Tips on Whether to File a 2016 Tax Return

Most 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:

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.

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.

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.

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.

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.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Use IRS Free File to File Taxes for Free

Join the millions of Americans who safely file their taxes and save money using IRS Free File. Taxpayers can use either name-brand software or fillable forms – for free. Combining IRS Free File with direct deposit is the quickest and safest way to get a refund.

Here are some tips about IRS Free File:

Get Started at IRS.gov. IRS Free File is available only through IRS.gov. Simply choose a Free File company and then click on that link to prepare and e-file the return.

Find Tax Breaks. The tax software’s question-and-answer format helps eligible taxpayers find tax breaks. This could include tax credits such as the Earned Income Tax Credit. The software then selects the appropriate tax forms and does the calculations automatically. Free File can help with the health care law tax provisions as well.

Free for All. Taxpayers with income of $64,000 or less can use brand-name software. Taxpayers who earned more can use Free File Fillable Forms. This option allows taxpayers to complete IRS forms electronically. It is best for those who are used to doing their own taxes.

Easy Online Extensions. For those who cannot finish their return by the April 18 deadline, it’s easy to use Free File to request a six-month extension. An extension of time to file is not an extension of time to pay. If taxpayers owe federal taxes, they should estimate the amount they owe and pay it with the extension request. This will help avoid penalties and interest.

The IRS partners with leading tax software companies, the Free File Alliance, to make the program available. Some companies offer free state tax return filing as well.

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For more information contact Neikirk, Mahoney and Smith at 502-896-2999

2017 Tax Filing Season is Officially Open

The Internal Revenue Service said 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.

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For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Special Rules Help Many People With Disabilities

The Internal Revenue Service wants taxpayers with disabilities and parents of children with disabilities to be aware of the Earned Income Tax Credit (EITC) and correctly claim it if they qualify.

The EITC is a federal income tax credit for workers who don't earn a high income ($53,505 or less for 2016) and meet other eligibility requirements. Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund.

The EITC could put an extra $2 or up to $6,269 into a taxpayer’s pocket. Nevertheless, the IRS estimates that as many as 1.5 million people with disabilities miss out on this valuable credit because they fail to file a tax return. Many of these non-filers fall below the income threshold requiring them to file. Even so, the IRS urges them to consider filing anyway because the only way to receive this credit is to file a return and claim EITC.

To qualify for EITC, the taxpayer must have earned income. Usually, this means income either from a job or from self-employment. But taxpayers who retired on disability can also count as earned income any taxable benefits they receive under an employer’s disability retirement plan. These benefits remain earned income until the disability retiree reaches minimum retirement age. The IRS emphasized that social Security benefits or Social Security Disability Income (SSDI) do not count as earned income.

Additionally, taxpayers may claim a child with a disability or a relative with a disability of any age to get the credit if the person meets all other EITC requirements. Use the EITC Assistant, on IRS.gov, to determine eligibility, estimate the amount of credit and more.

People with disabilities are often concerned that a tax refund will impact their eligibility for one or more public benefits, including Social Security disability benefits, Medicaid, and Food Stamps. The law is clear that tax refunds, including refunds from tax credits such as the EITC, are not counted as income for purposes of determining eligibility for benefits. This applies to any federal program and any state or local program financed with federal funds.

The best way to get the EITC is to file electronically: through a qualified tax professional; using free community tax help sites; or through IRS Free File.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Taxpayers should e-File

Taxpayers who still file paper returns may find now is the best time to switch to e-file. Last year over 85 percent of taxpayers filed their taxes electronically. E-file is the fastest and safest way to file.

Accurate and Easy. IRS e-file is the best way to file an accurate tax return. The tax software helps taxpayers avoid mistakes by doing the math for them.

Safe and Secure. IRS e-file meets strict security guidelines. It uses modern encryption technology to protect tax returns. The IRS continues to work with states and tax industry leaders to protect tax returns from refund fraud.

Convenient and Often Free. Taxpayers can e-file for free through IRS Free File. Free File is only available on IRS.gov. Taxpayers may qualify to have their taxes e-filed for free through IRS volunteer programs. Volunteer Income Tax Assistance offers free tax preparation for those earning $54,000 or less. Tax Counseling for the Elderly generally helps people who are age 60 or older.

Faster Refunds. In most cases, e-file prevents mistakes and helps people get their refund faster. The quickest way to get a refund is to combine e-file with direct deposit into a bank account.

Prior-Year Tax Return. 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.

Health Care Coverage Reporting. IRS e-file can help with tax provisions of the health care law. The software will walk users through each line on the tax form that relate to the Affordable Care Act.

Payment Options. If taxpayers owe taxes, they can e-file early and set up an automatic payment on any day until the April 18 deadline. They can pay electronically from their bank account with IRS Direct Pay. Other payment options include electronic funds withdrawal and payment by debit or credit card.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999

IRS Issues Updated Withholding Foreign Partnerships and Withholding Foreign Trusts Agreement

Revenue Procedure 2017-21 updates the agreements entered into by withholding foreign partnerships (WPs) and withholding foreign trusts (WTs), as provided in Revenue Procedure 2014-47.  These agreements were to expire on December 31, 2016, but were extended in Revenue Procedure 2017-15 in anticipation of the new agreements being issued in January 2017.  This revenue procedure will apply to WP and WT agreements effective on or after the date of issuance of this revenue procedure.  The WP and WT agreements are updated consistent with recently published guidance, including the qualified intermediary withholding agreement, which was published in Revenue Procedure 2017-15.  The revenue procedure also provides information on submitting an application or request for renewal of a WP or WT agreement. This guidance affects WPs and WTs that currently have a WP or WT agreement with the IRS and WPs or WTs that intend to enter into a WP or WT agreement with the IRS in the future.

Revenue Procedure 2017-21 will be in IRB 2017-06, dated February 6, 2017.

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For more information contact Neikirk, Mahoney and Smith at 502-896-2999

Due Date for a Section 35 Health Coverage Tax Credit

Notice 2017-16 provides that under the authority granted to the Secretary by § 35(g)(11)(B), an HCTC election for a month in 2016 may be made at any time before the expiration of the 3-year statute of limitation under § 6511 for such year, including on an amended income tax return.  This extension of time is provided because, prior to its expiration, the HCTC did not require an election and the Treasury Department and the IRS are concerned that eligible taxpayers may not be aware of the requirement to affirmatively elect the HCTC for coverage provided in 2016.

Notice 2017-16 will be in IRB 2017-07, dated 02/13/2017.

Courtesy of IRS

For more information contact Neikirk, Mahoney and Smith at 502-896-2999