Month: January 2017

2017 Tax Season Has Officially Opened

The IRS posted the following on January 23, 2017 to assist taxpayers with their tax filing.

2017 Tax Filing Season Opens Today

IRS YouTube Videos
When Will I Get My Refund: English | Spanish
Claiming EITC or ACTC? Your refund may be delayed: English
Welcome to Free File: English
Security Summit Identity Theft Tips Overview: English

IR-2017-06, Jan. 23, 2017                                                                          Español

2017 Tax SeasonWASHINGTON — The Internal Revenue Service said today that it successfully started accepting and processing 2016 federal individual income tax returns on schedule. More than 153 million returns are expected to be filed this year.

People have until Tuesday, April 18, 2017 to file their 2016 returns and pay any taxes due. The deadline is later this year due to several factors. The usual April 15 deadline falls on Saturday this year, which would normally give taxpayers until at least the following Monday. However, Emancipation Day, a D.C. holiday, is observed on Monday, April 17, giving taxpayers nationwide an additional day to file. By law, D.C. holidays impact tax deadlines for everyone in the same way federal holidays do. Taxpayers requesting an extension will have until Monday, Oct. 16, 2017 to file.

“Following months of hard work, we successfully opened our processing systems today to start this year’s tax season,” said IRS Commissioner John Koskinen.  “Getting to this point is a year-round effort for the IRS and the nation’s tax community. The dedicated employees of the IRS look forward to serving taxpayers this filing season, and I want to thank all of the tax and payroll community for their hard work that makes tax time smoother for the nation.”

The IRS expects more than 70 percent of taxpayers to get tax refunds this year. Last year, 111 million refunds were issued, with an average refund of $2,860.

Refund Delays
A law change now requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. Under this change required by the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC. Even though the IRS will begin releasing EITC and ACTC refunds on Feb. 15, many early filers will still not have actual access to their refunds until the week of Feb. 27. The additional delay is due to several factors, including weekends, the Presidents Day holiday and the time banks often need to process direct deposits.

This law change gives the IRS more time to detect and prevent fraud. Beyond the EITC and ACTC refunds and  the additional security safeguards, the IRS anticipates issuing more than nine out of 10 refunds in less than 21 days. However, it’s possible a particular return may require additional review and take longer. Taxpayers are reminded that state tax agencies have their own refund processing timeframes that vary, and some states may make additional reviews to ensure their refunds are being issued properly. Even so, taxpayers should file as usual, and tax return preparers should submit returns as they normally do.

Use e-File and Free File

The IRS expects more than 80 percent of returns to be filed electronically. Choosing e-file and direct deposit remains the fastest and safest way to file an accurate income tax return and receive a refund.

The IRS Free File program, available at IRS.gov, gives eligible taxpayers a dozen options for brand-name products. Free File is a partnership with commercial partners offering free brand-name software to about 100 million individuals and families with incomes of $64,000 or less. Seventy percent of the nation’s taxpayers are eligible for IRS Free File. People who earned more than $64,000 may use Free File Fillable Forms, the electronic version of IRS paper forms.

Protecting Taxpayers from Identity Theft-Related Refund Fraud

The IRS continues to work with state tax authorities and the tax industry to address tax-related identity theft and refund fraud. As part of the Security Summit effort, stronger protections for taxpayers and the nation’s tax system are in effect for the 2017 tax filing season.

The new measures attack tax-related identity theft from multiple sides. Many changes will be invisible to taxpayers but will help the IRS, states and the tax industry provide new protections. New security requirements will better protect tax software accounts and personal information.

Renew ITIN to Avoid Refund Delays

Many Individual Taxpayer Identification Numbers (ITINs) expired on Jan. 1, 2017. This includes any ITIN not used on a tax return at least once in the past three years. Also now expired is any ITIN with middle digits of either 78 or 79 (Example: 9NN-78-NNNN or 9NN-79-NNNN). Affected taxpayers should act soon to avoid refund delays and possible loss of eligibility for some key tax benefits until the ITIN is renewed. An ITIN is used by anyone who has tax-filing or payment obligations under U.S. tax law but is not eligible for a Social Security number.

