Get Ready for Taxes: Learn how the new tax law affects tax returns next year

WASHINGTON –The Internal Revenue Service today advised taxpayers about steps they can take now to ensure smooth processing of their 2018 tax return and avoid surprises when they file next year.

This is the first in a series of reminders to help taxpayers get ready for the upcoming tax filing season. Additionally, the IRS has recently updated a special page on its website with steps to take now for the 2019 tax filing season.

New IRS Publication 5307 helps individuals understand Tax Cuts and Jobs Act

Major tax reform that affects both individuals and businesses was approved by Congress and signed by the President on Dec. 22, 2017. It’s commonly referred to as the Tax Cuts and Jobs Act, or TCJA, or tax reform. Throughout 2018, the IRS has been working closely with partners in the tax return preparation and tax software industries to implement the new law and ensure taxpayers can count on the IRS, tax professionals and tax software programs when it’s time to file their returns. Now there is a new publication that will help taxpayers learn how tax reform affects their taxes. IRS Publication 5307, Tax Reform Basics for Individuals and Families, is now available on IRS.gov/getready. While the Tax Cuts and Jobs Act law includes tax changes for individuals and businesses, this publication breaks down what’s new for the 2018 federal tax return individual taxpayers will be filing in 2019.

This new publication provides important information about:

  • increasing the standard deduction,
  • suspending personal exemptions,
  • increasing the child tax credit,
  • adding a new credit for other dependents and
  • limiting or discontinuing certain deductions.

Taxpayers can access Publication 5307 at IRS.gov/getready, along with other important information about steps taxpayers can take now to ensure smooth processing of their 2018 tax return and avoid surprises when they file next year.

Because of the many changes in the tax law, refunds may be different than prior years for some taxpayers. Some may even owe an unexpected tax bill when they file their 2018 tax return next year. To avoid these kind of surprises, taxpayers should perform a Paycheck Checkup to help determine if they need to adjust their withholding or make estimated or additional tax payments now.

Gather documents

The IRS urges all taxpayers to file a complete and accurate tax return by making sure they have all the needed documents before they file their return, including their 2017 tax return. This includes year-end Forms W-2 from employers, Forms 1099 from banks and other payers, and Forms 1095-A from the Marketplace for those claiming the Premium Tax Credit. Confirm that each employer, bank or other payer has a current mailing address for you. Typically, these forms start arriving by mail in January. Check them over carefully, and if any of the information shown is inaccurate, contact the payer right away for a correction.

To avoid refund delays, taxpayers should avoid using incomplete records and instead wait to file until they have gathered all year-end income documentation. This will minimize the chances they will need to file an amended return later which is extra work for taxpayers and can take up to 16 weeks to process once the IRS receives it.

Taxpayers should keep a copy of any filed tax return and all supporting documents for a minimum of three years. Having your prior year return will make it easier to fill out your 2018 tax return next year. In addition, taxpayers using a software product for the first time may need the Adjusted Gross Income (AGI) amount from their 2017 return to properly e-file their 2018 return. Learn more about verifying identity and electronically signing a return at Validating Your Electronically Filed Tax Return.

For a faster refund, choose e-file

Electronically filing a tax return is the most accurate way to prepare and file. Errors delay refunds and the easiest way to avoid them is to e-file. Using tax preparation software is the best and simplest way to file a complete and accurate tax return. The software guides taxpayers through the process and does all the math. The IRS is working with the tax community to incorporate the tax law changes and form updates. Nearly 90 percent of all returns are electronically filed.

There are several e-file options:

Use Direct Deposit

Combining Direct Deposit with electronic filing is the fastest way for a taxpayer to get their refund. With Direct Deposit, a refund goes directly into a taxpayer’s bank account. There’s no reason to worry about a lost, stolen or undeliverable refund check. This is the same electronic transfer system now used to deposit nearly 98 percent of all Social Security and Veterans Affairs benefits. Nearly four out of five federal tax refunds are Direct Deposited.

Direct Deposit also saves taxpayer dollars. It costs the nation’s taxpayers more than $1 for every paper refund check issued but only a dime for each Direct Deposit.

Renew expiring ITINs

Some people with an Individual Taxpayer Identification Number (ITIN) may need to renew it before the end of the year. Doing so promptly will avoid a refund delay and possible loss of key tax benefits.

Any ITIN not used on a federal tax return in the past three years will expire on Dec. 31, 2018. Similarly, any ITIN with middle digits 73, 74, 75, 76, 77, 81 or 82 will also expire at the end of the year. Anyone with an expiring ITIN who plans to file a return in 2019 will need to renew it using Form W-7.

Once a completed form is filed, it typically takes about seven weeks to receive an ITIN assignment letter from the IRS. But it can take longer — nine to 11 weeks — if an applicant waits until the peak of the filing season to submit this form or sends it from overseas. Taxpayers should take action now to avoid delays.

