File That Final Tax Return – Five reasons death and a tax return makes sense
File That Final Tax Return – Five reasons death and a tax return makes sense
Often when a loved one dies, a final tax return is not required. Here are five good reasons to consider filing the tax return even when one is not needed.
If a parent or loved one died this past year, you may wish to consider filing a final tax return even if not technically required to do so.
Background
When a deceased’s estate is more than the federal threshold of $5.45 million in 2016, an estate tax return is required. This limit requires only a small percentage of taxpayers to file an estate tax return. Filing requirements change if your state’s estate tax threshold is at a lower dollar amount.
Five reasons to file a final return
- Definitive notice to the IRS. When the death certificate is finalized, part of the process is to let Social Security know of a taxpayer’s passing. Eventually the IRS will be notified of the death. By filing a final tax return with the IRS, you are providing a direct notice of the death to the IRS. This should keep the IRS from sending you future notices for missing tax returns. It will also help alleviate automatic notices sent from the IRS for unreported earnings or mismatching 1099’s prior to the IRS receiving a death notice from Social Security.
- Withholdings and credits. Often though not required to file a tax return, the deceased is owed a refund. The only way to receive this refund is to file a tax return.
- Peace of mind. Sometimes even though a tax return is not required to be filed, doing so helps the survivors provide some closure. Remember the IRS can audit a prior tax year indefinitely if a tax return is not filed. By filing a final tax return the audit clock starts its 3-year time period.
- Capital gains and losses. Part of preparing an income tax return is the review of property sales. This process creates a summary of capital gain and loss activity for the year. Even if you decide not to file the tax return, you will have the information necessary to defend any IRS challenge of these capital transactions.
- Establishing basis. You will need to capture the fair market value of assets transferred to beneficiaries. This helps establish a valuation basis for the new owners. Beneficiaries will need this new value if they later sell inherited items.
If you have questions regarding your situation, please ask for help.
In the News: Tax Extenders Bill Passes – Many tax changes impact 2015
Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) is the latest edition of retroactive tax law changes being implemented at the end of a tax year. Some of the changes require your immediate attention.
Here is what you need to know.Read More
The Lost Art of Tracking Home Improvements – How a tax law makes us sloppy and creates a tax risk
When does a tax benefit not become a tax benefit? When you assume you no longer need to keep track of something. This is the case with the home gain exclusion.
One of the more popular provisions in the tax code is the $250,000 capital gain exclusion ($500,000 for a married couple) of any profit made when selling your home. As long as you follow the rules, most home sales transactions are not a taxable event.
But what if the tax law is changed?
What if you rent out your home?
What if you cannot prove the cost of your home?
Your best defense to a potentially expensive tax surprise in your future is proper record retention.
The problems
The gain exclusion is so high, that many of us are no longer keeping track of the true cost of our home. This mistake can be costly. Remember, this gain exclusion still requires documentation to support the tax benefit.
The calculation
To calculate your home sale gain take the sales price received for your home and subtract your basis. This “basis” is the original cost of your home including closing costs adjusted by the cost of any improvements you have made in your home. You might also have a reduction in home value due to prior damage or casualty losses. As long as the home sold is owned by you as your principal residence in at least two of the last five years, you can usually take advantage of the capital gain exclusion on your tax return.
To keep the tax surprise away
Always keep documents that support calculating the true cost of your home. This should include:
- Closing documents from the original home purchase
- All legal documents
- Canceled checks and invoices from any home improvements
- Closing documents supporting the value of the sale of the home
There are some cases when you should pay special attention to keeping track of your home value.
You have a home office. When a home office is involved, it can impact the calculation of the capital gain exclusion. This is especially true if you depreciated part of your home for business use.
You have lived in your home for a long time. Most homes will rise in value. The longer you stay in your home the more likely the value of your home will rise over time. For example, a sizable gain can occur when an elderly single parent sells their home after living in it for over 50 years.
You live in a major metropolitan area. Certain areas of the country are known to rapidly increase in value.
You rent out your home. Any time part of your home is depreciated, it can impact the calculation for available gain exclusion. Home rental also can impact the residency requirement calculation to receive the home gain tax exclusion.
You recently sold another home. The home sale gain exclusion can only be used once every two years. If you recently sold a home with a gain, keeping all documents related to your new home will be critical.
