Choosing a Tax Return Preparer

Choosing a Tax Preparer

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 some 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 tool to 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.

  1. 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”.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Never sign a blank tax return.  Do not use a tax preparer who asks you to sign a blank tax form.
  7. 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.
  8. 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.

Health Care – Affordable Care Act (ACA) – Shared Responsibility Payments

How Coverage You Offer (or Don’t Offer) May Mean an Employer “Shared Responsibility” Payment for Your Organization

Under the “Affordable Care Act” (ACA), certain employers, based on workforce size – called applicable large employers – are subject to the employer “Shared Responsibility” provisions. The vast majority of employers fall below the workforce size threshold and, therefore, are not subject to the employer “Shared Responsibility” provisions.

If you are an employer that is subject to the employer Shared Responsibility provisions, you may choose either to offer affordable minimum essential coverage that provides minimum value to your full-time employees and their dependents, or to potentially owe an employer Shared Responsibility payment to the IRS.  Many employers already offer coverage that is sufficient to avoid owing a payment.

If your organization is an applicable large employer, and you choose not to offer affordable minimum essential coverage that provides minimum value to your full-time employees and their dependents, you may be subject to one of two (2) potential employer Shared Responsibility payments.

More specifically, you may need to make an employer Shared Responsibility payment to the IRS if you are an applicable large employer and either of these circumstances applies for 2015:

  • You offered minimum essential coverage to fewer than 70 percent (70%) of your full-time employees and their dependents, and at least one full-time employee enrolled in coverage through the Health Insurance Marketplace and received the premium tax credit.
  • You offered minimum essential coverage to at least 70 percent (70%) of your full-time employees and their dependents, but at least one full-time employee enrolled in coverage through the Health Insurance Marketplace and received the premium tax credit.  A full-time employee could receive the premium tax credit because the coverage that was offered was not affordable, did not provide minimum value, or was not offered to the full-time employee.

For both of these circumstances, the 70 percent (70%) threshold changes to 95 percent (95%) after 2015.

Health Care – Letters Sent by IRS

Health Care Law and You: Facts about Letters Sent by the IRS

The IRS sent letters to taxpayers this summer who were issued a Form 1095-A, “Health Insurance Marketplace Statement”, showing that advance payments of the “Premium Tax Credit” were paid on the taxpayer’s behalf in 2014. At the time, the IRS had no record that the taxpayer filed a 2014 tax return.

Here are facts about these letters and the actions you should take:

  • IRS letters 5591, 5591A, or 5596 remind you of the importance of filing your 2014 federal tax return along with IRS Form 8962, Premium Tax Credit.
  • You must file a tax return to reconcile any advance credit payments you received in 2014 and to maintain your eligibility for future premium assistance.
  • If you do not file, you will not be eligible for advance payments of the Premium Tax Credit in 2016.
  • Even if you don’t usually file or if you requested an extension to Oct. 15, you should file your 2014 tax return as soon as possible.
  • Until you file a 2014 tax return to resolve the issue with your Marketplace, you will not be eligible to get advance payments of the premium tax credit to help pay your health coverage premiums in 2016 from the Marketplace.
  • You should have received a Form 1095-A, Health Insurance Marketplace Statement, earlier this year if you or a family member purchased health insurance coverage through the Marketplace in 2014.  This form provides the information you need to complete Form 8962. You must attach Form 8962 to the income tax return you file.
  • Contact your Marketplace if you have questions about your Form 1095-A.
  • If you have recently filed your 2014 tax return with Form 8962, you do not need to file another tax return or call the IRS about these letters.   In general, if you filed your tax return electronically, it takes three weeks before it is processed and your information is available. If you mailed your tax return, it takes about six weeks. However, processing times can vary based on other circumstances.
  • You should follow the instructions on any additional IRS correspondence that you receive to help the IRS verify information to process your tax return.

