More Tax Tips

Qualified Plug-In Electric Drive Motor Vehicles (IRC 30D)

 

 

 

 

 

Internal Revenue Code Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks. For vehicles acquired after 12/31/2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500.

The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009). For additional information see Notice 2009-89.

Manufactures of the vehicles listed below have provided appropriate information and have received from the Service acknowledgement of the vehicles eligibility for the credit and the amount of the qualifying credit. The list of qualified vehicles provided below applies only to vehicles acquired after December 31, 2009.

Index to Manufacturers

American Honda Motor Co., Inc.

AMP Electric Vehicles, Inc.

Audi of America, LLC

Azure Dynamics

BMW of North America

Boulder Electric Vehicles, Inc.

BYD Motors Inc

CODA Automotive

Electric Vehicles International

Electric Mobile Cars

FCA (Fiat Chrysler Automobiles) North America Holdings LLC

Fisker Automotive, Inc.

Ford Motor Company

General Motors Corporation

Hyundi

Karma

Kia Motors America, Inc.

Mercedes-Benz USA, LLC

Mitsubishi Motors North America, Inc.

Nissan North America

Porsche Cars North America, Inc.

Smart USA Distributor LLC -- (see Mercedes Benz)

Tesla

Think

Toyota Motor Sales

VIA Motors, Inc.

Volkswagen Group of America

Volvo Cars of North America LLC

Wheego Electric Cars, Inc.

Zenith Motors, Inc.

Check For State and Local Credits and Perks Too

A lot of cities offer special parking or free charging stations for electric cars, and many states offer additional tax credits for qualifying electric vehicles. For example, Colorado offers up to $5,000 in tax credits for qualifying electric cars, which include not just newer electric vehicles, but also cars converted from gasoline to electricity. Check your state’s laws to see if there are additional tax credits available for you.

Qualifications and Limitations

The electric car and vehicle tax credit cannot be passed on from the original owner; it’s only eligible on new vehicles. So if you’re buying a used car, the tax credit will not apply. Also, be aware that the tax credit goes to the name on the title of the vehicle. If you’re leasing the car, the leasing company will be the one to receive the credit. However, most leasing companies pass this credit on to the consumers by factoring it into the price, which in turn lowers the monthly payments.

The electric car and vehicle tax credit is a non-refundable credit. So if your tax liability is $4,000 and you receive the credit for the full $7,500, you’ll be able to reduce the amount you owe to zero, but you won’t get a refund for the difference (in this case, $3,500). The tax credit must be claimed the year you buy the car and cannot be carried over from year to year or claimed more than once.

 

Tax Reform

 

Major tax reform was approved by Congress in the Tax Cuts and Jobs Act (TCJA) on December 22, 2017. The IRS is working on implementing this major tax legislation that will affect both individuals and businesses. We will provide information and guidance to taxpayers, businesses and the tax community as it becomes available. Check this page for updates and resources.

IRS News Releases, Fact Sheets & Statements

Tax bill this year? Check withholding soon, avoid another one next year

Tax reform allows people with disabilities to put more money into ABLE accounts, expands eligibility for Saver’s Credit

IRS reminder: Second estimated tax payment due June 15; form, publication can help people pay the right amount following law changes

More than 2 million ITINs to expire this year; Renew soon to avoid refund delays

For new tax on some private colleges, stepped-up basis may apply to property sold at a gain; new basis rule may limit tax impact

IRS offers penalty, filing relief to many subject to new transition tax on foreign earnings

Law change affects moving, mileage and travel expenses

New law gives individuals and businesses more time to challenge a wrongful IRS levy; newly-revised publication can help

Two-income families, taxpayers working multiple jobs should check withholding amount

IRS issues notice on state and local tax deductions

Taxpayers who usually itemize deductions should check their withholding to avoid tax surprises

Seasonal, Part-year Workers Urged to Check Tax Withholding Amount

IRS highlights sharing economy tax center, other resources during National Small Business Week 

For Small Business Week, IRS highlights key business tax topics

IRS grants relief for taxpayers affected by reduction of maximum deductible Health Savings Account contributions

IRS describes new tax reform information reporting requirements for certain life insurance contract transactions and provides transitional guidance delaying reporting until final regulations are issued

New rules and limitations for depreciation and expensing under the Tax Cuts and Jobs Act

Many corporations will pay a blended federal income tax this year under the new tax reform law 

Combat zone tax benefits now available to Armed Forces members who served in the Sinai Peninsula; IRS accepting retroactive tax refund claims back to 2015

Inflation Adjustments Under Recently Enacted Tax Law

Newly-revised estimated tax form and publication can help people pay the right amount

IRS issues guidance on business interest expense limitations

IRS Issues Guidance on Withholding on the Transfer of Partnership Interests by Foreign Persons

IRS urges ‘Paycheck Checkup’ for key groups; tax withholding may need adjustment

IRS Issues Additional Guidance on Transition Tax on Foreign Earnings

IRS encourages ‘Paycheck Checkup’ for taxpayers to check their withholding; special week focuses on changes

IRS provides additional details on section 965, transition tax; Deadlines approach for some 2017 filers

IRS Plans to Issue Regulations Clarifying Limitations on Carried Interest

Interest on Home Equity Loans Often Still Deductible Under New Law

IRS Issues Guidance on Changes in Accounting Periods Related to the Transition Tax

IRS Announces 2018 Pension Plan Limitations Not Affected by Tax Cuts and Jobs Act of 2017

Tax Issues for Alaska Native American Corporations and Alaska Native Settlement Trusts

IRS Issues Additional Guidance on Transition Tax on Foreign Earnings

Updated 2018 Withholding Tables Now Available; Taxpayers Could See Paycheck Changes by February

IRS Issues Guidance on Transition Tax on Foreign Earnings

IRS Advisory: Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017

IRS Statements: Withholding for 2018

Tax Reform Tax Tips

How the Employer Credit for Family and Medical Leave Benefits Employers

Tax Reform: Changes to Depreciation Affect Businesses Now

Individuals

Tax Withholding

Steps to Take Now to Get a Jump on Next Year’s Taxes

Filing a Wrongful Levy Claim

Exemption for Amounts Paid for Aircraft Management Services

What’s New – Estate and Gift Tax

Businesses

Rehabilitation Credit

Employer Update

New Deduction for Qualified Businesses

Effect of Sequestration on the Alternative Minimum Tax Credit for Corporations

Settlement of Attorney’s Fees Related to Sexual Harassment

Tax Exempt

Repeal of Authority to Issue New Clean Renewable Energy Bonds

Government Entities

ABLE Accounts - Tax Benefit for People with Disabilities

State Legislators: Tax Reform Eliminates Deduction for Travel Expenses

IRS Working on a New Form 1040 for 2019 Tax Season

 

As part of a larger effort to help taxpayers, the Internal Revenue Service plans to streamline the Form 1040 into a shorter, simpler form for the 2019 tax season.

