Thursday, May 28, 2015

Top 10 Tips for Deducting Losses from a Disaster

IRS Special Edition Tax Tip
                                         
To mark National Hurricane Preparedness Week, the IRS wants you to know it stands ready to help. If you suffer damage to your home or personal property, you may be able to deduct the losses you incur on your federal income tax return. Here are 10 tips you should know about deducting casualty losses:
  1. Casualty loss.  You may be able to deduct losses based on the damage done to your property during a disaster. A casualty is a sudden, unexpected or unusual event. This may include natural disasters like hurricanes, tornadoes, floods and earthquakes. It can also include losses from fires, accidents, thefts or vandalism.

  2. Normal wear and tear.  A casualty loss does not include losses from normal wear and tear. It does not include progressive deterioration from age or termite damage.

  3. Covered by insurance.  If you insured your property, you must file a timely claim for reimbursement of your loss. If you don’t, you cannot deduct the loss as a casualty or theft. You must reduce your loss by the amount of the reimbursement you received or expect to receive.

  4. When to deduct.  As a general rule, you must deduct a casualty loss in the year it occurred. However, if you have a loss from a federally declared disaster area, you may have a choice of when to deduct the loss. You can choose to deduct the loss on your return for the year the loss occurred or on an amended return for the immediately preceding tax year. Claiming a disaster loss on the prior year's return may result in a lower tax for that year, often producing a refund.

  5. Amount of loss.  You figure the amount of your loss using the following steps:
    • Determine your adjusted basis in the property before the casualty. For property you buy, your basis is usually its cost to you. For property you acquire in some other way, such as inheriting it or getting it as a gift, you must figure your basis in another way. For more see Publication 551, Basis of Assets.

    • Determine the decrease in fair market value, or FMV, of the property as a result of the casualty. FMV is the price for which you could sell your property to a willing buyer. The decrease in FMV is the difference between the property's FMV immediately before and immediately after the casualty.

    • Subtract any insurance or other reimbursement you received or expect to receive from the smaller of those two amounts.

  6. $100 rule.  After you have figured your casualty loss on personal-use property, you must reduce that loss by $100. This reduction applies to each casualty loss event during the year. It does not matter how many pieces of property are involved in an event.

  7. 10 percent rule.  You must reduce the total of all your casualty or theft losses on personal-use property for the year by 10 percent of your adjusted gross income.

  8. Future income.  Do not consider the loss of future profits or income due to the casualty as you figure your loss.

  9. Form 4684.  Complete Form 4684, Casualties and Thefts, to report your casualty loss on your federal tax return. You claim the deductible amount on Schedule A, Itemized Deductions.

  10. Business or income property.  Some of the casualty loss rules for business or income property are different than the rules for property held for personal use.
You can call the IRS disaster hotline at 866-562-5227 FREE for special help with disaster-related tax issues. For more on this topic and the special rules for federally declared disaster area losses see Publication 547, Casualties, Disasters, and Thefts. You can get it and IRS tax forms on IRS.gov/forms at any time.
Additional IRS Resources:
IRS YouTube Videos:
IRS Podcasts:
Help for Disaster Victims – English

Source: Internal Revenue Service

Get Transcript Application: Questions and Answers

The IRS today, released a FAQ on the, "Get Transcript" incident.
 
Q. How does the Get Transcript authentication process work for people setting up accounts?
 
A. The IRS uses a multi-step process to check identities. The first part involves submitting personal information about the taxpayer, including Social Security number, date of birth, tax filing status and street address. The second step involves using “out of wallet” questions, an industry standard used by financial institutions. These questions are based on information that only the taxpayer should know, such as the amount of their car payment or other personal information. There are multiple questions that must be answered correctly before the process can be completed.

Q. Were these accounts accessed using data obtained from the IRS?

A. Third parties obtained information from sources outside the IRS. This sensitive personal information was used to try accessing the Get Transcript application; third parties did not gain access to the core IRS system or tax accounts maintained within it.

Q. What is the IRS doing to protect taxpayers affected by this?

A. The IRS is taking several steps, including marking the accounts of affected taxpayers on our core tax account system to protect them against identity theft if someone else tries to file a tax return in their name, both right now and in 2016. The IRS is also sending letters to affected taxpayers with additional information, and offering credit monitoring to those whose transcript information was accessed.