In addition to these letters from the IRS, your health insurance company may contact you to remind you to file your 2014 federal tax return along with IRS Form 8962. In some cases, they may contact you even if you did not receive advance credit payments in 2014. If you are not otherwise required to file a tax return, you do not have to file a return if you or anyone on your return did not receive advance credit payments in 2014.

Penalty Relief Due to “Reasonable Cause”

Penalty Relief Due to “Reasonable Cause”

First, check to see if the information in your IRS notice is correct. If you can resolve an issue in your IRS notice, there may be no penalty.

Reasonable Cause is based on all the facts and circumstances in your situation. The IRS will consider any reason which establishes that you used all “ordinary business care and prudence” to meet your Federal tax obligations but were nevertheless unable to do so.

Typical Situations

The IRS will consider any sound reason for failing to file a tax return, make a deposit, or pay tax when due. Sound reasons, if established, include:

  • Fire, casualty, natural disaster or other disturbances
  • Inability to obtain records
  • Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
  • Other reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so

Note: A lack of funds, in and of itself, is not reasonable cause for failure to file or pay on time. However, the reasons for the lack of funds may meet reasonable cause criteria for the failure-to-pay penalty.

Facts Establishing Reasonable Cause

Facts IRS need in order to determine Reasonable Cause:

  • What happened and when did it happen?
  • What facts and circumstances prevented you from filing your return or paying your tax during the period of time you did not file and/or pay your taxes timely?
  • How did the facts and circumstances affect your ability to file and/or pay your taxes or perform your other day-to-day responsibilities?
  • Once the facts and circumstances changed, what actions did you take to file and/or pay your taxes?
  • In the case of a Corporation, Estate or Trust, did the affected person or a member of that individual’s immediate family have sole authority to execute the return or make the deposit or payment?

Documents You May Need

Most Reasonable Cause explanations require that you provide documentation to support your claim, such as:

  • Hospital or court records or a letter from a physician to establish illness or incapacitation, with specific start and end dates
  • Documentation of natural disasters or other events that prevented compliance

IRS NOTICE – PRIVATE FOUNDATION INVESTMENTS

Investments Made for Charitable Purposes Notice 2015-62

 

SECTION 1. PURPOSE

This notice provides guidance on the application of section 4944 of the Internal Revenue Code (Code) to investments that are made by private foundations for purposes described in section 170(c)(2)(B), but are not program-related investments (PRIs) as defined in section 4944(c) and the regulations thereunder.

SECTION 2. BACKGROUND

Section 4944(a)(1) imposes an excise tax on a private foundation that invests “any amount in such a manner as to jeopardize the carrying out of any of its exempt purposes.” In addition, section 4944(a)(2) imposes an excise tax on the participation of any foundation manager in the making of such an investment, knowing that the investment will jeopardize the carrying out of any of the foundation’s exempt purposes.

Section 53.4944-1(a)(2)(i) of the Excise Tax Regulations provides that an investment jeopardizes the carrying out of the exempt purposes of a private foundation if it is determined that the foundation managers, in making such investment, failed to exercise ordinary business care and prudence (under the circumstances prevailing at the time of making the investment) in providing for the long-term and short-term financial needs of the foundation to carry out its exempt purposes. In the exercise of the requisite standard of care and prudence the foundation managers may take into account the expected return (including both income and appreciation of capital), the risks of rising and falling price levels, and the need for diversification within the investment portfolio (for example, with respect to type of security, type of industry, maturity of company, degree of risk and potential for return).

Further, the determination of whether an investment jeopardizes the carrying out of the foundation’s exempt purposes is made on an investment-by-investment basis, in each case taking into account the foundation’s entire portfolio. Investments that are considered “high risk” may be closely scrutinized to determine whether the foundation managers have met the requisite standard of care. However, once an investment has been determined not to jeopardize the carrying out of the foundation’s exempt purposes, the investment will not later be considered a jeopardizing investment, even if the foundation subsequently realizes a loss as a result of the investment.

