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27
Feb

Source: IRS Tax Tip 2015-28, February 27, 2015

Some people take an early withdrawal from their IRA or retirement plan. Doing so in many cases triggers an added tax on top of the income tax you may have to pay. Here are some key points you should know about taking an early distribution:

  1. Early Withdrawals.  An early withdrawal normally means taking the money out of your retirement plan before you reach age 59½.
  2. Additional Tax.  If you took an early withdrawal from a plan last year, you must report it to the IRS. You may have to pay income tax on the amount you took out. If it was an early withdrawal, you may have to pay an added 10 percent tax.
  3. Nontaxable Withdrawals.  The added 10 percent tax does not apply to nontaxable withdrawals. They include withdrawals of your cost to participate in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.A rollover is a type of nontaxable withdrawal. A rollover occurs when you take cash or other assets from one plan and contribute the amount to another plan. You normally have 60 days to complete a rollover to make it tax-free.
  4. Check Exceptions.  There are many exceptions to the additional 10 percent tax. Some of the rules for retirement plans are different from the rules for IRAs. See IRS.gov for details about these rules.
  5. File Form 5329.  If you made an early withdrawal last year, you may need to file a form with your federal tax return. See Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, for details.
  6. Use IRS e-file. Early withdrawal rules can be complex. IRS e-file is easiest and most accurate way to file your tax return. The tax software that you use to e-file will pick the right tax forms, do the math and help you get the tax benefits you’re due. Don’t forget that with IRS Free File, you can e-file for free. Free File is only available through the IRS website at IRS.gov/freefile.

 

2
Feb

Source: IRS Tax Tip 2015-10, February 2, 2015

It’s easier than ever to get what you need from the IRS. Here are the best ways to get the services and products you need to do your taxes:

  • E-file your return.  The best way to file is joining with nearly 126 million taxpayers who used IRS e-file last year. E-file is the safe, accurate and easier way to file your tax return. If you useIRS Free File, you can prepare and file your taxes for free. Free File is only available on IRS.gov. Go to IRS.gov/filing and review your options.
  • Use IRS.gov.  Get what you need 24 hours a day 7 days a week on IRS.gov. Click on the“Tools”  link on the home page for a number of online tools. You can get answers to your tax questions with the Interactive Tax Assistant and the IRS Tax Map. Use ‘Where’s My Refund?’ to check the status of your refund. Use the EITC Assistant to see if you’re eligible for the Earned Income Tax Credit. To view and download tax products, click on the ‘Forms and Pubs’ tab on the home page. You can often view, download or print the many tax products that appear online before paper versions are available.
  • Get tax products online.  If you e-file your tax return, you don’t need to prepare or mail any paper forms to the IRS. If you still need paper forms or publications you can visit IRS.gov to view, download or print what you need right away. As an alternative, you can go to IRS.gov/orderformsand place an order. If you can’t order online, you can call the IRS at 800-829-3676 to place an order.
30
Jan

Source: IRS Tax Tip 2015-09, January 30, 2015

Since 1975, the Earned Income Tax Credit has helped workers with low and moderate incomes get a tax break each year. Four out of five eligible workers claim EITC, but the IRS wants everyone who is eligible to claim this credit. Here are some things you should know about this valuable credit:

    • Review your eligibility.  If you worked and earned under $52,427, you may qualify for EITC. If your financial or family situation has changed, you should review the EITC eligibility rules. You might qualify for EITC this year even if you didn’t in the past. If you qualify for EITC you must file a federal income tax return and claim the credit to get it. This is true even if you are not otherwise required to file a tax return. Don’t guess about your EITC eligibility. Use the EITC Assistant toolon IRS.gov. The tool helps you find out if you qualify and estimates the amount of your EITC.
    • Know the rules.  You need to understand the rules before you claim the EITC, to be sure you qualify. It’s important that you get this right. Here are some factors you should consider:
      • Your filing status can’t be Married Filing Separately.
      • You must have a Social Security number that is valid for employment for yourself, your spouse if married, and any qualifying child listed on your tax return.
      • You must have earned income. Earned income includes earnings from working for someone else or working for yourself.
      • You may be married or single, with or without children to qualify. If you don’t have children, you must also meet age, residency and dependency rules. If you have a child who lived with you for more than six months of 2014, the child must meet age, residency, relationship and the joint return rules to qualify.
      • If you are a member of the U.S. Armed Forces serving in a combat zone, special rules apply.
      • Lower your tax or get a refund.  The EITC reduces your federal tax and could result in a refund. If you qualify, the credit could be worth up to $6,143. The average credit was $2,407 last year.
      • Use free services.  If you do your own taxes, the best way to file your return to claim EITC is to use IRS Free File. Free brand-name software will figure your taxes and EITC for you. Combining e-file with direct deposit is the fastest and safest way to get your refund. Free File is available exclusively on IRS.gov/freefile. Free help preparing and e-filing your return to claim your EITC is also available at thousands of Volunteer Income Tax Assistance sites around the country. You can also get help with the new health care law tax provisions.

