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Taxes and IRS News, Regulations, and Scams

Withholding -- too much vs. too little

Some easy steps for having the right amount taken out

When tax time comes every April, do you find yourself celebrating because you're getting a refund or griping because you owe taxes?

There's a way to avoid both.

The Internal Revenue Service (IRS) advises you to check your tax withholding from time to time as there are a number of factors that could determine whether you get money back or have to send more in.

It's important to remember that when you get a refund, it's YOUR money you are getting back, not the government's. By withholding too much, you're giving Uncle Sam an interest-free loan. This is money you could invest and put to work for you. Whether you would or not is a topic for a separate discussion.

In any event, when you have the correct amount taken out, you get closer to having a zero balance when you file your return -- no taxes owed, no refund.

What to do

In many cases, a new Form W-4, Employee’s Withholding Allowance Certificate, is all you need to make an adjustment. Just submit it to your employer, and the employer will use it to figure out how much federal income tax to withheld from your pay.

The IRS offers several online resources to help you bring taxes paid closer to what you owe. They include:

Self-employed taxpayers, including those involved in the sharing economy, can use the Form 1040-ES worksheet to figure their estimated tax payments.

If they also work for an employer, they can often forgo making these quarterly payments by instead having more tax taken out of their pay.

When tax time comes every April, do you find yourself celebrating because you're getting a refund or griping because you owe taxes?

There's a way to avoid both.

The Internal Revenue Service (IRS) advises you to check your tax withholding from time to time as there are a number of factors that could determine whether you get money back or have to send more in.

It's important to remember that when you get a refund, it's YOUR money you are getting back, not the government's. ...

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    The IRS is hiring debt collectors

    Raises possibility that scammers will try to impersonate them

    If you owe the Internal Revenue Service (IRS) back taxes and despite repeated reminders, still haven't gotten around to writing a check, expect a call from a debt collector.

    The IRS has started sending letters to what it calls “a relatively small group” of taxpayers who are severely delinquent. The letters will explain that the IRS has turned the account over to one of four private debt collection agencies.

    The IRS says the delinquent accounts are old and multiple attempts have been made in the past to collect them. Still, this effort could pose dangers for a wide range of consumers if scammers seize on this development.

    “The IRS is taking steps throughout this effort to ensure that the private collection firms work responsibly and respect taxpayer rights,” said IRS Commissioner John Koskinen. “The IRS also urges taxpayers to be on the lookout for scammers who might use this program as a cover to trick people. In reality, those taxpayers whose accounts are assigned as part of the private collection effort know they have a tax debt.”

    How to avoid a scam

    That last part is key. Koskinen says the people who will receive calls from these legitimate debt collectors are well aware that they have an unpaid tax debt. They have dealt with IRS personnel on this issue in the past.

    That means if you are unaware that you owe the IRS money and get a call from someone claiming to be a debt collector, the IRS says you are being targeted by a scammer and should hang up.

    Okay, this bears repeating. If you are unaware that you owe back taxes and someone calls you claiming you do, you don't. It's that simple.

    Letter from the IRS

    The collection program began this week and the people who owe the money should have received a letter from the IRS, telling them to expect a call. If you didn't get one of these letters, you don't owe any money.

    Here's another clue – the IRS says people who owe money will always be contacted by the tax agency first, before they are ever contacted by a debt collector. So if the IRS hasn't contacted you, neither should a debt collector.

    The IRS reiterates that taxpayers should be vigilant for scammers posing as private collection firms. The IRS said it will also be watching for these schemes as the collection program begins.

    If you owe the Internal Revenue Service (IRS) back taxes and despite repeated reminders, still haven't gotten around to writing a check, expect a call from...
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    Tax records: What to keep and for how long

    No need to be a paperwork pack-rat

    What must I keep? What can I toss?

    Questions about how long to keep tax returns and other documents face many taxpayers at this time of year.

    As a general rule, the Internal Revenue Service (IRS) recommends holding on to copies of tax returns and supporting documents at least three years. However, there are some that should be kept up to seven years in case a taxpayer needs to file an amended return or if questions arise. That includes records relating to real estate after you've disposed of the property.

