John Moran's Weekly Tax Tip

 

In 2018, Some Tax Benefits Increase Slightly Due to Inflation Adjustments,

Others Unchanged

The Internal Revenue Service announced the tax year 2018 annual inflation adjustments for more than 50 tax provisions, including the tax rate schedules and other tax changes. The tax year 2018 adjustments generally are used on tax returns filed in 2019.   The tax items for tax year 2018 of greatest interest to most taxpayers include the following dollar amounts:

  • The standard deduction for married filing jointly rises to $13,000 for tax year 2018, up $300 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,500 in 2018, up from $6,350 in 2017, and for heads of households, the standard deduction will be $9,550 for tax year 2018, up from $9,350 for tax year 2017.
  • The personal exemption for tax year 2018 rises to $4,150, an increase of $100. The exemption is subject to a phase-out that begins with adjusted gross incomes of $266,700 ($320,000 for married couples filing jointly). It phases out completely at $389,200 ($442,500 for married couples filing jointly.)
  • For tax year 2018, the 39.6 percent tax rate affects single taxpayers whose income exceeds $426,700 ($480,050 for married taxpayers filing jointly), up from $418,400 and $470,700, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds for tax year 2018 are described in the revenue procedure.
  • The limitation for itemized deductions to be claimed on tax year 2018 returns of individuals begins with incomes of $266,700 or more ($320,000 for married couples filing jointly).
  • The Alternative Minimum Tax exemption amount for tax year 2018 is $55,400 and begins to phase out at $123,100 ($86,200, for married couples filing jointly for whom the exemption begins to phase out at $164,100). The 2017 exemption amount was $54,300 ($84,500 for married couples filing jointly). For tax year 2018, the 28 percent tax rate applies to taxpayers with taxable incomes above $191,500 ($95,750 for married individuals filing separately).
  • The tax year 2018 maximum Earned Income Credit amount is $6,444 for taxpayers filing jointly who have three or more qualifying children, up from a total of $6,318 for tax year 2017. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
  • For tax year 2018, the monthly limitation for the qualified transportation fringe benefit is $260, as is the monthly limitation for qualified parking,
  • For calendar year 2018, the dollar amount used to determine the penalty for not maintaining minimum essential health coverage remains as it was for 2017:  $695.
  • For tax year 2018, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,300, an increase of $50 from tax year 2017; but not more than $3,450, an increase of $100 from tax year 2017. For self-only coverage, the maximum out-of-pocket expense amount is $4,600, up $100 from 2017. For tax year 2018, participants with family coverage, the floor for the annual deductible is $4,600, up from $4,500 in 2017; however, the deductible cannot be more than $6,850, up $100 from the limit for tax year 2017. For family coverage, the out-of-pocket expense limit is $8,400 for tax year 2018, an increase of $150 from tax year 2017.
  • For tax year 2018, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $114,000, up from $112,000 for tax year 2017.
  • For tax year 2018, the foreign earned income exclusion is $104,100, up from $102,100 for tax year 2017.
  • Estates of decedents who die during 2018 have a basic exclusion amount of $5,600,000, up from a total of $5,490,000 for estates of decedents who died in 2017.
  • The annual exclusion for gifts increased to $15,000, an increase of $1,000 from the exclusion for tax year 2017.

Taxpayers Face an Estimated Tax Penalty Each Year; Act Now to Reduce or Avoid it for 2017

Each year, about 10 million taxpayers are assessed the estimated tax underpayment penalty.

Most of those affected taxpayers can easily reduce or, in some cases, eliminate the penalty by increasing their withholding or adjusting estimated tax payments for the rest of the year. With a little planning, taxpayers can avoid the penalty altogether.

By law, the estimated tax underpayment penalty usually applies when a taxpayer pays too little of their total tax during the year. The penalty is calculated based on the interest rate charged by the IRS on unpaid tax.

