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Tax Preparation in Compton

Tax Tips, Information, Resources, and Penalties

  • Tax Preparedness Series: Tax Records – What to Keep

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    Source: Source: IRS Newswire December 6, 2016

    As tax filing season approaches, the Internal Revenue Service has information for taxpayers who wonder how long to keep tax returns and other documents.

    Generally, the IRS recommends keeping copies of tax returns and supporting documents at least three years. Some documents should be kept up to seven years in case a taxpayer needs to file an amended return or if questions arise. Keep records relating to real estate up to seven years after disposing of the property.

    Health care information statements should be kept with other tax records. Taxpayers do not need to send these forms to IRS as proof of health coverage. The records taxpayers should keep include records of any employer-provided coverage, premiums paid, advance payments of the premium tax credit received and type of coverage. Taxpayers should keep these – as they do other tax records – generally for three years after they file their tax returns.

    Whether stored on paper or kept electronically, the IRS urges taxpayers to keep tax records safe and secure, especially any documents bearing Social Security numbers. The IRS also suggests scanning paper tax and financial records into a format that can be encrypted and stored securely on a flash drive, CD or DVD with photos or videos of valuables.

    Now is a good time to set up a system to keep tax records safe and easy to find when filing next year, applying for a home loan or financial aid. Tax records must support the income, deductions and credits claimed on returns. Taxpayers need to keep these records if the IRS asks questions about a tax return or to file an amended return.

    It is even more important for taxpayers to have a copy of last year’s tax return as the IRS makes changes to authenticate and protect taxpayer identity. Beginning in 2017, some taxpayers who e-file will need to enter either the prior-year Adjusted Gross Income or the prior-year self-select PIN and date of birth. If filing jointly, both taxpayers’ identities must be authenticated with this information. The AGI is clearly labeled on the tax return. …

    Taxpayers who need tax information can request a free transcript for the past three tax years. The ‘Get Transcript tool on [the IRS government website] is the fastest way to get a transcript.

    If taxpayers are still keeping old tax returns and receipts stuffed in a shoebox in the back of the closet, they might want to rethink that approach. Keep tax, financial and health records safe and secure whether stored on paper or kept electronically. When records are no longer needed for tax purposes, ensure the data is properly destroyed to prevent the information from being used by identity thieves.

    If disposing of an old computer, tablet, mobile phone or back-up hard drive, keep in mind it includes files and personal data. Removing this information may require special disk utility software.

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  • Back-to-School Reminder for Parents and Students: Check Out College Tax Credits for 2015 and Years Ahead

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    Source: IRS Newswire September 29, 2016

    WASHINGTON - With another school year just around the corner, the Internal Revenue Service today reminded parents and students that now is a good time to see if they will qualify for either of two college tax credits or other education-related tax benefits when they file their 2015 federal income tax returns

    In general, the American Opportunity Tax Credit or Lifetime Learning Credit is available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the taxpayer, spouse and dependents. The American Opportunity Tax Credit provides a credit for each eligible student, while the Lifetime Learning Credit provides a maximum credit per tax return

    Though a taxpayer often qualifies for both of these credits, he or she can only claim one of them for a particular student in a particular year. To claim these credits on their tax return, the taxpayer must file Form 1040 or 1040A and complete Form 8863], Education Credits.

    The credits apply to eligible students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. The credits are subject to income limits that could reduce the amount claimed on their tax return.

    To help determine eligibility for these benefits, taxpayers should visit the Education Credits Web page or use the IRS’s Interactive Tax Assistant tool Both are available on [the IRS government website].

    Normally, a student will receive a Form 1098-T from their institution by Jan. 31 of the following year. (For 2015, the due date is Feb. 1, 2016, because otherwise it would fall on a Sunday.) This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax credits. Taxpayers should see the instructions to Form 8863 and Publication 970 for details on properly figuring allowable tax benefits.