The best way to protect this tax code benefit is to keep all home-related documents that support calculating the cost of your property. Please call if you wish to discuss your situation.
Do You Need to File a Tax Return? – Getting this wrong can cost you
Do You Need to File a Tax Return? – Getting this wrong can cost you
Do you need to file a tax return this year? Here are some handy tips to help you decide.
One of the more common tax questions is whether you need to file a tax return this year. The answer is: It all depends. Here are some quick tips to help you determine your answer.
Income
If your gross income is less than the sum of your standard deduction plus the amount of your personal exemption(s) you usually do NOT need to file a tax return. This is because both of these deductions effectively eliminate any taxable income. The amounts for 2015 are:
Married filing joint: $20,600 ($21,850 if one is 65 or older; $23,100 if both are 65 or older)
Head of household: $13,250 ($14,800 if age 65 or older)
Unmarried (single): 10,300 ($11,850 if age 65 or older)
Over age 65
As noted above, if you or your spouse are over the age of 65 the income required to file a tax return goes up by $1,250 (married) to $1,550 (single/Head of Household) for each of you that meets the age threshold.
Exceptions
Like most tax laws, there are exceptions to the income limits mentioned above. Here are some of the more common situations where filing a tax return may make sense.
- You have federal or state withholdings. The ONLY way to get money back that was withheld from a paycheck or 1099 is to file a tax return. If you do not do so within three years, your refund will be absorbed by the government. While the IRS is quick to let you know that you owe them money, there is no such program to let you know that a refund is due to you.
- You are eligible for a refundable credit. Refundable credits will pay you money even if you don’t owe income tax. For example, if you have a tax liability of $750, but you are eligible for a $1,000 tax credit you normally can only receive the $750 tax benefit. But with a refundable tax credit you can receive the additional $250, even without a tax liability. The most common examples of refundable credits are the Child Tax Credit, the Earned Income Tax Credit and the American Opportunity Tax Credit.
- If you are a dependent. Special filing rules apply if you are a dependent on someone else’s tax return. If this is the case, filing rules vary depending on your age, your earned income (like wages) and your unearned income (like interest income). In this case it is usually best to conduct a review of your situation.
- Other reasons. Sometimes filing a tax return can be used for other purposes. This includes using your tax return to obtain financing or to receive college financial aid. Another reason is to limit the amount of time your tax return can be audited. Once a tax return is filed, the audit clock starts. After 3 to 4 years most tax returns can no longer be audited. If the return is not filed, this audit clock never starts.
Understanding Tax Terms: All those 1099’s – Be prepared to file your tax return
Understanding Tax Terms: All those 1099’s – Be prepared to file your tax return
So many 1099’s. How do you keep them all straight? Here is a quick review of the most common 1099’s to help you prepare to file your tax return
Most taxpayers receive at least one 1099 each year. Virtually every small business, including sole-proprietors, must issue at least one 1099 each year. Here is a summary of the most common of these informational tax forms that you will need to file your tax return this year.
The Form 1099
The Form 1099 is an informational tax form that captures economic activity that is then reported to you and the tax authorities. The primary purpose of the form is to ensure you are reporting your taxable income. The forms are typically required to be sent to you on or before January 31st each year. The same information is due to the IRS on or before February 28th (March 30th if the form is filed electronically).
Common 1099 Forms
1099 INT: This is the form you receive for interest earned. You should expect one of these for every bank account that pays interest, no matter the dollar amount of interest.
1099 DIV: This form captures dividends paid to you. Correct classification of dividends on this form is crucial. Tax rates are lower for qualified ordinary dividends versus other types of dividend payments.
1099 B: You will receive this form if you sell stocks or mutual funds. This tells the IRS to look for possible taxable investment sales.
1099 MISC: This is the default catch all 1099 for income earned when you are not an employee. This form is provided to independent contractors and attorneys for gross compensation. If you are a sole proprietor, each of your customers that are billed over $600 should be sending you one of these forms.
1099 R: You will receive this form if you have distributions from a qualified retirement account during the year.
1099 G: This form captures governmental payments to you. You may receive one of these if you receive a state tax refund.
1099 SA: This form captures distributions from health reimbursement accounts like HSA’s and MSA’s.
What you need to know
- Use the information in this tip to ensure you are receiving the necessary 1099’s to file your tax return.
