Do You Need to File a Tax Return?

As a little kid you never think about taxes or filing a tax return.  Then you get your first job and make a bit of money.  Your first check is smaller than expected because of the taxes. This the first time you understand why people complain about taxes!

Now you have a more regular gig that pays more.  You have no choice but to start thinking about filing a tax return. Do you know when you need to file a tax return? How much money can you make before you are required to file a tax return? You think to yourself, is it even worth filing a tax return this year? Well here are the rules for when you need to file a tax return.

If you are an individual and a resident of the United States or a resident of Puerto Rico, whether you must file a return or not depends on three factors:

– Gross Income
– Filing Status
– Age

Gross Income

Gross income includes all of the income you have received over the year in the form of money, goods, property, and services that are not exempt from tax. Some examples of taxable income are; salary, wages, tips, bonuses, and dividends.

If you get a 1099-Misc. and it is over $600 dollars you have to file a tax return.

Also if you are getting social security money you must include the benefits in Gross Income calculations if:

1. You are married, filing a separate return, and you lived with your spouse at any time during 2016

2. Half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly)

Filing Status

Your filing status depends on whether you are single, married, married filing separate, head of household, or a qualifying widow/widower with dependent child.

Your filing status is determined on the last day of the year, December 31. For example, if you got married in July of 2017, then you must file married or married filing separate because at the end of the year you were married. It works the same way for getting a divorce.  If in November 2017 you get divorced, you no longer can file married or married filing separate even though you were married for most of year.

Age

Age is determined by what age you are on December 31. The best way to put this is that if you are 24 at the beginning of 2017 but turn 25 during the year, you are 25 for your 2017 tax return. There is one special rule for this. If your birthday falls on January 1st of 2018, and you are turning 65 on January 1st 2018, you can file as 65 years of age on your 2017 take return. The rule only works for age 65, and only if your birthday is on the 1st of the year. This takes effect because once you are 65 or older you may be eligible for additional deductions.

Tax Return Filing Requirements Chart

If your Filing Status is… AND at the end of 2016 you were… THEN file a return if your gross income was at least…
Single Under 65 $ 10,350
65 or older $ 11,900
Married filing jointly Under 65 (both spouses) $ 20,700
65 or older (one spouse) $ 21,950
65 or older (both spouses) $ 23,200
Married filing separately Any age $   4,050
Head of household Under 65 $ 13,350
65 or older $ 14,900
Qualifying widow/widower with dependent child Under 65 $ 16,650
65 or older $ 17,900

(This chart shows the income for 2016 requirements)

To read this chart effectively start in the left most column and find your filing status.  Then move to the right for the next column, age. After figuring out what age group you fit in follow that row to the next column, income.  This is the income threshold for filing a return.  If your income is less than the income threshold then you don’t need to file a tax return.  If your income is greater than the income threshold then you must file a tax return.

Example 1: You are 24, single and earned $9,000 of income.  According to the chart, you are not required to file a tax return because your income is less than $10,350.

Example 2: You are 24, single and earned $15,000 of income. According to the chart, you are required to file a tax return because your income is more than $10,350.

Remember, you are required to file a tax return if you earn more than $600 of self-employed or Form 1099-MISC income.

IRS. “Personal Exemptions and Dependents.” Publication 17 (2016), Your Federal Income Tax. IRS, n.d. Web. 01 June 2017.

What is a Qualifying Relative?

In our previous blog, we reviewed the rules for claiming a child as a dependent under the qualifying child tests.  What if there is a person in your life that doesn’t meet one of the qualifying child tests but you fully support that person?  Can you still claim this person as a dependent on your tax return?  The answer may be yes under the rules for qualifying relative.

Not a Qualifying Child Test

The person can’t be a qualifying child or be a qualifying child for anybody else.  Click here to read more about qualifying child.  

Member of Household or Relationship Test

The person must meet either one of these tests.  The person has either lived with you for the entire year or is related to you in one of the following ways:

– Child/ Stepchild/ Grandchild
– Son/ Daughter-in-law
– Brother/Sister
– Half Brother/Sister
– Step siblings
– Mother/Father
– Grandparents
– And if related by blood: Aunt, Uncle, Niece, or Nephew.

Gross Income Test

The person’s gross income cannot exceed the exemption amount for the year.  The exemption amount for 2017 is $4,050.

Support Test

You must provide more than half of the person’s financial support throughout the year. Financial support may include cash given, expenses paid on behalf of the child (car insurance, food, housing), college costs paid through loans, and fair rental value of the space used at your home.

