Category Archives: income tax advice

Are you required to file a Form 1099 or other information return?

If you made or received a payment during the calendar year as a small business or self-employed (individual), you are most likely required to file an information return to the IRS.

Made a Payment

If, as part of your trade or business, you made any of the following types of payments, use the link to be directed to information on filing the appropriate information return.

  • Payments, in the course of your trade or business: (1099-MISC) (Note: It is important that you place the payment in the proper box on the form. Refer to the instructions for more information.)
    • Services performed by independent contractors or others (not employees of your business) (Box 7)
    • Prizes and awards and certain other payments (see Instructions for Form 1099-MISC, Box 3. Other Income, for more information)
    • Rent (Box 1)
    • Royalties (Box 2)
    • Backup withholding or federal income tax withheld (Box 4)
    • Crewmembers of your fishing boat (Box 5)
    • To physicians, physicians’ corporation or other supplier of health and medical services
      (Box 6)
    • For a purchase of fish from anyone engaged in the trade or business of catching fish (Box 7)
    • Substitute dividends or tax exempt interest payments and you are a broker (Box 8)
    • Crop insurance proceeds (Box 10)
    • Gross proceeds of $600 or more paid to an attorney (generally, Box 7, but see instructions as Box 14 may apply)
  • Interest on a business debt to someone (excluding interest on an obligation issued by an individual) (1099-INT)
  • Dividends or other distributions to a company shareholder (1099-DIV)
  • Distribution from a retirement or profit plan or from an IRA or insurance contract (1099-R)
  • Payments to merchants or other entities in settlement of reportable payment transactions, that is, any payment card or third party network transaction (1099-K)

Received a Payment and Other Reporting Situations

If, as part of your trade or business, you received any of the following types of payments, use the link to be directed to information on filing the appropriate information return.

  • Payment of mortgage interest (including points) or reimbursements of overpaid interest from individuals (1098)
  • Sale or exchange of real estate (1099-S)
  • You are a broker and you sold a covered security belonging to your customer (1099-B)
  • You are an issuer of a security taking a specified corporate action that affects the cost basis of the securities held by others (Form 8937)
  • You released someone from paying a debt secured by property or someone abandoned property that was subject to the debt (1099-A) or otherwise forgave their debt to you (1099-C)
  • You made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment (1099-MISC)

Not Required to File Information Returns

  • You are not engaged in a trade or business.
  • You are engaged in a trade or business and
    • the payment was made to another business that is incorporated, or
    • the sum of all payments made to the person or unincorporated business is less than $600 in one tax year (unless the recipient is an attorney or law form, see specific instructions for 1099-MISC for further details).

All information comes from : https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-other-information-return

Social Security Benefits May Be Taxable

What do you mean my Social Security Benefits are taxable??

We hear this question often, and much to many’s dismay — yes, Social Security Benefits can indeed be taxable. A recent tax tip from the IRS broke down this phenomenon.

  • Form SSA-1099.  If you received Social Security benefits in 2015, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount of your benefits.
  • Only Social Security.  If Social Security was your only income in 2015, your benefits may not be taxable. You also may not need to file a federal income tax return. If you get income from other sources you may have to pay taxes on some of your benefits.
  • Tax Formula.  Here’s a quick way to find out if you must pay taxes on your Social Security benefits: Add one-half of your Social Security to all your other income, including tax-exempt interest. Then compare the total to the base amount for your filing status. If your total is more than the base amount, some of your benefits may be taxable.
  • Base Amounts.  The three base amounts are:
    • $25,000 – if you are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from your spouse for all of 2015
    • $32,000 – if you are married filing jointly
    • $0 – if you are married filing separately and lived with your spouse at any time during the year

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Additional IRS Resources:

What is this Form 1095?

Remember that pesky question, “Did you have health insurance last year?”  If you were enrolled in health coverage for 2015, you may receive a Form 1095-A, 1095-B, or 1095-C, which will answer that question for you.  In addition, if you were an employee of an employer that was an applicable large employer in 2015, you may receive a Form 1095-C.  If you don’t fall in either of these categories, you won’t receive a form.

So what is the difference between A, B and C?