    Even though you don't need to send them to IRS as proof of coverage, it's a good idea to keep health care information statements should with other tax records.

    These include records of any employer-provided coverage, premiums paid, advance payments of the premium tax credit received, and type of coverage. Three years after you file your tax return is the recommended time for keeping these records.

    How to store

    Whether your tax records are paper or electronic, the IRS says you should be sure they're kept safe and secure -- especially any documents bearing Social Security numbers. It's also a good idea to scan paper tax and financial records into a format that can be encrypted and stored securely on a flash drive, CD or DVD with photos or videos of valuables.

    Records to be saved include those that support the income, deductions and credits claimed on returns. You'll need them if the IRS asks questions about a tax return or to file an amended return.

    Cleaning house

    When records are no longer needed for tax purposes, make sure they are destroyed properly to prevent the information from falling into the hands of identity thieves.

    If disposing of an old computer, tablet, mobile phone, or back-up hard drive, keep in mind it includes files and personal data. Removing this information may require special disk utility software.

    What must I keep? What can I toss?What must I keep? What can I toss?Questions about how long to keep tax returns and other documents face many...
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    Get that tax refund ASAP

    We have tips to help you avoid a delay

    If you overpaid your taxes this year (too much withholding is the main culprit), you'll have a refund coming. And, of course, you'll want that money as soon as you can get it.

    The first thing you'll need to do is have all the documents you need -- things like W-2s and 1099s -- before you file your return. You also may need a copy of your 2015 tax return to make it easier to fill out a 2016 tax return.

    Beginning next year, taxpayers using a software product for the first time may need their Adjusted Gross Income amount from a prior tax return to verify their identity. Learn more about how to verify your identity and electronically sign your tax return at Validating Your Electronically Filed Tax Return.

    The Internal Revenue Service (IRS) will begin accepting and processing tax returns once the filing season begins.

    Updating your ITIN

    Under the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), any Individual Taxpayer Identification Numbers (ITIN) issued prior to 2013 or that haven’t been used for tax-years 2013, 2014, and 2015 will no longer be valid for use on a tax return as of Jan. 1, 2017.

    If you have an expiring ITIN and need to file a return in 2017, you'll have to renew it. It typically takes seven weeks to receive an ITIN assignment letter, but can take longer -- 9 to 11 weeks if you wait to submit Form W-7 during the peak filing season or send it from overseas.

    Taxpayers who don't renew an expired ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. You can get more information on the the ITIN information page on IRS.gov.

    Mandated delays

    If you claim the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) on your tax return, the IRS must hold your refund until February 15.

    This new law requires the IRS to hold the entire refund -- even the portion not associated with EITC or ACTC. This change helps ensure that you get the refund you are owed by giving the agency more time to help detect and prevent fraud.

    By the way, you shouldn't rely on getting a refund by a certain date, especially when making major purchases or paying bills. Though the IRS issues more than nine out of 10 refunds in less than 21 days, some returns are held for further review.

    What to do

    The easiest way to avoid common errors that delay processing a tax return is to e-file. E-filing is the most accurate way to prepare a return and file. There are a number of e-file options:

    Use direct deposit

    With direct deposit, the refund goes directly into your bank account. There is no risk of having the refund check stolen or lost in the mail. This is the same electronic transfer system used to deposit nearly 98% of all Social Security and Veterans Affairs benefits into millions of accounts.

    Direct deposit also saves taxpayer dollars. It costs the nation’s taxpayers more than $1 for every paper refund check issued but only a dime for each direct deposit made.

    If you overpaid your taxes this year (too much withholding is the main culprit), you'll have a refund coming. And, of course, you'll want that money as soo...
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    IRS unveils 2017 pension plan limitations

    There's no change in the limit for 401(k) contributions

    An increase is on the way from the Internal Revenue Service pertaining to income ranges and determining eligibility for making deductible contributions to traditional IRAs, contributing to Roth IRAs, and claiming the saver’s credit.

    You can deduct contributions to a traditional IRA if you meet certain conditions. For example, if during the year either you or your spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated -- depending on filing status and income. If neither is covered, the phase-outs of the deduction do not apply.

