- MAXIMIZE RETIREMENT PLAN CONTRIBUTIONS
- ADJUST YOUR WITHHOLDING TAXES
- BE CAREFUL ABOUT PROTECTING YOUR IDENTITY
- GET WHAT'S BELONGS TO YOU
- GETTING RID OF CLUTTER CAN HELP YOU GAIN A TAX BREAK
- CASH IN ON TAX BREAKS FOR EDUCATION
- BE SURE YOUR HEALTH COVERAGE INFORMATION IS IN ORDER
- BE KNOWLEDGEABLE REGARDING THE RULES FOR FOREIGN ACCOUNTS
- YOU CAN BE GENEROUS WITHOUT TAX REPERCUSSIONS
- THINK AND BE SMART WHEN YOU FILE
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SOME TIPS TO HELP YOU PREPARE FOR TAX SEASONTake advantage of every tax benefit available to you throughout the year as you prepare for tax season. First and foremost, get organized. It's important to keep everything in one place like in a large envelope or file folder where you can gather tax information as you go through the year. When it is time to fill out the tax return, a lot of information that is required will be available to you and every detail counts in making it a smooth process.
1. MAXIMIZE RETIREMENT PLAN CONTRIBUTIONSIf your employer offers a 401(k) or other type of deferred pension plan, make every effort to contribute the maximum amount allowable (Note: This is especially true if your employer matches your contribution). If you don't, you are leaving money behind that could benefit you in your retirement. The employer match should be thought of as a 100% return on your investment. Even when there is no match, all of the funds are tax-deductible and grow for you tax-free.
If cases when your employer doesn't offer a retirement plan, you might consider making obtaining a traditional individual retirement account or a Roth IRA. The traditional IRA usually offers a tax deduction for the year the contribution is made, however, both types of IRAs offer tax-deferred gains.
2. ADJUST YOUR WITHHOLDING TAXESBe sure to check your year-to-date withholding. You might 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 (EITC), or the additional child tax credit. This is because the IRS is now required by law to hold all refunds on those returns until February 15. The new law was put into place to allow the IRS additional time to recognize and ultimately to prevent tax fraud.
IRS Commissioner John Koskinen recently 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 have to fill out Form W-4, Employee's Withholding Allowance Certificate, to adjust the amount of taxes withheld and submit it to your employer.
3. BE CAREFUL ABOUT PROTECTING YOUR IDENTITYSpeaking 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 will help you get the IRS to accept your tax return. Please Note: This IP PIN changes every year. Even If you do not receive a notification in the mail, you will have to go to the IRS website to get a new PIN.
4. GET WHAT'S BELONGS TO YOUAccording to the IRS, one out of every five employees 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!
TO QUALIFY FOR AND CLAIM THE EARNED INCOME CREDIT YOU MUST:
- Have earned income; and
- Have been a U.S. citizen or resident alien for the entire tax year; and
- Have a valid Social Security number (not an ITIN) for yourself, your spouse (if filing jointly), and any qualifying children on your return; and
- Not have investment income exceeding $3,400; and
- Not be filing a Form 2555 or 2555-EZ; and
- File a return with the Single, Married Filing Jointly, Head of Household, or Qualifying Widower filing status, even if you're not required to file a return.
In addition, both your earned income and Adjusted Gross Income (AGI) may not exceed:
One more thing if you're not claiming a qualifying child:
- You (or your jointly filing spouse) must have been born on or after January 1, 1951; and
- You (or your jointly filing spouse) must have been born on or before December 31, 1991; and
- You (and your jointly filing spouse) cannot be claimed as a qualifying child or dependent on anyone else's return.
5. GETTING RID OF CLUTTER CAN HELP YOU GAIN A TAX BREAKIf you want to simplify and declutter your life, you can make money by donating all of those things you no longer need or want in your life. 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 need to file Form 8283, Noncash Charitable Contributions, and fill it in with appropriate details. It is definitely worth the effort!
6. CASH IN ON TAX BREAKS FOR EDUCATIONIf you, your spouse or dependents had higher education costs, there could be multiple tax benefits for you. The only hard part is figuring out which one works best for your particular situation.
So, there are three different benefits: the American opportunity credit; the lifetime learning credit; and the tuition and fees deduction. There are several requirements that could limit the benefit, but the IRS provides a useful tool: the Interactive Tax Assistant to assist you in finding your way through the labyrinth. 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. BE SURE YOUR HEALTH COVERAGE INFORMATION IS IN ORDERMake sure you know what is required 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.
Many taxpayers just need to do one thing: Check the box that indicates you had health care coverage for the entire year. If that is not the case, or if 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. BE KNOWLEDGEABLE REGARDING THE RULES FOR FOREIGN ACCOUNTSFor example, if the balance in your foreign account(s) is greater than $10,000 total, 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. Notice the name has the word "crime" in it. That should get you to make sure you're in compliance as the penalties are very high for failing to report. Also, note that if you maintain very high balances in your foreign accounts, you'll need to file IRS Form 8938, Statement of Specified Foreign Financial Assets.
Also, there are complex reporting requirements if you meet certain thresholds of ownership in any foreign corporations or partnerships. Also true if you are the beneficiary of a foreign trust. Just a few of the relevant 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. YOU CAN BE GENEROUS WITHOUT TAX REPERCUSSIONSEvery few 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 will need to report the gift on Form 709. If you gave $14,000 or less, you can remain under the radar. Plus, if you are married, you can also remain under the radar if you gave a combined total of $28,000.
Note: This applies to the person giving the gift. If you receive a gift, you don't have to do anything. That is, unless you receive a gift from a non-U.S. person. If you receive a gift that is greater than $100,000, you will have to report this on the IRS Form 3520.