It can take up to 11 weeks to process a complete and accurate ITIN renewal application. For that reason, the IRS urges anyone with an expired ITIN needing to file a return this tax season to submit their ITIN renewal application soon.

New AGI requirement for e-file

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a tax filing software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Free Tax Help

Low- and moderate-income taxpayers can get help filing their tax return for free. More than 90,000 volunteers around the country can help people correctly complete their return.

To get this filing help, taxpayers can visit one of the more than 12,000 community-based tax help sites that participate in the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. To find the nearest site, use the VITA/TCE Site Locator on IRS.gov or the IRS2Go mobile app.

Filing Assistance

The IRS reminds taxpayers that a trusted tax professional can provide helpful information about the tax laws. A number of tips about selecting a preparer and information about national tax professional groups are available on IRS.gov.

The IRS urges all taxpayers to make sure they have all their year-end statements in hand before filing. This includes Forms W-2 from employers, Forms 1099 from banks and other payers. Doing so will help avoid refund delays and the need to file an amended return.

Online tools

Many tax issues can now be resolved online or by phone from the convenience of a home or office. The IRS urges taxpayers to take advantage of the many tools and other resources available on IRS.gov. IRS phone lines will be busy again this year, so in order to save time, people should first visit the IRS website for tax assistance.

Five Tips on Whether to File a 2016 Tax Return

Five Tips on Whether to File a 2016 Tax Return

(The following is the IRS Tax Tip 2017-02.)

Five Tips on Whether to File a 2016 Tax ReturnMost people file a tax return because they have to. Even if a taxpayer doesn’t have to file, there are times they should. They may be eligible for a tax refund and not know it.

Here are five tips on whether to file a tax return:

  1. General Filing Rules.  In most cases, income, filing status and age determine if a taxpayer must file a tax return. Other rules may apply if the taxpayer is self-employed or a dependent of another person. For example, if a taxpayer is single and under age 65, they must file if their income was at least $10,350. There are other instances when a taxpayer must file. Go to IRS.gov/filing  for more information.
  2. Tax Withheld or Paid.  Did the taxpayer’s employer withhold federal income tax from their pay? Did the taxpayer make estimated tax payments? Did they overpay last year and have it applied to this year’s tax? If the answer is “yes” to any of these questions, they could be due a refund. They have to file a tax return to get it.
  3. Earned Income Tax Credit.  A taxpayer who worked and earned less than $53,505 last year could receive the EITC as a tax refund. They must qualify and may do so with or without a qualifying child. They may be eligible for up to $6,269. Use the 2016 EITC Assistant tool on IRS.gov to find out. Taxpayers need to file a tax return to claim the EITC.
  4. Additional Child Tax Credit.  Did the taxpayer have at least one child that qualifies for the Child Tax Credit? If they do not qualify for the full credit amount, they may be eligible for the Additional Child Tax Credit. Beginning in January 2017, by law, the IRS must hold refunds for any tax return claiming either the EITC or the Additional Child Tax Credit until Feb. 15. This means the entire refund, not just the part related to either credit.
  5. American Opportunity Tax Credit.  To claim the AOTC, the taxpayer, their spouse or their dependent must have been a student enrolled at least half time for one academic period to qualify. The credit is available for four years of post-secondary education. It can be worth up to $2,500 per eligible student. Even if the taxpayer doesn’t owe any taxes, they may still qualify. Complete Form 8863, Education Credits, and file it with the tax return. Learn more by visiting the Education Credits web page.

Instructions for Forms 1040, 1040A or 1040EZ list income tax filing requirements. Taxpayers can also use the Interactive Tax Assistant tool on IRS.gov. They should look for “Do I need to file a return?” under general topics. The tool is available 24/7 to answer many tax questions.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Earlier Date for Information Returns Brings IRS Penalty Risk

IRS Penalty RiskTime for Action: We are all now facing a new Jan. 31 deadline for filing Forms W-2 with the Social Security Administration and 1099-MISC (when reporting nonemployee compensation payments in box 7) with the IRS. The earlier deadline will allow faster matching of W-2 and 1099 information with tax returns, which helps combat identity and refund theft. Unfortunately, when something is done to combat identity theft, it sometimes means extra work and, with this new rule, increased risk of penalties for not timely filing.  As a result, you need to act quickly.