Q. Are other IRS systems affected by security issues?

A. The IRS emphasizes this issue involves one online application involving transcripts — it does not impact other IRS systems, such as our core tax filing system, nor does it impact other applications, such as Where’s My Refund.

Q. What should people do to protect themselves?

A. Identity theft is just one of many reasons why people should think twice before posting publicly personal or financial information on social media or the Internet. People should also make sure their computers are up to date with the latest security software.

Q. Where can people get more information?

A. Taxpayers who are victims of identity theft can get additional information on IRS.gov, including instructions in our Taxpayer Guide to Identity Theft, as well as our Fact Sheet: Identity Theft Information for Taxpayers and Victims.

Q. What is transcript information used for?

A. This information is used for a variety of useful financial activities, including verification of income for such things as mortgages and student loans.

Q. What kind of information is available through Get Transcript?

A. The information varies depending on what is requested. The information requested can include account transactions, line-by-line tax return information and income reported to the IRS.
  • Tax Return Transcript. A return transcript shows most line items from your tax return just as you filed it, and also includes forms and schedules you filed. However, it does not reflect changes made to the return after you filed it. In most cases, your return transcript will have all the information a lender or other agency needs to validate your income or tax reporting compliance.

  • Tax Account Transcript. This transcript shows any adjustments made by you or the IRS after you filed your return. It shows basic data, like marital status, type of return, adjusted gross income and taxable income.

  • Record of Account Transcript. This combines the information from both the tax account and tax return transcripts.

  • Wage and Income Transcript. This shows data from information returns reported to the IRS, such as W-2s, 1099s and 1098s. Current tax year information may not be complete until July.

  • Verification of Non-filing Letter. This is proof from the IRS that you didn’t file a return this year. Current year requests aren’t available until after June 15. This letter doesn’t address whether you, the taxpayer, are required to file a tax return for a given tax year. A taxpayer may fail to file a tax return even though he/she is required to do so.
Q. How many copies of Get Transcript are ordered each year?

A. About 23 million taxpayers used the online Get Transcript application this past filing season. The affected accounts are a small fraction of these — about 200,000 had access attempted. More than 100,000 of those succeeded in gaining access.

Q. I didn’t get a letter. Should I be concerned about the security of my tax information?

A. Protecting taxpayer data is a top priority for the IRS. This incident was isolated to one of our online applications; it did not involve our core system where taxpayer accounts are housed. We do not believe that general taxpayer information is jeopardized by this incident beyond those affected taxpayers’ transcript accounts.

Q. Should I call to find out if I’m receiving a letter?

A. The IRS advises not calling. Phone lines remain extremely busy due to staffing limitations, and phone assistors will not have access to additional information. Affected taxpayers will be receiving a letter directly advising them about the attempted or successful unauthorized access to their transcript and how to activate the protections we are offering them.

Q. How do I know the letter is actually from the IRS and not someone else?

A. Taxpayers can contact the IRS if they are unsure of the letter. The IRS emphasizes to taxpayers that in a notification letter like this, it will not request the taxpayer sensitive personal information such as Social Security numbers or credit card or financial information.

Source: Internal Revenue Service

Tuesday, May 26, 2015

“Get Transcript” Compromised

Today the IRS confirmed that Get Transcript – an application allowing taxpayers to review “line-by-line tax return information or wage and income reported to [the IRS]” – was illegally accessed between February and May of this year.

The press release reports more than 50% of the 200,000 unauthorized attempts were successful. All targeted account holders will be notified by mail, and the roughly 100,000 compromised accounts will receive free credit monitoring services.

To read the full article, click here.

Source: Internal Revenue Service

Monday, May 25, 2015

IRS Refunding $10 Million

Since the DC Court of Appeals upheld the district court ruling in Loving v. IRS – which determined that the IRS does not have the authority to require certification exams of tax preparers – the IRS will issue refunds to those who took the Registered Tax Return Preparer (RTRP) test. The IRS will mail a letter on May 28 followed by checks on June 2; they estimate $10,324,000 will be refunded.


The press release also notes that the Obama Administration’s 2016 budget grants the IRS authority to regulate tax preparation, which could lead to future certification tests being developed and implemented.