How to Avoid the Penalty

For most people, avoiding the penalty means ensuring that at least 90 percent of their total tax liability is paid in during the year, either through income-tax withholding or by making quarterly estimated tax payments. Keep in mind exceptions to the penalty and special rules apply to some groups of taxpayers, such as casualty and disaster victims, those who recently became disabled, recent retirees, those who base their payments on last year’s tax and those who receive income unevenly during the year.

Taxpayers may want to consider increasing their tax withholding in 2017, especially if they had a large balance due when they filed their 2016 return earlier this year. Employees can do this by filling out a new Form W-4 and giving it to their employer. Similarly, recipients of pensions and annuities can make this change by filling out Form W-4P  and giving it to their payer.

In either case, taxpayers can typically increase their withholding by claiming fewer allowances on their withholding form.

For taxpayers whose income is normally not subject to withholding, starting or increasing withholding is not an option. Instead, they can avoid the estimated tax penalty by making quarterly estimated tax payments to the IRS. In general, this includes investment income —such as interest, dividends, rents, royalties and capital gains —alimony and self-employment income.

Tips to Make Estimated Tax Payments

Estimated tax payments are normally due on April 15, June 15, Sept. 15 and Jan. 15 of the following year. Any time one of these deadlines falls on a weekend or holiday, taxpayers have until the next business day to make the payment. Thus, the next estimated tax payment for the fourth quarter of 2017 is due Tuesday, Jan. 16, 2018.

The fastest and easiest way to make estimated tax payments is to do so electronically using IRS Direct Pay. Taxpayers may also use Form 1040-ES to figure these payments.

Be aware of scams…

The Internal Revenue Service has warned consumers about a sophisticated phone scam targeting taxpayers, including recent immigrants, throughout the country.

Victims are told they owe money to the IRS and it must be paid promptly through a pre-loaded debit card or wire transfer. If the victim refuses to cooperate, they are then threatened with arrest, deportation or suspension of a business or driver’s license.  In many cases, the caller becomes hostile and insulting.

“This scam has hit taxpayers in nearly every state in the country. We want to educate taxpayers so they can protect themselves.  Rest assured, we do not and will not ask for credit card numbers over the phone, nor request a pre-paid debit card or wire transfer.” Says IRS Acting Commissioner Danny Werfel.  “If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.”  Werfle noted that the first IRS contact with taxpayers on a tax issue is likely to occur via mail.

Other characteristics of this scam include:

Scammers use fake names and IRS badge numbers.  They generally use common names and surnames to identify themselves

Scammers may be able to recite the last four digits of a victim’s SSN

Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.

Scammers sometimes send bogus IRS emails to victims to support their bogus calls

Victims hear background noise of other calls being conducted to mimic a call site

After threatening victims with jail time or driver’s license revocation, scammers hang up and other soon call back pretending to be from the local police or DMV, and the caller ID supports their claim

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040.  The IRS employees at that line can help you with a payment issue – if there really is such an issue.

If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above) then call and report to incident to the Treasury Inspector General for Tax Administration at 800-366-4484

If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov.  Please add “IRS Telephone Scam” to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS encourages taxpayers to be vigilant against phone and email scams that use the IRS as a lure.  The IRS does not initiate contact with taxpayers by email to request personal or financial information.  This includes any type of electronic communication, such as text messages and social media channels.

The IRS also does not ask for PINs, passwords or similar confidential access information, for credit card, bank or other financial accounts.  Recipients should not open any attachments or click on any links contained in the message.  Instead, forward the e-mail to phishing@irs.gov.

 

 

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What is the best way to manage the recordkeeping of my taxes? Recordkeeping suggestions:

• You should keep copies of your filed tax returns as part of your tax records. You’ll also need them if you need to file an amended return.

