New Rules Help Fight Tax Fraud
Tax Benefits of 529 Plans Extend Beyond Traditional Colleges?
IRS Grants More Time to Benefit From This Tax Credit
The Part-Year Withholding Method Can Increase Your Paycheck
Avoid Penalties by Keeping Accurate Information Return Records
Plan For The Fate of Your Digital Assets
In tax law, new rules can seem arbitrary and annoying, especially when what used to take only a few steps now requires many more. But with financial crimes on the increase, recent changes to the way you interact with the IRS may help keep your personal financial information safe. Here are four changes directly related to the prevention and detection of tax-related fraud.
• Get Transcript application security improved. Get Transcript is a web-based tool on the IRS site that you can use to look at and/or print a copy of your prior year tax information. You view the data in transcript form; that is, as a line-by-line listing instead of in the more familiar layout of tax forms. After a breach of the system in 2015, the IRS shut down Get Transcript. The application was re-opened this summer, using a new security process. You'll need your credit card number or account number from a loan, and a mobile phone with your name on the account in order to register. Alternatively, you can still request transcripts by mail.
• W-2 deadline moved up. The due date for filing paper and electronic Forms W-2, Wage and Tax Statement, with the IRS will be January 31. In the past, you didn't have to send these returns to the IRS until February (or March if you filed electronically). Moving the due date forward will give the IRS early access to income and withholding information and is expected to help reduce the amount of fraudulent tax refunds issued.
• Account locks on deceased taxpayers. You may have encountered this security measure if you're a personal representative. The IRS began the program in 2011 to prevent the payment of fraudulent tax refunds claimed using the name and social security number of deceased taxpayers. A taxpayer's account is locked when IRS files and Social Security Administration data both show a date of death. The purpose is to void tax returns filed using the social security number of a deceased taxpayer and prevent the issuance of a fraudulent refund.
• Limit on number of direct deposits of tax refunds. This rule became effective in January 2015, in response to fraudulent tax returns with refunds issued to the same address or bank account. The change limits the number of direct deposit refunds that you can send to a single bank account to three. Additional deposits are converted to a paper refund check that is mailed to your address of record.
For information on more new rules that will affect how you file your 2016 federal income tax return, please Contact Us.
Is your child or grandchild pursuing educational goals after high school, though not at a traditional four-year college? If so, you may have decided a 529 plan, sometimes called a 529 college savings plan, is not for you. But funds in 529 plans can be used, tax-free, for qualified tuition, books, and computer expenses at eligible technical schools and community colleges.
The tax code definition of "eligible educational institution" is broader than you may think, and includes post-secondary schools that can participate in a student aid program administered by the Department of Education. These include vocational or trade schools such as welding or cosmetology, as well as community colleges offering two-year associate degrees.
When students attend these eligible educational institutions, distributions from a 529 plan are not taxable as long as the total distribution is less than or equal to qualified education expenses. That's true even if the distribution includes earnings in the account, such as dividends received from stock investments.
To learn if the educational institution your child is interested in attending qualifies, you can ask the school or check a list of participating schools at the website of the U.S. Department of Education.
Remember, the expenses must meet other requirements under the rules to be counted as tax-free 529 plan distributions. For example, amounts paid for room and board must be incurred by a student who is enrolled for at least half the full-time academic workload.
Contact us for more information about the tax benefits of 529 plans.
When you hire workers from specified groups that typically experience high unemployment, you may qualify for a tax break known as the Work Opportunity Tax Credit.
You typically have 28 days after the worker's first day to complete paperwork for this federal income tax credit. However, for certain workers hired between January 1, 2015, and August 31, 2016, the 28-day rule has been extended until September 28, 2016. The extended date gives you an opportunity to review personnel files for credit-eligible employees.
Contact Us to learn how the credit can help save tax dollars.
If you're starting your first job this fall, you probably want to avoid overpaying your federal income tax. Consider asking your employer to use a special formula known as the part-year withholding method to calculate the amount of federal income tax withheld from your wages. To be eligible, you have to use the calendar year as your tax year, and you must not expect to be employed for more than 245 days during the year.
Did you file all required information returns for 2015 and earlier years? Information returns include Forms 1099, the forms you complete when you pay for certain business expenses such as rent or services performed by an independent contractor.
August is a good time to review your filing compliance because this is the time of year the IRS typically begins sending notices for prior year information returns with missing and incorrect taxpayer identification numbers, and the penalties for errors continue to rise.
If you get a notice, you may be able to get penalties waived by proving you acted in a responsible manner before and after the error. One way to do this is to document your request for a taxpayer identification number from the vendor or other payee. You may also need to begin withholding income tax known as backup withholding from payments.
Please contact us for more information.
An important step in estate planning is creating an inventory of your assets. Your executor - the person you designate in your will to carry out your last wishes - uses the inventory to make sure all of your property passes to your heirs. That includes your digital assets.
Documenting these along with more traditional effects can help ensure your final wishes are honored and your estate is administered correctly. Here s what to keep in mind as you compile a list of your digital assets.
• Passwords. In order to review financial accounts with banks, brokerages, or other businesses, your executor will need your current password. If you protect passwords with an encrypted program, include the master access key. Most importantly, keep your list updated when you change passwords.
• Be comprehensive. Add web addresses, user names, and passwords for non-financial accounts such as your email and online storage sites to your inventory. Why? These accounts can be essential for retrieving invoices, statements, and other paperwork for which youve chosen electronic-only delivery.
• Remember the non-digital. The physical assets you use to access your digital data include your phone, tablet, and computer. For these assets, your executor will need passwords and file names. Also list the location and encryption information for off-site or standalone storage devices such as flash or other external drives.
Individual states are moving toward adopting laws that allow your estate representative to manage your digital assets. If your state has not yet taken steps to address the issue, you may be able to add wording to your will or have your attorney prepare an authorization for release of the information. In either case, keeping track of your online financial activity can make assembling an inventory of your digital assets a simple process.
Please Contact Us for more information and tips.