    Next year's phase-out ranges

    • For single taxpayers covered by a workplace retirement plan, the phase-out range is $62,000 to $72,000 -- up from $61,000 to $71,000.
    • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $99,000 to $119,000, versus $98,000 to $118,000.
    • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $186,000 and $196,000 -- up from $184,000 and $194,000.
    • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

    The new income phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household. This year it was $117,000 to $132,000.

    For married couples filing jointly, the income phase-out range is now $186,000 to $196,000, versus $184,000 to $194,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

    The income limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $62,000 for married couples filing jointly, up $500; $46,500 for heads of household, up $375; and $31,000 for singles and married individuals filing separately, up $250.

    No change for these limitations

    • The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains at $18,000.
    • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains at $6,000.
    • The limit on annual contributions to an IRA is unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

    Details are outlined in IRS Notice 2016-62.

    An increase is on the way from the Internal Revenue Service pertaining to income ranges and determining eligibility for making deductible contributions to...
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    U.S. Treasury enacts regulations to stop earnings stripping

    The new rules would make it harder for some corporations to dodge taxes

    One of the main political sticking points for candidates over the years has concerned taxes – more specifically, how to make sure U.S. companies pay their fair share of them.

    Many have called the tax system broken over the years because of how easy it is for a company or corporation to acquire a business overseas and move its tax address. This allows multinational businesses to engage in “earnings stripping,” which is the term that describes a company that pays deductible interest to a parent company or affiliate in another country that has lower taxes. Simply put, it allows a business to avoid paying as much as they should in U.S. taxes.

    But in an interview with CNBC on Thursday, U.S. Treasury Secretary Jack Lew announced new regulations that will limit companies’ ability to take part in this kind of “egregious” tax avoidance. The new rules will seek to end earnings stripping and mandate that corporations file documentation on interest deductions on related-party loans.

    “This administration has long called for legislative action to fix our broken tax system. In the absence of Congressional action, it is Treasury’s responsibility to use our authority to protect the tax base from continued erosion,” said Treasury Department Secretary Jacob J. Lew in a statement.

    “We have taken a series of actions to make it harder for large foreign multinational companies to avoid paying U.S. taxes and reduce the incentives for U.S. companies to shift income and operations overseas. Such tax avoidance practices are wrong and should be stopped.”

    Exceptions and exemptions

    The proposed regulations were submitted back in April, and were subject to months of scrutiny from stakeholders before being finalized. As a result, the finalized version allows for several exceptions and exemptions for situations where there is a low risk of earnings stripping.

    Feedback from the public also led to exemptions for foreign subsidiaries of U.S. multinational corporations, transactions between pass-through businesses, cash pools, and limited exemptions for financial institutions and insurance companies that are subject to regulatory oversight for their capital structure.

    The final regulations also include more relaxed documentation requirements than those suggested in April, as well as more exceptions for ordinary course transactions like stock acquisitions associated with employee compensation plans. The regulations will go into effect on January 1, 2018.

    Mixed reviews

    Republicans and Democrats have remained divided on the new regulations. Rep. Kevin Brady (R-Tex) claims the regulations were pushed through too quickly and may damage U.S. workers and the economy. “By rushing the review process – despite the extensive comments received – and finalizing these regulations so quickly, it appears the Obama Administration has ignored the real concerns of people who will be most impacted by these far-reaching rules,” he said.

    On the other side of the aisle, Rep. Sander Levin (D-Mich) said the new regulations were a step in the right direction towards restoring fairness to the tax system.

    “For years, companies have been inverting and engaging in earnings stripping to unfairly lower their tax bills. In the absence of Republican action on tax reform, Treasury has used its Administrative authority to help bring fairness to the tax system. Today’s regulations from Treasury—which took into account extensive comments from the public and intensive meetings with Republicans and Democrats in Congress—go straight to the core of that fairness issue by strongly limiting a company’s ability to use this tax avoidance strategy, which involves disproportionately leveraging a U.S. company with debt and ‘stripping’ the U.S. tax base through deductible interest payments,” he said.