The new 1040 – about half the size of the current version -- would replace the current Form 1040 as well as the Form 1040A and the Form 1040EZ.  The IRS circulated a copy of the new form and will work with the tax community to finalize the streamlined Form 1040 over the summer.

This new approach will simplify the 1040 so that all 150 million taxpayers can use the same form. The new form consolidates the three versions of the 1040 into one simple form. At the same time, the IRS will still obtain the information from each taxpayer needed to determine their tax liability or refund. 

The new Form 1040 uses a “building block” approach, in which the tax return is reduced to a simple form. That form can be supplemented with additional schedules if needed. Taxpayers with straightforward tax situations would only need to file this new 1040 with no additional schedules.

Since more than nine out of 10 taxpayers use software or a tax preparer, the IRS will be working with the tax community to prepare for the streamlined Form 1040. This will also help ensure a smooth transition for people familiar with software products and the interview process used to prepare tax returns.

Taxpayers who file on paper would use this new streamlined Form 1040 and supplement it with any needed schedules.

Tax Time Tips from the IRS

 

The tax filing deadline is Tuesday, April 17 this year. This is because April 15 falls on a weekend and the following Monday is a holiday in the District of Columbia. Even with an extra two days, the IRS urges taxpayers to avoid waiting until the last minute to file their taxes.

For those who have yet to file, the IRS has five quick ideas to help:

  1. Gather Records. Good recordkeeping is important. It helps to ensure that nothing gets overlooked. Records such as receipts and cancelled checks also provide expense documentation.
     

  2. Use IRS Online Tools. The IRS has many useful online tools, including the Interactive Tax Assistant, which provides answers to many tax questions. It gives the same answers that an IRS representative would give over the phone.
     

  3. File Electronically. Most taxpayers file electronically these days. It offers ease and convenience. The tax software guides people through the entire process. There are no forms to fill out. Electronic filing is also a more accurate way to file as the software does all the math for the user.
     

  4. Report All Income. Taxpayers must report all their income from Forms W-2, Wage and Tax Statements, and Forms 1099. Other income may be reportable as well, even if the taxpayer does not receive a statement.

Taxpayers should keep a copy of their tax return. Taxpayers using a software product for the first time may need their Adjusted Gross Income amount from their prior-year tax return to verify their identity.

IRS Audits

 

An IRS audit is a review/examination of an organization's or individual's accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.

  • Why am I being selected for an audit?

  • How am I notified?

  • How will the IRS conduct my audit?

  • What do I need to provide?

  • How do I know if the IRS received my response?

  • What if I need more time to respond?

  • How far back can the IRS go to audit my return?

  • How long does an audit take?

  • What are my rights?

  • How does the IRS conclude an audit?

  • What happens when you agree with the audit findings?

  • What happens when you disagree with the audit findings?

Why am I being selected for an audit?

Selection for an audit does not always suggest there’s a problem. The IRS uses several different methods:

  • Random selection and computer screening - sometimes returns are selected based solely on a statistical formula. We compare your tax return against “norms” for similar returns. We develop these “norms” from audits of a statistically valid random sample of returns, as part of the National Research Program the IRS conducts. The IRS uses this program to update return selection information.

  • Related examinations – we may select your returns when they involve issues or transactions with other taxpayers, such as business partners or investors, whose returns were selected for audit.

Next, an experienced auditor reviews the return. They may accept it; or if the auditor notes something questionable, they will identify the items noted and forward the return for assignment to an examining group.


Note: filing an amended return does not affect the selection process of the original return. However, amended returns also go through a screening process and the amended return may be selected for audit. Additionally, a refund is not necessarily a trigger for an audit.

How am I notified?
 

Should your account be selected for audit, we will notify you by mail. We won’t initiate an audit by telephone.

How will the IRS conduct my audit?

The IRS manages audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or at the taxpayer's home, place of business, or accountant's office (field audit). Remember, you will be contacted initially by mail. The IRS will provide all contact information and instructions in the letter you will receive.

If we conduct your audit by mail, our letter will request additional information about certain items shown on the tax return such as income, expenses, and itemized deductions. If you have too many books or records to mail, you can request a face-to-face audit. The IRS will provide contact information and instructions in the letter you receive.

Depending on the issues in your audit, IRS examiners may use one of these Audit Techniques Guides to assist them. These guides will give you an idea of what to expect.

What do I need to provide?

The IRS will provide you with a written request for the specific documents we want to see. Here’s a listing of records the IRS may request.

The IRS accepts some electronic records that are produced by tax software. The IRS may request those in lieu of or in addition to other types of records. Contact your auditor to determine what we can accept.

The law requires you to keep all records you used to prepare your tax return – for at least three years from the date the tax return was filed.

How do I know if the IRS received my response?

For any delivery service you may use, always request confirmation that the IRS has received it. For example, if you use the US Postal Service, you can request one of their additional services to ensure delivery confirmation.

What if I need more time to respond?

For audits conducted by mail - fax your written request to the number shown on the IRS letter you received. If you are unable to submit the request by fax, mail your request to the address shown on the IRS letter. We can ordinarily grant you a one-time automatic 30-day extension. We will contact you if we are unable to grant your extension request. However, if you received a “Notice of Deficiency” by certified mail, we cannot grant additional time for you to submit supporting documentation. You may continue to work with us to resolve your tax matter, but we cannot extend the time you have to petition the U.S. Tax Court beyond the original 90 days.