Other Rules

There are special cases to the rules stated above.

A person born or died in the year, but lived with you for the rest of the time, may be considered of lived with you for the entire year.

A person is temporarily not living with you due to illness, school, business, military service, or vacation; may be considered to have lived with you the entire year.

The person may be financially supported by multiple people.  In this case, one of you may claim the person as a dependant. You must discuss this among the group and you must have provided at least 10% of the person’s support.

You may be able to claim your spouse as a dependent on your Married Filing Separate tax return.  Your spouse must have earned $0 gross income to qualify as a dependent on your tax return.

IRS. “Personal Exemptions and Dependents.” Publication 17 (2016), Your Federal Income Tax. IRS, n.d. Web. 01 June 2017.

Claiming Older Child as a Dependent

Congratulations! You have a child graduating from high school.  Even more exciting is he or she is enrolled in college, planning their own life, and finding their own path.  Your child may have a job for extra money.  You are happy to see your child growing up to be an adult.  Then you start to think.  What about taxes next year? Can you still claim your child as a dependent? Does it matter how much he or she makes working part time while going to school? When do you have to stop claiming your child as a dependant on your taxes?

There are two set of rules for claiming a dependent on your tax return.  The first set of rules is called, “Qualifying Child.”  The second set of rules is called, “Qualifying Relative.”  In this blog, we will review the rules for qualifying child.  Stay tuned for our next blog article on the rules for qualifying relative.

Relationship Test

The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.

Age Test 

Any child under the age of 19 at the end of the year meets the age test.  If the child is between the ages of 19 and 24, then the child must be a full time student to meet this test.  There are no age restrictions for children that are permanently and totally disabled.

Residency Test

Your child has to have lived with you for more than half a year. There are exceptions for temporary absences such as; if the child is away for school, a child who was born or died during the year and if the parents are separated and the child lives with the other parent.

Financial Support Test

You must provide more than half of the child’s financial support throughout the entire year. Financial support may include cash given, expenses paid on behalf of the child (car insurance, food, and housing), college costs paid through loans, and fair rental value of the space used at your home.

Evaluating this test is based on the amount of income earned by your child.  If your child earned $5,000 throughout the year working at a part time job, then you will need to provide $5,001 of financial support to meet this test.

Return Test

Generally, you can’t claim a married child as a dependent if the married child filed a joint return with his or her spouse.

If your child files his or her own tax return, the child must not claim themselves as a dependent on the tax return.

Other Rule

The child has to be a U.S. citizen, U.S. resident alien, a resident of Canada or Mexico, or a U.S. national. There are exceptions for adopted children.

If your child doesn’t meet any one of these rules, then you still may be able to claim the dependency deduction under qualifying relative rules.

IRS. “Personal Exemptions and Dependants.” Publication 17 (2016), Your Federal Income Tax. IRS, n.d. Web. 01 June 2017.

IRS Starts New Private Third Party Debt Collection Program

You may have received a weird letter from the IRS.  Is it a scam? How did this company get personal information about your back IRS tax balances? In December of 2015, Congress passed into law the use of third party debt collectors to collect old uncollected tax debt.

The IRS contracted with four different third party debt collectors to start the new Private Debt Collection Program. The new program authorizes third party debt collectors to collect outstanding inactive taxes for the government. The collecting agencies will be working on accounts that the IRS is no longer working on, but the taxpayer still owes back taxes. The factors for hiring four outside contractors to collect money are older, overdue taxes, and/or lack of resources for the IRS to continue working the case.

IRS Hires Four Third Party Debt Collection Companies

The four collection agencies are:

CBE
P.O. Box 2217
Waterloo, IA 50704
1-800-910-5837

ConServe
P.O. Box 307
Fairport, NY 14450-0307
1-844-853-4875

Performant
P.O. Box 9045
Pleasanton CA 94566-9045
1-844-807-9367

Pioneer
PO Box 500
Horseheads, NY 14845
1-800-448-3531

Letter from IRS Notifying of Collection Company

Because there are many different “Tax Scams” going around, the IRS is doing whatever they can to avoid confusion. The IRS will send effected taxpayers a letter about the account transfer. Then the private collection agency will send another letter about the transfer of debt collection from the IRS to the third party collector. If the taxpayer has a representative assisting them on the back tax balances, the representative will receive a copy of both the IRS letter and the agency’s follow up letter.