• You must keep records to support items reported on your tax return. You should keep basic records that relate to your federal tax return for at least three years. Basic records are documents that prove your income and expenses. This includes income information such as Forms W-2 and 1099. It also includes information that supports tax credits or deductions you claimed. This might include sales slips, credit card receipts and other proofs of payment, invoices, cancelled checks, bank statements and mileage logs.

• If you own a home or investment property, you should keep records of your purchases and other records related to those items. You should typically keep these records, including home improvements, at least three years after you have sold or disposed of the property.

• If you own a business, you should keep records that show total receipts, proof of purchases of business expenses and assets. These may include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices. Also include credit card receipts, sales slips, canceled checks, account statements and petty cash slips. Electronic records can include databases, saved files, emails, instant messages, faxes and voice messages.

• If you own a business with employees, you should generally keep all employment-related tax records for at least four years after the tax is due, or after the tax is paid, whichever is later.

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• If you own a business, you should keep records that show total receipts, proof of purchases of business expenses and assets. These may include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices. Also include credit card receipts, sales slips, canceled checks, account statements and petty cash slips. Electronic records can include databases, saved files, emails, instant messages, faxes and voice messages.

Tips on How to Amend Your Tax Return

If you discover an error after you file your tax return, you can correct it by amending your return.

When to amend a return. You should file an amended return if you need to correct your filing status, number of dependents, total income, tax deductions or tax credits.

Multiple amended returns. If you’re filing an amended return for more than one year prepare a separate 1040X for each return. Mail them in separate envelopes to the appropriate IRS processing center

Amending to pay additional tax. If you’re filing an amended tax return because you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit any interest and penalty charges.

When to file. To claim a refund, you generally must file Form 1040X within three years from the date you filed your original tax return or within two years from the date you paid the tax, whichever is later.

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Back-to-School Tax Tips for Students and Parents

Education tax benefits can help offset some college costs

• American Opportunity Tax Credit. This credit can be up to $2,500 per eligible student. The AOTC is available for the first four years of post-secondary education. Forty percent of the credit is refundable. That means that you may be able to receive up to $1,000 of the credit as a refund, even if you don’t owe any taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. A recent law extended the AOTC through the end of Dec. 2017.

• Lifetime Learning Credit. With the LLC, you may be able to claim up to $2,000 for qualified education expenses on your federal tax return. There is no limit on the number of years you can claim this credit for an eligible student.
You can claim only one type of education credit per student on your federal tax return each year. If you pay college expenses for more than one student in the same year, you can claim credits on a per-student, per-year basis. For example, you can claim the AOTC for one student and the LLC for the other student.

• Student loan interest deduction. Other than home mortgage interest, you generally can’t deduct the interest you pay. However, you may be able to deduct interest you pay on a qualified student loan. The deduction can reduce your taxable income by up to $2,500. You don’t need to itemize deductions to claim it.

These education benefits are subject to income limitations and may be reduced or eliminated depending on your income.

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Helpful Tax Tips if You’re Moving

If you make a work-related move, you may be able to deduct the costs of the move. This may apply if you move to start a new job or to work at the same job in a new job location.

In order to deduct moving expenses, you must meet these three requirements:

Your move closely relates to the start of work. Generally, you can consider moving expenses within one yea...r of the date you first report to work at a new job location.

You meet the distance test. Your new main job location must be at least 50 miles farther from your former home than your previous main job location was. For example, if your old main job location was three miles from your former home, your new main job location must be at least 53 miles from that former home.

You meet the time test. After you move, you must work full time at your new job location for at least 39 weeks during the first year. Self-employed individuals must meet this test and also work full time for a total of at least 78 weeks during the first 24 months upon arriving in the general area of their new job location. If your income tax return is due before you have satisfied this requirement, you can still deduct your allowable moving expenses if you expect to meet the time test.

Travel. You can deduct transportation and lodging expenses for yourself and household members while moving from your former home to your new home. You cannot deduct the cost of meals during the travel.

Household goods. You can deduct the cost of packing, crating and transporting your household goods and personal property. You may be able to include the cost of storing and insuring these items while in transit.