For audits conducted by in-person interview – If your audit is being conducted in person, contact the auditor assigned to your audit to request an extension. If necessary, you may contact the auditor’s manager.

How far back can the IRS go to audit my return?

Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years.

The IRS tries to audit tax returns as soon as possible after they are filed. Accordingly most audits will be of returns filed within the last two years.

If an audit is not resolved, we may request extending the statute of limitations for assessment tax. The statute of limitations limits the time allowed to assess additional tax. It is generally three years after a return is due or was filed, whichever is later. There is also a statute of limitations for making refunds. Extending the statute gives you more time to provide further documentation to support your position; request an appeal if you do not agree with the audit results; or to claim a tax refund or credit. It also gives the IRS time to complete the audit and provides time to process the audit results.

You don’t have to agree to extend the statute of limitations date. However if you don’t agree, the auditor will be forced to make a determination based upon the information provided.

You can find more information about extending a statute of limitations in Publication 1035, Extending the Tax Assessment Period, or from your auditor.

How long does an audit take?

The length varies depending on the type of audit; the complexity of the issues; the availability of information requested; the availability of both parties for scheduling meetings; and your agreement or disagreement with the findings.

What are my rights?

Publication 1, Your Rights as a Taxpayer, explains your rights as a taxpayer as well as the examination, appeal, collection, and refund processes. These rights include:

  • A right to professional and courteous treatment by IRS employees.

  • A right to privacy and confidentiality about tax matters.

  • A right to know why the IRS is asking for information, how the IRS will use it and what will happen if the requested information is not provided.

  • right to representation, by oneself or an authorized representative.

  • A right to appeal disagreements, both within the IRS and before the courts.

How does the IRS conclude an audit?

An audit can be concluded in three ways:

  • No change: an audit in which you have substantiated all of the items being reviewed and results in no changes.

  • Agreed: an audit where the IRS proposed changes and you understand and agree with the changes.

  • Disagreed: an audit where the IRS has proposed changes and you understand but disagree with the changes.

What happens when you agree with the audit findings?

If you agree with the audit findings, you will be asked to sign the examination report or a similar form depending upon the type of audit conducted.

What happens when you disagree with the audit findings?

You can request a conference with an IRS manager. The IRS also offers mediation or you can file an appeal if there is enough time remaining on the statute of limitations.

Tax Scams/Consumer Alerts

 

Thousands of people have lost millions of dollars and their personal information to tax scams. Scammers use the regular mail, telephone, or email to set up individuals, businesses, payroll and tax professionals. 

The IRS doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. Recognize the telltale signs of a scam.

Scams Targeting Taxpayers

With hurricane season underway, IRS warns of scams related to natural disasters

With hurricane season underway, the Internal Revenue Service is reminding taxpayers that criminals and scammers often try to take advantage of the generosity of taxpayers who want to help victims of major disasters.

IRS continues warning on impersonation scams; reminds people to remain alert to other scams, schemes this summer

With tax season completed, the Internal Revenue Service warned taxpayers to remain vigilant for phishing emails and telephone scams. Summertime tends to be a favorite period for scammers because many taxpayers have recently filed a return and may be waiting for a response from the IRS.

IRS, Security Summit Partners warn of new twist on phone scam; crooks direct taxpayers to IRS.gov to “verify” calls

The IRS warns of a new twist on an old phone scam as criminals use telephone numbers that mimic IRS Taxpayer Assistance Centers to trick taxpayers into paying non-existent tax bills. 

IRS warning: Don’t be a victim of ‘ghost’ tax return preparers

A ghost preparer is paid to prepare a tax return but does not sign it as the paid preparer. These phantom preparers who won't put their name on the tax return are a warning sign for taxpayers of a potential scam.

IRS, Summit Partners warn on tax deadline scams, ‘IRS Refunds’ email

The “IRS Refunds” scam is a common tactic used by cybercriminals to trick people into opening a link or attachment associated with the email that takes people to a fake page where thieves try to steal personally identifiable information. See 

Scam Alert: IRS Urges Taxpayers to Watch Out for Erroneous Refunds; Beware of Fake Calls to Return Money to a Collection Agency

After stealing client data from tax professionals and filing fraudulent tax returns, criminals use the taxpayers' real bank accounts for the deposit. Thieves are then using various tactics to reclaim the refund from the taxpayers, and their versions of the scam may continue to evolve.

IRS-Impersonation Telephone Scams

A sophisticated phone scam targeting taxpayers, including recent immigrants, has been making the rounds throughout the country. Callers claim to be IRS employees, using fake names and bogus IRS identification badge numbers. They may know a lot about their targets, and they usually alter the caller ID to make it look like the IRS is calling. 

Victims are told they owe money to the IRS and it must be paid promptly through a gift card or wire transfer. Victims may be threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting. Victims may be told they have a refund due to try to trick them into sharing private information. If the phone isn't answered, the scammers often leave an “urgent” callback request.

Some thieves have used video relay services (VRS) to try to scam deaf and hard of hearing individuals. Taxpayers are urged not trust calls just because they are made through VRS, as interpreters don’t screen calls for validity. For details see the IRS video: Tax Scams via Video Relay Service. 

Limited English Proficiency victims are often approached in their native language, threatened with deportation, police arrest and license revocation, among other things. IRS urges all taxpayers caution before paying unexpected tax bills. Please see: IRS Alerts Taxpayers with Limited English Proficiency of Ongoing Phone Scams. Note that the IRS doesn't:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer. Generally, the IRS will first mail you a bill if you owe any taxes.

  • Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.

  • Demand payment without giving you the opportunity to question or appeal the amount they say you owe.

  • Ask for credit or debit card numbers over the phone.

Scams Targeting Tax Professionals

Increasingly, tax professionals are being targeted by identity thieves. These criminals – many of them sophisticated, organized syndicates - are redoubling their efforts to gather personal data to file fraudulent federal and state income tax returns. The Security Summit has a campaign aimed at tax professionals: Protect Your Clients; Protect Yourself.

IRS warns tax pros of new scam posing as professional associations

The IRS and Security Summit partners warn tax practitioners to beware of phishing emails posing as state accounting and professional associations that are trying to trick them into disclosing their email usernames and passwords.