    Many of those eligible for the American Opportunity Tax Credit qualify for the maximum annual credit of $2,500 per student. Students can claim this credit for qualified education expenses paid during the entire tax year for a certain number of years:

    • The credit is only available for four tax years per eligible student.
    • The credit is available only if the student has not completed the first four years of postsecondary education before 2015.
    Here are some more key features of the credit:
    • Qualified education expenses are amounts paid for tuition, fees and other related expenses for an eligible student. Other expenses, such as room and board, are not qualified expenses.
    • The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
    • Forty percent of the American Opportunity Tax Credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student.
    • The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.

    The Lifetime Learning Credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American Opportunity Tax Credit, the limit on the Lifetime Learning Credit applies to each tax return, rather than to each student. Also, the Lifetime Learning Credit does not provide a benefit to people who owe no tax.

    Though the half-time student requirement does not apply to the lifetime learning credit, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

    • Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
    • The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
    • Income limits are lower than under the American Opportunity Tax Credit. For 2015, the full credit can be claimed by taxpayers whose MAGI is $55,000 or less. For married couples filing a joint return, the limit is $110,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $130,000 or more and singles, heads of household and some widows and widowers whose MAGI is $65,000 or more.

    Eligible parents and students can get the benefit of these credits during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4 claiming additional withholding allowances, and giving it to their employer.

    There are a variety of other education-related tax benefits that can help many taxpayers. They include:

    • Scholarship and fellowship grants — generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
    • Student loan interest deduction of up to $2,500 per year.
    • Savings bonds used to pay for college — though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
    • Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

    Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the Earned Income Tax Credit.

    The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits. Details can also be found in the Tax Benefits for Education Information Center on [the IRS government website].

  • New Private Debt Collection Program to Begin Next Spring [for] IRS

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    Source: IRS Newswire September 26, 2016

    WASHINGTON - The Internal Revenue Service announced today that it plans to begin private collection of certain overdue federal tax debts next spring and has selected four contractors to implement the new program.

    The new program, authorized under a federal law enacted by Congress last December, enables these designated contractors to collect, on the government’s behalf, outstanding inactive tax receivables. As a condition of receiving a contract, these agencies must respect taxpayer rights including, among other things, abiding by the consumer protection provisions of the Fair Debt Collection Practices Act. The IRS has selected the following contractors to carry out this program:

    CBE Group 1309 Technology Pkwy Cedar Falls, IA 50613

    Conserve 200 CrossKeys Office park Fairport, NY 14450

    Performant 333 N Canyons Pkwy Livermore, CA 94551

    Pioneer 325 Daniel Zenker Dr Horseheads, NY 14845

    These private collection agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working their accounts. Several factors contribute to the IRS assigning these accounts to private collection agencies, including older, overdue tax accounts or lack of resources preventing the IRS from working the cases.

    The IRS will give each taxpayer and their representative written notice that their account is being transferred to a private collection agency. The agency will then send a second, separate letter to the taxpayer and their representative confirming this transfer.

    Private collection agencies will be able to identify themselves as contractors of the IRS collecting taxes. Employees of these collection agencies must follow the provisions of the Fair Debt Collection Practices Act and must be courteous and respect taxpayer rights.

    The IRS will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities, particularly in light of continual phone scams where callers impersonate IRS agents and request immediate payment.

    Private collection agencies will not ask for payment on a prepaid debit card. Taxpayers will be informed about electronic payment options for taxpayers [on the “pay your tax bill” page at the IRS government website]. Payment by check should be payable to the U.S. Treasury and sent directly to IRS, not the private collection agency. The IRS will continue to keep taxpayers informed about scams and provide tips for protecting themselves. The IRS encourages taxpayers to visit [the IRS government website] for information including the “Tax Scams and Consumer Alerts page.

  • Five Tax Tips for Gambling Income and Losses

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    Source:IRS Tax Tips August 31, 2016
    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. 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 get a Form W-2G.
    4. How to deduct losses.* You can deduct your gambling losses on Schedule A Itemized Deductions. The total you can deduct, however, is limited to the amount of the gambling income you report on your return.
    5. Keep gambling receipts.* Keep records of your wins and losses. This means keeping items such as a gambling log or diary, receipts, statements or tickets.