Section 4944(c) provides an exception for PRIs, which are defined as “investments, the primary purpose of which is to accomplish one or more of the purposes described in section 170(c)(2)(B), and no significant purpose of which is the production of income or the appreciation of property.” Section 170(c)(2)(B) defines the “charitable purposes” of organizations (including private foundations) that are eligible to receive contributions that are deductible by the donor for federal income tax purposes. The regulations under section 4944 provide additional guidance regarding what it means for purposes of section 4944 for an investment to be made primarily to accomplish one or more of the purposes described in section 170(c)(2)(B) and whether a significant purpose of the investment is the production of income or the appreciation of property.

Questions have arisen about whether an investment made by a private foundation that furthers its charitable purposes, but is not a PRI because a significant purpose of the investment is the production of income or the appreciation of property, is subject to tax under section 4944.

SECTION 3. DISCUSSION

Only a jeopardizing investment is subject to tax under section 4944. Under the regulations, an investment made by a private foundation will not be considered to be a jeopardizing investment if, in making the investment, the foundation managers exercise ordinary business care and prudence (under the circumstances prevailing at the time the investment is made) in providing for the long-term and short-term financial needs of the foundation to carry out its charitable purposes. Although the regulations list some factors that managers generally consider when making investment decisions, the regulations do not provide an exhaustive list of facts and circumstances that may properly be considered.

When exercising ordinary business care and prudence in deciding whether to make an investment, foundation managers may consider all relevant facts and circumstances, including the relationship between a particular investment and the foundation’s charitable purposes. Foundation managers are not required to select only investments that offer the highest rates of return, the lowest risks, or the greatest liquidity so long as the foundation managers exercise the requisite ordinary business care and prudence under the facts and circumstances prevailing at the time of the investment in making investment decisions that support, and do not jeopardize, the furtherance of the private foundation’s charitable purposes. For example, a private foundation will not be subject to tax under section 4944 if foundation managers who have exercised ordinary business care and prudence make an investment that furthers the foundation’s charitable purposes at an expected rate of return that is less than what the foundation might obtain from an investment that is unrelated to its charitable purposes.

This standard is consistent with investment standards under state laws, which generally provide for the consideration of the charitable purposes of an organization or certain factors, including an asset’s special relationship or special value, if any, to the charitable purposes of the organization, in properly managing and investing the organization’s investment assets. See, e.g., Unif. Prudent Mgmt. of Institutional Funds Act. §§ 3(a), 3(e)(1)(H) and accompanying comments, 7A pt. III U.L.A. 21-22 (Pocket Pt. 2015).

Tax Volunteer in Your Community

Become a Tax Volunteer and Make a Difference in Your Community

If you ever wonder how to make a difference and help people in your community, then becoming a “TAX VOLUNTEER” may be just right for you. The IRS is looking for people who will provide free tax help in 2016. You will receive all the tax training you need so you can help others file their tax return.

The IRS sponsors two (2) programs that offer free tax help across the country. These are the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs. Many people know them by their initials. In 2015, VITA and TCE volunteers prepared more than 3.7 million tax returns at no cost for people with low-to-moderate incomes.

Here are five good reasons why you should become a VITA or TCE volunteer.

  1. No prior experience needed.  You’ll receive specialized training and can serve in a variety of roles. If you are fluent in another language, you may be able to help those who speak that language.
  2. Free tax law training and materials.  You’ll learn how to prepare basic tax returns and learn about tax deductions and credits that benefit eligible taxpayers. These include credits such as the Earned Income Tax Credit, Child Tax Credit and Credit for the Elderly.
  3. Volunteer hours are flexible.  Volunteers generally serve an average of three to five hours per week. The programs are usually open from mid-January through the tax filing deadline in April. A few sites are open all year.
  4. VITA and TCE sites are often nearby.  More than 12,000 sites were set up in neighborhoods all over the country this year. They are often set up in community centers, libraries, schools, shopping malls and similar places. Chances are good that you can volunteer at a site near you.
  5. Continuing education credits for tax pros.  Enrolled Agents and non-credentialed tax return preparers can earn credits when volunteering as a VITA/TCE instructor, quality reviewer or tax return preparer.