  • Form 1095-A, Health Insurance Marketplace Statement.  The Health Insurance Marketplace sends this form to individuals who enrolled in coverage there, with information about the coverage, who was covered, and when.
    1095-A
  • Form 1095-B, Health Coverage.  Health insurance providers (for example, health insurance companies) send this form to individuals they cover, with information about who was covered and when.
    1095-B
  • Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.  Certain employers send this form to certain employees, with information about what coverage the employer offered. Employers that offer health coverage referred to as “self-insured coverage” send this form to individuals they cover, with information about who was covered and when.
    1095-C

Note: The deadline for the Marketplace to provide Form 1095-A is February 1, 2016.  The deadline for insurers, other coverage providers and certain employers to provide Forms 1095-B and 1095-C has been extended to March 31, 2016.  Some taxpayers may not receive a Form 1095-B or Form 1095-C by the time they are ready to file their 2015 tax return. While the information on these forms may assist in preparing a return, they are not required. Individual taxpayers will generally not be affected by this extension and should file their returns as they normally would.
For more information on the various nuances of these forms (like why you COULD get more than one), visit the IRS’s Questions and Answers about Health Care Information Forms for Individuals (Forms 1095-A, 1095-B, and 1095-C)

Who Can Represent You Before the IRS?

Many people use a tax professional to prepare their taxes. Tax professionals with an IRS Preparer Tax Identification Number (PTIN) can prepare a return for a fee. If you choose a tax pro, you should know who can represent you before the IRS. There are new rules this year, so the IRS wants you to know who can represent you and when they can represent you. Choose a tax return preparer wisely.

Representation rights, also known as practice rights, fall into two categories:

  • Unlimited Representation
  • Limited Representation

Unlimited representation rights allow a credentialed tax practitioner to represent you before the IRS on any tax matter. This is true no matter who prepared your return. Credentialed tax professionals who have unlimited representation rights include:

Limited representation rights authorize the tax professional to represent you if, and only if, they prepared and signed the return. They can do this only before IRS revenue agents, customer service representatives and similar IRS employees. They cannot represent clients whose returns they did not prepare. They cannot represent clients regarding appeals or collection issues even if they did prepare the return in question. For returns filed after Dec. 31, 2015, the only tax return preparers with limited representation rights are Annual Filing Season Program Participants.

The Annual Filing Season Program is a voluntary program. Non-credentialed tax return preparers who aim for a higher level of professionalism are encouraged to participate.

Other tax return preparers have limited representation rights, but only for returns filed before Jan. 1, 2016. Keep these changes in mind and choose wisely when you select a tax return preparer.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Tips to Keep Your Tax Records Secure; Protect Yourself from Identity Theft

If you’re still keeping old tax returns and receipts stuffed in a shoe box stuck in the back of the closet, you might want to rethink that approach.

The IRS has teamed up with state revenue departments and the tax industry to make sure you understand the dangers to your personal and financial data. Taxes. Security. Together. Working in partnership with you, we can make a difference.

You should keep your tax records safe and secure, whether they are stored on paper or kept electronically. The same is true for any financial or health records you store, especially any document bearing Social Security numbers.

You should keep always keep copies of your tax returns and supporting documents for several years to support claims for tax credits and deductions.

Because of the sensitive data, the loss or theft of these documents could lead to identity theft and have an economic impact. These documents contain the Social Security numbers of you, your spouse and dependents, old W-2 income and bank account information. A burglar could easily turn your old shoe box full of documents into a tax-related identity theft crime.

Here are just a few of the easy and practical steps to better protect your tax records:

  • Always retain a copy of your completed federal and state tax returns and their supporting materials. These prior-year returns will help you prepare your next year’s taxes, and receipts will document any credits or deductions you claim should question arise later.
  • If you retain paper records, you should keep them in a secure location, preferably under lock and key, such as a secure desk drawer or a safe.
  • If you retain you records electronically on your computer, you should always have an electronic back-up, in case your hard drive crashes. You should encrypt the files both on your computer and any back-up drives you use. You may have to purchase encryption software to ensure the files’ security.
  • Dispose of old tax records properly. Never toss paper tax returns and supporting documents into the trash. Your federal and state tax records, as well as any financial or health records should be shredded before disposal.
  • If you are disposing of an old computer or back-up hard drive, keep in mind there is sensitive data on these. Deleting stored tax files will not remove them from your computer. You should wipe the drives of any electronic product you trash or sell, including tablets and mobile phones, to ensure you remove all personal data. Again, this may require special disk utility software.