To read the full press release, click here.

Sources: Internal Revenue Service, District of Columbia Court of Appeals

Thursday, May 21, 2015

Registered Tax Return Preparer Test Fee Refunds

The IRS is refunding the fees that return preparers paid for the Registered Tax Return Preparer test. Letters will be mailed to refund recipients on May 28 and checks will be mailed on June 2. Return preparers took the test between November 2011 and January 2013 and paid a fee of $116. About 89,000 tests were paid for and taken, with some preparers taking the test more than once.

The refunds are being made because the federal courts determined in Loving v. IRS that the IRS lacked authority to mandate testing.

The IRS remains committed to the principle that all persons who prepare federal tax returns for compensation should be required to pass a test of minimal competency and take annual continuing education training. Taxpayers deserve top-quality and ethical service from all tax professionals. As part of this commitment, the IRS launched an interim Annual Filing Season Program in 2014 to promote voluntary continuing education by non-credentialed tax return preparers.

The Administration's 2016 budget proposal would provide the IRS with authority to regulate all paid tax return preparers. Oversight of all paid preparers, coupled with diligent enforcement, would promote high-quality services from all tax professionals, improve voluntary compliance and foster confidence in the fairness of the U.S. tax system.

Frequently Asked Questions


Source: Internal Revenue Service 

Wednesday, May 20, 2015

Small Business Retirement Plan Penalty Relief Expires Soon

IRS Special Edition Tax Tip 2015-07, May 20, 2015

You still have time to file retirement plan tax returns for your small business. Under the IRS special penalty relief program, you can avoid stiff penalties for filing late. However, you must act soon. Here are some key points you should know about this program:
  • Late Filing Penalties.  Plan administrators and sponsors who fail to file required forms can face penalties of up to $15,000 per return. The plan usually must file Form 5500-EZ each year.

  • Penalty Relief Deadline.  A special program provides penalty relief for late filers. Those who are eligible can avoid these penalties by filing late returns by June 2, 2015.

  • Relief to Certain Plans.  In general, this program is open to certain small business plans. These include owner-spouse plans, plans of business partnerships (together, “one-participant plans”) and certain foreign plans.

  • Penalty Already Assessed.  If you have already been assessed a penalty for late filings you are not eligible for this program.

  • One-Year Pilot.  The IRS launched this program on June 2, 2014, as a one-year pilot. It can help small businesses that may have been unaware of their plan’s filing requirements. So far, the IRS has received about 6,000 late returns under the program.

  • Multiple Late Returns.  You may apply for relief for multiple late returns in a single submission under this program.

  • No Fee Required.  The IRS does not charge a filing fee or require a payment to apply for this relief.
Additional IRS Resources:
IRS YouTube Video:
  • Form 5500-EZ Pilot Penalty Relief Program – English
Source: Internal Revenue Service

2016 Tax Day Moves

The due date for tax filing season 2016 is Apirl 18, 2016. 

According to Revenue Ruling 2015-13, April 18 will be the filing deadline for most of the country in 2016. Since Emancipation Day – a legal holiday in D.C. – falls on a Saturday, it will be observed on the preceding Friday, which just so happens to be April 15. Tax Day is further delayed in Massachusetts and Maine, since they observe Patriot’s Day on April 18: meaning that most residents of those states have until April 19 to file income tax returns next year.


To read the entire ruling, click here.

Source: Internal Revenue Service

Friday, May 15, 2015

IRS Withholding Calculator

If you are an employee, the Withholding Calculator can help you determine whether you need to give your employer a new  Form W-4, Employee's Withholding Allowance Certificate to avoid having too much or too little Federal income tax withheld from your pay. You can use your results from the calculator to help fill out the form.

Who Can Benefit From The Withholding Calculator?
  • Employees who would like to change their withholding to reduce their tax refund or their balance due;
  • Employees whose situations are only approximated by the worksheets on the paper W-4 (e.g., anyone with concurrent jobs, or couples in which both are employed; those entitled to file as Head of Household; and those with several children eligible for the Child Tax Credit);
  • Employees with non-wage income in excess of their adjustments and deductions, who would prefer to have tax on that income withheld from their paychecks rather than make periodic separate payments through the estimated tax procedures.
CAUTION:    If you will be subject to alternative minimum tax, self-employment tax, or other taxes; you will probably achieve more accurate withholding by following the instructions in Pub 505: Tax Withholding and Estimated Tax.

