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The 10 best tips to prepare for the 2017 tax season

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

2017 tax filing season, tax tips

It’s hard to believe the 2017 tax season is already here, and you’ll be getting the information you need to settle up your 2016 tax return with Uncle Sam. Take advantage of the tax benefits available to you throughout the year.

First, think about getting organized. It’s important to have one place — a large envelope or a file folder — where you can accumulate tax information as it arrives. When it is finally time to fill out the tax return, a lot of information is required and every detail counts in making it a smooth process.

Read on for 10 savvy tips for tax-filing season.

1. Maximize retirement plan contributions

If your employer offers a 401(k) or other type of deferred pension plan, make every effort to contribute the maximum amount allowable — especially if your employer matches your contribution. Otherwise you are leaving money on the table that could benefit you in your retirement. Think of the employer match as an immediate 100 percent return on your money. Even if there is no match, all of the funds are tax-deferred and grow tax-free.

If your employer does not offer a retirement plan, then consider making a contribution to a traditional individual retirement account or a Roth IRA. The former potentially offers a tax deduction for the year the contribution is made, but both offer tax-deferred gains.

2. Adjust your withholding

Check your year-to-date withholding and consider changing the taxes withheld if you are expecting a large refund.

This is especially important if you are claiming the earned income tax credit, or EITC, or the additional child tax credit. Why? The IRS is now required by law to hold all refunds on those returns until Feb. 15. The new law was put into place to allow the agency additional time to detect and prevent tax fraud.

IRS Commissioner John Koskinen said in a statement: “It’s a personal choice if you want to have extra money withheld to get a bigger tax refund, but you have options available if you prefer to have a smaller refund next year and more take-home money now.” You will need to complete Form W-4, Employee’s Withholding Allowance Certificate, to adjust the amount of taxes withheld and submit it to your employer.

3. Protect your identity

Speaking of tax fraud, if you received an Identity Protection PIN, or IP PIN, in the past, then you must provide this number on your tax return not only this year but on all future tax returns. An IP PIN is a six-digit number assigned to eligible taxpayers that helps prevent fraudulent returns from being filed under your Social Security number. Remember, the IP PIN is your friend in getting the IRS to accept your tax return. However, this is no ordinary IP PIN, as it changes every year. You read that correctly: every year! If you do not receive the notification in the mail, you will need to go to the IRS website to retrieve it.

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4. Get what’s yours

According to the IRS, one out of every five workers fails to claim the very valuable earned income tax credit. If you worked and earned less than $53,505 in 2016 (the limit will be $53,930 in 2017), then use the EITC Assistant tool to determine if you qualify for the credit. You must file a return in order to receive the credit. Don’t miss out on this!

5. Declutter and reap a tax break

If one of your New Year’s resolutions is to simplify and declutter your life, now is the time to get going. You can make money by donating all of those things you no longer need or want in your life. There are many charitable organizations that accept items other than cash such as clothing, books, electronics and other household items. The deduction is limited to the item’s fair market value, and the items must be in good condition or better to be deductible. If the value of the noncash items is more than $500, then you must file Form 8283, Noncash Charitable Contributions, and fill it in with some details. But it is well worth the effort.

6. Cash in on scholarly tax breaks

If you, your spouse or dependents had higher education costs in 2016, there may be some tax savings for you. In fact there are multiple benefits available. The only difficult part is figuring out which one works best in your situation.

Basically there are three different benefits: the American opportunity credit, the lifetime learning credit and the tuition and fees deduction. There are various requirements that may limit the benefit, but the IRS once again offers a useful tool: the Interactive Tax Assistant tool to help you find your way through the maze. You should receive Form 1098-T, Tuition Statement, from your school with the information required by the IRS to complete Form 8863, Education Credits.

7. Get health coverage in order

Make sure you know what you need to report to the IRS on your health insurance. The shared responsibility provision requires that you and your family have minimum essential coverage or qualify for a health coverage exemption. Otherwise, you must make an individual shared responsibility payment for all months that you didn’t have coverage or an exemption.

Most taxpayers just need to do one thing: Check the box that indicates you had health care coverage for all of 2016. If that is not the case or you received advance payments of the premium tax credit on the marketplace, then you may need to fill out Form 8965, Health Coverage Exemptions, and Form 8962, Premium Tax Credit, to complete your tax return. For more information, visit the IRS page on the Affordable Care Act.

8. Know the rules about foreign accounts

Have a foreign bank account? Was the balance in the account(s) greater than $10,000 total? If the answer is yes to both, then you need to file what’s commonly referred to as an “FBAR,” a foreign bank account reporting form. The new name is FinCEN Report 114, FinCEN being an acronym for Financial Crimes Enforcement Network. As the name has the word “crime” in it, that should light a fire under your seat to make sure you’re in compliance as the penalties are very high for failing to report.

The requirements don’t stop there. If you maintain very high balances in your foreign accounts, you’ll have to file IRS Form 8938, Statement of Specified Foreign Financial Assets.

Also, if you meet certain thresholds of ownership in any foreign corporations or partnerships, or if you are the beneficiary of a foreign trust, you should be aware of the complex reporting requirements in those instances. Just a few of the pertinent forms are: Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations; Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. All are available at the IRS website.