Filing and Reporting

The previous deadline of Feb. 28 for submitting Forms W-2 and 1099-MISC has been in the law for many years and would have been considered “written in stone” prior to this change.  We have all become accustomed to these deadlines. We will have a steep learning curve in orienting ourselves and staff to conform to this new deadline. (The deadlines for Forms 1120 and 1065 reverse this year as well.)  The assembly of the necessary data can be a significant task.  Assembling the required data will require an increased effort.

Bottom Line:  You need to shift into overdrive now!

Penalties

The new filing deadlines could put us at greater risk for penalties, particularly as the penalty regime has grown quite strict. Since 2009, information return penalties have increased.  The amount of the penalty depends on the date the information return is filed.  The longer it takes to file the return, the greater the penalty.  In addition, these penalties are indexed for inflation.

Everyone engaged in the process of preparing information returns should become familiar with Code sections 6721 and 6722 and the applicable regulations listing the returns covered and applicable penalties for not timely filing information returns. It appears the IRS covered all the information returns and there is no way to avoid the imposition of a penalty for filing an information return late.

Terms and code sections you need to become familiar with are:

  • Code section 6041(a) covering the rule for payments of $600 or more
  • Reduction when corrected in a specified period (Code section 6721(b))
  • Exceptions for de minimis failures (Code sections 6721(c) and 6722(c))
  • Safe harbors for de minimis errors (Code sections 6721(c)(3) and 6722(c)(3))
  • Lower limitations for persons with gross receipts of not more than $5,000,000 (Code sections 6721(d) and 6722(d))
  • A new term, “intentional disregard,” has been added, resulting in larger penalty amounts for failure to timely file the information return.

Practitioners from all areas of the country have indicated that the IRS is actively assessing these penalties, is not bashful about including the intentional disregard penalty and is hesitant in granting penalty abatement for either first-time violations or determining reasonable cause if these penalties are imposed. (

On the bright side, IRS has just issued Notice 2017-9 for the safe harbor, which means taxpayers do not have to correct an error on an information return or payee statement (or face a penalty) if the dollar amount reported differs from the correct amount by $100 or less ($25 for withholdings). The safe harbor and related penalty relief do not apply if the payee opts out and requests a corrected return.

Conclusion

The compliance tasks you are facing in preparing and filing these returns are greater because of the shorter time window, and the penalty exposure is more severe, so it cannot be stressed enough you’re your team needs to be educated quickly and warned of the consequences of delay.

As CPAs, we understand your frustrations in bearing the burden of anything requiring extra time because so many criminals are out there. But we have to believe the extra protection will be worth it in the end.

Chart Explains How Health Care Law Affects You

Chart Explains How the Health Care Law Affects You

As you prepare to file your 2016 tax return, review this chart to see how the health care law affects you.

IF YOU… THEN YOU…
 

Are a U.S. citizen or a non-U.S. citizen living in the United States

  

Must have qualifying health care coverage, qualify for a health coverage exemption, or make a payment when you file your income tax return.
 

Had coverage or an employer offered coverage to you in the previous year

 

 Will receive one or more of the following forms;

This information will help you complete your tax return.
Had health coverage through an employer or under a government program – such as Medicare, Medicaid and coverage for veterans – for the entire year Just have to check the full-year coverage box on your Form 1040 series return and do not have to read any further.
Did not have coverage for any month of the year Should check the instructions to Form 8965, Health Coverage Exemptions, to see if you are eligible for an exemption.
Were eligible for an exemption from coverage for a month Must claim the exemption or report an exemption already obtained from the Marketplace by completing Form 8965, Health Coverage Exemptions, and submitting it with your tax return.
Did not have coverage and were not eligible for an exemption from coverage for any month of the year Are responsible for making an individual shared responsibility payment when you file your return.
Are responsible for making an individual shared responsibility payment Will report it on your tax return and make the payment with your income taxes.
Need qualifying health care coverage for the current year Can visit HealthCare.gov to find out about the dates of open and special enrollment periods for purchasing qualified health coverage.
Enroll in health insurance through the Marketplace for yourself or someone else on your tax return. Might be eligible for the premium tax credit.

