Education Tax Credits: Two Benefits to Help You Pay for College

On March 7, 2015   /   Uncategorized  
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Did you pay for college in 2014? If you did it can mean tax savings on your federal tax return. There are two education credits that can help you with the cost of higher education. The credits may reduce the amount of tax you owe on your tax return. Here are some important facts you should know about education tax credits.

American Opportunity Tax Credit:

  • You may be able to claim up to $2,500 per eligible student.
  • The credit applies to the first four years at an eligible college or vocational school.
  • It reduces the amount of tax you owe. If the credit reduces your tax to less than zero, you may receive up to $1,000 as a refund.
  • It is available for students earning a degree or other recognized credential.
  • The credit applies to students going to school at least half-time for at least one academic period that started during the tax year.
  • Costs that apply to the credit include the cost of tuition, books and required fees and supplies.

Lifetime Learning Credit:

  • The credit is limited to $2,000 per tax return, per year.
  • The credit applies to all years of higher education. This includes classes for learning or improving job skills.
  • The credit is limited to the amount of your taxes.
  • Costs that apply to the credit include the cost of tuition, required fees, books, supplies and equipment that you must buy from the school.

For both credits:

  • The credits apply to an eligible student. Eligible students include yourself, your spouse or a dependent that you list on your tax return.
  • You must file Form 1040A or Form 1040 and complete Form 8863, Education Credits, to claim these credits on your tax return.
  • Your school should give you a Form 1098-T, Tuition Statement, showing expenses for the year. This form contains helpful information needed to complete Form 8863. The amounts shown in Boxes 1 and 2 of the form may be different than what you actually paid. For example, the form may not include the cost of books that qualify for the credit.
  • You can’t claim either credit if someone else claims you as a dependent.
  • You can’t claim both credits for the same student or for the same expense, in the same year.
  • The credits are subject to income limits that could reduce the amount you can claim on your return.
  • Visit IRS.gov and use the Interactive Tax Assistant tool to see if you’re eligible to claim these credits. Also visit the IRS Education Credits Web page to learn more. If you can’t claim a tax credit, check the other tax benefits you might be able to claim.
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Five Key Facts about Unemployment Benefits

On March 3, 2015   /   Uncategorized  
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If you lose your job, you may qualify for unemployment benefits. The payments may serve as much needed relief. But did you know unemployment benefits are taxable? Here are five key facts about unemployment compensation:

  1. Unemployment is taxable.  You must include all unemployment compensation as income for the year. You should receive a Form 1099-G, Certain Government Payments by Jan. 31 of the following year. This form will show the amount paid to you and the amount of any federal income tax withheld.
  2. Paid under U.S. or state law.  There are various types of unemployment compensation. Unemployment includes amounts paid under U.S. or state unemployment compensation laws. For more information, see Publication 525, Taxable and Nontaxable Income.
  3. Union benefits may be taxable.  You must include benefits paid to you from regular union dues in your income. Other rules may apply if you contributed to a special union fund and those contributions are not deductible. In that case, you only include as income any amount that you got that was more than the contributions you made.
  4. You may have tax withheld.  You can choose to have federal income tax withheld from your unemployment. You can have this done using Form W-4V, Voluntary Withholding Request. If you choose not to have tax withheld, you may need to make estimated tax payments during the year.
  5. Visit IRS.gov for help.  If you’re facing financial difficulties, you should visit the IRS.gov page: “What Ifs” for Struggling Taxpayers. This page explains the tax effect of events such as job loss. For example, if your income decreased, you may be eligible for certain tax credits, like the Earned Income Tax Credit. If you owe federal taxes and can’t pay your bill, contact the IRS. In many cases, the IRS can take steps to help ease your financial burden.

For more details visit IRS.gov and check Publication 525. You can view, download and print Form W-4V at IRS.gov/forms anytime.