As a volunteer, you’ll join a program that’s helped millions of people file tax returns at no charge for more than 40 years. Your help will make a difference. It’s people helping people. It’s that simple.

To find out more, visit IRS.gov and type “tax volunteer” in the search box. If you’d like to become a volunteer, you will need to submit your volunteer interest information on IRS.gov at “IRS Tax Volunteers”.

Tips if You Travel for Charity Work

Tips if you travel for charity work

 

Did you donate your services to charity this summer? Did you travel as part of your service? If so, some travel expenses may help lower your taxes when you file your return next year. Here are several tax tips that you should know if you travel while giving your services to charity.

  • Genuine and Substantial Duty — Your charity work has to be real and substantial

throughout the trip. You can’t deduct expenses if you only have nominal duties or do not

have any duties for significant parts of the trip.

  • Value of Time or Service — You can’t deduct the value of your services that you give to charity. This includes income lost while you work as an unpaid volunteer for a qualified charity.

  • Qualified Charities — Your volunteer work must be for a qualified charity to deduct your costs. Qualified organizations must be eligible to receive tax-deductible charitable contributions. They include nonprofit groups that are religious, charitable, educational, scientific, or literary in purpose, or work to prevent cruelty to children or animals. Most groups must apply to the IRS to become qualified. Churches and governments are qualified, and do not need to apply to the IRS. Ask the group about its IRS status before you donate. You can also use the “Select Check” tool on IRS.gov to check the group’s status.

  • Out-of-Pocket Expenses — You may be able to deduct some costs you pay to give your services. This can include the cost of travel. The costs must be necessary while you are away from home giving your services for a qualified charity. Examples of cost include:

 unreimbursed,

 directly connected with the services,

 expenses you had only because of the services you gave, and

 not personal, living or family expenses.

In addition, miscellaneous deductions can reduce your tax liability as well. These may include certain expenses you incurred during this period. You must itemize deductions when you file to claim these costs. So, if you usually claim the standard deduction, consider itemizing instead. You might pay less tax if you itemize. You can claim allowable miscellaneous deductions on Schedule “A”, Itemized Deductions.

Filing an Amended Tax Return

Filing an Amended Tax Return

 

You can file an amended return if you need to fix an error. You can also amend your tax return if you forgot to claim a tax credit or deduction. Here are ten (10) tips from the IRS if you need to amend your federal tax return.

  1. When to amend.  You should amend your tax return if you need to correct your filing status, the number of dependents you claimed, or your total income. You should also amend your return to claim tax deductions or tax credits that you did not claim when you filed your original return. The instructions for IRS Form 1040X, Amended U.S. Individual Income Tax Return, list more reasons to amend areturn.

    Note: If, as allowed by recent legislation, you plan to amend your tax year 2014 return to retroactively claim the Health Coverage Tax Credit, see IRS.gov/HCTC first for more information.

  2. When NOT to amend.  In some cases, you don’t need to amend your tax return. The IRS usually corrects math errors when processing your original return. If you didn’t include a required form or schedule, the IRS will send you a notice via U.S. mail about the missing item.
  3. Form 1040X.  Use IRS Form 1040X to amend a federal income tax return that you filed before. Make sure you check the box at the top of the form that shows which year you are amending. Since you can’t e-file an amended return, you’ll need to file your Form 1040X on paper and mail it to the IRS.

    Form 1040X has three columns. Column A shows amounts from the original return. Column B shows the net increase or decrease for the amounts you are changing. Column C shows the corrected amounts. You should explain what you are changing and the reasons why on the back of the form.