    One tax expert found both positives and negatives to the new regulations, saying that some necessary steps were taken but that some parts were still worrisome.

    “On the plus side, the documentation rule’s applicability of 1/1/18 and the exception – for the time being at least – for foreign issuers were responsive to comments and were absolutely necessary. . . But the rules’ general response regarding cash pooling will still be highly burdensome where they apply as will the retroactive application of the re-characterization rules,” said Ronald Dabrowski, a principal of KPMG LLP, a Washington National Tax practice.

    So, based on the mixed reviews, consumers may have to wait and see if the new regulations save the tax system or lead to the collapse of the country as we know it. The smart bet may be to expect something in between. Consumers can learn more by visiting the Treasury's fact page here.

    One of the main political sticking points for candidates over the years has concerned taxes – more specifically, how to make sure U.S. companies pay their...
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    Revised fees proposed for taxpayers using installment plan

    Some are rising, others remain the same

    If you're a taxpayer who uses the installment plan to settle up with Uncle Sam, you need to know that the Internal Revenue Service (IRS) is proposing a revised schedule of user fees that would take effect on Jan. 1, 2017.

    Federal agencies are required to charge a user fee to recover the cost of providing certain services to the public that confer a special benefit to the recipient. While some installment agreement fees will go up, the IRS will continue providing reduced-fee or no-cost services to low-income taxpayers.

    Changes on the way

    The revised installment agreement fees of up to $225 would be higher for some taxpayers than those currently in effect, which can be up to $120. However, under this revision, any affected taxpayer could qualify for a reduced fee by making a request online using the Online Payment Agreement application on IRS.gov.

    Additionally, there would be no change to the current $43 rate that applies to the approximately one in three taxpayer requests that qualify under low-income guidelines. These guidelines, which change with family size, would qualify a family of four with total income of around $60,000 or less to pay the lower fee.

    Also, for the first time, any taxpayer regardless of income would qualify for a new low $31 rate by requesting an installment agreement online and choosing to pay what is owed through direct debit.

    The top rate of $225 applies to taxpayers who enter into an installment agreement in person, over the phone, by mail, or by filing Form 9465 with the IRS. However, a taxpayer who establishes an agreement in this manner can substantially cut the fee to just $107 by choosing to make monthly payments by direct debit from their bank account.

    Alternatively, a taxpayer who chooses to set up an installment agreement using the agency’s Online Payment Agreement application will pay a fee of $149. Similarly, this amount can be cut to just $31 by also choosing direct debit.

    Proposed fees

    Here is the proposed schedule of user fees:

      Regular installment agreement$225
      Regular direct debit installment agreement$107
      Online payment agreement $149
      Direct debit online payment agreement$31
      Restructured or reinstated installment agreement  $89
      Low-income rate$43
    If you're a taxpayer who uses the installment plan to settle up with Uncle Sam, you need to know that the Internal Revenue Service (IRS) is proposing a rev...
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    Tips for last minute tax filers

    Do as much as possible electronically

    Got plans for the weekend? You may have to put them on hold if you haven't gotten around to filing your federal income tax return.

    Though April 15 is normally the deadline for getting your return in the mail to the Internal Revenue Service (IRS), this year the deadline falls on Monday, April 18, since today is a holiday in the District of Columbia.

    If you'll be spending the weekend shuffling receipts and filling out forms, the IRS has some advice.

    Use the internet

    First, file your return online. It makes the tax agency's job a little easier and it will also get any refund to you a lot quicker. When you file electronically, the IRS says it normally takes about three weeks to process your refund – even faster if you have the money direct deposited into a bank account.

    The IRS offers this handy guide to individuals who are e-filing their own returns. If you file electronically, you won't be able to physically sign the return. The IRS explains here how to do it electronically.

    If you are going old school and filing a paper return, make sure all necessary forms are attached to Form 1040. The IRS would like them placed in order of the sequence number located in the upper right hand corner of the schedule or form.

    Don't forget to attach a copy of your W-2, which is a record of your compensation from your employer. If you received a corrected version of your W-2, form W-2c, make sure you include that.