Ready to start? Make sure scripting is enabled before using this application. Continue to the Withholding Calculator

Tips For Using This Program
  • Have your most recent pay stubs handy.
  • Have your most recent income tax return handy.
  • Estimate values if necessary, remembering that the results can only be as accurate as the input you provide.
To Change Your Withholding:
  1. Use your results from this calculator to help you complete a new Form W-4, Employee's Withholding Allowance Certificate.
  2. Submit the completed Form to your employer.

IRS Marks National Military Appreciation Month; Free Tax Guide Focuses on Tax Benefits for Members of the Military

May is National Military Appreciation Month, and the Internal Revenue Service wants members of the military and their families to know about the many tax benefits available to them.
Each year, the IRS publishes Publication 3, Armed Forces Tax Guide, a free booklet packed with valuable information and tips designed to help service members and their families take advantage of all tax benefits allowed by law. This year’s edition, geared to the 2014 return, is posted on IRS.gov. Available tax benefits include:
    • Reservists whose reserve-related duties take them more than 100 miles from home can deduct their unreimbursed travel expenses on Form 2106 or Form 2106-EZ, even if they don’t itemize their deductions.
    • Eligible unreimbursed moving expenses are deductible on Form 3903 .
    • Low-and moderate-income service members often qualify for such family-friendly tax benefits as the Earned Income Tax Credit, and a special computation method is available for those who receive combat pay.
    • Low-and moderate-income service members who contribute to an IRA or 401(k)-type retirement plan, such as the federal government’s Thrift Savings Plan, can often claim the saver's credit, also known as the retirement savings contributions credit, on Form 8880.
    • Service members stationed abroad have extra time, until June 15, to file a federal income tax return. Those serving in a combat zone have even longer, typically until 180 days after they leave the combat zone.
    • Service members may qualify to delay payment of income tax due before or during their period of service. See Publication 3 for details including how to request relief.
Service members who prepare their own return qualify to electronically file their federal return for free using IRS Free File. In addition, the IRS partners with the military through the Volunteer Income Tax Assistance program to provide free tax preparation to service members and their families at bases in the United States and around the world.


TIGTA Takes IRS to School: Education Credits Wrongly Issued

The Treasury Inspector General for Tax Administration identified $5.6 billion in credits from 2012 that were wrongly issued to taxpayers who failed to file Form 1098-T, attended schools that weren’t eligible for the credit, and didn’t meet the criteria to be considered “half-time” students.


TIGTA believes this problem is due to the lack of a sufficient assessment apparatus, which could be improved by implementing processes suggested in previous audits. The report goes on to identify measures that could address and prevent this problem in the future.
 
To read the full article, click here.

Source: The Treasury Inspector General for Tax Administration

Need to adjust your filed return?

Topic 308 - Amended Returns

If you discover an error after filing your return, you may need to amend your return. The IRS may correct errors in math on a return and may accept returns without certain forms or schedules. In these instances, there is no need to amend your return! However, do file an amended return if there is a change in your filing status, income, deductions, or credits. Also, if the Form 8938 (PDF), Statement of Specified Foreign Financial Assets, applies to you, the form must be filed with an annual return or an amended return. See When and How To File in the Form 8938 Instructions (PDF).

Use Form 1040X (PDF), Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040 (PDF), Form 1040A (PDF), Form 1040EZ (PDF), Form 1040NR (PDF) or Form 1040NR-EZ (PDF). You cannot file an amended tax return electronically under the e-file system. See Where To File in the Form 1040X Instructions (PDF) for the address to mail your amended return.
If you owe additional tax for a tax year for which the due date for filing has not passed, file Form 1040X and pay the tax by the due date for that year (without regard to any extension of time to file) to avoid penalties and interest. If the due date falls on a Saturday, Sunday, or legal holiday, filing the form and paying the tax is timely if filed or paid the next business day.

Generally, to claim a refund, you must file Form 1040X within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later. Returns filed before the due date (without regard to extensions) are considered filed on the due date.