- To be sure, create a list to confirm receipt of the necessary 1099’s. Missing 1099’s is a common reason for a delay in filing your tax return.
- There are other types of 1099’s. If you receive a 1099 and are not sure what the form is, ask for clarification.
Remember, the IRS receives these forms. Their computers will run a cross-check against your return to ensure you have not omitted any of them.
Understanding Tax Terms: All those 1099’s – Be prepared to file your tax return
Understanding Tax Terms: All those 1099’s – Be prepared to file your tax return
So many 1099’s. How do you keep them all straight? Here is a quick review of the most common 1099’s to help you prepare to file your tax return.
Most taxpayers receive at least one 1099 each year. Virtually every small business, including sole-proprietors, must issue at least one 1099 each year. Here is a summary of the most common of these informational tax forms that you will need to file your tax return this year.
The Form 1099
The Form 1099 is an informational tax form that captures economic activity that is then reported to you and the tax authorities. The primary purpose of the form is to ensure you are reporting your taxable income. The forms are typically required to be sent to you on or before January 31st each year. The same information is due to the IRS on or before February 28th (March 30th if the form is filed electronically).
Common 1099 Forms
1099 INT: This is the form you receive for interest earned. You should expect one of these for every bank account that pays interest, no matter the dollar amount of interest.
1099 DIV: This form captures dividends paid to you. Correct classification of dividends on this form is crucial. Tax rates are lower for qualified ordinary dividends versus other types of dividend payments.
1099 B: You will receive this form if you sell stocks or mutual funds. This tells the IRS to look for possible taxable investment sales.
1099 MISC: This is the default catch all 1099 for income earned when you are not an employee. This form is provided to independent contractors and attorneys for gross compensation. If you are a sole proprietor, each of your customers that are billed over $600 should be sending you one of these forms.
1099 R: You will receive this form if you have distributions from a qualified retirement account during the year.
1099 G: This form captures governmental payments to you. You may receive one of these if you receive a state tax refund.
1099 SA: This form captures distributions from health reimbursement accounts like HSA’s and MSA’s.
What you need to know
- Use the information in this tip to ensure you are receiving the necessary 1099’s to file your tax return.
- To be sure, create a list to confirm receipt of the necessary 1099’s. Missing 1099’s is a common reason for a delay in filing your tax return.
- There are other types of 1099’s. If you receive a 1099 and are not sure what the form is, ask for clarification.
Remember, the IRS receives these forms. Their computers will run a cross-check against your return to ensure you have not omitted any of them.
Contractor or Employee? Knowing the difference is important
Too many small businesses have been taxed and penalized for having independent contractors that the IRS believes should be employees. This is even more critical given the requirement to have health insurance.
Is a worker an independent contractor or an employee? This seemingly simple question is often the contentious subject of numerous IRS audits. As an employer, getting this wrong could cost you plenty in the way of Social Security, Medicare taxes, and other employment related taxes. Here is what you need to know.
The basics
As the worker. If you are the worker and you are not considered an employee you must;
- pay self-employment taxes (Social Security and Medicare related taxes)
- make estimated federal and state tax payments
- handle your own benefits, insurance, and bookkeeping
As the employer. You must ensure your employee versus independent contractor determination is correct. Getting this wrong in the eyes of the IRS can lead to;
- payment and penalties related to Social Security and Medicare taxes
- payment of possible overtime including penalties for a contractor reclassified as an employee
- legal obligation to pay for benefits
Determining the answer: things to consider
When the IRS recharacterizes an independent contractor as an employee they look at the business relationship between the employer and the worker. The IRS focuses on the degree of control exercised by the business over the work done and they will assess the worker’s independence. Here are some tips.
- The more the employer has the right to control the work, when the work is done, how the work is done, and where the work is done, the more likely the worker is an employee.
- The more the financial relationship is controlled by the employer the more likely the relationship will be seen as an employee and not an independent contractor. To clarify this, an independent contractor should have a contract, have multiple customers, invoice the company for work done, and handle financial matters in a business-like manner.
- The more business-like the arrangement the more likely you have an independent contractor relationship.