For more information, see IRS Publication 596, Earned Income Credit. It’s available in English and Spanish on IRS.gov.

29
Jan

Source: IRS Tax Tip 2015-08, January 29, 2015

It’s important that you use the correct filing status when you file your tax return. Your status can affect the amount of tax you owe for the year. It may even affect whether you must file a tax return. Keep in mind that your marital status on Dec. 31 is your status for the whole tax year. Sometimes more than one filing status may apply to you. If that happens, choose the one that allows you to pay the lowest tax.

IRS e-file is the easiest and most accurate way to file your tax return. The tax software you use to e-file helps you choose the right filing status. Remember, most people can use tax software and e-file for free with IRS Free File. The free service is only available through the IRS.gov website. Just click on “Free File” on the IRS.gov home page.

Here’s a list of the five filing statuses:

  1. Single.  This status normally applies if you aren’t married. It applies if you are divorced or legally separated under state law.
  2. Married Filing Jointly.  If you’re married, you and your spouse can file a joint tax return together. If your spouse died in 2014, you often can file a joint return for that year.
  3. Married Filing Separately.  A married couple can choose to file two separate tax returns. This may benefit you if it results in less tax than if you file a joint tax return. It’s a good idea for you to prepare your taxes both ways before you choose. You can also use it if you want to be responsible only for your own tax.
  4. Head of Household.  In most cases, this status applies if you are not married, but there are some special rules. You also must have paid more than half the cost of keeping up a home for yourself and a qualifying person. Don’t choose this status by mistake. Be sure to check all the rules before you file.
  5. Qualifying Widow(er) with Dependent Child.  This status may apply to you if your spouse died during 2012 or 2013 and you have a dependent child. Certain other conditions also apply.

Note for same-sex married couples. In most cases, you and your spouse must use a married filing status on your federal tax return if you were legally married in a state or foreign country that recognizes same-sex marriage. That’s true even if you now live in a state that doesn’t recognize same-sex marriage. Visit IRS.gov for more information.

Visit IRS.gov and click on the “Filing” tab for help with all your federal income tax filing needs. Use the Interactive Tax Assistant tool to help you choose the right filing status. For more on this topic see Publication 501, Exemptions, Standard Deduction, and Filing Information. Go to IRS.gov/formsto view, download or print the tax products you need.

28
Jan

Source: IRS Tax Tip 2015-07, January 28, 2015

Many people pay to have their taxes prepared. You need to be careful when you pick a preparer to do your taxes. You are legally responsible for all the information on the tax return even if someone else prepares it. Here are 10 IRS tax tips to help you choose a tax preparer:

  1. Check the preparer’s qualifications.  All paid tax preparers are required to have a Preparer Tax Identification Number or PTIN. The IRS will soon offer a new Directory of Federal Tax Return Preparers with Credentials and Select Qualifications on IRS.gov. You will be able to use this toolto help you find a tax return preparer with the qualifications that you prefer. The Directory will be a searchable and sortable listing of certain preparers with a valid PTIN for 2015. It will include the name, city, state and zip code of:
    • Attorneys.
    • CPAs.
    • Enrolled Agents.
    • Enrolled Retirement Plan Agents.
    • Enrolled Actuaries.
    • Annual Filing Season Program participants.
  2. Check the preparer’s history.  You can check with the Better Business Bureau to find out if a preparer has a questionable history. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status.”
  3. Ask about service fees.  Avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can. Always make sure any refund due is sent to you or deposited into your bank account. You should not have your refund deposited into a preparer’s bank account.
  4. Ask to e-file your return.  Make sure your preparer offers IRS e-file. Any paid preparer who prepares and files more than 10 returns generally must e-file their clients’ returns. The IRS has safely processed more than 1.3 billion e-filed tax returns.
  5. Make sure the preparer is available.  You need to ensure that you can contact the tax preparer after you file your return. That’s true even after the April 15 due date. You may need to contact the preparer if questions come up about your tax return at a later time.
  6. Provide tax records.  A good preparer will ask to see your records and receipts. They ask you questions to report your total income and the tax benefits you’re entitled to claim. These may include tax deductions, tax credits and other items. Do not use a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.
  7. Never sign a blank tax return.  Do not use a tax preparer who asks you to sign a blank tax form.
  8. Review your return before signing.  Before you sign your tax return, review it thoroughly. Ask questions if something is not clear to you. Make sure you’re comfortable with the information on the return before you sign it.
  9. Preparer must sign and include their PTIN.  Paid preparers must sign returns and include their PTIN as required by law. The preparer must also give you a copy of the return.
  10. Report abusive tax preparers to the IRS.  You can report abusive tax preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can download and print these forms on IRS.gov. If you need a paper form by mail go to IRS.gov/orderforms to place an order.
27
Jan

