Are you or one of your dependents headed off to college this fall? If so, the IRS provides several education tax credits that will help offset some of the cost. Here is a brief description of the two most common credits.
The first credit is the American Opportunity Credit. This credit is available only during the first 4 years of higher education. You (or your spouse or a dependent) must be enrolled in a program that leads to a degree or certificate, you must be enrolled in at least half of a full time work load, you must not have been convicted of a felony for distributing a controlled substance at the federal or state level, and you must incur expenses related to the education, such as tuition. If all of these requirements are met, you can claim a credit of up to $2,500. The credit does begin to phase out as income exceeds $80,000 for a single taxpayer or $160,000 for a taxpayer filing a joint return. Also, $1,000 of the credit is refundable which means you can receive up to this amount even if you have no tax liability. The other $1,500 is non-refundable meaning it can only be used to offset tax liability until it reaches $0.
If you don’t qualify for the American Opportunity Credit, you may qualify for the Lifetime Learning Credit. This credit only requires you to take at least one class at a higher education institution. The credit is for 20% of eligible expenses, with a maximum credit allowed of $2,000. There is no limit to the number of times this credit may be claimed. This credit begins to phase out as income levels reach $54,000 filing singly or $108,000 filing jointly. The credit is non-refundable.
It is important to note that neither credit is available to taxpayers with a filing status of Married Filing Separately. Also, each student may only claim one tax credit per year.
If you pay for higher education expenses, chances are pretty good that you will qualify for one of these credits which can help ease the financial burden that comes with attending a higher education institute.
On June 2, 2015, IRS Commissioner Koskinen testified that the IRS suffered a data breach to its “Get Transcript” application. The data breach occurred between mid-February and mid-May. Approximately 200,000 accounts were targeted with approximately 104,000 of those targets being successful.
What is the “Get Transcript” application? It is an online program at www.irs.gov that will allow you to obtain text versions of annual tax filings including information about your income, dependents, employment, social security number and address to name a few. In order to obtain this transcript, the taxpayer must answer a series of questions designed to authenticate their identity. The answers to these questions are designed so that only the taxpayer would know them.
So how could the criminal know these taxpayer specific answers? With the increasing electronic environment we live in, data is more readily available to those criminals who know how to access it. Social media also enables the information gathering as taxpayers share personal information about themselves that could help someone to beat the authentication process.
As the need to access data electronically increases, the focus on fraud prevention becomes more important. The IRS has stated that no other application was targeted such as the main IRS computer system. The IRS is working with state tax agencies as well as tax software companies to continue finding ways to make taxpayer information more secure. The IRS is actively enforcing tax fraud and identity theft when it is discovered. In June, a Florida man convicted of identity theft in a scam to claim $1.8 million in false refunds was sentenced to 27 years in federal prison.
As data security becomes more important, we should be aware of our role in the process. Some steps you can take to avoid being a victim include changing passwords periodically, making sure your computer is secure, only giving out your social security number when it’s absolutely necessary, and checking your credit report annually.
It is the responsibility of the IRS, state taxing agencies, tax preparers and others to protect the information that is entrusted to them. It is also important for taxpayers to take an active role in identity protection.
You’ve just picked up your mail and there among the ads, bills and junk mail is that official looking letter from the Internal Revenue Service. You get a queasy feeling in the pit of your stomach but don’t panic. DO open the letter. It might even be good news.
Usually, mail from the IRS is a notification that they need verification or substantiation of an amount you have claimed on your tax return. Read the letter thoroughly. Determine what they are looking for, and then provide the information. Some of the most commonly missed items on a return are simple things: you forgot to sign the 1040; there was an error in figuring credits or deductions; or, perhaps the income you listed doesn’t match the figures that were reported to the IRS.
If you have the correct information, it’s a simple matter to fix. Make copies of your documents verifying the information on your return and send the copies back to the IRS along with a copy of the letter. If, in fact, you didn’t include an amount on your return that should have been there, sign the form agreeing to the change and send them a check for the amount of tax due by the deadline date given for compliance. Usually, penalties and interest will be added—so, the sooner you comply, the less it will cost.
If your IRS letter advises you that your return has been selected for audit, you would be wise to seek professional advice. If you used a tax professional to prepare your return, such as an enrolled agent (EA), CPA, or attorney, you should contact that person for help with the audit. If you prepared your own return, you may wish to contact an enrolled agent immediately. Enrolled agents are authorized by the U.S. Treasury Department to represent taxpayers before all administrative levels of the IRS for audits, collections, and appeals. To find an EA in your area, visit the National Association of Enrolled Agents website at www.naea.org.
Now you’re thinking, what about that possible good news mentioned earlier? It could be that the notice is for an unexpected refund, of course. Now, open that letter!