    See Publication 525 Taxable and Nontaxable Income for rules on this topic. Refer to Publication 529 Miscellaneous Deductions for more on losses. It also lists some of the types of records you should keep.

  • Tax Effects of Divorce or Separation

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    Source: IRS Tax Tips August 24, 2016

    If you are divorcing or recently divorced, taxes may be the last thing on your mind. However, these events can have a big impact on your wallet. Alimony and a name or address change are just a few items you may need to consider. Here are some key tax tips to keep in mind:.

    • Child Support. If you pay child support, you can’t deduct it on your tax return. If you receive child support, the amount you receive is not taxable.
    • Child Support - Child support payments are not deductible and if you received child support, it is not taxable.
    • Alimony Paid - You can deduct alimony paid to or for a spouse or former spouse under a divorce or separation decree, regardless of whether you itemize deductions. Voluntary payments made outside a divorce or separation decree are not deductible. You must enter your spouse's Social Security Number or Individual Taxpayer Identification Number on your Form 1040 when you file.
    • Alimony Received - If you get alimony from your spouse or former spouse, it is taxable in the year you get it. Alimony is not subject to tax withholding so you may need to increase the tax you pay during the year to avoid a penalty. To do this, you can make estimated tax payments or increase the amount of tax withheld from your wages.
    • Spousal IRA - If you get a final decree of divorce or separate maintenance by the end of your tax year, you can’t deduct contributions you make to your former spouse's traditional IRA. You may be able to deduct contributions you make to your own traditional IRA.
    • Name Changes - If you change your name after your divorce, be sure to notify the Social Security Administration. File Form SS-5, Application for a Social Security Card. You can get the form on SSA.gov or call 800-772-1213 to order it. The name on your tax return must match SSA records. A name mismatch can cause problems in the processing of your return and may delay your refund. Health Care Law Considerations.
    • Special Marketplace Enrollment Period*. If you lose health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependents you can claim on your tax return. You may enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period if you lose coverage due to a divorce.
    • Special Marketplace Enrollment Period*. If you lose health insurance coverage due to divorce, you are still required to have coverage for every month of the year for yourself and the dependents you can claim on your tax return. You may enroll in health coverage through the Health Insurance Marketplace during a Special Enrollment Period if you lose coverage due to a divorce.
    • Changes in Circumstances.* If you purchase health insurance coverage through the Health Insurance Marketplace you may get advance payments of the premium tax credit. If you do, you should report changes in circumstances to your Marketplace throughout the year. These changes include a change in marital status, a name change, a change of address, and a change in your income or family size. Reporting these changes will help make sure that you get the proper type and amount of financial assistance. This will also help you avoid getting too much or too little credit in advance.
    • Shared Policy Allocation*. If you divorced or are legally separated during the tax year and are enrolled in the same qualified health plan, you and your former spouse must allocate policy amounts on your separate tax returns to figure your premium tax credit and reconcile any advance payments made on your behalf. Publication 974, Premium Tax Credit, has more information about the Shared Policy Allocation. For more on this topic, see Publication 504, Divorced or Separated Individuals.
  • How Selling Your Home Can Impact Your Taxes

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    Source: IRS Tax Tips August 1, 2016

    Usually, profits you earn are taxable. However, if you sell your home, you may not have to pay taxes on the money you gain. Here are ten tips to keep in mind if you sell your home this year.