Your letter from the private collection agency will have certain information on it such as: Toll free telephone number to call with questions and your right to contact the Taxpayer Advocate Service. The letter may contain information on the different ways to pay outstanding and include explanations on how to notify the private collection agency if the taxpayer disputes the legitimacy of the debt or any portion of the debt.

Here is real an example of a letter from ConServe.

Third Party Collector Letter

IRS. “New Private Debt Collection Program to Begin next Spring; IRS to Contract with Four Agencies; Taxpayer Rights Protected.” IRS. N.p., n.d. Web. 1 June 2017.

How to Handle the Inevitable Stress of Tax Season

Picture for articleIt’s springtime, and you know what that means. Birds are chirping, flowers and blooming, and you’re staring at your W-2s. Tax season is an inevitable part of life, and so is the stress that comes with it. If you know how to help yourself, however, you can mitigate the stressful effects of reporting your income to Uncle Sam. Here are some ways to handle the stress of tax season.

Know your best option for help

Many of us will seek help when preparing our taxes – whether it’s in the form of online preparation software (or W-2 or 1099 software if you own a business), a professional tax preparation service, or a friend or family member.

If you’re looking for a professional, make sure you ask about their credentials. Also opt for services that have a set fee – not ones that base their fee on the size of your tax return.

“Bigger isn’t always better. Be wary of tax preparation services that promise larger refunds than the competition, and avoid tax preparers who base their fee on a percentage of your refund,” says the Better Business Bureau. “Look for credentials. Ideally, your tax preparer should either be a certified public accountant, a tax attorney, an enrolled agent or a certified E-file provider. Also ask if they belong to any professional organizations or attend continuing education classes.”

If you make less than $54,000 a year, are elderly, or have trouble speaking English, the IRS has free programs to help you out.

Take steps to prevent scams and theft

One of the worst things about tax season is that it really brings out the criminals. In order to help yourself thwart their attempts, you should always make sure your internet connection is secure when e-filing. File early so thieves are unable to steal your social security number to file a fake return. Shred extra tax documents (after you organize and store what’s necessary).

Also, be aware of potential scams. Scammers can call, claiming to be the IRS, a certified tax preparer, or a charitable organization looking for tax info. Be aware that the IRS will never contact you by telephone or email – always by snail mail. If you feel you’ve been the target of a scam, contact the authorities.

Pay it forward

No, don’t pay more than you must to the IRS. Pay it forward to yourself, for next tax season. Think about what you can do this year to make next year’s filing easier. Most of the time, this starts with organization. Hang on to all relevant tax documents and set up a system for filing the new ones that come your way throughout the year.

“Start the year off right by putting all tax related documentation in a file folder. Each time you get a receipt or document to be used for your tax filing, place it into the folder. Consider keeping a master list of all items in your folder,” says Alt-Creative. “You will thank yourself later when you go to gather your tax documents next year and everything you need is conveniently located in one place. Instead of spending hours preparing documents for your tax professional, you can simply grab your folder and go.”

Take some time to de-stress

Money is stressful. There’s no getting around this. If tax season has you feeling the weight of the world, take a break and de-stress before jumping back in. Take your dog for a walk, do some yoga, or close your laptop, put away your documents, and practice some stress-relieving meditation. Have a beer. There’s no reason you have to stress yourself out this tax season. Start early enough that you can take your time.

Photo Credit: Pixabay.com

Author: Julie Morris

Two Good Reasons for Filing Your Taxes Early

It’s tax time! This year personal tax returns are due on April 18, 2017. In January and February, you will start to receive tax documentation needed to prepare your tax returns. At this point, you may be saying to yourself, “I have plenty of time between now and April 18th to get my taxes done.” While this is true, consider the following two good reasons for completing and filing your taxes early.

Reason #1 – Tax professionals are less busy

If you hire a tax professional to prepare your taxes, tax professionals are significantly less busy at the beginning of the tax season compared to the end of the tax season.

The peak of the tax season will be between March 15th and April 18th. During this time, tax professionals will work long hours to get all tax returns completed by the due date. It’s a crazy time. However, at the beginning of the tax season, tax professionals will start to get busy but not nearly as busy. Your tax preparer will have more time available to meet your needs compared to later in the tax season.

Reason #2 – Identity theft and fraudulent tax returns

This reason is a more important reason to file your taxes early. Consider this situation.

– Your name, birth date and social security number are, unknowingly, stolen
– The scammer electronically files a fraudulent tax return showing a large refund
– The IRS processes the tax return and deposits the refund into the scammer’s financial institution
– Your taxes are prepared and you file your tax return electronically
– The IRS rejects your tax return because the IRS says you already filed a tax return

What can you do now? There are procedures to notify the IRS of the identity theft. This includes paper filing your tax return with Form 14039, Identity Theft Affidavit. Click here more information. It will take the IRS approximately 6 to 8 months to clear up the situation and process your tax return. This includes waiting for a long time to get your tax refund.