Source: IRS Tax Tip 2015-06, January 27, 2015

Each year, millions of people have their taxes prepared for free. The IRS’s Volunteer Income Tax Assistance or and Tax Counseling for the Elderly programs have helped people for more than 40 years. Many people know these programs by their initials. Here are 10 tips from the IRS about VITA and TCE:

  1. Trained and Certified.  The IRS works with local community groups to train and certify VITA and TCE volunteers.
  2. VITA Program.  VITA generally offers free tax return preparation to people who earn $53,000 or less.
  3. TCE Program.  TCE is mainly for people age 60 or older. The program specializes in tax issues unique to seniors. AARP participates in the TCE program and helps people with low to moderate incomes.
  4. Free E-file.  VITA and TCE provide free electronic filing. E-filing is the safest, most accurate way to file your tax return. Combining e-file with direct deposit is the fastest way to get your refund.
  5. Tax Benefits.  Using VITA and TCE can help you get all the tax benefits for which you are eligible. For example, you may qualify for the Earned Income Tax Credit or the Credit for the Elderly. You can also get help with the new Health Care Law tax provisions.
  6. Bilingual Help.  Some VITA and TCE sites provide bilingual help for people who speak limited English.
  7. Help for Military.  VITA offers free tax assistance to members of the military and their families. Volunteers help with many military tax issues. These may include the special rules and tax benefits that apply to those serving in combat zones.
  8. “Self-Prep” Option.  At some VITA sites, you can prepare your own federal and state tax returns using free web-based software. This is an option if you don’t have a home computer or need much help. Volunteers are on site to guide you if you need help. In most cases, this option offers free tax return preparation software and e-filing to people who earn $60,000 or less.
  9. Local Sites.  The IRS partners with community organizations to offer free tax services at thousands of sites around the nation. Sites start to open in late January and early February.
  10. Visit IRS.gov.  You can visit IRS.gov to find a VITA site near you. Search the word “VITA” and click on “Free Tax Return Preparation for You by Volunteers.” Site information is also available by calling the IRS at 800-906-9887. To locate the nearest AARP Tax-Aide site, visit aarp.org, or call 888-227-7669.

 

26
Jan

Source: IRS Tax Tip 2015-05, January 26, 2015

Nearly everyone can claim an exemption on their tax return. It usually lowers your taxable income. In most cases, that reduces the amount of tax you owe for the year. Here are the top 10 tax facts about exemptions to help you file your tax return.

  1. E-file your tax return.  Filing electronically is the easiest way to file a complete and accurate tax return. The software that you use to e-file will help you determine the number of exemptions that you can claim. E-file options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.
  2. Exemptions cut income.  There are two types of exemptions. The first type is a personal exemption. The second type is an exemption for a dependent. You can usually deduct $3,950 for each exemption you claim on your 2014 tax return.
  3. Personal exemptions.  You can usually claim an exemption for yourself. If you’re married and file a joint return, you can claim one for your spouse, too. If you file a separate return, you can claim an exemption for your spouse only if your spouse:
    • Had no gross income,
    • Is not filing a tax return, and
    • Was not the dependent of another taxpayer.
  4. Exemptions for dependents.  You can usually claim an exemption for each of your dependents. A dependent is either your child or a relative who meets a set of tests. You can’t claim your spouse as a dependent. You must list the Social Security number of each dependent you claim on your tax return. For more on these rules, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information. You can get Publication 501 on IRS.gov. Just click on the “Forms & Pubs” tab on the home page.
  5. Report health care coverage. The health care law requires you to report certain health insurance information for you and your family. The individual shared responsibility provisionrequires you and each member of your family to either:
    • Have qualifying health insurance, called minimum essential coverage, or
    • Have an exemption from this coverage requirement, or
    • Make a shared responsibility payment when you file your 2014 tax return.
  6. Some people don’t qualify.  You normally may not claim married persons as dependents if they file a joint return with their spouse. There are some exceptions to this rule.
  7. Dependents may have to file.  A person who you can claim as your dependent may have to file their own tax return. This depends on certain factors, like the amount of their income, whether they are married and if they owe certain taxes.
  8. No exemption on dependent’s return.  If you can claim a person as a dependent, that person can’t claim a personal exemption on his or her own tax return. This is true even if you don’t actually claim that person on your tax return. This rule applies because you can claim that person is your dependent.
  9. Exemption phase-out.  The $3,950 per exemption is subject to income limits. This rule may reduce or eliminate the amount you can claim based on the amount of your income. SeePublication 501 for details.
  10. Try the IRS online tool.  Use the Interactive Tax Assistant tool on IRS.gov to see if a person qualifies as your dependent.

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