While there are no hard set rules, the more reasonable your basis for classification and the more consistently it is applied, the more likely an independent contractor classification will not be challenged.hrll
Extension for Form 1095 Reporting What everyone needs to know
Many more taxpayers will see Form 1095’s this year. These forms are required to prove you have had health insurance coverage for the year. Due to the vast amount of work required to create this form, the IRS is granting a delay in getting versions of this form to taxpayers. Here is what you should know
For 2015 tax returns, everyone employed by a company with 50 or more employees will receive a new Form 1095. This form is in addition to the Form 1095’s received by other taxpayers using the Marketplace to purchase their health insurance. You need this form to file your taxes as it provides the necessary proof that you have adequate health insurance for the year.
A recent announcement by the IRS provides a delay for the issuing of this form due to complications in creating the proper form by employers and insurers.
What is happening
You need Form 1095 to file your income taxes for 2015. Without the form, you could be subject to the uninsured tax penalty called the shared responsibility payment. Unfortunately, many businesses do not have enough time to get the correct health insurance information and transfer the data into their other systems to generate the form. So the IRS has granted an extension for Form 1095 B and 1095 C. Here are the old and new dates.
| Form | Purpose | Original due date | New due date |
| 1095 B & 1095 C | Report to employees of adequate health insurance coverage by month | 2/1/2016 | 3/31/2016 |
| Summary forms 1094 B & 1094 C | Summary forms sent to the government confirming employee health care coverage | 2/29/2016 (3/31 if filing electronically) |
5/31/2016 (6/30 if filing electronically) |
Note: This delay does not impact the timing of Form 1095 A, Health Insurance Marketplace Statement. 1095 A is the form you receive if you purchase your health insurance through the Marketplace and not through your employer. Nor does this impact those who have their health insurance through other programs like Medicare.
What it means to you
Since the IRS understands that taxpayers do not wish to wait to file their 2015 tax returns, the service is allowing for you to file your 2015 tax return without receiving this form. Here are some suggestions.
Check with your employer. If you work for an employer with more than 50 employees, check with your human resources to find out when you expect to receive the 1095 form. If there is no delay, then wait for Form 1095.
Look for other supporting documents. For 2015, the IRS will allow you to support your insurance coverage with means other than Form 1095. Simply collect this proof of insurance and save it in case of a future audit.
Wait. If you changed jobs or have a situation that suggests there may be a gap in insurance coverage you may wish to wait until you receive your documents. Please remember there is no corresponding delay granted to file your tax return. So if you still wish to wait, either file your tax return in April or file an extension. Taxes owed are still due on or before April 18th.
Considering the Affordable Care Act requires health insurance information to be transferred from insurance carriers into payroll reporting, it is understandably a complex reporting change. Since the shared responsibility tax payment is increasing substantially in 2015 and beyond, you will want to ensure you have adequate proof of qualified health insurance.
IRS PIN Announcement: DO NOT THROW OUT Identity theft PINs are for 2015 not 2014
Recent notices sent out by the IRS for victims of identity theft refer to tax year 2014 in error. These one-time use PINs are for the 2015 tax year. Here is what you need to know.
If you are one of the unfortunate victims of IRS identity theft you will need a one-time PIN to file your tax return. Without this numeric identifier your 2015 tax return will be rejected. The IRS issues taxpayer victims this PIN in a written notice.
What has happened
IRS notices that have this one-time PIN are hitting mailboxes of identity theft victims right now. This is notice CP01A. The tax year printed on the notice may be 2014, when the PIN is to be used for your 2015 tax return. This mistake is causing confusion among taxpayers.
What to do
Do not throw out the notice! This PIN is for your 2015 tax return. Without it you cannot file this year’s tax return.
File your tax return. When tax return filing opens on January 19th, you can file your tax return. This PIN must be entered on your tax form to be accepted by the IRS.
The IRS knows of the mistake. They will not be issuing new forms. Here is their announcement on the error:https://www.irs.gov/Individuals/The-Identity-Protection-PIN-IP-PIN
The mileage rates for 2016 are now available and are noted here.
The IRS recently announced mileage rates to be used for travel in 2016. The Business mileage rate decreases by 3.5 cents while Medical and Moving mileage rates are lowered by 4.0 cents. Charitable mileage rates are unchanged.
2016 New Mileage Rates
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Here are 2015 rates for your reference as well.
2015 Mileage Rates
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Remember to properly document your mileage to receive full credit for your miles driven.