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What to do if You Get a Notice from the IRS

On February 27, 2015   /   Uncategorized  
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Each year the IRS mails millions of notices. Here’s what you should do if you receive a notice from the IRS:

  1. Don’t ignore it. You can respond to most IRS notices quickly and easily. And it’s important that you reply promptly.
  2. IRS notices usually deal with a specific issue about your tax return or tax account. For example, it may say the IRS has corrected an error on your tax return. Or it may ask you for more information.
  3. Read it carefully and follow the instructions about what you need to do.
  4. If it says that the IRS corrected your tax return, review the information in the notice and compare it to your tax return.If you agree, you don’t need to reply unless a payment is due.If you don’t agree, it’s important that you respond to the IRS. Write a letter that explains why you don’t agree. Make sure to include information and any documents you want the IRS to consider. Include the bottom tear-off portion of the notice with your letter. Mail your reply to the IRS at the address shown in the lower left part of the notice. Allow at least 30 days for a response from the IRS.
  5. You can handle most notices without calling or visiting the IRS. If you do have questions, call the phone number in the upper right corner of the notice. Make sure you have a copy of your tax return and the notice with you when you call.
  6. Keep copies of any notices you get from the IRS.
  7. Don’t fall for phone and phishing email scams that use the IRS as a lure. The IRS first contacts people about unpaid taxes by mail – not by phone. The IRS does not contact taxpayers by email, text or social media about their tax return or tax account.

For more on this topic visit IRS.gov. Click on ‘Responding to a Notice’ at the bottom left of the home page. Also see Publication 594, The IRS Collection Process. You can get it on IRS.gov or call 800-TAX-FORM (800-829-3676) to get it by mail.

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7 Things You Should Know About Gift Tax

On February 20, 2015   /   Uncategorized  
7 Things You Should Know About Gift Tax
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Which Gifts Are Taxable And What Can Be Excluded? Keep reading to learn 7 Things You Should Know About Gift Tax!

Have a specific question? Contact ATS Advisors!

According to the IRS, a gift is “Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return.”

The gift tax is the responsibility of the person who gives a gift (i.e. the donor), and the amount of tax due is based on the value of their gift. The person who receives a gift (i.e. the donee) is generally not responsible for paying the gift tax. However, if the donor does not pay the gift tax, the donee may have to pay the tax instead.

The gift tax was implemented in order to stop people from dodging the Estate Tax by giving away all of their money before death. While most individuals don’t need to worry about having to pay the gift tax, there are a lot of people who neglect to file the proper paperwork.

Here are 7 things you should know about the Federal gift tax:

  1. Gifts to Family Members Count

The gift tax and exclusion limit (below) apply whether you are making the gift to a complete stranger, a nephew, or your own children. The only person you can give a gift to that is exempt from the gift tax is your spouse. Gifts to your spouse qualify for the marital deduction.

  1. There Is an Annual Gift Tax Exclusion

You do not have to pay tax on gifts that are less than the annual exclusion limit, which generally changes every year. Currently, the annual exclusion is $14,000 per recipient. In other words, you can give up to $14,000 to each of your children this year without having to pay any gift tax.

  1. There Are Also Educational and Medical Exclusions

Payments that you make on someone’s behalf for qualified tuition or medical expenses do not count towards the annual limit for gift tax purposes. However, your payment(s) must be made directly to a qualifying educational organization or medical care provider in order to qualify for the exclusion. You can also place funds directly into a 529 education savings plan to avoid the gift tax — but note that certain rules apply.

READ: Federal Education Tax Breaks for Tuition and Fees

  1. You May Need to File a Gift Tax Return (Form 709)

In general, you must file a Federal gift tax return (IRS Form 709) if you gave someone more than $14,000 during the year. In some cases, you are required to file Form 709 even if your gift was below the $14,000 annual exclusion. Note that only individuals are responsible for filing gift tax returns — corporations or trusts that make gifts will pass the filing and payment responsibilities onto their individual stockholders or beneficiaries. Additionally, a married couple cannot file a joint gift tax return.