However, if you filed your tax return early, then your tax return will be filed first. The fraudulent tax return filed by the scammer will be filed after yours and, therefore, will be rejected by the IRS.

The risk of identity theft has increased over the years. Over past two tax seasons, we’ve had at least one client fall victim to identity theft. Both of these clients provided us their tax information in April and their tax returns were filed right around April 15th. Their tax returns were rejected because a fraudulent tax was already filed.

Related Identity Theft Stories

The IRS was hacked several times over the past two years.
IRS Hacked Again and Tax Scams Continue

Then there was the major hack at Michigan State University where student data was stolen, this includes current students and Michigan State alumni.
Michigan State University Hacked, Student Data Stolen

FREE Homeowner Tax Class – February 18, 2017 at 10am

On February 18, 2017, there is a FREE 1 hour tax class for homeowners.  The class starts at 10am and will be held at Team Hinton Real Estate Group in Downtown Ypsilanti, MI.  ALG will be presenting.

The following are topic ALG will cover.

  • Preparing your own tax return or hiring a tax preparer
  • Tips on hiring a tax preparer
  • Standard deduction versus itemized deductions
  • Most common itemized deductions
  • Other deductions (Above the line deductions)
  • Identity theft and IRS tax scams issues (What are they and what can you do)

Sign up for the class here.

Topic:  Tax Class for Homeowners
Date:  February 18, 2017
Time:  10:00 am to 11:00 am
Place:   Team Hinton Real Estate Group, 36 N. Washington, Ypsilanti, MI

 

Important 2017 IRS Due Dates

New for 2017 are some changes to the due dates for various tax returns.  For example, partnership tax returns are due on March 15 instead of April 15.  Also, a couple of the due dates fall on a holiday and/or weekend.  When this happens, the due date is the next business day.

January 23, 2017

Tax season starts.  The IRS will start accepting and processing tax returns on this date.

January 31, 2017

– Form W-2, Wage and Tax Statement; and

– Form 1099-MISC, Miscellaneous Income.

The due dates for Form W-2 and Form 1099-Misc includes filing necessary forms to the recipient, IRS and Social Security Administration.  The requirements for filing these two forms were slightly different in previous years.

February 15, 2017

Tax refunds due to Earn Income Tax Credit or Additional Child Tax Credit will be held until this date.  A new law was put in place requiring the IRS to hold the refunds.

March 15, 2017

– Form 1065, U.S. Return of Partnership Income; and

– Form 1120S, U.S. Income Tax Return for S Corporation Return.

In previous years, partnership returns were due on April 15.

April 18, 2017

April 15 falls on a weekend in 2017 and Monday April 17 is Emancipation Day.  Therefore, tax returns are due on Tuesday, April 18, 2017.

– Form 1040, U.S. Individual Income Tax Return;

– Form 1041, U.S. Income Tax Return for Estates and Trusts;

– Form 1120, U.S. Corporation Income Tax Return;

– Form 1040-ES, Q1 Estimated Tax for Individuals; and

– Form 1120-W, Q1 Estimated Tax for Corporations.

New this year, Form 1120 Corporation returns are due in April instead of March.

June 15, 2017

– Form 1040-ES, Q2 Estimated Tax for Individuals; and

– Form 1120-W, Q2 Estimated Tax for Corporations.

September 15, 2017

– Extended Form 1040, U.S. Individual Income Tax Return;

– Extended Form 1041, U.S. Income Tax Return for Estates and Trusts;

– Extended Form 1120, U.S. Corporation Income Tax Return;

– Form 1040-ES, Q3 Estimated Tax for Individuals; and

– Form 1120-W, Q3 Estimated Tax for Corporations.

October 2, 2017

– Extended Form 1041, U.S. Income Tax Return for Estates and Trusts

December 15, 2017

– Form 1120-W, Q4 Estimated Tax for Corporations

January 15, 2018

– Form 1040-ES, Q4 Estimated Tax for Individuals

Fake IRS Tax Bill Scam

The IRS issued a warning about fake IRS tax bills being mailed to taxpayers.  Scammers have created a fake version of a real notice used by the IRS, Notice CP2000.  We suggest using our IRS Letter Decoder to check the authenticity of the letter you may have received before responding.  Continue reading…