Other recent scams targeting the tax professional community include:

  • Tax Professionals Urged to Step Up Security as Filing Scheme Emerges

  • Tax Professionals Warned of e-Services Scam.

  • Tax Professionals Warned of New Scam to “Unlock” Tax Software Accounts.

  • A phishing scheme mimicking software providers targets tax professionals.

  • Criminals target tax professionals to steal data such as PTINs, EFINs or e-Service passwords.

  • Bogus email asks tax professionals to update their IRS e-services portal information and Electronic Filing Identification Numbers (EFINs).

    • See: IRS Warns Tax Preparers to Watch out for New Phishing Scam; Don’t Click on Strange Emails or Links Seeking Updated Information

Soliciting Form W-2 information from payroll and human resources professionals.

The IRS has established a process that will allow businesses and payroll service providers to quickly report any data losses related to the W-2 scam currently making the rounds. If notified in time, the IRS can take steps to prevent employees from being victimized by identity thieves filing fraudulent returns in their names. There also is information about how to report receiving the scam email.

Report these schemes:

  • Email dataloss@irs.gov to notify the IRS of a W-2 data loss and provide contact information. In the subject line, type “W2 Data Loss” so that the email can be routed properly. Do not attach any employee personally identifiable information.

  • Email the Federation of Tax Administrators at StateAlert@taxadmin.org to learn how to report victim information to the states.

  • Businesses/payroll service providers should file a complaint with the FBI’s Internet Crime Complaint Center (IC3.gov). Businesses/payroll service providers may be asked to file a report with their local law enforcement.

  • Notify employees so they may take steps to protect themselves from identity theft. The FTC’s www.identitytheft.gov provides general guidance.

  • Forward the scam email to phishing@irs.gov.

  • See more details at Form W2/SSN Data Theft: Information for Businesses and Payroll Service Providers.

Employers are urged to put protocols in place for the sharing of sensitive employee information such as Forms W-2. The W-2 scam is just one of several new variations that focus on the large-scale thefts of sensitive tax information from tax preparers, businesses and payroll companies.

Surge in Email, Phishing and Malware Schemes

Phishing (as in “fishing for information”) is a scam where fraudsters send e-mail messages to trick unsuspecting victims into revealing personal and financial information that can be used to steal the victims’ identity. 

The IRS has issued several alerts about the fraudulent use of the IRS name or logo by scammers trying to gain access to consumers’ financial information to steal their identity and assets. 

Scam emails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. These phishing schemes may seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information.

Be alert to bogus emails that appear to come from your tax professional, requesting information for an IRS form. IRS doesn’t require Life Insurance and Annuity updates from taxpayers or a tax professional. Beware of this scam.

Variations can be seen via text messages. The IRS is aware of email phishing scams that include links to bogus web sites intended to mirror the official IRS web site. These emails contain the direction “you are to update your IRS e-file immediately.” These emails are not from the IRS.

The sites may ask for information used to file false tax returns or they may carry malware, which can infect computers and allow criminals to access your files or track your keystrokes to gain information.

Tax Benefits for Education: Information Center

 

*There are additional requirements for foreign students and dependents who have an ITIN. Review the American Opportunity Tax Credit and Publication 519, U.S. Tax Guide for Aliens for details.

Tax credits, deductions and savings plans can help taxpayers with their expenses for higher education.

  • A tax credit reduces the amount of income tax you may have to pay.

  • A deduction reduces the amount of your income that is subject to tax, thus generally reducing the amount of tax you may have to pay.

  • Certain savings plans allow the accumulated earnings to grow tax-free until money is taken out (known as a distribution), or allow the distribution to be tax-free, or both.

  • An exclusion from income means that you won't have to pay income tax on the benefit you're receiving, but you also won't be able to use that same tax-free benefit for a deduction or credit. 

Credits

An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: the American Opportunity Tax Credit and the Lifetime Learning Credit.

Who Can Claim an Education Credit?

There are additional rules for each credit, but you must meet all three of the following for either credit:

  1. You, your dependent or a third party pays qualified education expenses for higher education.

  2. An eligible student must be enrolled at an eligible educational institution.

  3. The eligible student is yourself, your spouse or a dependent you list on your tax return.

If you’re eligible to claim the lifetime learning credit and are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. You can't claim the AOTC if you were a nonresident alien for any part of the tax year unless you elect to be treated as a resident alien for federal tax purposes. For more information about AOTC and foreign students, visit American Opportunity Tax Credit - Information for Foreign Students.

The law requires that both you and your qualifying student have a valid Social Security number or Individual Taxpayer Identification Number, issued before the due date for your tax return, in order to claim the AOTC.

To claim the AOTC or LLC, use Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits). Additionally, if you claim the AOTC, the law requires you to include the school’s Employer Identification Number on this form.

Deductions

Tuition and Fees Deduction

The Bipartisan Budget Act, enacted on February 9, 2018, renewed the tuition and fees deduction for tax year 2017. If you already filed your 2017 federal tax return and find you can claim the deduction, you can do so by filing an amended return on Form 1040X. Amended returns cannot be filed electronically and can take up to 16 weeks to process.The Tuition and Fees Deduction was extended for tax years 2015 and 2016 earlier.

You may be able to deduct qualified education expenses paid during the year for yourself, your spouse or your dependent. You cannot claim this deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education.

The Tuition and Fees Deduction can reduce the amount of your income subject to tax by up to $4,000. This deduction, reported on Form 8917, Tuition and Fees Deduction, is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to you if, for example, you don’t qualify for the American opportunity or lifetime learning credits.

You may be able to take one of the education credits for your education expenses instead of a tuition and fees deduction. You can choose the one that will give you the lower tax. You cannot claim the tuition and fees deduction as well as an education credit for the same expense.

See also: Tuition and Fees Deduction at a Glance

Student Loan Interest Deduction

Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return), there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntary interest payments.

For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500.

The student loan interest deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Form 1040's Schedule A.

Qualified Student Loan

This is a loan you took out solely to pay qualified education expenses (defined later) that were:

  • For you, your spouse, or a person who was your dependent when you took out the loan.

  • Paid or incurred within a reasonable period of time before or after you took out the loan.

  • For education provided during an academic period for an eligible student.

Loans from the following sources are not qualified student loans:

  • A related person.