9. Be generous without tax repercussions

Every so many years, the IRS changes the annual exclusion for gifts that you can give without having to file a gift tax return. If you gave more than $14,000 in cash, property or gifts to anyone, you must report the gift on Form 709. If you are married, you can give a combined $28,000 and remain under the radar.

Note that this applies to the person giving the gift; if you are receiving a gift, congratulations — you don’t have to do anything. That is, unless you receive a gift from a non-U.S. person. If you happen to receive such a gift that is greater than $100,000, you will have to report this on the IRS Form 3520.

10. Be smart when you file

When filing your return, the quickest and easiest way to receive your refund is to electronically file your return and use direct deposit. If you owe money, use IRS direct pay from your checking or savings account. And whatever else you do, please make sure you keep a copy of your filed tax return. Believe me, it saves so much trouble in so many ways in the event you do happen to need it.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Do you have everything you need before you file a federal tax return this year?

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

tax-season-2017

By Taxpayer Advocate Service 

There are several changes that might require some up-front actions by you, so that you are ready to file your federal tax return this coming year. The IRS has provided a listing titled Get Ready on IRS.gov.

Reviewing this list now can help you avoid return processing delays or last minute scrambles for information you will need to prepare your return.

Number one on that list is Individual Taxpayer Identification Number (ITIN) renewal – for anyone who has not used it on a federal tax return at least once in the last three years. Additionally, all ITINs issued before 2013 will begin expiring January 1, 2017, starting with those with middle digits of 78 and 79 (Example: (9XX-78-XXXX). All expired ITINs must be renewed before being used on a U.S. tax return. This year, there are also new documentation requirements when applying for or renewing an ITIN for certain dependents – so be sure to read those before applying. This process can take seven weeks if you qualify for an ITIN and your application is complete. If your information is not complete, it can take longer, so start the process now of applying for or renewing an ITIN.

Others changes are that some taxpayers:

Life events can also make a big difference in taxes and healthcare, so remember to account for all life events that could affect your tax liability.

Any of these events during 2016 may affect the taxes you owe:

  • Birth of a child or a child turning age 17,
  • Marriage, divorce or separation,
  • Career or job changes, unemployment or furlough,
  • Planning for retirement,
  • Withdrawal from the Thrift Savings Plan or a 401(k),
  • Natural disasters,
  • Moving or home ownership, and
  • Foreclosure, debt forgiveness or bankruptcy.

The Individual Shared Responsibility Provision of the Affordable Care Act requires you, your spouse and your dependents to report qualifying health insurance for the entire year. If not, you need to be able to claim a health coverage exemption or report an individual shared responsibility payment when you file. In addition, you may be eligible for the premium tax credit if you purchased health coverage through the Health Insurance Marketplace.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

IRS Issues Guidance For Energy Tax Credit Claimants

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

solar-panel-array-power-sun-electricity-159397

By Tax News 

The US Internal Revenue Service, in its Notice 2017-04, has updated and clarified the guidance provided in its prior notices regarding the extension, at the end of last year, of the dates by which facilities must begin construction to claim the renewable electricity production tax credit (PTC) and investment tax credit (ITC).

Under the Protecting Americans from Tax Hikes Act, taxpayers can now claim the PTC for certain renewable energy facilities if construction begins before January 1, 2017. The Act also renewed the PTC for wind facilities if construction begins before January 1, 2020 (with the credit being phased out over that period), and extended the ITC for solar energy facilities, if construction begins before January 1, 2022.

A taxpayer may establish that construction of a qualified facility has begun by starting physical work of a significant nature (“Physical Work Test”) or incurring at least five percent of the costs of the planned project (“Safe Harbor Provision”). Notice 2017-04 clarifies the costs that may be included in the Safe Harbor Provision for retrofitted renewable energy facilities.

A taxpayer is also required to make continuous progress towards completion, determined by the relevant facts and circumstances, once construction has begun. Previously, the IRS would agree that a project had satisfied the continuous construction test if the facility was placed in service and generated power within four calendar years after the calendar year during which construction of the facility began, or by December 31, 2016, whichever is later (“Continuity Safe Harbor”).

Under the new Notice, December 31, 2016, is now replaced by December 31, 2018. For example, if construction began on a facility on January 15, 2013, and the facility is placed in service by December 31, 2018, the facility will be considered to satisfy the Continuity Safe Harbor, as will a facility where construction began on January 15, 2016, and is placed in service by December 31, 2020.

The guidance confirms that taxpayers are prohibited from combining methods to satisfy the beginning of construction requirement. For example, a taxpayer may not rely upon the Physical Work Test and the Safe Harbor Provision in alternating calendar years to satisfy the beginning of construction requirement or the continuity requirement. The Notice confirms that this rule applies to facilities for which construction began after June 6, 2016.

The PTC and ITC are aimed at leveling the playing field between US-produced wind, solar, and geothermal energy and cheaper non-renewable alternatives, such as natural gas.

Paul S. Herman CPA, a tax expert for individuals and businesses, is the founder of Herman & Company, CPA’s PC in White Plains, New York.  He provides guidance and strategies to improve clients’ financial well-being.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.