Utilities. You can deduct the costs of connecting or disconnecting utilities.

Nondeductible expenses. You cannot deduct as moving expenses any part of the purchase price of your new home, the costs of buying or selling a home, or the cost of entering into or breaking a lease.

Reimbursed expenses. If your employer reimburses you for the costs of a move for which you took a deduction, you may have to include the reimbursement as income on your tax return.

Update your address. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive mail from the IRS - which I am sure everyone enjoys receiving!

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Reduce Your Taxes with Miscellaneous Deductions

If you itemize deductions on your tax return, you may be able to deduct certain miscellaneous expenses.

Deductions Subject to the Two Percent Limit. You can deduct most miscellaneous expenses only if they exceed two percent of your adjusted gross income. These include expenses such as:

• Unreimbursed employee expenses

• Expenses related to searching for a new job in the same profession

• Certain work clothes and uniforms

• Tools needed for your job

• Union dues

• Work-related travel and transportation.

• Tax Preparation Fees

Deductions Not Subject to the Two Percent Limit. Some deductions are not subject to the two percent of AGI limit. Some expenses on this list include:

• Certain casualty and theft losses. This deduction applies if you held the damaged or stolen property for investment. Property that you hold for investment may include assets such as stocks, bonds and works of art.

• Gambling losses up to the amount of gambling winnings.

• Losses from Ponzi-type investment schemes.

Many expenses are not deductible. For example, you can’t deduct personal living or family expenses

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How to Get a Transcript or Copy of a Prior Year Tax Return

There are many reasons why you should keep a copy of your federal tax return. For example, you may need it to answer an IRS inquiry, apply for a student loan or a home mortgage. If you can’t find your tax return, the IRS can provide a copy or give you a transcript of the tax information you need.

Transcripts are free and you can get them for the current year and the past three years. In most cases, a transcript includes all the information you need.

A tax return transcript shows most line items from the tax return you originally filed. It also includes items from any accompanying forms and schedules you filed. It does not reflect any changes made after you filed your original return.

A tax account transcript shows any changes either you or the IRS made to your tax return after you filed it. This transcript includes your marital status, the type of return you filed, your adjusted gross income and taxable income.

If you need an actual copy of a filed and processed tax return, it will cost $57 for each tax year.

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Tips for Employers Who Outsource Payroll Duties

Many employers outsource their payroll and related tax duties to third-party payers such as payroll service providers and reporting agents

Though most of these businesses provide very good service, there are, unfortunately, a number of these individuals and companies around the country have been prosecuted for stealing funds intended for the payment of payroll taxes.

Like employers who handle their own payroll duties, employers who outsource this function are still legally responsible for any and all payroll taxes due. This is true even if the employer forwards tax amounts to a PSP or RA to make the required deposits or payments.

Here are some steps employers can take to protect themselves from unscrupulous third-party payers.

• Enroll in the Electronic Federal Tax Payment System and make sure the PSP or RA uses EFTPS to make tax deposits. This enables employers to monitor whether their third-party payer is properly carrying out their tax deposit responsibilities.

• Refrain from substituting the third-party’s address for the employer’s address. Doing so ensures that the employer will continue to receive bills, notices and other account-related correspondence from the IRS. It also gives employers a way to monitor the third-party payer and easily spot any improper diversion of funds.

• Contact the IRS about any bills or notices and do so as soon as possible. This is especially important if it involves a payment that the employer believes was made or should have been made by a third-party payer.

• For employers who choose to use a reporting agent, be aware of the special rules that apply to RAs. Among other things, reporting agents are generally required to use EFTPS and file payroll tax returns electronically. They are also required to provide employers with a written statement detailing the employer’s responsibilities including a reminder that the employer, not the reporting agent, is still legally required to timely file returns and pay any tax due.

• Become familiar with the tax due dates that apply to employers.