    Where to send it

    When filing a paper return, it means you have to mail it somewhere. The address will be determined by where you live, and whether you owe additional taxes or are getting a refund. You'll find the the address you need here.

    If you owe additional tax, make the check out to United States Treasury. Make sure the check contains your name, address, taxpayer ID number, daytime phone number, tax year, and the name of the tax form you are submitting – such as Form 1040.

    If you are filing electronically, you can pay online by following the instructions in Form 1040-V.

    Of course, you might want to keep your weekend plans and file for an extension, giving you another six months to complete the process. It just requires filing the proper form by the Monday deadline, found here.

    If you owe additional tax, be sure to include the amount with the extension form, otherwise you'll face a penalty and interest. If you aren't sure how much you owe, it is better to overestimate on the payment. You'll avoid the penalty and get the balance as a refund when you do file.

    Got plans for the weekend? You may have to put them on hold if you haven't gotten around to filing your federal income tax return.Though April 15 is no...
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    Time running short for many to take required retirement plan distributions

    First-timers must act quickly

    If you turned 70½ during 2015 you'd best get a move on.

    Seniors who have reached that age must -- in most cases -- start receiving required minimum distributions (RMDs) from Individual Retirement Accounts (IRAs) and workplace retirement plans by tomorrow, Friday, April 1, 2016.

    Under Internal Revenue Service (IRS) regulations, owners of traditional (including SEP and SIMPLE) IRAs but not Roth IRAs, are affected by the deadline. It normally applies to those with various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

    What to do

    Keep in mind, the April 1 deadline applies only to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, if you turned 70½ last year (born after June 30, 1944 and before July 1, 1945) and receive the first required distribution (for 2015) on April 1, 2016, for example, you must still receive the second RMD by Dec. 31, 2016.

    Affected taxpayers who turned 70½ during 2015 must figure the RMD for the first year using the life expectancy as of their birthday in 2015 and their account balance on Dec. 31, 2014.

    The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the appendices to Publication 590-B.

    Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions.

    Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

    More information on RMDs, including answers to frequently asked questions, can be found on IRS.gov.

    If you turned 70½ during 2015 you'd best get a move on.Seniors who have reached that age must -- in most cases -- start receiving required minimum dist...
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    You can't keep a good crook down

    Tax scammers are finding new ways to take your money

    We've all heard how criminals impersonating IRS agents threaten various actions to relieve you of money you supposedly owe the government.

    Now, however, they have started making phone calls claiming they're trying to verify tax return information. Claiming that they already have your tax return, these crooks say they just need to verify a few details to process your return. In the process, they try to get you to give up personal information such as your Social Security number, bank numbers, or credit cards. Consumers receiving these calls should be on guard.

    “These schemes continue to adapt and evolve in an attempt to catch people off guard just as they are preparing their tax returns,” said IRS Commissioner John Koskinen. “Don’t be fooled. The IRS won’t be calling you out of the blue asking you to verify your personal tax information or aggressively threatening you to make an immediate payment.”

    What the IRS will not do

    According to the IRS, many of the claims that scammers make are simply not within the organizations protocol. Here are some things the agency will never do:

    • Call to demand immediate payment over the phone, or call about taxes owed without first having mailed you several bills.
    • Call or email you to verify your identity by asking for personal and financial information.
    • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
    • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
    • Ask for credit or debit card numbers over the phone or e-mail.
    • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.

    What to do

    If a consumer receives a phone call from a suspected scammer, the IRS recommends that they:

    • Do not give out any information and hang up immediately.
    • Contact the Treasury Inspector General for Tax Administration to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
    • Report it to the Federal Trade Commission (FTC). Use the “FTC Complaint Assistant” on FTC.gov. Add “IRS Telephone Scam” in the notes.

    If you know you owe, or think you may owe, tax money, you can:

    • Call the IRS at 800-829-1040. IRS workers can help you.
    • Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.
    We've all heard how criminals impersonating IRS agents threaten various actions to relieve you of money you supposedly owe the government.Now, however,...
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    Nine out of 10 tax refunds are issued in under 21 days

    When will you get yours?

    How fast do you want your federal income tax refund -- assuming you get one? Does three weeks work for you?