Form 709 is an annual return that is due by April 15 of the year after the gift was made. While this is the same deadline as the individual income tax return (Form 1040), the gift tax return must be filed separately. You can request a 6-month filing extension for your gift tax return with Form 8892 (Application for Extension of Time to File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax). Furthermore, if you use Form 4868 (Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) to obtain a tax extension for your 1040 return, you will automatically receive an extension for Form 709.

  1. Married Couples Can Give Twice As Much

Spouses can each give up to $14,000 to the same recipient and still stay within the annual exclusion threshold. Together, a married couple can give $28,000 to each donee without incurring the gift tax. Most tax professionals recommend that married couples give money in the form of 2 separate checks, each signed by one of the spouses, to avoid any confusion.

READ: How to Determine Your Filing Status

  1. Each Donor Has a Lifetime Exemption

This refers to the total amount that an individual can give away during their entire lifetime. If your gift exceeds the $14,000 annual threshold, it must be reported as a taxable gift on Form 709 — however, that doesn’t necessarily mean you’ll have to pay the gift tax. Instead, you can apply the gift towards your lifetime exclusion from the Federal estate tax.

The “basic exclusion” (also known as the “unified credit”) represents both the lifetime gift tax exemption and the estate tax exclusion, signified as a total amount of $5.34 million. The current law allows individuals to give away up to $5.34 million over their lifetime without having to pay gift or estate taxes.

But keep in mind; any portion that’s used to avoid the gift tax reduces the amount that will be exempt from estate tax. For example, if you used $2 million of the exemption to make taxable gifts during your lifetime, you will only be able to exclude $3.34 million from the estate tax. If you surpass the $5.34 million limit, you (or your heirs) will have to pay up to 40% tax.

You can give someone $14,000 per year and it won’t affect your lifetime exemption (because gifts below the annual threshold are not considered taxable). If you exceed the $14,000 annual gift tax threshold, you must file Form 709 and report the amount that counts against your lifetime exemption. You should also hold onto any relevant paperwork so your heirs can properly compute the estate tax later.

  1. Promotional Gifts Aren’t Considered “Gifts”

If you receive a gift as part of a promotion — for example, a car is given away to every member of the studio audience — then it does not count as a “gift” by IRS standards because the giver is getting something in return, namely self-promotion. This means that the tax burden for a promotional gift falls on the recipient (because it increases their wealth) and is not eligible for the annual gift tax exclusion.

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Identity Theft

On February 17, 2015   /   Uncategorized  
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Identity theft takes many forms. Some of the most common include:

  • Credit card fraud
  • False applications for new credit
  • Fraudulent withdrawals from a bank account
  • Fraudulent use of telephone calling cards
  • Fraudulent use of an IP address in order to engage in illegal acts online
  • Fraudulent use of medical care
  • Social security fraud (for tax and employment fraud)

If you know or suspect that you are the victim of identity theft, there are steps you should take immediately to stop the theft and minimize the damage.

Put a Fraud Alert on Your Credit Report

A fraud alert puts a red flag on your credit report and notifies lenders and creditors that they should take extra steps to verify your identity before extending credit. To place a 90-day fraud alert on all three of your credit reports, you only need to contact one of the three credit reporting agencies (Experian, Equifax, or TransUnion). When you place the initial alert, they will automatically notify the other two agencies for you.

Another option—and a more effective identity theft prevention measure—is to place a security freeze on each of your credit reports. A freeze prevents creditors (except those with whom you already do business) from accessing your credit report(s) at all. New applications will automatically be declined. With a security freeze in place, you will need to take extra steps if you wish to apply for new credit. Each agency has a procedure for temporarily “thawing” your file in order to allow a legitimate application to be processed and unlike a fraud alert, you’ll need to contact each agency individually to place a freeze on each of your reports. See more information about security freezes here: Experian, Equifax and TransUnion.