 

 

 

 

 

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Renting Your Vacation Home

• A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.

• In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.

• If you personally use your property and sometimes rent it to others, special rules apply.

• If the property is “used as a home,” your rental expense deduction is limited.

• If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.

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Tips for Taxpayers Who Travel for Charity Work

Do you plan to travel while doing charity work this summer? Some travel expenses may help lower your taxes if you itemize deductions when you file next year.

You must volunteer to work for a qualified organization. Ask the charity about its tax-exempt status. You can also visit IRS.gov and use the Select Check tool to see if the group is qualified.

You may be able to deduct unreimbursed travel expenses you pay while serving as a volunteer. You can’t deduct the value of your time or services.

The deduction qualifies only if there is no significant element of personal pleasure, recreation or vacation in the travel. However, the deduction will qualify even if you enjoy the trip.

You can deduct your travel expenses if your work is 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.

Deductible travel expenses may include:
• Air, rail and bus transportation
• Car expenses
• Lodging costs
• The cost of meals
• Taxi fares or other transportation costs between the airport or station and your hotel

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IRS, Australia and United Kingdom Engaged in Cooperative Effort to Combat Offshore Tax Evasion

WASHINGTON — The tax administrations from the United States, Australia and the United Kingdom announced today a plan to share tax information involving a multitude of trusts and companies holding assets on behalf of residents in jurisdictions throughout the world.

The three nations have each acquired a substantial amount of data revealing extensive use of such entities organized in a number of jurisdictions including Singapore, the British Virgin Islands, Cayman Islands and the Cook Islands. The data contains both the identities of the individual owners of these entities, as well as the advisors who assisted in establishing the entity structure.

“This is part of a wider effort by the IRS and other tax administrations to pursue international tax evasion,” said IRS Acting Commissioner Steven T. Miller. U.S. taxpayers holding assets through offshore entities are encouraged to review their tax obligations with respect to these holdings, seek professional advice if necessary, and to participate in the IRS Offshore Voluntary Disclosure Program where appropriate. Failure to do so may result in significant penalties and possibly criminal prosecution.

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Job Search Expenses May Lower Your Taxes

• Your expenses must be for a job search in your current occupation. You may not deduct expenses related to a search for a job in a new occupation. If your employer or another party reimburses you for an expense, you may not deduct it.

• You can deduct employment and job placement agency fees you pay while looking for a job.

• You can deduct the cost of preparing and mailing copies of your résumé to prospective employers.

• If you travel to look for a new job, you may be able to deduct your travel expenses. However, you can only deduct them if the trip is primarily to look for a new job.

• You can’t deduct job search expenses if there was a substantial break between the end of your last job and the time you began looking for a new one.

• You can’t deduct job search expenses if you’re looking for a job for the first time.

• You usually will claim job search expenses as a miscellaneous itemized deduction. You can deduct only the amount of your total miscellaneous deductions that exceed two percent of your adjusted gross income.

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Tax Tips if You’re Starting a Business

• If you plan to start or have just started a new business, it is important for you to know your federal tax responsibilities.

• Type of Business. Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company.

• Employer Identification Number. A business needs to get a federal EIN for tax purposes.

• Recordkeeping. Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’ progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.

• Accounting Method. Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.

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Tax Tips for Newlyweds

A change in your marital status can affect your taxes.

• It’s important that the names and Social Security numbers that are on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA.

• If your address has changed, notify the IRS.

• If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.

• If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket.

• If you didn’t qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return.

• If you are married as of Dec. 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly.

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Those with Foreign Assets

U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2012, that they may have a U.S. tax liability and a filing requirement in 2013.

The filing deadline is Monday, June 17, 2013, for U.S. citizens and resident aliens living overseas, or serving in the military outside the U.S. on the regular due da...te of their tax return.

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts.