    According to the Internal Revenue Service (IRS), 90% of refunds are issued in less than 21 days.

    The best way to check the status of yours is online through the “Where’s My Refund?” tool on the IRS website or via the IRS2Go phone app.

    "As February approaches, more and more taxpayers want to know when they can expect their refunds," said IRS Commissioner John Koskinen. "There aren't any secret tricks to checking on the status of a refund. Using IRS.gov is the best way for taxpayers to get the latest information."

    Patience

    Many taxpayers are eager to know precisely when their money will be arriving, but checking "Where's My Refund" more than once a day will not produce new information. The status of refunds is refreshed only once a day, generally overnight.

    "Where’s My Refund?" has the most up-to-date information available about your refund. Taxpayers should use this tool rather than calling. You can use the tool to start checking on the status of their return within 24 hours after IRS has received an e-filed return or four weeks after receipt of a mailed paper return. It has a tracker that displays progress through three stages: (1) Return Received, (2) Refund Approved and (3) Refund Sent.

    Try the app

    The IRS2Go phone app is another fast and safe tool taxpayers can use to check the status of a refund. In addition, users can use it to find free tax preparation help, make a payment, watch the IRS YouTube channel, get the latest IRS news, and subscribe to filing season updates and tax tips.

    The app is free for Android devices from the Google Play Store or from the Apple App Store for Apple devices. Users of both the IRS2Go app and “Where’s my Refund” tools must have information from their current, pending tax return to access their refund information.

    There's really no advantage to calling about refunds. IRS representatives can research the status of your refund only in limited situations: if it has been 21 days or more since you filed electronically, more than six weeks since you mailed your paper return, or "Where’s My Refund?" directs you to contact the agency. If the IRS needs more information to process your tax return, you'll be contacted by mail.

    The IRS continues to encourage the use of e-file and direct deposit as the fastest and safest way to file an accurate return and receive a tax refund. More than four out of five tax returns are expected to be filed electronically, with a similar proportion of refunds issued through direct deposit.

    Free File offers free brand-name software to about 100 million individuals and families with incomes of $62,000 or less. Seventy percent of all taxpayers are eligible for Free File.

    All taxpayers regardless of income will again have access to free online fillable forms, which provide electronic versions of IRS paper forms to complete and file. Both options are available through IRS.gov.

    How fast do you want your federal income tax refund -- assuming you get one? Does three weeks work for you?According to the Internal Revenue Service (I...
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    IRS cuts 2016 standard mileage rates

    Rates are being cut for business, medical, and moving mileage

    If you use your car for things that are usually tax deductible, you're not going to like this.

    The Internal Revenue Service (IRS) is cutting the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.

    Starting January 1, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:

    • 54 cents per mile for business miles driven -- down 3.5 cents from 2015.
    • 19 cents per mile driven for medical or moving purposes -- down four cents from 2015.
    • 14 cents per mile driven in service of charitable organizations. The charitable rate is based on statute.

    According to the tax agency, the standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

    You have options

    Keep in mind, though, that you always have the option of calculating the actual costs of using your vehicle rather than using the standard mileage rates.

    A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

    In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

    These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.

    Notice 2016-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

    If you use your car for things that are usually tax deductible, you're not going to like this.The Internal Revenue Service (IRS) is cutting the 2016 op...
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    IRS offers tips for year-end charitable giving

    Careful records are a must for claiming your deduction

    If you plan on making a donation to your favorite charity as the year draws to a close, the Internal Revenue Service (IRS) wants you to know that several tax law provisions have kicked in over the past few years.

    Among them are:

    Rules for charitable contributions of clothing and household items

    • Household items include furniture, furnishings, electronics, appliances, and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
    • Donors must get a written acknowledgment from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.

