In early February, the IRS released what it calls the “Dirty Dozen”. This is a list of 12 tax scams that it feels the public should be aware of this year. Here are a few of the more common ones that taxpayers might experience.
The most prevalent of the Dirty Dozen is the phone scam. Taxpayers have been reporting aggressive phone calls that are purporting to be from the IRS demanding payment of past due tax bills. The caller threatens arrest and other legal troubles if there is a failure to pay. The caller often agrees to settle right then for a reduced rate, demanding financial account information. The IRS urges taxpayers not to give personal financial information over the phone.
A similar scam is phishing which is an email scam. The email claims to be from the IRS and contains links directing you to an official looking website where you will be asked to enter personal and financial information. It is important to note that the IRS will not contact you through email without your prior knowledge of their intention to do so. The IRS always uses letters sent through the mail as the primary form of contact with taxpayers.
The IRS warns about fake charities on the Dirty Dozen list. Only 501(c)(3) charities qualify for a deduction on your tax return. If you are unsure about a charity, you can check their status at IRS.gov. The IRS says to be especially aware of charities using a name that is similar to a nationally recognized charity.
Return preparer fraud is another common scam. Be aware of who is preparing your taxes and what credentials they hold. You can find a list of Enrolled Agents in your area at www.eatax.org. Enrolled Agents are the only federally licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS. Enrolled Agents are America’s Tax Experts.
These are just a few of the more common scams the IRS has identified. You can read about the full Dirty Dozen in more detail at IRS.gov.
The Affordable Care Act is going to bring lots of new challenges to taxpayers this filing season. Here is an article Eric wrote for the Jan 22nd edition of the Henrico Citizen.
The Patient Protection and Affordable Care Act (PPACA) went into effect for 2014 mandating that virtually all U.S. citizens and legal residents have health insurance or they must pay a tax for not having health insurance. This will be regulated on every tax return that is filed for 2014 and subsequent years. Every taxpayer will have to answer whether or not they had minimum essential coverage.
There are three primary concerns heading into tax season for taxpayers: the advance premium tax credit reconciliation, the premium tax credit calculation, or the individual mandate penalty assessment.
Taxpayers who obtained coverage through the Health Insurance Marketplace that qualified for a premium tax credit could choose to receive the credit in advance to reduce the cost of insurance. This was based on estimates of income and family status. If the estimate was significantly lower than the actual income earned, the taxpayer will have to repay some or all of the subsidy on their tax return. Likewise, if the estimate was higher than the actual income earned, the taxpayer could be due an additional credit.
For taxpayers who qualified for the premium tax credit that did not choose to receive it in advance, they could qualify to receive it on their income tax return. These taxpayers will have to fill out Form 8962 to calculate their refundable credit.
Some taxpayers may not have insurance coverage and they will be subject to a penalty assessment for failing to have minimum essential coverage. This penalty will be assessed on the tax return and the IRS may offset that liability against any tax refund you may be due but they are prohibited from using liens and levies to collect the individual shared responsibility payment. This penalty can be abated if certain conditions apply which will be outlined on Form 8965, Health Coverage Exemptions. Some examples of allowable exemptions include receiving a public utility shut off notice during the year, filing for bankruptcy, and not being physically present in the United States.
The PPACA will almost certainly impact all taxpayers in one way or another.
The information contained herein is not tax advice. Please consult a professional tax advisor to see how this might apply to your individual circumstances.
Our firm will be using a questionnaire that each client will have to fill out to ensure we are applying the new tax laws appropriately. If you have any questions or concerns about the new requirements. please contact us via phone or email.
The Virginia Department of Taxation has issued Tax Bulletin 13-13. This bulletin addresses the filing status of legally married same sex couples who are required to file a Virginia tax return. In prior years, Virginia has required tax payers to use the same filing status on their state tax return as they did on their federal tax return. With the recent stance taken by the IRS regarding legally married same sex couples, Virginia has altered their guidelines to state that same sex couples may not file as married for Virginia state tax purposes. Couples who meet this criteria will have to file as Married Filing Jointly or Married Filing Separately for federal tax purposes and as Single for Virginia tax purposes. Here is a link to the tax bulletin. http://www.tax.virginia.gov/Documents/TB_13-13_DOMA.pdf
The IRS has announced that due to the recent government shutdown, the 2013 tax filing season has been delayed by 1-2 weeks. It was scheduled to open on January 21st. It will now open sometime between January 28th and February 4th. This means all of the early filers who want to get their refund as fast as possible will have to wait a little bit longer.
Effective September 16, 2013, The U.S. Department of the Treasury determined that any same sex couple who is legally married in any state, must file a tax return with the filing status of Married Filing Jointly or Married Filing Separately going forward. This is true regardless of whether you live in the state in which you are legally married or not. The Treasury Department also ruled that anyone who met this requirement in prior years may amend their prior year tax returns (up to three years back) if the change in filing status would be beneficial to them.
At this time, Virginia has not made any changes to their stance on same sex marriage and until further notice, same sex couples will still file as single for state tax purposes even if they file as married for federal tax purposes.
The IRS has announced it will begin accepting tax returns containing form 4562, Depreciation and Amortization beginning Sunday February 10th. Tax returns containing form 8863, Education Credits will be accepted beginning Thursday February 14th. This is great news as the initial time line indicated late February to early March for these forms. The IRS expects that this will clear nearly all taxpayers to file their tax returns. The IRS has also announced it will accept all other forms that are still on hold the first week of March. The most widely used form in this last category is form 5695, Residential Energy Credits.
Taxpayers who wish to claim the American Opportunity Tax Credit or the Lifetime Learning Credit on their 2012 income tax return will have to wait until mid February to file their return. The IRS announced this on January 28th. These tax credits are filed on form 8863 and the IRS is still in the process of updating their software to handle this form after the late passing of the fiscal cliff legislation. The American Opportunity Tax Credit allows up to $2,500 per student for the first four years of college. The Lifetime Learning Credit allows a maximum of $2,000 annually for education costs with no limit on the number of years it can be taken. You can only claim one of these credits per year. The IRS expects this delay will impact 3 million taxpayers or 25% of those who file form 8863 per year.
When congress saved us from going over the “fiscal cliff”, some key family tax credits were extended. The child dependent care tax credit which allows you to take a credit for childcare expenses up to $3,000 per child was extended permanently. The child tax credit which gives taxpayers a $1,000 credit per child was extended for five years. The American Opportunity tax credit which gives the taxpayer a credit for qualified education expenses was extended five years. The Earned Income Tax Credit (EITC) which provides a credit for low income wage earners was also extended for five more years. All of these credits have income limitations and apply mostly to the low to middle income earners. The extension of these credits is expected to save taxpayers who qualify thousands of dollars