notice immediately, either by contacting the IRS directly or connecting with a tax preparation expert to determine your next steps. You will need to complete an IRS Form 14039 Identity Theft Affidavit in order to continue to file your legitimate tax return.

All of this sounds ominous; and it is. You should not consider responding to potential tax-related identity theft alone. If you suspect you may be a victim of tax-related fraud, contact one of our tax preparation experts at McRuer CPAs for more information.

Note: "The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels."  Quote from IRS Publication 5027


New ACA-Related Tax Forms on Their Way

Your 2015 individual income tax return may need to include new documentation to meet the requirements of the Affordable Care Act (ACA).  For the first time,   Taxpayers may need to file the new forms with their 2015 federal income tax returns or keep the information with their tax records.

Enews pic affordable-care-act-logo-obamacareThis requirement is part of the ACA mandate that all Americans have “minimum essential coverage” under the federal health insurance law. If you do not have the minimum required coverage, you will need to prove you qualify for an exemption or pay a shared responsibility payment when you file your tax return.

What’s new for the filing of 2015 individual federal income tax returns is that qualifying taxpayers should be receiving the new tax information Forms 1095-A, 1095-B, or 1095-C. Taxpayers who may qualify for a premium tax credit should wait to receive a Form 1095-A before filing their tax return. Other taxpayers who are not seeking a credit are not required to submit the forms they may receive, but should keep the records on hand in case they need to verify their health insurance coverage if audited.

Businesses, the Marketplace (which is government managed) and employers who are providing health coverage plans or options to employees bear the responsibility of completing and sending new forms.

Form 1095-A

The new Form 1095-A is called the Health Insurance Marketplace Statement. Taxpayers who are enrolled in coverage through the Marketplace must file a tax return using Form 1095-A if they qualify for a premium tax credit and reimbursement of any advance payments made in 2015. This new form is created and sent from the Marketplace and should be sent by mail to qualifying taxpayers by early February.

It is possible that a taxpayer’s household will receive more than one Form 1095-A. This may happen if more than one policy covers people in the same household, if any household member switched plans in 2015, or had a life change after their coverage began (such as getting married or the addition or deletion of a dependent). Make certain the dates reflected on the form(s) include the correct start and end dates of coverage as well as the correct number of people in the household.

Form 1095-B

The new Form 1095-B is a form that is compiled and sent from health care insurance providers to individuals documenting the nature and duration of coverage. Though for the first time providers are required to send these forms, the forms are not yet required to be included with a federal income tax return. Taxpayers are urged not to wait to receive this new form before filing their return, but rather to file on time and then keep the Form 1095-B with their tax records should the documentation be needed later.

As with 2014 individual federal tax returns, other documents may be used to prove a taxpayer has the minimum essential health insurance coverage. Among statements that may prove a taxpayer and/or a member of the taxpayer’s family has health care coverage are:

  • Insurance cards
  • Explanation of benefits
  • Statements from an insurer
  • W-2 reflecting health insurance deductions
  • Payroll statement reflecting health insurance deductions

Form 1095-C

The new Form 1095-C is a form that is compiled and sent by employers who provide health insurance and coverage to certain employees. The form includes details about the type of coverage, the insured who were covered and for how long. This form can be used to determine whether a person qualifies for a premium tax credit, and to prove whether an employer offered that person and/or family members “self-insured coverage”.

For now, you should wait for one of these new forms to arrive before preparing and filing your tax return only if you wish to receive a tax credit. For more information on gathering your health insurance coverage documentation, click here.

If you need more information, please contact one of our tax preparation experts at McRuer CPAs.


Tips to Keep Tax Records Safe

Imagine a burglar breaks into your home while you’re at work. The thief doesn’t steal jewelry, your TV or your favorite collectible. Instead, the thief heads directly to the home office files and steals your tax documents and bills where you’ve organized your records alphabetically to make them easier to find. The thief checks out your basement, closet and upstairs attic for boxes that look like they contain financial records. The thief walks out with paper. Tax_related_identity_theft

All in all, the paper value of the loss is negligible, but the thief has stolen all of your and your family members’ personal information and private financial data. The end result is that you and your loved ones could suffer hundreds of thousands of dollars or more in identity-theft related damages that may follow you the rest of your lives. It could also affect your taxes.

Tax documents in particular contain your and your dependent’s tax and personal information including receipts, old W-2 forms and bank account information. Experts point out that all documents containing your financial, health and tax information, especially records with your Social Security number on them, should be kept securely.

Most of us are being more diligent about using passwords and keeping digital connections and information about our personal data secure online. However, many taxpayers may have forgotten about the old paper copies that remain unprotected and vulnerable. Almost daily the IRS uncovers new scams using stolen identities. These scammers file fake tax returns under legitimate taxpayer Social Security numbers seeking refunds. The stolen IDs come from online and paper copy sources.

The issue is that taxpayers are supposed to keep records but doing so may provide an opportunity for someone else to take advantage. Regulations mandate that we keep a record of our tax returns and their supporting documents (receipts, statements, etc.) for a minimum of three years to a maximum of seven years. Additionally, we are to keep records related to a property we own for three to seven years after disposing of it.

To keep things safe, if you keep paper tax records, make certain they are stored in a locked and secure area such as a locked desk drawer, locked file or safe. Consider scanning your records instead and saving them electronically in encrypted files, both on your computer and your hard drive back-up. This also applies to all financial and health records that contain your personal and account information.

Converting paper files to digital files takes time and may require a scanner and a small investment in software to accept scanned documents (though many printers today serve that function). Remember that you’ll need encryption software. Make certain you keep your passwords in a secure place as well. You may also request electronic versions of your tax documents from your tax preparer, who should already be submitting your records in an electronic version to the IRS.

Dispose of paper tax records by shredding them first. If you are disposing of an old computer or any other product with a hard drive, remember that just “deleting” a file does not erase it completely from the computer. Electronic products that can hold data should be “wiped” to ensure all data is wiped out. This will require specialized disk utility software. Your computer, your mobile phones and tablets, most printers, copiers and all other electronic devices that can save files should be wiped before disposal.

To keep your computer files secure from an online thief, experts recommend you use reputable security software that updates automatically with essential tools including a firewall, virus and malware protection and file encryption options for sensitive data. Use strong passwords, protect them and back up your files regularly.

An IRS publication sums it up this way, “Treat your personal information like cash, don’t leave it lying around.”

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