Separately, taxpayers with foreign accounts whose aggregate value exceeded $10,000 at any time during 2012 must file Treasury Department Form TD F 90-22.1. This is not a tax form and is due to the Treasury Department by June 30, 2013.

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Keep the Child Care Credit in Mind for Summer

If you are a working parent or look for work this summer, you may need to pay for the care of your child or children. These expenses may qualify for a tax credit

You must have earned income. Earned income includes earnings such as wages and self-employment.

You must pay for the care of one or more qualifying persons. Qualifying children under age 13 who you claim as a dependent meet this test.

You may qualify for the credit whether you pay for care at home, at a daycare facility outside the home or at a day camp.

The credit is a percentage of the qualified expenses you pay for the care of a qualifying person. It can be up to 35 percent of your expenses, depending on your income.

You may use up to $3,000 of the unreimbursed expenses you pay in a year for one qualifying person or $6,000 for two or more qualifying person.

Expenses for overnight camps or summer school tutoring do not qualify.

Keep your receipts and records to use when you file your 2013 tax return next year. Make sure to note the name, address and Social Security number or employer identification number of the care provider

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Start Planning Next Year's Tax Return

For most taxpayers, the tax deadline has passed. But planning for next year can start now.

Adjust your withholding. Each year, millions of American workers have far more taxes withheld from their pay than is required. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you’ll owe for this year.

Store your return in a safe place. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year's return.

Shop for a tax professional. If you use a tax professional to help you with tax planning, start your search now. You’ll have more time when you're not up against a deadline or anxious to receive your tax refund. Choose a tax professional wisely. You’re ultimately responsible for the accuracy of your own return regardless of who prepares it.

Consider itemizing deductions.

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IRS Warns Donors about Charity Scams

Following Recent Tragedies in Boston and Texas

It’s sad but true. Following major disasters and tragedies, scam artists impersonate charities to steal money or get private information from well-intentioned taxpayers.

• Donate to qualified charities. Use the Exempt Organizations Select Check tool at IRS.gov to find qualified charities.

• Be wary of charities with similar names. Some phony charities use names that are similar to familiar or nationally known organizations. They may use names or websites that sound or look like those of legitimate organizations.

• Don’t give out personal financial information.

• Don’t give or send cash.

• Report suspected fraud. Taxpayers suspecting tax or charity-related fraud should visit IRS.gov and perform a search using the keywords “Report Phishing.”

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Facts on Filing an Amended Tax Return

You should consider filing an amended tax return if there is a change in your filing status, income, deductions or credits.

You normally do not need to file an amended return to correct mathematical errors.

Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid t...he tax, whichever is later.

If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. Amended returns take up to 12 weeks to process. You may cash your original refund check while waiting for the additional refund.

If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.

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Tips for Taxpayers Who Missed the Tax Deadline

• File as soon as possible. If you owe federal income tax, you should file and pay as soon as you can to minimize any penalty and interest charges. There is no penalty for filing a late return if you are due a refund.

• Penalties and interest may be due. However, the IRS will consider a reduction of these penalties if you can show a reasonable cause for being late.

• E-file is your best option. If you e-file and are due a refund, the IRS will normally issue it within 21 days.

• Pay as much as you can.

• Installment Agreements are available.

• Refunds may be waiting. If you don’t file your return within three years, you could forfeit your right to the refund.

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Facts on Late Filing and Late Payment Penalties

By law, the IRS may assess penalties to taxpayers for both failing to file a tax return and for failing to pay taxes they owe by the deadline.

A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.

The failure-to-file penalty is generally more than the failure-to-pay penalty.

The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

If both the 5 percent failure-to-file penalty and the ½ percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.

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Tips for Taxpayers Who Can't Pay Their Taxes on Time

If you find you owe tax after completing your federal tax return but can't pay it all when you file, the IRS wants you to know your options.

File on time and pay as much as you can. Filing on time ensures that you will avoid the late filing penalty. Paying as much as you can reduces the late payment penalty and interest charges.

