Taxpayers with disabilities or parents of children with disabilities may qualify for the Earned Income Tax Credit (EITC). 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 (their income may fall under the threshold). Many of these taxpayers may be concerned that the EITC would count as income and impact their ability to get government benefits, but that is not the case.
It’s almost that time already. 2016 is behind us, and now the document-gathering begins. By the end of this month, you should start receiving your various year-end tax documents (1099s, W-2s, 1098s, etc.). If the envelope says “Important Tax Documents,” do NOT throw it out (you’d be surprised that people still do…)! A few things to note about this filing season:
- The IRS doesn’t start accepting returns until at least January 23. Just because they’re delayed doesn’t mean that you should delay in getting your documents in order. Use this time to continue looking for possible deductions, receipts, etc.
- If your refund includes tax credits via the Earned Income Tax Credit or Additional Child Tax Credit, the IRS won’t even begin issuing those refunds until at least the middle of February. That is to allow time for additional due diligence and ID verification, as those items are both hotbeds for fraud. If you’re counting on those refunds, make sure you budget accordingly. Some tax preparation services will issue “Refund Anticipation Loans” or RALs, but there are fees involved.
- If you deduct your vehicle expenses, make sure you have a mileage log to back up your deduction. The IRS can and will disallow your deduction without a log.
- If you paid labor or rents of $600 or more in 2016 and plan to deduct them as expenses, make sure you issue the recipient a From 1099 no later than January 31, 2017. Failure to do so will result in penalties and disallowance of your deduction.
- If you’re deducting Travel and Entertainment expenses, make sure you have documentation of the business nature of the trip.
Year-end Tax Tip for teachers: I’ve posted this tip before, but it’s important enough to re-post, if you’re a teacher, OR know someone who is a teacher: Start gathering your documentation for all of your out-of-pocket classroom supplies! Unreimbursed employee expenses (such as classes for your credentials, dues, etc) are tax deductible as employee business expenses, which, except for the first $250 (which is deducted on the 1040), have to exceed 2% of your adjusted gross income to even be deducted. Here’s the tip: Unreimbursed classroom supplies, like crayons, Kleenex, pencils, etc. can be separated out and deducted as Charitable Contributions (which are NOT subject to the 2% floor) as long as you get a donation acknowledgment from your school.
With 2016 almost behind us, now is the time to think about what you can do to reduce your tax bite:
If you (or someone you know) is 70 1/2 or older and have an IRA account, you must take a required minimum distribution (RMD) or be faced with a 50% tax penalty. If you donate money to charity, you can choose to have the donation come directly from your IRA (up to $100K per year). By doing so, the distribution does not count as income on your tax return. While the donation isn’t deductible, many taxpayers in that demographic don’t itemize, so it’s more advantageous to get the tax benefit by donating straight from the IRA.
If you use your vehicle for business, you must keep a mileage log for both total AND business miles driven, or the IRS can disallow your deduction. A tip I give to my clients is to always schedule a vehicle service (oil change, tire rotation, etc.) around December, so that you have an IRS-approved documentation of your vehicle’s annual odometer reading.
Any donation you make to a qualified charity before December 31, 2016 (includes cash, check OR credit card) will be deductible on your 2016 tax return. If you donate $250 or more to an individual charity, make sure you receive an acknowledgment letter or statement from the organization.
Think about donating appreciated assets (such as stocks, mutual funds, real estate, etc.) to charity instead of cash before the end of 2016. You can deduct the Fair Market Value of the asset AND not have to pay Capital Gains tax.
If you have an Individual Retirement Account (IRA), you have until April 17, 2017 to contribute up to $5,500 ($6,500 if you’re age 50 or older) and have it count for tax year 2016.
If you have a high-deductible health insurance plan, think about setting up a Health Savings Account (HSA) before year-end. If you have a single plan, you can contribute up to $3,350 ($6,750 for a family plan). If you’re age 55 or older, you can contribute an additional $1,000. The contributions are tax-deductible, and you can use the monies to pay for IRS-qualified unreimbursed medical, dental and vision expenses. It’s not a “use-it-or-lose-it” plan– the funds stay in your account year after year.
If you’re self-employed and need more business deductions for 2016, think about stocking up on supplies, purchasing new equipment, or pre-paying some expenses like advertising or insurance. As long as you make these purchases by December 31, 2016 by either cash or credit card, you can deduct them in 2016.
Tax Tip for teachers: Start gathering your documentation for all of your out-of-pocket classroom supplies! Unreimbursed employee expenses (such as classes for your credentials, dues, etc) are tax deductible as employee business expenses, which, except for the first $250 (which is deducted on the 1040), have to exceed 2% of your adjusted gross income to even be deducted. Here’s the tip: Unreimbursed classroom supplies, like crayons, Kleenex, pencils, etc. can be separated out and deducted as Charitable Contributions (which are NOT subject to the 2% floor) as long as you get a donation acknowledgment from your school.
The Internal Revenue Service today issued the 2017 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 53.5 cents per mile for business miles driven, down from 54 cents for 2016
- 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
- 14 cents per mile driven in service of charitable organizations
The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
Tax Season begins January 23, 2017, the day that the IRS officially begins accepting tax returns. You can still file the return, but it will sit in a “holding queue” and not be processed until then. For taxpayers claiming the Earned Income Tax Credit and/or Additional Child Tax Credit, the IRS will be holding their refunds until at least February 15. The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017.
Throughout the year, I am asked by clients “How long should I keep my tax paperwork?” The IRS issued some guidelines that will help answer that question:
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. Learn more atValidating Your Electronically Filed Tax Return.
Taxpayers who need tax information can request a free transcript for the past three tax years. The ‘Get Transcript’ tool on IRS.gov 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. More information is available on IRS.gov atHow long should I keep records?.