When you place a fraud alert on your credit reports, you’re entitled to a free copy of your credit report from each of the three agencies. Be sure to obtain them. If you find fraudulent items on your credit report(s), the simplest way to begin the dispute process is to click the item while viewing your credit report online. Some items must be disputed in writing and with supporting documentation. Hard inquiries cannot be disputed, but may give you a clue as to where a thief has applied for credit in your name.

Initial fraud alerts are free and remain in place for 90 days. In some cases, security freezes and extended fraud alerts incur a small fee, but these services are free to victims of identity theft.

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What to Know About Tax Filing Statuses

On February 13, 2015   /   IRS  
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The IRS gives 8 important facts about filing statuses. These will help you choose the best status option for your particular situation.

#1: Your marital status on the last day of the year determines your marital status for the entire year, for tax purposes.

#2: If more than 1 filing status applies to you, you may choose the one that gives you the lowest amount of tax due.

#3: The “Single” filing status generally applies to anyone who is unmarried, divorced, or legally separated according to state law.

#4: A married couple may file a joint tax return together. The couple’s filing status would be “Married Filing Jointly.”

#5: If your spouse passed away and you did not remarry during that year, usually you may still file a joint tax return with that spouse for the year of death.

#6: A married couple may elect to file their tax returns separately. Each person’s filing status would generally be “Married Filing Separately.”

#7: The “Head of Household” status generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to be able to use this filing status.

#8: You may be able to choose “Qualifying Widow(er) with Dependent Child” as your filing status if your spouse died within the past two years, you have a dependent child, and you meet certain other conditions.

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Where is my tax refund?

On February 11, 2015   /   IRS  
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Want to know where your refund is?

More than 90 percent of refunds are issued in less than 21 days. IRS representatives will not provide individual refund information before then. Taxpayers can easily find information about their refund by using the Where’s My Refund? tool. It’s available on IRS.gov and on the Smartphone app, IRS2Go. Where’s My Refund? provides taxpayers with the most up-to-date information available. Taxpayers must have information from their current, pending tax return to access their refund information. Refund information is updated just once a day, generally overnight, so there’s no need to check more than once a day.

 

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Beware of Scammers

On February 9, 2015   /   Uncategorized  
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USA.gov will never request your personal information

Beware: scammers are using the USA.gov name as part of an e-mail phishing scam to collect your personal information on a fake IRS website. Don’t take the bait. USA.gov will never contact you to request your personal information.

If your receive an e-mail that’s supposed to be from a government program, and it seems legitimate, do your homework:

Report all other government imposter phishing e-mail scams to the Federal Trade Commission.

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Know your rights when dealing with the IRS

On February 6, 2015   /   IRS  
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The IRS has adopted a Taxpayer Bill of Rights as proposed by National Taxpayer Advocate Nina Olson. It applies to all taxpayers in their dealings with the IRS. The Taxpayer Bill of Rights groups the existing rights in the tax code into ten fundamental rights, and makes them clear, understandable, and accessible.

They include:

For more information visit the Taxpayer Advocate Service.

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Fake Charities Among the IRS “Dirty Dozen” List of Tax Scams for 2015

On February 3, 2015   /   Uncategorized  
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“When making a donation, taxpayers should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities,” said IRS Commissioner John Koskinen. “IRS.gov has the tools taxpayers need to check out the status of charitable organizations.”

The IRS offers these basic tips to taxpayers making charitable donations:

  • Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible.
  • Don’t give out personal financial information, such as Social Security numbers or passwords to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money. People use credit card numbers to make legitimate donations but please be very careful when you are speaking with someone who called you.
  • Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.

Call the IRS toll-free disaster assistance telephone number (1-866-562-5227) if you are a disaster victim with specific questions about tax relief or disaster related tax issues.

Impersonation of Charitable Organizations

Another long-standing type of abuse or fraud involves scams that occur in the wake of significant natural disasters.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone or email to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds.

They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’ identities or financial resources. Bogus websites may solicit funds for disaster victims.

To help disaster victims, the IRS encourages taxpayers to donate to recognized charities.

 

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