  • A qualified employer plan.

Qualified Education Expenses

For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. They include amounts paid for the following items:

  • Tuition and fees.

  • Room and board.

  • Books, supplies and equipment.

  • Other necessary expenses (such as transportation).

The cost of room and board qualifies only to the extent that it is not more than the greater of:

  • The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or

  • The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.

Business Deduction for Work-Related Education

If you are an employee and can itemize your deductions, you may be able to claim a deduction for the expenses you pay for your work-related education. Your deduction will be the amount by which your qualifying work-related education expenses plus other job and certain miscellaneous expenses is greater than 2% of your adjusted gross income. An itemized deduction may reduce the amount of your income subject to tax.

If you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This reduces the amount of your income subject to both income tax and self-employment tax.

Your work-related education expenses may also qualify you for other tax benefits, such as the the American opportunity credit, tuition and fees deduction and the lifetime learning credit. You may qualify for these other benefits even if you do not meet the requirements listed above. You cannot claim this deduction as well as the tuition and fees deduction for the same expense, nor can you claim this deduction as well as an education credit for the same expense.

To claim a business deduction for work-related education, you must:

  • Be working.

  • Itemize your deductions on Schedule A (Form 1040 or 1040NR) if you are an employee.

  • File Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040) if you are self-employed.

  • Have expenses for education that meet the requirements discussed under Qualifying Work-Related Education, below.

Qualifying Work-Related Education

You can deduct the costs of qualifying work-related education as business expenses. This is education that meets at least one of the following two tests:

  • The education is required by your employer or the law to keep your present salary, status or job. The required education must serve a bona fide business purpose of your employer.

  • The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it:

  • Is needed to meet the minimum educational requirements of your present trade or business or

  • Is part of a program of study that will qualify you for a new trade or business.

You can deduct the costs of qualifying work-related education as a business expense even if the education could lead to a degree.

Education Required by Employer or by Law

Education you need to meet the minimum educational requirements for your present trade or business is not qualifying work-related education. Once you have met the minimum educational requirements for your job, your employer or the law may require you to get more education. This additional education is qualifying work-related education if all three of the following requirements are met.

  • It is required for you to keep your present salary, status or job.

  • The requirement serves a business purpose of your employer.

  • The education is not part of a program that will qualify you for a new trade or business.

When you get more education than your employer or the law requires, the additional education can be qualifying work-related education only if it maintains or improves skills required in your present work.

Education to Maintain or Improve Skills

If your education is not required by your employer or the law, it can be qualifying work-related education only if it maintains or improves skills needed in your present work. This could include refresher courses, courses on current developments and academic or vocational courses.

Savings Plans

Qualified Tuition Programs (529 plans)

States may establish and maintain programs that allow you to either prepay or contribute to an account for paying a student's qualified education expenses at a postsecondary institution. Eligible educational institutions may establish and maintain programs that allow you to prepay a student's qualified education expenses. If you prepay tuition, the student (designated beneficiary) will be entitled to a waiver or a payment of qualified education expenses. You can't deduct either payments or contributions to a QTP. For information on a specific QTP, you will need to contact the state agency or eligible educational institution that established and maintains it.

No tax is due on a distribution from a QTP unless the amount distributed is greater than the beneficiary's adjusted qualified education expenses. Qualified expenses include required tuition and fees, books, supplies and equipment including computer or peripheral equipment, computer software and internet access and related services if used primarily by the student enrolled at an eligible education institution. Someone who is at least a half-time student, room and board may also qualify.

Coverdell Education Savings Account 

A Coverdell ESA can be used to pay either qualified higher education expenses or qualified elementary and secondary education expenses. Income limits apply to contributors, and  the total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary.

Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.

Here are some things to remember about distributions from Coverdell accounts:

  • Distributions are tax-free as long as they are used for qualified education expenses, such as tuition and fees, required books, supplies and equipment and qualified expenses for room and board.
     

  • There is no tax on distributions if they are for enrollment or attendance at an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law. Virtually all accredited public, nonprofit and proprietary (privately owned profit-making) post-secondary institutions are eligible.
     

  • Education tax credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.
     

  • If the distribution exceeds qualified education expenses, a portion will be taxable to the beneficiary and will usually be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.

For more information, see Topic 310 – Coverdell Education Savings Accounts.

Scholarships and Fellowships

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate. A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Generally, whether the amount is tax free or taxable depends on the expense paid with the amount and whether you are a degree candidate.

A scholarship or fellowship is tax free only if you meet the following conditions:

  • You are a candidate for a degree at an eligible educational institution.

  • You use the scholarship or fellowship to pay qualified education expenses.

Qualified Education Expenses

For purposes of tax-free scholarships and fellowships, these are expenses for:

  • Tuition and fees required to enroll at or attend an eligible educational institution.

  • Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

However, in order for these to be qualified education expenses, the terms of the scholarship or fellowship cannot require that it be used for other purposes, such as room and board, or specify that it cannot be used for tuition or course-related expenses. 

Expenses that Don’t Qualify

Qualified education expenses do not include the cost of:

  • Room and board.

  • Travel.

  • Research.

  • Clerical help.

  • Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.

This is true even if the fee must be paid to the institution as a condition of enrollment or attendance. Scholarship or fellowship amounts used to pay these costs are taxable.

Exclusions from Income

You may exclude certain educational assistance benefits from your income. That means that you won’t have to pay any tax on them. However, it also means that you can’t use any of the tax-free education expenses as the basis for any other deduction or credit, including the lifetime learning credit.

Employer-Provided Educational Assistance

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2.

Educational Assistance Program

To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.

Educational Assistance Benefits

Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. The payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses. Educational assistance benefits do not include payments for the following items.

  • Meals, lodging, or transportation.

  • Tools or supplies (other than textbooks) that you can keep after completing the course of instruction.

  • Courses involving sports, games, or hobbies unless they:

    • Have a reasonable relationship to the business of your employer, or

    • Are required as part of a degree program.

Benefits over $5,250

If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.

Working Condition Fringe Benefit 

However, if the benefits over $5,250 also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. For more information on working condition fringe benefits, see Working Condition Benefits in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.