Consider getting a loan. The interest and fees charged by a bank may be lower than IRS interest and penalties.

Request a payment agreement. You do not need to wait for IRS to send you a bill before requesting a payment plan.

Don’t ignore a tax bill. If you get a bill from the IRS, contact them right away to talk about payment options. The IRS may take collection action if you ignore the bill, which will only make things worse.

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Tax-Time Errors to Avoid

If you make a mistake on your tax return, it usually takes the IRS longer to process it.

Wrong or missing Social Security numbers.

Names wrong or misspelled.

Filing status errors.

Errors in taking credits, deductions.

Wrong bank account numbers. Direct deposit is the fast, easy and safe way to receive your tax refund. Make sure you enter your bank routing and account numbers correctly.

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Tips on Making Estimated Tax Payments

If you do not have taxes withheld from your income, you may need to make estimated tax payments. This may apply if you have income such as self-employment, interest, dividends or capital gains. It could also apply if you do not have enough taxes withheld from your wages. You should make these payments to avoid a penalty.

When figuring the amount of your estimated taxes, you should estimate the amount of income you expect to receive for the year. You should also include any tax deductions and credits that you will be eligible to claim.

You normally make estimated tax payments four times a year. The dates that apply to most people are April 15, June 17 and Sept. 16 in 2013, and Jan. 15, 2014.

You should use Form 1040-ES, Estimated Tax for Individuals, to figure your estimated tax. You may pay online or by phone.

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Get Credit for Making Your Home Energy-Efficient

If you made your home more energy efficient last year, you may qualify for a tax credit on your 2012 federal income tax return.

• You may claim a credit of 10 percent of the cost of certain energy saving property that you added to your main home. This includes the cost of qualified insulation, windows, doors and roofs.

• In some cases, you may be ...able to claim the actual cost of certain qualified energy-efficient property. Each type of property has a different dollar limit. Examples include the cost of qualified water heaters and qualified heating and air conditioning systems.

• This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.

• Not all energy-efficient improvements qualify, so be sure you have the manufacturer’s credit certification statement. It is usually available on the manufacturer’s website or with the product’s packaging.

• The credit was to expire at the end of 2011. A recent law extended it for two years through the end of 2013

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Deducting Charitable Contributions

Giving to charity may make you feel good and help you lower your tax bill.

If you want a tax deduction, you must donate to a qualified charitable organization. You cannot deduct contributions you make to either an individual, a political organization or a political candidate

You must file Form 1040 and itemize your deductions on Schedule A.

If you receive a benefit of some kind in return for your contribution, you can only deduct the amount that exceeds the fair market value of the benefit you received.

Donations of stock or other non-cash property are usually valued at fair market value. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.

You must have a written record about your donation in order to deduct any cash gift, regardless of the amount.

To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization.

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Tax Rules for Children Who Have Investment Income

Investment income normally includes interest, dividends, capital gains and other unearned income, such as from a trust.

Special rules apply if your child's total investment income is more than $1,900. The parent’s tax rate may apply to part of that income instead of the child's tax rate.

If your child's total interest and dividend income is less than $9,500, you may be able to include the income on your tax return. 4. Your child must file their own tax return if they received investment income of $9,500 or more.

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Tax Rules on Early Withdrawals from Retirement Plans

Taking money out early from your retirement plan can cost you an extra 10 percent in taxes.

An early withdrawal normally means taking money from your plan, such as a 401(k), before you reach age 59½.

The additional 10 percent tax normally does not apply to nontaxable withdrawals. Nontaxable withdrawals include contributions that you paid tax on before you put them into the plan.

If you transfer a withdrawal from one qualified retirement plan to another within 60 days, the transfer is a rollover. Rollovers are not subject to income tax. The added 10 percent tax also does not apply to a rollover.

There are several other exceptions to the additional 10 percent tax. These include withdrawals if you have certain medical expenses or if you are disabled.