    • 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.
    • 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.
    • 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.
    • 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.
    • 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.
    • 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.
    • 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.
    • Home Sold at a Loss. If you sell your main home at a loss, you can’t deduct the loss on your tax return.
    • 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. Mail it to the address listed on the form’s instructions.
  • Keep in Mind the Child and Dependent Care Credit this Summer

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    Source: IRS Tax Tips June 21, 2016
    Day camps are common during the summer months. Many parents enroll their children in a day camp or pay for day care so they can work or look for work. If this applies to you, your costs may qualify for a federal tax credit. Here are 10 things to know about the Child and Dependent Care Credit:
    1. Care for Qualifying Persons. * Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 generally qualify.
    2. Work-related Expenses.* Your expenses for care must be work-related. In other words, you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they are physically or mentally incapable of self-care.
    3. Earned Income Required. You must have earned income. Earned income includes wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care.
    4. Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse.
    5. Type of Care. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.
    6. Credit Amount. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on your income.
    7. Expense Limits.* The total expense that you can use in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
    8. Certain Care Does Not Qualify.* You may not include the cost of certain types of care for the tax credit, including:
      Overnight camps or summer school tutoring costs.
      Care provided by your spouse or your child who is under age 19 at the end of the year.
      Care given by a person you can claim as your dependent.
    9. Keep Records and Receipts.* Keep all your receipts and records for when you file taxes next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit on Form 2441, Child and Dependent Care Expenses.
    10. Dependent Care Benefits.* Special rules apply if you get dependent care benefits from your employer.

    Keep in mind this credit is not just a summer tax benefit. You may be able to claim it at any time during the year for qualifying care. IRS Publication 503, Child and Dependent Care Expenses, provides complete details on all the rules.

  • Tip Income; How It Affects Your Taxes

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    Source:IRS Tax Tips April 4, 2016

    If you get income from tips, you should know some things about tips and taxes. Here are a few tips from the IRS to help you file and report your tip income correctly:

    • Show all tips on your return. You must report tip income. This includes the value of non-cash tips such as tickets, passes or other items.
    • All tips are taxable. You must pay tax on all tips you received during the year. This includes tips directly from customers and tips added to credit cards. This also includes your share of tips received from a tip-splitting agreement with other employees.
    • Report tips to your employer. If you receive $20 or more in any one month, you must report your tips for that month to your employer by the 10th day of the next month. Only include cash and check and credit card tips you received. Your employer must withhold federal income, Social Security and Medicare taxes on the reported tips.
    • Keep a daily log of tips. Use Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tips. This will help you report the correct amount of tips on your tax return.
  • Must-Know Tips about the Home Office Deduction

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    Source: IRS Tax Tips April 1, 2016

    If you use your home for business, you may be able to deduct expenses for the business use of your home. If you qualify, you can claim the deduction whether you rent or own your home. You may use either the simplified method or the regular method to claim your deduction. Here are six tips that you should know about the home office deduction:

    Regular and Exclusive Use. As a general rule, you must use a part of your home regularly and exclusively for business purposes. The part of your home used for business must also be:
    • Your principal place of business, or
    • A place where you meet clients or customers in the normal course of business, or
    • separate structure not attached to your home. Examples could include a garage or a studio.

    Simplified Option. If you use the simplified option, multiply the allowable square footage of your office by a rate of $5. The maximum footage allowed is 300 square feet. This option will save you time because it simplifies how you figure and claim the deduction. It will also make it easier for you to keep records. This option does not change the rules for claiming a home office deduction.

    Regular Method. This method includes certain costs that you paid for your home. For example, if you rent your home, part of the rent you paid may qualify. If you own your home, part of the mortgage interest, taxes and utilities you paid may qualify. The amount you can deduct usually depends on the percentage of your home used for business.

    Deduction Limit. If your gross income from the business use of your home is less than your expenses, the deduction for some expenses may be limited.

    Self-Employed. If you are self-employed and choose the regular method, use Form 8829, expenses for Business Use of Your Home, to figure the amount you can deduct. You can claim your deduction using either method on Schedule C, Profit or Loss From Business. See the Schedule C instructions for how to report your deduction.

    Employees. You must meet additional rules to claim the deduction if you are an employee. For example, your business use must also be for the convenience of your employer. If you qualify, you claim the deduction on Schedule A, Itemized Deductions.

    For more on this topic, see Publication 587, Business Use of Your Home.

Source: www.irs.gov

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