    Guidelines for monetary donations

    • You must have a bank record or a written statement from the charity in order to deduct any donation of money -- regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
    • Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, you should retain a pay stub, a Form W-2 wage statement, or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
    • These requirements for the deduction of monetary donations do not change the long-standing requirement that you obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

    Reminders

    The IRS offers the following additional reminders to help you plan your holiday and year-end gifts to charity:

    • Qualified charities. Check that the charity is eligible. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques, and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the tool’s database.
    • Year-end gifts. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2015 count for 2015, even if the credit card bill isn’t paid until 2016. Also, checks count for 2015 as long as they are mailed in 2015.
    • Itemize deductions. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction. This includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2015 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
    • Record donations. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
    • Special Rules. The deduction for a car, boat, or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

    If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

    If you plan on making a donation to your favorite charity as the year draws to a close, the Internal Revenue Service (IRS) wants you to know that several t...
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    Time to plan for next year's health flexible spending arrangements

    You may be able to carry over money

    Not that you don't have enough to do with the holidays approaching, but the Internal Revenue Service (IRS) is reminding those who are eligible that this is the time to begin planning to take full advantage of their employer’s health flexible spending arrangement (FSA) during 2016.

    FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers are offering the option to participate during the 2016 plan year.

    If you want to contribute during the new year, you must make this choice again for 2016 -- even if you contributed in this year. Self-employed individuals are not eligible.

    How it works

    Those who elect to participate may contribute up to $2,550 during the 2016 plan year, the same as in 2015. Amounts contributed are not subject to federal income tax, Social Security tax, or Medicare tax. If the plan allows, the employer may also contribute to your FSA.

    Throughout the year, employees can then use the money to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles, and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.

    Carryover option

    Under the use or lose provision, participating employees must often incur eligible expenses by the end of the plan year, or forfeit any unspent amounts. But under a special rule, employers may -- if they choose -- offer participating employees more time through either the carryover option or the grace period option.

    Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year; for example, an employee with $500 of unspent funds at the end of 2016 would still have those funds available to use in 2017.

    Under the grace period option, an employee has until 2½ months after the end of the plan year to incur eligible expenses -- for example, March 15, 2017, for a plan year ending on Dec. 31, 2016. Employers can offer either option, but not both, or none at all.

    Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA.

    More information about FSAs is available in IRS Publication 969.  

    Not that you don't have enough to do with the holidays approaching, but the Internal Revenue Service (IRS) is reminding those who are eligible that this is...
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    Behind on your taxes? You may lose your passport

    Congress tightens the screws on taxpayers

    Congress can't agree on much, but it seems to agree that being delinquent in paying your income tax -- or being behind in wading through the paperwork -- is grounds for revoking your passport.

    This might not sound too bad to most people, but it sounds awful to the 7 million or so Americans living abroad. They need their passport almost daily to attend to chores we take for granted at home. 

    They're also likely to have trouble receiving notices from the Internal Revenue Service because of unreliable mail delivery in much of the world and differences in address formats that often don't fit with the IRS' rigid addressing system.

    But there it is, buried deep in the massive highway-funding bill, which contains all sorts of provisions that have little or nothing to do with highways. The measure, inserted by nominally tax-hating GOP solons,  has been approved by both the House and Senate and is now in the final moments of being considered by a conference committee before being given final approval.

    $50,000 threshold

    How much would you have to owe to lose your passport? The bill specifies $50,000 of unpaid taxes, penalties, and interest. That may sound like a lot, but it doesn't take long for penalties and interest to add up. Throw in a year or two of back taxes and any middle-income wage earner or independent contractor could be in trouble.

    In the "gig economy," in fact, it's easier than ever to get into trouble with the IRS, since the taxpayer must try to make accurate quarterly payments based on estimated income. Anyone who's done this for more than a few years will tell you it's a recipe for big penalty and interest payments.

    Politicians are fond of noting -- sometimes to their detriment -- that more than 40% of Americans pay no income tax at all so Congressional thinking is apparently that it's OK to make up for it by being more penurious with those who do.

    The Wall Street Journal says the punitive measure would apply, in most cases, only to those who have been hit with a lien or a levy, something that is not that unusual for the self-employed or for high wage-earners who find themselves in a dispute with the IRS.

    If passed in its present form, the measure would take effect Jan. 1 and would apply to existing tax debts. So enjoy the holidays. And pay your taxes. 

    Congress can't agree on much, but it seems to agree that being delinquent in paying your income tax -- or being behind in wading through the paperwork -- i...
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