  4. More than one year.  If you file an amended return for more than one year, use a separate 1040X for each tax year. Mail them in separate envelopes to the IRS. See “Where to File” in the Instructions for Form 1040X for the address you should use.
  5. Other forms or schedules.  If your changes have to do with other tax forms or schedules, make sure you attach them to Form 1040X when you file the form. If you don’t, this will cause a delay in processing.
  6. Amending to claim an additional refund.  If you are waiting for a refund from your original tax return, don’t file your amended return until after you receive the refund. You may cash the refund check from your original return. Amended returns take up to 16 weeks to process. You will receive any additional refund you are owed.
  7. Amending to pay additional tax.  If you’re filing an amended tax return because you owe more tax, you should file Form 1040X and pay the tax as soon as possible. This will limit interest and penalty charges.
  8. Corrected Forms 1095-A.  If you or anyone on your return enrolled in qualifying health care coverage through the Health Insurance Marketplace, you should have received a Form 1095-A, Health Insurance Marketplace Statement. You may have also received a corrected IRS Form 1095-A. If you filed your tax return based on the original Form 1095-A, you do not need to file an amended return based on a corrected Form 1095-A.  This is true even if you would owe additional taxes based on the new information. However, you may choose to file an amended return.

    In some cases, the information on the new Form 1095-A may lower the amount of taxes you owe or increase your refund.  You may also want to file an amended return if:

    • You filed and incorrectly claimed a premium tax credit, or
    • You filed an income tax return and failed to file IRS Form 8962, Premium Tax Credit, to reconcile your advance payments of the premium tax credit.

Before amending your return, if you received a letter regarding your premium tax credit or Form 8962 you should follow the instructions in the letter.

  1. When to file.  To claim a refund file Form 1040X no more than three years from the date you filed your original tax return. You can also file it no more than two years from the date you paid the tax, if that date is later than the three-year rule.
  2. Track your return.  You can track the status of your amended tax return three weeks after you file with “Where’s My Amended Return”. This tool is available on IRS.gov or by phone at 866-464-2050.

You can get IRS Form 1040X on IRS.gov/forms at any time.

“Catch-Up” on Your Retirement Savings

Catch up on your retirement savings

 

If you will be 50 years old or older by the end of the year, you may be able to contribute more money every year to your employer-sponsored retirement plans and your individual retirement arrangements. Contributing more money will help you save more for your retirement and reduce your taxable income if you make pre-tax retirement plan contributions or deductible IRA contributions.

 

Employer-sponsored retirement plans

Plans that permit you to contribute from your wages may allow an age-50 catch-up contribution. This means you may contribute additional amounts to the plan every year starting with the year in which you turn 50. For 2015, you may be able to contribute the lesser of 100 percent of your compensation or:

  • $24,000 ($18,000 plus an additional $6,000 of catch-up contributions) to 401(k), 403(b) and governmental 457(b) plans; or

  • $15,500 ($12,500 plus an additional $3,000 of catch-up contributions) to Simple Plans.

If you contribute to the plan on a pre-tax basis, the contribution is not subject to federal income tax.

 

IRAs

If you will be 50 or older by the end of the year, you may also be able to contribute additional amounts every year to your IRA. For 2015, you can contribute the lesser of your taxable compensation or $6,500 ($5,500 plus an additional $1,000 of catch-up contributions). This limit applies to the combined contributions to all your Traditional and Roth IRAs. Here are a few things to remember about making IRA contributions:

  • You can’t contribute to a traditional IRA starting with the year in which you are 701⁄2 years old (you can contribute to a Roth IRA regardless of your age). Amounts you contribute to a traditional IRA after you are 701⁄2 are excess contributions and incur a 6 percent (6%) tax per year as long as the excess amounts remain in the IRA.

  • Your ability to deduct contributions to a traditional IRA may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain limits.

  • Your ability to contribute to a Roth IRA may be limited based on your filing status and income.