File a separate Form 1040X for each tax year you are amending. Mail each form in a separate envelope. Be sure to enter the year of the return you are amending at the top of Form 1040X. The form has three columns:
  • Column A shows original figures (the original return) or adjusted figures (prior amendments or exam changes).
  • Column C shows the corrected figures (what they should be).
  • Column B is the difference between Columns A and C. There is an area on the back of the form to explain the specific changes you are making and the reason for each change.
Attach copies of any forms or schedules affected by the change including any Form(s) W-2. You should also attach Form(s) 1099 if received after the original return filing and there is income tax withheld.

You can check the status of your Form 1040X (PDF) using the Where's My Amended Return? (WMAR) online tool or the toll-free telephone number 866-464-2050 FREE three weeks after you file your amended return. Both tools are available in English and Spanish and track the status of amended returns for the current year and up to three prior years.

You must enter your taxpayer identification number (usually your Social Security number), date of birth, and ZIP code in either tool to prove your identity. Once you authenticate, the Web tool shows an illustrated graphic to visually communicate the status of your amended return within the processing stages: Received, Adjusted, or Completed. As a reminder, amended returns take up to 16 weeks to process and up to three weeks to show up in our system. Before that time, there is no need to call the IRS unless the tool specifically tells you to do so.

Please note: A change made on your federal return may affect your state tax liability. For information on how to correct your state tax return, contact your state tax agency.

Source: Internal Revenue Service

Thursday, May 14, 2015

Understanding Your 5071C Letter


If you receive a 5071C letter, please respond in a timely matter. If not, the IRS will delay the acceptance of your tax return.

The following is from the IRS:

This letter tells you that the IRS received a tax return with your name and/or social security number and needs to verify your identity. You can verify your identity using our secure Identity Verification Service site at idverify.irs.gov. The contact information below is only for taxpayers who received Letter 5071C.

Why are we contacting you?
We received a federal income tax return with your name and/or social security number. We want to protect you from potential identity theft so we are asking you to verify your identity and tell us if you submitted the return. The letter you received provides two options for responding. Both options enable you to verify your identity with us so we can continue processing your tax return.
This contact information is only for taxpayers who received Letter 5071C. The toll-free number and website are for identity verification only. No other tax-related information, including refund status, is available.

What is involved in this process?

We will continue processing your tax return once we verify your identity and confirm that you submitted the return. If you did file the return, please know it will take approximately six weeks to process it once you verify your identity. Follow the identity verification described under "What should you do?" below to provide us with the necessary information.

What should you do?
  • Use our secure Identity Verification Service website idverify.irs.gov. It's quick and secure. You should have available a copy of your prior year tax return and your current year tax return, if you filed one, including supporting documents.
  • If you cannot use the Idverify website, you can call us using the toll-free Identity Verification telephone number provided in your letter. Again, you should have available a copy of your prior year tax return and your current year tax return, if you filed one, including supporting documents.
  • If you did not file the return in question, you can use either option to notify us.

How can I learn more about the IRS's identity protection efforts?
The IRS is continually looking at ways to increase data security and protect taxpayers' identities. To learn more, view these topics on IRS.gov.
Source: Internal Revenue Service

IRS Deadline: Forms 990 Due May 15

The IRS issued a reminder to some tax-exempt organizations: May 15 is the deadline to submit Forms 990, 990-EZ, or 990-PF. If those affected miss this deadline, it could result in the loss of tax-exempt status.*

To read the full article,
click here.

* According to the article, “organizations that fail to file annual reports for three consecutive years will see their federal tax exemptions automatically revoked as of the due date of the third required filing.”

Source:
Internal Revenue Service

Strike That: IRS Guidance for Amending a Return


The IRS released advice for amending a federal tax return. Among the ten tips, the article highlights the circumstances necessitating an amended return, the number of forms needed, how long to wait before filing, when owed taxes should be paid, and more.

When filing an amended return, remember to get your hands on a Form 1040X. As the IRS suggests, don’t worry about correcting computational errors: They will make corrections for mathematical mistakes. The IRS also reminders readers that amended returns can be tracked online at
IRS.gov.

To read the original article,
click here.

Source:
Internal Revenue Service