IRS TAX PROBLEMS – Basic Things to Know About the Child Tax Credit
The Child Tax Credit is a tax credit that may save taxpayers up to $1,000 for each eligible qualifying child. Taxpayers should make sure they qualify before they claim it. Here are five facts from the IRS on the Child Tax Credit:
- Qualifications. For the Child Tax Credit, a qualifying child must pass several tests:
- Age. The child must have been under age 17 on Dec. 31, 2016.
- Relationship. The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother or half-sister. The child may be a descendant of any of these individuals. A qualifying child could also include grandchildren, nieces or nephews. Taxpayers would always treat an adopted child as their own child. An adopted child includes a child lawfully placed with them for legal adoption.
- Support. The child must have not provided more than half of their own support for the year.
- Dependent. The child must be a dependent that a taxpayer claims on their federal tax return.
- Joint return. The child cannot file a joint return for the year, unless the only reason they are filing is to claim a refund.
- Citizenship. The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
- Residence. In most cases, the child must have lived with the taxpayer for more than half of 2016.
The “IRS Interactive Tax Assistant” tool – “Is My Child a qualifying Child for the Child Tax Credit” – helps taxpayers determine if a child is a qualifying child for the Child Tax Credit.
- Limitations. The Child Tax Credit is subject to income limitations. The limits may reduce or eliminate a taxpayer’s credit depending on their filing status and income.
- Additional Child Tax Credit. If a taxpayer qualifies and gets less than the full Child Tax Credit, they could receive a refund, even if they owe no tax, with the “Additional Child Tax Credit” (ACTC).
Because of a new tax-law change, the IRS cannot issue refunds before Feb. 15 for tax returns that claim the “Earned Income Tax Credit” (EITC) or the ACTC. This applies to the entire refund, even the portion not associated with these credits. The IRS will begin to release EITC/ACTC refunds starting Feb. 15. However, the IRS expects these refunds to be available in bank accounts or debit cards at the earliest, during the week of Feb. 27. This will happen as long as there are no processing issues with the tax return and the taxpayer chose direct deposit.
- Schedule 8812. If a taxpayer qualifies to claim the Child Tax Credit, they need to check to see if they must complete and attach Schedule 8812, “Child Tax Credit”, with their tax return. Taxpayers can visit IRS.gov to view, download or print IRS tax forms anytime.
- IRS E-file. The easiest way to claim the Child Tax Credit is with IRS E-file. This system is safe, accurate and easy to use. Taxpayers can also use “IRS Free File” to prepare and e-file their taxes for free. Go to “IRS.gov/filing” to learn more.
IRS TAX PROBLEMS – Early Withdrawals from Retirement Plan
Many people find it necessary to take out money early from their IRA or retirement plan. Doing so, however, can trigger an additional tax on top of income tax taxpayers may have to pay. Here are a few key points to know about taking an early distribution:
- Early Withdrawals. An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59½ years old.
- Additional Tax. If a taxpayer took an early withdrawal from a plan last year, they must report it to the IRS. They may have to pay income tax on the amount taken out. If it was an early withdrawal, they may have to pay an additional Ten percent (10%) tax.
- Nontaxable Withdrawals. The additional Ten percent (10%) tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the plan.
A “Rollover” is a form of nontaxable withdrawal. A rollover occurs when people take cash or other assets from one plan and put the money in another plan. They normally have 60 days to complete a rollover to make it tax-free.
- Check Exceptions. There are many exceptions to the additional Ten percent (10%) tax. Some of the rules for retirement plans are different from the rules for IRAs.
- File Form 5329. If someone took an early withdrawal last year, they may have to file “IRS Form 5329”, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts”, with their federal tax return. IRS Form 5329 has more details.
IRS TAX PROBLEMS – Are Social Security Benefits Taxable?
If taxpayers receive Social Security benefits, they may have to pay federal income tax on part of those benefits.
- Form SSA-1099. If taxpayers received Social Security benefits in 2016, they should receive a Form SSA-1099, “Social Security Benefit Statement”, showing the amount of their benefits.
- Only Social Security. If Social Security was a taxpayer’s only income in 2016, their benefits may not be taxable. They also may not need to file a federal income tax return. If they get income from other sources, they may have to pay taxes on some of their benefits.
- Free File. Taxpayers may use “IRS Free File” to prepare and e-file their tax returns for free. If they earned $64,000 or less, they can use brand-name software. The software does the math for them, which helps avoid mistakes. If taxpayers earned more, they can use Free File Fillable Forms. This option uses electronic versions of IRS paper forms. It’s best for people who are used to doing their own taxes. Free File is available only by going to “IRS.gov/freefile”.
- Interactive Tax Tools. Taxpayers can get answers to their tax questions with this helpful tool, “Are My Social Security or Railroad Retirement Tier I Benefits Taxable”, to see if any of their benefits are taxable. They can also visit “IRS.gov” and use the “Interactive Tax Assistant” tool.