 
Received the benefit of more advance payments of the premium tax credit than the amount of credit for which you qualify on your tax return Will repay the amount in excess of the credit you are allowed subject to a repayment cap.
Did not enroll in health insurance from the Marketplace for yourself or anyone else on your tax return Cannot claim the premium tax credit.

 
Are eligible for the premium tax credit Can choose when you enroll in coverage to get premium assistance sent to your insurer each month to lower your monthly payments or get all the benefit of the credit when you claim it on your tax return.
Are claiming the premium tax credit and did not benefit from advance payments of the premium tax credit Must file a tax return and IRS Form 8962, Premium Tax Credit (PTC) and claim the credit on the line labeled – Net premium tax credit.
Choose to get premium assistance when you enroll in Marketplace coverage Will have payments sent on your behalf – to your insurance provider. These payments are called advance payments of the premium tax credit.
Get the benefit of advance payments of the premium tax credit and experience a significant life change, such as a change in income or marital status Should report these changes in circumstances to your Marketplace when they happen.
Get the benefit of advance payments of the premium tax credit Will report the payments on your tax return and reconcile the amount of the payments with the amount of credit for which you are eligible.

How the Health Care Law Affects You

Chart Explains How the Health Care Law Affects You

As you prepare to file your 2016 tax return, review this chart to see how the health care law affects you.

IF YOU… THEN YOU…
 

Are a U.S. citizen or a non-U.S. citizen living in the United States

  

Must have qualifying health care coverage, qualify for a health coverage exemption, or make a payment when you file your income tax return.
 

Had coverage or an employer offered coverage to you in the previous year

 

 Will receive one or more of the following forms;

  • Form 1095-A, Health Insurance Marketplace Statement
  • Form 1095-B, Health Coverage
  • Form 1095-C, Employer-Provided Health Insurance Offer and Coverage  

This information will help you complete your tax return.
Had health coverage through an employer or under a government program – such as Medicare, Medicaid and coverage for veterans – for the entire year Just have to check the full-year coverage box on your Form 1040 series return and do not have to read any further.
Did not have coverage for any month of the year Should check the instructions to Form 8965, Health Coverage Exemptions, to see if you are eligible for an exemption.
Were eligible for an exemption from coverage for a month Must claim the exemption or report an exemption already obtained from the Marketplace by completing Form 8965, Health Coverage Exemptions, and submitting it with your tax return.
Did not have coverage and were not eligible for an exemption from coverage for any month of the year Are responsible for making an individual shared responsibility payment when you file your return.
Are responsible for making an individual shared responsibility payment Will report it on your tax return and make the payment with your income taxes.
Need qualifying health care coverage for the current year Can visit HealthCare.gov to find out about the dates of open and special enrollment periods for purchasing qualified health coverage.
Enroll in health insurance through the Marketplace for yourself or someone else on your tax return. Might be eligible for the premium tax credit.

 
Received the benefit of more advance payments of the premium tax credit than the amount of credit for which you qualify on your tax return Will repay the amount in excess of the credit you are allowed subject to a repayment cap.
Did not enroll in health insurance from the Marketplace for yourself or anyone else on your tax return Cannot claim the premium tax credit.

 
Are eligible for the premium tax credit Can choose when you enroll in coverage to get premium assistance sent to your insurer each month to lower your monthly payments or get all the benefit of the credit when you claim it on your tax return.
Are claiming the premium tax credit and did not benefit from advance payments of the premium tax credit Must file a tax return and IRS Form 8962, Premium Tax Credit (PTC) and claim the credit on the line labeled – Net premium tax credit.
Choose to get premium assistance when you enroll in Marketplace coverage Will have payments sent on your behalf – to your insurance provider. These payments are called advance payments of the premium tax credit.
Get the benefit of advance payments of the premium tax credit and experience a significant life change, such as a change in income or marital status Should report these changes in circumstances to your Marketplace when they happen.
Get the benefit of advance payments of the premium tax credit Will report the payments on your tax return and reconcile the amount of the payments with the amount of credit for which you are eligible.