The IRS recommends retaining copies of your tax returns and supporting documents for a minimum of three years to a maximum of seven years. Remember to keep records relating to property you own for three to seven years after the year in which you dispose of the property. Three years is a timeframe that allows you to file amended returns, or if questions arise on your tax return, and seven years is a timeframe that allows filing a claim for adjustment in a case of bad debt deduction or a loss from worthless securities.

To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. You also can read Publication 4524, Security Awareness for Taxpayers.

Forget Something on Your Tax Return? Amend it!

If you realize you forgot something on your tax return, you can amend that return after it has been filed.

There are many reasons individuals need to amend their returns, whether it is for the just-filed 2014 return or prior year returns. Here are some key points when considering whether to file an amended federal (Form 1040X) or state income tax return:

  • If you are amending for a refund, be aware that refunds generally won’t be paid for returns if the three-year statute of limitations from the filing due date has expired. Except for amending a return to carry back a business net operating loss (NOL), the IRS will pay refunds only on returns from 2012 through 2014. Some states have a longer statute. The last day to file a federal amended 2012 return for a refund is April 16, 2016.
  • Generally, you do not need to file an amended return to correct math errors you made on the return. The IRS or state agency will automatically make those corrections.
  • If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
  • If you amend returns and owe additional tax, you will be subject to interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.
  • If you amend multiple year returns, mail them in separate envelopes to be sure each is received and processed and not overlooked in the multiple return envelope.
  • A detailed explanation of the changes must also be attached to any amended return. This is required to explain to the processing staff the reason for the amendment. An insufficient explanation can lead to additional correspondence and delays.
  • Depending on why you file an amended federal return, you may be required to amend your state return.

An amended return can be more complicated than the original, so its often best to contact a tax professional for assistance in preparing your amended returns.

Phone scam targeting tax payers continues

The Internal Revenue Service issued a consumer alert providing taxpayers with additional tips to protect themselves from telephone scam artists calling and pretending to be with the IRS.

These callers may demand money or may say you have a refund due and try to trick you into sharing private information. These con artists can sound convincing when they call. They may know a lot about you, and they usually alter the caller ID to make it look like the IRS is calling. They use fake names and bogus IRS identification badge numbers. If you don’t answer, they often leave an “urgent” callback request.

“These telephone scams are being seen in every part of the country, and we urge people not to be deceived by these threatening phone calls,” IRS Commissioner John Koskinen said. “We have formal processes in place for people with tax issues. The IRS respects taxpayer rights, and these angry, shake-down calls are not how we do business.”

The IRS reminds people that they can know pretty easily when a supposed IRS caller is a fake. Here are five things the scammers often do but the IRS will not do. Any one of these five things is a tell-tale sign of a scam. The IRS will never:

  1. Call to demand immediate payment, nor will we call about taxes owed without first having mailed you a bill..
  2. Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  3. Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  4. Ask for credit or debit card numbers over the phone.
  5. Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

If you get a phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

  • If you know you owe taxes or think you might owe, call the IRS at 1.800.829.1040. The IRS workers can help you with a payment issue.
  • If you know you don’t owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1.800.366.4484 or atwww.tigta.gov.
  • You can file a complaint using the FTC Complaint Assistant; choose “Other” and then “Imposter Scams.” If the complaint involves someone impersonating the IRS, include the words “IRS Telephone Scam” in the notes.

Remember, too, the IRS does not use unsolicited email, text messages or any social media to discuss your personal tax issue. For more information on reporting tax scams, go to www.irs.gov and type “scam” in the search box.

Additional information about tax scams are available on IRS social media sites, including YouTube and Tumblr where people can search “scam” to find all the scam-related posts.

