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The Southbourne Tax Group: Ready to file your 2016 taxes?
by
Hefhef Horace
While most people will be minimally impacted by changes this year, one of the biggest additions is aimed at helping low-income families.
The California earned income tax credit is entering its second year. The credit applies to people who earn $6,717 or less with no children up to $14,161 with two or more children. To help you get the most out of your taxes, we asked Aaron Martinez, a tax expert with H&R Block since 1998, and Andrew Nelsen, a certified public accountant in Fountain Valley, for tips ahead of the April 18 filing deadline.
REFUND DELAY
Some who file early may be in for a surprise. Those claiming the EITC or a child tax credit an estimated 30 million taxpayers will have their refund held until Feb. 15.
Were telling everyone to file normally, Martinez said. They just have to wait a little bit longer to get their refund.
The delay, created by the Protecting Americans From Tax Hikes (PATH) Act of 2015, is meant to prevent fraud.
Those two credits are target credits for identity thieves and fraudsters. The IRS wants to make sure that the W-2s that are coming in are correct and that they have time to make sure there is no theft, Martinez said.
The IRS estimates that as many as 26 percent of EITC claims may be paid erroneously in 2015. Some of the errors are unintentional, caused by the complexity of the law, but some of the claims are intentional disregard of the law, the agency said.
For people who need the refund sooner, H&R Block is offering a $1,250 refund advance, a no-interest loan thats repaid when the refund is issued by the IRS.
WHAT’s NEW
The personal exemption has been increased to $4,050. But that amount is phased out for taxpayers at higher income levels. Similarly, those with higher adjusted gross income might not be able to get the full value of their deductions.
The alternative minimum tax is still around, but the exemption has increased to $53,900 for single taxpayers, $83,000 for those married filing jointly and $41,900 for married filing separately.
People who have been issued an individual taxpayer identification number, or ITIN, instead of a Social Security number may have to renew it before filing their tax returns. The IRS says current ITINs will no longer be valid if they werent used at least once in the last three years or if the number was issued before 2013.
Make sure you have last years tax return handy when you prepare to file your taxes this year.
Taxpayers who are changing tax software products this filing season will need their adjusted gross income from their 2015 tax return in order to file electronically, the IRS said. The electronic filing PIN is no longer an option.
That, too, is part of the agencys attempt to battle tax fraud and identity theft.
CLAIM ALL YOUR CREDITS
Martinez said there are a lot of deductions people forget to take. They include:
–Charitable contributions
–Mortgage interest, property taxes and mortgage insurance
–Employee expenses such as mileage and phone bills
–Education costs: Schools issue a tuition statement, form 1098-T, for eligible deductions
–Filing status: For example, a single mother with a child can file as head of household
–Caring for parents
–Even if you have a degree, the IRS offers a lifetime learning credit of up to $2,000 annually
–Delivery drivers, especially those working for Uber, Lyft and DoorDash, should keep track of miles, oil changes and vehicle repairs as business expenses
PATH ACT
A big change this year is the PATH Act. This act made some tax changes permanent and made some expire, Martinez said.
Under the act, the American Opportunity Education Tax Credit, which gives undergraduate students up to $2,500 in tax credits, and some other tax breaks were made permanent.
This is the last year for private mortgage insurance, mortgage debt forgiveness, a tuition and fees deduction, and non-business energy credits.
Next year is the year that could really be topsy-turvy, said Nelsen. Not a whole lot changed this year.
AVOID SCAMS
To prevent fraud, file your taxes as early as possible, Martinez urges.
The IRS will not ask for your credit card or send the sheriff to your house. Anyone threatening to do so is likely a scammer.
Anyone impersonating the IRS can be reported online at ftccomplaintassistant.gov or by calling 800-366-4484.
EXTENSIONS
Taxpayers who need more time to file can request an extension.
Getting a filing extension avoids the late filing penalty, but it doesnt avoid the late payment penalty, said Barbara Weltman, a consultant and author of books on taxes, law and finance.
So the advice from tax experts: To avoid the late payment penalty, estimate the amount due and pay it before the April 18 deadline. But even with that, you wont be able to avoid interest on payments made after the deadline.
AFFORDABLE CARE ACT
While Republicans seem committed to repealing the Affordable Care Act, it remains to be seen what might replace it.
In the meantime, people who do not have health insurance should be prepared to pay more this year as penalties for those without coverage have risen.
The penalty for not having insurance is $695 per uninsured adult or 2.5 percent of household income over the filing threshold whichever is greater. In 2015, it was $325 per uninsured adult or 2 percent of household income.
Enrollees with insurance through the states health exchange, Covered California, have to file a 1095-A form with their taxes.
To help with the cost, there are 30 exemptions available for people who are uninsured, according to Martinez.
Its in its third year. The first year people didnt really understand it, Nelsen said. The second year penalties really started kicking in, and people started to catch on, so I know its on peoples mind this year.
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