Educator Expense Deduction

Educators can deduct up to $250 ($500 if married filing jointly and both spouses are eligible educators, but not more than $250 each) of unreimbursed business expenses. The educator expense deduction, claimed on either Form 1040 Line 23 or Form 1040A Line 16, is available even if an educator doesn’t itemize their deductions. To do so, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Those who qualify can deduct costs like books, supplies, computer equipment and software, classroom equipment and supplementary materials used in the classroom. Expenses for participation in professional development courses are also deductible. Athletic supplies qualify if used for courses in health or physical education.

Withholding Exemptions - Personal Exemptions - Form W-4

 

 

Withholding Exemptions

The amount of wages subject to graduated withholding may be reduced by the personal exemption amount. The personal exemptions allowed in figuring wages subject to graduated withholding are the same as those discussed under Figuring Your Tax, except that an employee must claim them on Form W-4, Employee's Withholding Allowance Certificate

Special Instructions for Form W-4 For Nonresident Alien Employees

A nonresident alien subject to wage withholding must give the employer a completed Form W-4 to enable the employer to figure how much income tax to withhold. In completing the form, nonresident aliens should use the following instructions instead of the instructions on Form W-4.

For Forms W-4 completed by nonresident alien employees performing services in the U.S.:

  1. Check only "Single" marital status on line 3 (regardless of actual marital status).

  2. Claim only one withholding allowance on line 5, unless you are a resident of Canada, Mexico, South Korea, a U.S. national, or a student or business apprentice from India.

  3. Do not claim “Exempt” withholding status on line 7.

  4. Write “Nonresident Alien” or “NRA” above the dotted line on line 6 of Form W-4.

Special Instructions for Form W-4 For Nonresident Alien Employers

For wages paid to nonresident alien employees, you are required to add an amount to the nonresident alien's wages solely for calculating the income tax withholding for each payroll period. The amount to be added to the nonresident alien´s wages to calculate income tax withholding is set forth in Chapter 9 of Publication 15, (Circular E), Employer's Tax Guide.

Note. Nonresident alien students from India and business apprentices from India are not subject to this procedure.

The amounts added to wages should not be included in any box on the employee's Form W-2 and do not increase the income tax liability of the employee. Also, these amounts do not increase the social security, Medicare, or FUTA tax liability of the employer or the employee. This procedure only applies to nonresident alien employees who have wages subject to income tax withholding.

A Form W-4 remains in effect until the employee gives you a new one. If an employee gives you a Form W-4 that replaces an existing Form W-4, begin withholding no later than the start of the first payroll period ending on or after the 30th day from the date when you received the replacement Form W-4.

Invalid Forms

 

W-4. Any unauthorized change or addition to Form W-4 makes it invalid. This includes taking out any language by which the employee certifies that the form is correct. A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way that it is false. An employee who submits a false Form W-4 may be subject to a $500 penalty.

When you get an invalid Form W-4, do not use it to figure federal income tax withholding. Tell the employee that it is invalid and ask for another one. If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before.

IRS Alerts Taxpayers about Refund Scam

 

 

The IRS warns taxpayers of a new twist on an old scam. Criminals are depositing fraudulent tax refunds into individuals’ actual bank accounts, then attempting to reclaim the refund from the taxpayers.

Here are the basic steps criminals follow to carry out this scam. The thief:

  • Hacks tax preparers’ computers to steal taxpayer data.

  • Uses the stolen information to file tax returns as the taxpayers.

  • Has refunds deposited into taxpayers’ bank accounts.

  • Contacts their victims, telling them the money was mistakenly deposited into their accounts and asking them to return it.

While the IRS is aware of variations of this scam, the agency also knows that this scam may continue to evolve. Here are two current versions of this scam:

  • Criminals pose as debt collection agency officials acting on behalf of the IRS. The thief contacts the taxpayer to report an erroneous refund deposit and request that the taxpayer forward the money to the thief’s collection agency.

  • The taxpayer who received the erroneous refund gets an automated call with a recorded voice saying the caller is from the IRS. The recording threatens the taxpayer with criminal fraud charges, an arrest warrant and a “blacklisting” of his or her Social Security number. The recorded voice gives the taxpayer a phony case number and telephone number to call to return the refund.

Here are some things taxpayers should remember if someone contacts them about an erroneous refund:

  • There are established procedures taxpayers should follow to return erroneous funds to the IRS. Tax Topic Number 161 - Returning an Erroneous Refund has full details about how to return the money, including the actual mailing addresses where a taxpayer should send a paper check, if necessary. By law, interest may accrue on erroneous refunds.

  • The IRS encourages taxpayers to discuss the issue with their financial institutions because there may be a need to close bank accounts.

  • Taxpayers receiving erroneous refunds also should contact their tax preparers immediately.

Tax bill this year? Check withholding soon, avoid another one next year

 

Taxpayers who owed additional tax when they filed their 2017 federal tax return earlier this year can avoid another unexpected tax bill next year by doing a “paycheck checkup” as soon as possible, according to the Internal Revenue Service.

The Tax Cuts and Jobs Act, the tax reform legislation passed in December, made major changes to the tax law, including increasing the standard deduction, removing personal exemptions, increasing the Child Tax Credit, limiting or discontinuing certain deductions and changing tax rates and brackets.

These far-reaching changes could have a big impact on the tax refund or balance due on the tax return people file next year. The IRS encourages every employee to do a “paycheck checkup” soon to ensure they have the correct amount of tax taken out of their pay.

The IRS encourages taxpayers to be proactive:

Do a ‘paycheck checkup’ soon

  • The Withholding Calculator can help taxpayers apply the new law to their specific financial situation and make an informed decision whether to change their withholding this year.

  • Adjust their withholding as soon as possible for an even, consistent amount of withholding throughout the rest of the year.

  • Taxpayers with more complex situations may need to use Publication 505. The publication is more effective for employees who owe self-employment tax, the alternative minimum tax or tax on unearned income from dependents. It can also help those who receive non-wage income such as dividends, capital gains, rents and royalties. Publication 505 includes worksheets and examples to guide taxpayers through their particular situations.

Underpayment penalties

  • To avoid paying the estimated tax penalty, taxpayers should ensure they have enough tax withheld from their paychecks and appropriate estimated tax payments. Ordinarily, taxpayers can avoid this penalty by paying at least 90 percent of their tax during the year.