 

IRS Newswire

Top Eight Tax Tips about Deducting Charitable Contributions

When you give a gift to charity, it helps the lives of others in need. It may also help you at tax time. You may be able to claim the gift as a deduction that may lower your tax. Here are eight tax tips you should know about deducting your gifts to charity:

1. Qualified Charities.  You must donate to a qualified charity if you want to deduct the gift. You can’t deduct gifts to individuals, political organizations or candidates. To check the status of a charity, use the IRS Select Check tool.

2. Itemized Deduction.  To deduct your contributions, you must file Form 1040 and itemize deductions. File Schedule A, Itemized Deductions, with your federal tax return.

3. Benefit in Return.  If you get something in return for your donation, your deduction is limited. You can only deduct the amount of your gift that is more than the value of what you got in return. Examples of benefits include merchandise, meals, tickets to an event or other goods and services.

4. Donated Property.  If you gave property instead of cash, the deduction is usually that item’s fair market value. Fair market value is generally the price you would get if you sold the property on the open market.

5. Clothing and Household Items.  Used clothing and household items must be in at least good condition to be deductible in most cases. Special rules apply to cars, boats and other types of property donations. See Publication 526, Charitable Contributions, for more on these rules.

6. Form 8283.  You must file Form 8283, Noncash Charitable Contributions, if your deduction for all noncash gifts is more than $500 for the year.

7. Records to Keep.  You must keep records to prove the amount of the contributions you made during the year. The kind of records you must keep depends on the amount and type of your donation. For example, you must have a written record of any cash you donate, regardless of the amount, in order to claim a deduction. For more about what records to keep refer to Publication 526.

8. Donations of $250 or More.  To claim a deduction for donated cash or goods of $250 or more, you must have a written statement from the charity. It must show the amount of the donation and a description of any property given. It must also say whether the organization provided any goods or services in exchange for the gift.

Also refer to Publication 561, Determining the Value of Donated Property.

Name changes and your tax return

What You Should Know if You Changed Your Name

Did you change your name last year? If you did, it can affect your taxes. All the names on your tax return must match Social Security Administration records. A name mismatch can delay your refund.

Here’s what you should know if you changed your name:

  • Report Name Changes.  Did you get married and are now using your new spouse’s last name or hyphenated your last name? Did you divorce and go back to using your former last name? In either case, you should notify the SSA of your name change. That way, your new name on your IRS records will match up with your SSA records.
  • Dependent Name Change.  Notify the SSA if your dependent had a name change. For example, this could apply if you adopted a child and the child’s last name changed.

If you adopted a child who does not have a SSN, you may use an Adoption Taxpayer Identification Number on your tax return. An ATIN is a temporary number. You can apply for an ATIN by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS.

You can visit IRS.gov to view, download, print or order the form at any time.

Get a New Card.  File Form SS-5, Application for a Social Security Card, to notify SSA of your name change. You can get the form on SSA.gov or call 800-772-1213 to order it. Your new card will show your new name with the same SSN you had before.

Report Changes in Circumstances in 2015.  If you purchase health insurance coverage through the Health Insurance Marketplace you may get advance payments of the premium tax credit in 2015. If you do, be sure to report changes in circumstances, such as a name change, a new address and a change in your income or family size to your Marketplace throughout the year. Reporting changes will help make sure that you get the proper type and amount of financial assistance and will help you avoid getting too much or too little in advance.

IRS Can Help if W-2s Are Missing‏

In most cases you get your W-2 forms by the end of January. Form W-2, Wage and Tax Statement, shows your income and the taxes withheld from your pay for the year. You need your W-2 form to file an accurate tax return.

If you haven’t received your form by mid-February, here’s what you should do:

  • Contact your employer.  Ask your employer (or former employer) for a copy. Be sure that they have your correct address.
  • After Feb. 23.  If you can’t get a copy from your employer, call the IRS at 800-829-1040 after Feb. 23. The IRS will send a letter to your employer on your behalf. You’ll need the following when you call:
    • Your name, address, Social Security number and phone number;
    • Your employer’s name, address and phone number;
    • The dates you worked for the employer; and
    • An estimate of your wages and federal income tax withheld in 2014. You can use your final pay stub for these amounts.