- Tax Formula. Here’s a quick way to find out if a taxpayer must pay taxes on their Social Security benefits: Add one-half of the Social Security income to all other income, including tax-exempt interest. Then compare that amount to the base amount for their filing status. If the total is more than the base amount, some of their benefits may be taxable.
- Base Amounts. The three (3) base amounts are:
- $25,000 – if taxpayers are single, head of household, qualifying widow or widower with a dependent child or married filing separately and lived apart from their spouse for all of 2016
- $32,000 – if they are married filing jointly
- $0 – if they are married filing separately and lived with their spouse at any time during the year
IRS TAX PROBLEMS – Dirty Dozen – The Dirty Dozen represents the worst of the worst tax scams.
Compiled annually by the IRS, the “Dirty Dozen” lists a variety of common scams that taxpayers may encounter anytime but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes. Don’t fall prey.
- IRS Includes Falsifying Income Scam in 2017 List of “Dirty Dozen” — The Internal Revenue Service has continued issuing its annual list of common tax scams by warning taxpayers to avoid schemes to erroneously claim tax credits.
- IRS Annual “Dirty Dozen” List of Tax Scams to Avoid Includes Falsely Padding Deductions — Avoid the temptation to falsely inflate deductions or expenses on tax returns, the IRS warned in its 2017 “Dirty Dozen” list of tax scams. Doing so may result in paying less than is owed or receiving a larger refund than is due.
- Excessive Claims for Business Credits Makes the IRS “Dirty Dozen” List of Tax Scams — The Internal Revenue Service warned that taxpayers should watch for improper claims for business credits, which is on the “Dirty Dozen” list of tax scams for the 2017 filing season.
- Falsely Inflating Refund Claims on the IRS “Dirty Dozen” List of Tax Scams for 2017 — The Internal Revenue Service warned taxpayers to be alert to unscrupulous tax return preparers touting inflated tax refunds. This scam remains on the annual list of tax scams known as the “Dirty Dozen” for 2017.
- Fake Charities on the IRS “Dirty Dozen” List of Tax Scams for 2017 – The Internal Revenue Service warned taxpayers about groups masquerading as charitable organizations to attract donations from unsuspecting contributors, one of the “Dirty Dozen” Tax Scams for the 2017 filing season.
- IRS “Dirty Dozen” Series of Tax Scams for 2017 Includes Return Preparer Fraud; Choose Reputable Return Preparers — The IRS warned taxpayers to be on the lookout for unscrupulous return preparers, one of the most common “Dirty Dozen” tax scams seen during tax season.
- Identity Theft Remains on “Dirty Dozen” List of Tax Scams; IRS, States, Tax Industry Urge People to be Vigilant Against Criminals — The IRS issued a filing season alert, warning taxpayers and tax professionals to watch out for identity theft at tax time, and highlighted the crime as a recurring scam in the agency’s “Dirty Dozen” series.
- Phone Scams a Serious Threat; Remain on the IRS “Dirty Dozen” List of Tax Scams for 2017 — Aggressive and threatening phone calls by criminals impersonating IRS agents remain a major threat to taxpayers, remain on the annual “Dirty Dozen” list of tax scams for the 2017 filing season, the Internal Revenue Service announced.
- Phishing Schemes Lead the IRS “Dirty Dozen” List of Tax Scams for 2017; Remain Tax-Time Threat — The Internal Revenue Service warned taxpayers to watch out for fake emails or websites looking to steal personal information. These “phishing” schemes continue to be on the annual IRS list of “Dirty Dozen” tax scams for the 2017 filing season.
IRS TAX PROBLEMS – How Exemptions and Dependents Can Reduce Taxable Income
Most taxpayers can claim an exemption for themselves and reduce their taxable income on their tax return. They may also be able to claim an exemption for each of their dependents. Each exemption normally allows them to deduct $4,050 on their 2016 tax return. Here are some key points to keep in mind on dependents and exemptions:
- Personal Exemptions. Taxpayers can usually claim exemptions for themselves and their spouses on a jointly filed tax return. For married taxpayers filing separate returns, an exemption can only be claimed for a spouse if that spouse:
- Had no gross income,
- Is not filing a tax return, and
- Was not the dependent of another taxpayer.
- Exemptions for Dependents. A dependent is either a child or a relative who meets a set of tests. Taxpayers can normally claim dependents as exemptions. List a Social Security number for each dependent. For more on these rules, see IRS Publication 501, “Exemptions, Standard Deduction and Filing Information”.
- No Exemption on Dependent’s Return. If a taxpayer can claim a person as a dependent, then that dependent cannot claim a personal exemption on his or her own tax return. This is true even if no one claims that person on a tax return.
- Dependents May Have to File. A dependent may have to file a tax return. This depends on certain factors like total income, whether they are married and if they owe certain taxes.
- Exemption Phase-Out. Taxpayers earning above a certain amount will lose part or all the $4,050 exemption. See IRS Publication 501 for details.