  • If taxpayers expect to owe at least $1,000 in tax after subtracting withholding and refundable credits, they should make estimated tax payments.

Using the Withholding Calculator or Publication 505

  • Taxpayers should have their completed 2017 tax return handy to help estimate the amount of income, deductions, adjustments and credits to enter. They’ll also need their most recent pay stubs to help compute their withholding to date this year. Results from these tools depend on the accuracy of information a taxpayer provides.

  • Employees can use the results from the Withholding Calculator or Publication 505 to help determine if they should complete a new Form W-4, Employee’s Withholding Allowance Certificate, and, if so, what information to include on the form.

  • The calculator may also be helpful to recipients of pension and annuity income. These recipients can change their withholding by filling out Form W-4P and giving it to their payer.

  • If a taxpayer’s personal circumstances change during the year, they should re-check their withholding.

Adjusting withholding

  • If an employee determines they should adjust their withholding, they should complete a new Form W-4 and submit it to their employer as soon as possible.

  • Some employers have an electronic method to update a Form W-4.

  • Taxpayers who change their 2018 withholding should recheck their withholding at the start of 2019. A mid-year withholding change in 2018 may have a different full-year impact in 2019, so if taxpayers don’t submit a new Form W-4 for 2019, their withholding might be higher or lower than intended.

  • If an employee has a change in personal circumstances that reduces the number of withholding allowances they can claim, they must submit a new Form W-4 within 10 days of the change.

  • The fewer withholding allowances an employee enters on the Form W-4, the higher their tax withholding will be. Entering “0” or “1” on line 5 of the Form W-4 means more tax will be withheld; entering a bigger number means less tax will be withheld.

Tax reform allows people with disabilities to put more money into ABLE accounts, expands eligibility for Saver’s Credit

 

People with disabilities can now put more money into their tax-favored Achieving a Better Life Experience (ABLE) accounts and may, for the first time, qualify for the Saver’s Credit for low- and moderate-income workers, according to the Internal Revenue Service.

The Tax Cuts and Jobs Act, the tax reform legislation enacted in December, made major changes to the tax law for 2018 and future years, including increasing the standard deduction, removing personal exemptions, increasing the Child Tax Credit, limiting or discontinuing certain deductions and changing tax rates and brackets.

The new law also enables eligible individuals with disabilities to put more money into their ABLE accounts, qualify for the Saver's Credit in many cases and roll money from their 529 plans -- also known as qualified tuition programs -- into their ABLE accounts.

States can offer specially designed ABLE accounts to people who become disabled before age 26. Recognizing the special financial burdens faced by families raising children with disabilities, ABLE accounts are designed to enable people with disabilities and their families to save for and pay for disability-related expenses. Though contributions are not deductible, distributions, including earnings, are tax-free to the designated beneficiary if used to pay qualified disability expenses. These expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other disability-related expenses.

Normally, contributions totaling up to the annual gift tax exclusion amount, currently $15,000, may be made to an ABLE account each year for an eligible person with a disability, known as a designated beneficiary. But, starting in 2018, if the beneficiary works, the beneficiary can also contribute part or all of what they make to their ABLE account.

This additional contribution is limited to the poverty line amount for a one-person household. For 2018, this amount is $12,140 in the continental U.S., $13,960 in Hawaii and $15,180 in Alaska. However, the designated beneficiary is not eligible to make this additional contribution if their employer contributes to a workplace retirement plan on their behalf.

In addition, starting in 2018, ABLE account beneficiaries can qualify for the Saver’s Credit based on contributions they make to their ABLE accounts. Up to $2,000 of these contributions qualify for this special credit designed to help low- and moderate-income workers. Claimed on Form 8880, Credit for Qualified Retirement Savings Contributions, this credit can reduce the amount of tax a person owes or increase their refund. Like other IRS tax forms, Form 8880 will be revised later this year to reflect changes made by the new law.

In addition, some funds now may be rolled into an ABLE account from the designated beneficiary’s own 529 plan or from the 529 plan of certain family members.

Like other workers, ABLE account beneficiaries and other people with disabilities should make sure they are having the right amount of income tax withheld from their pay. Because of the far-reaching tax changes taking effect this year, the IRS urges all employees to perform a paycheck checkup now. Doing so now will help avoid an unexpected year-end tax bill and possibly a penalty.

Two-income families, taxpayers working multiple jobs should check withholding amount

 

The Internal Revenue Service urges two-income families and those who work multiple jobs to complete a “paycheck checkup” to verify they are having the right amount of tax withheld from their paychecks.

The passage of the Tax Cuts and Jobs Act, which will affect 2018 tax returns that people file in 2019, makes checking withholding amounts even more important. These tax law changes include:

  • Increased standard deduction

  • Eliminated personal exemptions

  • Increased Child Tax Credit

  • Limited or discontinued certain deductions 

  • Changed the tax rates and brackets

Individuals with more complex tax profiles, such as two incomes or multiple jobs, may be more vulnerable to being under-withheld or over-withheld following these major law changes. The IRS encourages a “paycheck checkup” as early as possible to help taxpayers check if they are having the correct amount withheld for their personal financial situations.

If a taxpayer needs to adjust their paycheck withholding amount, doing so earlier gives more time for withholding to take place evenly throughout the year. Waiting means there are fewer pay periods to make the tax changes – which could have a bigger effect on each paycheck. 

The tax law changes generally don’t affect 2017 returns that people are filing in 2018. The changes affect 2018 returns, which taxpayers will file in 2019.

Withholding Calculator

The Withholding Calculator is the easiest, most accurate way for taxpayers with these complicated tax situations to determine their correct withholding amount. The tool allows users to enter income from multiple jobs or from two employed spouses. It also ensures that these taxpayers apply their 2018 tax deductions, adjustments and credits only once – rather than multiple times with different employers. 

The calculator will recommend how to complete a new Form W-4 for any or all of their employers, if needed. If a couple or taxpayer is at risk of being under-withheld, the calculator will recommend an additional amount of tax withholding for each job. Taxpayers can enter these amounts on their respective Forms W-4. 


