by Stephen Reed | Accounting News, IRS, News, Tax, Tax Consulting, Tax Planning - Individual, Tax Preparation - Individual
Although it might be difficult to imagine not claiming a tax refund, the IRS has estimated that nearly 1 million Americans have not claimed tax refunds from the 2014 tax year (filed in 2015), refunds that total over $1 billion. The IRS is also reminding taxpayers that they have until this year’s official tax day (April 17) to file those returns and receive their refund. The average refund owed from the 2014 tax year is $847 and taxpayers have three years from when they are supposed to file to claim a refund. After that time, the funds are considered property of the U.S. Treasury.
If you are owed a refund, there is no penalty for filing late, however, you must also have filed (or currently file) for your 2015 and 2016 returns. Refunds from 2014 will first be applied toward any money owed to the IRS or a state tax agency, and can also be used toward past due federal debts such as unpaid child support or student loans. Failing to file a return for 2014 could cost some taxpayers more than just an $850 refund; low or moderate income workers could be eligible for the Earned Income Tax Credit (EITC), which was worth as much as $6,143 in 2014.
So why did so many Americans fail to claim their refunds?
- As mentioned, many taxpayers fail to apply for the EITC. To qualify, your income must have been below $46,997 (or below $52,427 if married filing jointly) and you claimed three or more qualifying children; $43,756 for those with two qualifying children ($49,186 married filing jointly); $38,511 for taxpayers with one qualifying child ($43,941 married filing jointly); and $14,590 for people with no qualifying children ($20,020 married filing jointly).
- If you make under a certain amount annually, you do not have to file taxes. In 2014, single Americans over the age of 65 who earned less than $11,500, singles under 65 who earned $10,000 or less, or those married filing jointly who made less than $20,000 did not have to file. However, even though they did not have to file does not mean taxes were not taken out of their paychecks, which means those taxpayers could be owed a refund. Those who made estimated tax payments that year could also have overpaid in taxes, earning them a refund.
- Many students or their parents fail to claim the American Opportunity Education Credit, which allows education-related expenses such as course books, room and board, tuition and other education supplies and equipment to be deducted. In 2014, the credit maxed out at $2,500.
- Some individuals move and do not update their addresses correctly, which means refund checks and sent back to the IRS and left unclaimed. Other individuals simply forget.
How can I claim my money?
If you did not file for the 2014 tax year, and you think you may be owed a refund, the IRS suggests that you find applicable tax documents such as your W-2, 1098, 1099 or 5498 for the 2014, 2015 and 2016 tax years. If you are unable to find these forms or get them from your employer, act quickly and request a wage and income transcript from the IRS on their website or by phone at 800-908-9946, as transcripts can take between 5-10 days to be received in the mail.
by Stephen Reed | Accounting News, Audit and Accounting, Business Consulting, News, Tax, Tax Consulting, Tax Planning
As of December 20, 2017, the new tax laws were officially signed into law, ushering in a variety of cuts and changes for individuals and businesses alike. While there has been much talk around how the new laws will impact individual taxpayers and families of all income levels, it is also vital to consider how small businesses, startups and corporations will be affected.
Individual taxpayers will see a decrease in their income tax rate, a reduction of itemized deductions, a doubling of the standard deduction, and changes to elder care, child and business taxes. The Alternative Minimum Tax will remain for individuals and corporations alike, but the affected income bracket has been raised: $70,300 for single filers and $109,400 for joint filers.
So the question remains, will businesses stand to reap tax benefits for the new code? Undoubtedly. The real unknown is what businesses will do with the benefits they may reap.
What tax deductions can businesses expect then? A main provision of the plan is the lowering of the corporate tax rate from 35% to 21% in 2018, as well as lowering the income tax at almost every level for now. Corporations will be able to deduct state and local taxes, and estate tax exemptions will double, assisting the 1% who pay estate taxes while providing roughly 17 billion in taxes. For small business owners, they will be able to deduct the cost of depreciable assets in a single year rather than amortizing them over several years, which will hopefully stimulate investment and growth.
Under our current tax system, multinational taxpayers are taxed on any income earned overseas when those profits are brought back to the United States. But, the new system will not tax foreign profit. The intent here is to motivate those business owners to bring that money back overseas, reinvesting it in the US economy rather than allowing it sit overseas and aid another nation’s economy.
The new code is operating under a supply-side economics theory, which strives to invigorate economic growth across the nation for both consumers and businesses. The objective is to provide various tax deductions, placing more money in consumer’s wallets and ideally stimulate spending. The combination of lower taxes and a swell in spending on products and services is designed to allow employers to strengthen their workforce and create more jobs.
If business owners do reap benefits from the changes, any increased income or an improvement in sales should be viewed as an opportunity to develop, diversify and enhance their businesses, which would support the greater American economy and our nation.
by Pete McAllister | Accounting News, News, Tax, Tax Planning - Individual
A new year is upon us, and many individuals use that as an opportunity to start fresh on aspects of their life: their workout routines, eating habits, social calendars and often times their finances. Studies have shown that financial resolutions may pay off more than their fitness counterparts, but having a specific action plan is a vital part to ensuring those resolutions are met.
Below is the beginning of a three part series where we will outline 12 smart money strategies for 2018, one for each month.