IRS TAX PROBLEMS – Don’t Fall for Scam Calls and Emails Posing as IRS
Scams continue to use the IRS as a lure. These tax scams take many different forms. The most common scams are phone calls and emails from thieves who pretend to be from the IRS. Scammers use the IRS name, logo or a fake website to try and steal money from taxpayers. Identity theft can also happen with these scams.
Taxpayers need to be wary of phone calls or automated messages from someone who claims to be from the IRS. Often these criminals will say the taxpayer owes money. They also demand payment right away. Other times scammers will lie to a taxpayer and say they are due a refund. The thieves ask for bank account information over the phone. The IRS warns taxpayers not to fall for these scams.
IRS employees will NOT:
- Call demanding immediate payment. The IRS will not call a taxpayer if they owe tax without first sending a bill in the mail.
- Demand payment without allowing the taxpayer to question or appeal the amount owed.
- Require the taxpayer pay their taxes a certain way. For example, demand taxpayers use a prepaid debit card.
- Ask for credit or debit card numbers over the phone.
- Threaten to contact local police or similar agencies to arrest the taxpayer for non-payment of taxes.
- Threaten legal action such as a lawsuit.
If a taxpayer doesn’t owe or think they owe any tax, they should:
- Contact the Treasury Inspector General for Tax Administration (TIGTA). Use TIGTA’s “IRS Impersonation Scam Reporting” web page to report the incident.
- Report the incident to the Federal Trade Commission. Use the “FTC Complaint Assistant” on “FTC.gov”. Please add “IRS Telephone Scam” to the comments of your report.
In most cases, an IRS phishing scam is an unsolicited, bogus email that claims to come from the IRS. Criminals often use fake refunds, phony tax bills or threats of an audit. Some emails link to sham websites that look real. The scammers’ goal is to lure victims to give up their personal and financial information. If they get what they’re after, they use it to steal a victim’s money and their identity.
For those taxpayers who get a ‘phishing’ email, the IRS offers this advice:
- Don’t reply to the message.
- Don’t give out your personal or financial information.
- Forward the email to “firstname.lastname@example.org”. Then delete it.
- Do not open any attachments or click on any links. They may have malicious code that will infect your computer.
THE LAST REMAINING EXPORT INCENTIVE FOR
U.S. MANUFACTURERS AND EXPORTERS
APPROVED BY THE IRS
AN IC-DISC CAN PROVIDE A 20% TAX SAVINGS FOR QUALIFYING U.S. MANUFACTURERS AND EXPORTERS
If you are unsure about whether or not an IC-DISC (Interest Charge – Domestic International Sales Company) will work for your Company, now or in the future, ask the following Questions:
- Do you currently, or will you in the future, have any transactions outside the United States?
- Do you currently, or will you in the future, use overseas distribution?
- Does your product currently, or will it in the future, cross any borders?
- Are you generating or projecting operating income?
If the answer to any of these Questions is “YES”, and you are currently Exporting or you would want to Export in the future, an IC-DISC could be a valuable tax-savings vehicle for your Company that could result in the following:
- Permanent Tax Savings on Export Sales – CASH FLOW
- Ability to Leverage Cost of Capital
- Opportunities to Create Management Incentives
- Means to Facilitate Succession Planning
AN IC-DISC CAN ONLY BENEFIT YOUR COMPANY PROSPECTIVELY – ONLY AFTER ITS FORMATION
IRS TAX PROBLEMS – IRS Now Accepting 2016 Tax Returns
The Internal Revenue Service (IRS) has successfully started accepting and processing 2016 federal individual income tax returns on schedule. More than 153 million returns are expected to be filed this year.
People have until Tuesday, April 18, 2017 to file their 2016 returns and pay any taxes due. The deadline is later this year due to several factors. The usual April 15 deadline falls on Saturday this year, which would normally give taxpayers until at least the following Monday. However, Emancipation Day, a D.C. holiday, is observed on Monday, April 17, giving taxpayers nationwide an additional day to file. By law, D.C. holidays impact tax deadlines for everyone in the same way federal holidays do. Taxpayers requesting an extension will have until Monday, Oct. 16, 2017 to file.
DELAY IN REFUNDS:
The IRS expects more than 70 percent of taxpayers to get tax refunds this year. Last year, 111 million refunds were issued, with an average refund of $2,860.
A law change now requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) until Feb. 15. Under this change required by the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund — even the portion not associated with the EITC and ACTC. Even though the IRS will begin releasing EITC and ACTC refunds on Feb. 15, many early filers will still not have actual access to their refunds until the week of Feb. 27. The additional delay is due to several factors, including weekends, the Presidents Day holiday and the time banks often need to process direct deposits.
This law change gives the IRS more time to detect and prevent fraud. Beyond the EITC and ACTC refunds and the additional security safeguards, the IRS anticipates issuing more than nine out of 10 refunds in less than 21 days. However, it’s possible a particular return may require additional review and take longer. Taxpayers are reminded that state tax agencies have their own refund processing timeframes that vary, and some states may make additional reviews to ensure their refunds are being issued properly.