To use the Withholding Calculator, taxpayers should have their 2017 tax returns and most recent paystubs available. 

The calculator doesn’t request personally identifiable information, such as name, Social Security number, address or bank account numbers. The IRS does not save or record information entered in the calculator. Taxpayers should watch out for tax scams, especially via email or phone, and be especially alert to cyber-criminals impersonating the IRS. The IRS doesn’t send emails related to the calculator or the information entered.

Withholding Calculator results depend on the accuracy of information entered. Taxpayers whose personal circumstances change during the year should return to the calculator to check whether their withholding should be adjusted.

Adjusting Withholding 

Employees who need to complete a new Form W-4 should submit it to their employers as soon as possible. Employees with a change in personal circumstances that reduce the number of withholding allowances must submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.

As a general rule, the fewer withholding allowances an employee enters on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 means more tax withheld. Entering a larger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.

Do's and Don’ts for Taxpayers Who Get a Letter from the IRS

 

Every year the IRS mails millions of letters to taxpayers for many reasons. Here are some tips and suggestions for taxpayers who receive one:

Don’t ignore it. Most IRS letters and notices are about federal tax returns or tax accounts. Each notice deals with a specific issue and includes specific instructions on what to do.

Don’t panic. The IRS and its authorized private collection agencies do send letters by mail. Most of the time all the taxpayer needs to do is read the letter carefully and take the appropriate action.

Do take timely action. A notice may reference changes to a taxpayer’s account, taxes owed, a payment request or a specific issue on a tax return. Taking action timely could minimize additional interest and penalty charges.

Do review the information. If a letter is about a changed or corrected tax return, the taxpayer should review the information and compare it with the original return. If the taxpayer agrees, they should make notes about the corrections on their personal copy of the tax return, and keep it for their records.

Don’t reply unless instructed to do so. There is usually no need for a taxpayer to reply to a notice unless specifically instructed to do so. On the other hand, taxpayers who owe should reply with a payment.

Do respond to a disputed notice. If a taxpayer does not agree with the IRS, they should mail a letter explaining why they dispute the notice. They should mail it to the address on the contact stub at the bottom of the notice. The taxpayer should include information and documents for the IRS to review when considering the dispute. The taxpayer should allow at least 30 days for the IRS to respond.

Do remember that there is usually no need to call the IRS. If a taxpayer must contact the IRS by phone, they should use the number in the upper right-hand corner of the notice. The taxpayer should have a copy of the tax return and letter when calling.

Do avoid scams. The IRS will never initiate contact using social media or text message. The first contact from the IRS usually comes in the mail.

Resources for Disabled Veterans

 

If you are a disabled veteran, there are several IRS resources available to assist you.

Resources

  • Volunteer Income Tax Assistance – You can get free help in preparing your income tax returns.

 

  • Accessible Tax Products – You can access all pages, documents, forms, and publications in IRS.gov using alternate formats for people with disabilities.

 

  • IRS Veterans Employment Program Office – You may qualify for internships or non-competitive positions at the IRS if you are a veteran and have a VA recognized disability. These opportunities help veterans who qualify for one or more of the three special hiring authorities to become gainfully employed.

Unemployment Compensation

 

Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a state. It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund. It also includes railroad unemployment compensation benefits, but not worker's compensation.

Supplemental unemployment benefits received from a company financed fund are not considered unemployment compensation for this purpose. These benefits are fully taxable as wages, and are reported on Form W-2, Wage and Tax Statement.

Unemployment benefits from a private fund to which you voluntarily contribute are taxable only if the amounts you receive are more than your total payments into the fund. This taxable amount is not unemployment compensation; it is reported as other income on Form 1040, Individual Income Tax Return.

If you received unemployment compensation during the year, you should receive Form 1099-G, showing the amount you were paid. Any unemployment compensation received must be included in your income.

If you received unemployment compensation, you may be required to make quarterly estimated tax payments.

However, you can choose to have federal income tax withheld. For more information, refer to Form W-4V, Voluntary Withholding Request.

What are My Self-Employed Tax Obligations?

 

As a self-employed individual, generally you are required to file an annual return and pay estimated tax quarterly.

Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners. In general, anytime the wording "self-employment tax" is used, it only refers to Social Security and Medicare taxes and not any other tax (like income tax).

Before you can determine if you are subject to self-employment tax and income tax, you must figure your net profit or net loss from your business. You do this by subtracting your business expenses from your business income. If your expenses are less than your income, the difference is net profit and becomes part of your income. If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income. But in some situations your loss is limited.

You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the instructions.

How Do I Make My Quarterly Payments?

 

Estimated tax is the method used to pay Social Security and Medicare taxes and income tax, because you do not have an employer withholding these taxes for you. Form 1040-ES, Estimated Tax for Individuals, is used to figure these taxes. You will need your prior year’s annual tax return in order to fill out Form 1040-ES.

Use the worksheet found in Form 1040-ES, Estimated Tax for Individuals to find out if you are required to file quarterly estimated tax.

Form 1040-ES also contains blank vouchers you can use when you mail your estimated tax payments. If this is your first year being self-employed, you will need to estimate the amount of income you expect to earn for the year. If you estimated your earnings too high, simply complete another Form 1040-ES worksheet to re-figure your estimated tax for the next quarter. If you estimated your earnings too low, again complete another Form 1040-ES worksheet to recalculate your estimated taxes for the next quarter.

Interest on Home Equity Loans Often Still Deductible Under New Law

 

The Internal Revenue Service today advised taxpayers that in many cases they can continue to deduct interest paid on home equity loans.

Responding to many questions received from taxpayers and tax professionals, the IRS said that despite newly-enacted restrictions on home mortgages, taxpayers can often still deduct interest on a home equity loan, home equity line of credit (HELOC) or second mortgage, regardless of how the loan is labelled. The Tax Cuts and Jobs Act of 2017, enacted Dec. 22, suspends from 2018 until 2026 the deduction for interest paid on home equity loans and lines of credit, unless they are used to buy, build or substantially improve the taxpayer’s home that secures the loan.

Under the new law, for example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. As under prior law, the loan must be secured by the taxpayer’s main home or second home (known as a qualified residence), not exceed the cost of the home and meet other requirements.

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