JANUARY
To start the year off right, think about saving. January’s strategy is to automate your contributions to savings. Although more and more Americans are contributing to 401(k)’s or IRA’s as auto-enrollment by companies increases, automating deposits to retirement and savings accounts will help you reach goals before retirement.
If you are not already contributing to a retirement fund, start planning for your future and talk to someone in your payroll department about automatic contributions to a 401(k). Or, if that is not offered at your place of work, find a reputable brokerage firm and set up an IRA, using your bank or the broker’s online features for automatic contributions on payday.
If you already have a retirement fund, consider increasing your contributions in the new year, even by just $20 each paycheck. Assuming you start contributing by at least age 35 and receive a 7% return, increasing contributions by $40 each bi-weekly paycheck could land you with an additional $110,218 in your 401(k) by age 65.
While you’re taking the time to look over retirement contributions, consider setting up automated transfers to a savings account for more current goals or dreams, such as a vacation, a house, a new car or just an emergency fund. Setting up automations on payday will help you begin to live without the money and put funds away toward your future rather than hoping there’s enough left at the end of the month to save.
FEBRUARY
Month two is all about budgeting or creating a realistic spending plan for yourself. Studies have shown that only about 35% of workers follow a firm spending plan, while around 44% of workers could be classified as impulsive spenders who often have credit card debt and are living paycheck to paycheck.
A great start is to track your spending for 30 days to see where your money is going, then consider where you can cut down or save more to develop a realistic plan that fits your life. A simple budgeting plan is to allocate 20% of your paycheck to savings, 30% to “entertainment” spending and 50% to necessary spending such as housing and bills. There are also more detailed spending plans, both paper and digital, that help you specifically allocate all of your funds to categories such as utilities, rent/mortgage, groceries, savings, other loans or debt and more. However you decide to budget, having a plan for your money each month can help you have more peace of mind and put you on track to a financially freer life.
MARCH
In March, try tackling your credit card debt. One option is to explore ways to lower your interest rate(s). Some balance-transfer credit cards offer special 0% promotional rates for the first 12-18 months. If you think you can pay off the transferred balance before this promotional period concludes, these are a great option to drastically lower your interest. Another viable option is to consolidate your credit card debt to a personal loan with a lower interest rate.
If you are without credit card debt but do have a card, make sure you are making the most of whatever rewards your card offers. Look for cards that offer rewards that match your spending habits (flight points, cash back, etc.) and make sure you understand exactly how the rewards work so you can take full advantage. And, if you current card has annual fees, consider calling to request those be waived or lowered since a study showed that 82% of individuals who asked had annual fees reduced or waived completely.
APRIL
Since tax day is in April, this month is all about taking advantage of your tax refund if you receive one. According to the IRS, the average income tax refund in 2016 was $2,795, but use whatever money you might receive wisely.
If you do receive a refund, putting that money toward any high interest debt you may have should be the top consideration, whether that’s school loans, credit card debt, a home loan or more. If you are debt free, consider starting an emergency fund, putting that money toward a retirement fund, putting the money into a specific saving fund (house, car, etc.) or investing in a course or seminar that will help you to advance in your career.
If you do get a large refund though, that likely means that you are overpaying on your taxes throughout the year. Although many people enjoy getting a large check from the IRS every spring, having that money available to you during the year allows you to pay down more debt or invest, so consider updating your W-4 withholding information with your employer. With the passage of the new tax laws, there is a chance you may have to update this form anyway so now is an ideal time to ensure you’re not giving the IRS money you could be using throughout the year.
Stay tuned for parts 2 and 3 of the Smart Money Series in the coming months.
by Daniel Kittell | Accounting News, IRS, News, Tax, Tax Planning, Tax Planning - Individual, Tax Preparation - Individual
With the passage of the new tax legislation last month, the IRS must take several steps to update withholding accuracy in accordance with the new laws. Their first major step consisted of updating the withholding tables for employers to follow, and those updates were posted on the IRS website January 11.
The IRS would like employers to begin using the new rates listed on the new tables as soon as possible and to continue using the 2017 tables until they have done so. However, employers must implement the new tables by February 15, 2018, at the latest. As soon as employers make those updates, employees will begin to see their paychecks reflect those changes, which could result in an increase in net pay for many taxpayers. The new tables are also designed to function with the current W-4 withholding forms, which should allow for a simpler transition for both employees and employers.
The new withholding tables are intended to reflect changes in rates and brackets, the repeal of some personal exemptions and the increase in the standard deduction enacted by the new tax laws. Additionally, the tables are meant to generate the correct withholding amounts for those with simple tax situations, as well as avoiding under or over-withholding taxes when possible.
Other items the IRS plans to update or revise include the withholding calculator on their website and the Form W-4. Many taxpayers use the IRS calculator to determine their own withholding, and the IRS expects the new calculator to be ready for public release by the end of February. Although the new Form W-4 may take a bit more time to revise, it should reflect changes in itemized deductions and increases or repeals of some credits. Employers are encouraged to continue using the 2017 Form W-4 until the new form is released.
For those beginning new jobs in 2018, for workers who have had personal life changes or for those who would simply like to update their withholding in light of the new laws, the revised calculator and Form W-4 can be used to make any withholding updates once they are released. Although the IRS is planning to educate taxpayers about the new withholding standards, workers are encouraged to find out more information regarding the changes on the IRS Withholding FAQ page.