Taxpayers who fail to renew an ITIN before filing a tax return next year could face a delayed refund and may be ineligible for certain tax credits. For more information, visit the ITIN information page on IRS.gov.

Refunds held for those claiming EITC or ACTC until mid-February

By law, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund — even the portion not associated with EITC or ACTC. This law change, which took effect at the beginning of 2017, helps ensure that taxpayers receive the refund they’re due by giving the IRS more time to detect and prevent fraud.

As always, the IRS cautions taxpayers not to rely on getting a refund by a certain date, especially when making major purchases or paying bills. Be aware that some returns may require additional review for a variety of reasons and may take longer. For example, the IRS, along with its partners in the state’s and the nation’s tax industry, continue to strengthen security reviews to help protect against identity theft and refund fraud.

Reminder: Today is the filing deadline for people with extensions

Anyone who requested an extension of time to file their 2017 tax return must file today. Taxpayers filing today who also owe should pay as much as possible to reduce interest and penalties.

Here are links to three resources on IRS.gov that will help these last-minute filers:

Heads up for taxpayers who requested an extension: The deadline is Oct 15- TODAY!

Today, October 15, is the filing deadline for taxpayers who requested an extension for their 2017 tax return. Here are a few things to help you get filed!

Try IRS Free File or e-file. Taxpayers can e-file their tax return for free through IRS Free File. The program is available on IRS.gov through Oct. 15. IRS e-file is easy, safe and the most accurate way to file taxes.

File by Oct. 15. Taxpayers with extensions should file their tax returns by Monday, Oct. 15. If they owe, they should pay as much as possible to reduce interest and penalties. IRS Direct Pay allows individuals to securely pay from their checking or savings accounts. These taxpayers can consider an installment agreement, which allows them to pay over time.

There is more time for the military. Military members and those serving in a combat zone generally get more time to file. These taxpayers typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.

There is also more time in certain disaster areas. People who have an extension and live or work in a disaster area often have more time to file. The disaster relief page on IRS.gov has more information. Hurricane Michael victims have more time.

Taxpayers owed a refund should use Direct Deposit. The fastest way for taxpayers to get their refund is to combine direct deposit and e-file.

There are IRS online payment options for taxpayers who owe. Taxpayers who requested an extension should have paid the tax they owed by the deadline back in April. Taxpayers who find they still owe taxes can pay them with IRS Direct Pay. It’s the simple, quick and free way to pay from a checking or savings account. For other payment options, taxpayers can visit the Paying Your Taxespage on IRS.gov.

Keep a copy of tax return. Taxpayers should keep a copy of their tax return and all supporting documents for at least three years.

Taxpayers can view their account information. Individual taxpayers can go to IRS.gov/account and login to view their balance, payment history, pay their taxes and access tax records through Get Transcript. Before setting up an account, taxpayers should review Secure Access: How to Register for Certain Online Self-Help Tools to make sure they have the information needed to verify their identities.

Don’t understand the different tax filing statuses?

Here are tips the IRS gives to help you understand the different tax filings statuses.

Taxpayers don’t typically think about their filing status until they file their taxes. However, a taxpayer’s status could change during the year, so it’s always a good time for a taxpayer to learn about the different filing statuses and which one they should use.

It’s important a taxpayer uses the right filing status because it can affect the amount of tax they owe for the year. It may even determine if they must file a tax return at all. Taxpayers should keep in mind that their marital status on Dec. 31 is their status for the whole year.

Sometimes more than one filing status may apply to taxpayers. When that happens, taxpayers should choose the one that allows them to pay the least amount of tax.

Here’s a list of the five filing statuses and a description of who claims them:

  • Single. Normally this status is for taxpayers who aren’t married, or who are divorced or legally separated under state law.
  • Married Filing Jointly. If taxpayers are married, they can file a joint tax return. When a spouse passes away, the widowed spouse can usually file a joint return for that year.
  • Married Filing Separately. A married couple can choose to file two separate tax returns. This may benefit them if it results in less tax owed than if they file a joint tax return. Taxpayers may want to prepare their taxes both ways before they choose. They can also use this status if each wants to be responsible only for their own tax.
  • Head of Household. In most cases, this status applies to a taxpayer who is not married, but there are some special rules. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person. Taxpayers should check all the rules and make sure they qualify to use this status.
  • Qualifying Widow(er) with Dependent Child. This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions also apply.

 

Facts to help taxpayers understand Individual Retirement Arrangements

Individual Retirement Arrangements – better known simply as IRAs – are accounts into which someone can deposit money to provide financial security when they retire. A taxpayer can set up an IRA with a:

  • bank or other financial institution
  • life insurance company
  • mutual fund
  • stockbroker

Here are some terms and definitions related to IRAs to help people learn more about how the arrangements work:

Traditional IRA: Contributions to a traditional IRA may be tax-deductible. The amounts in a traditional IRA are not generally taxed until you take them out of the account.

Savings Incentive Match Plan for Employees: commonly known as a SIMPLE IRA. It allows employees and employers to contribute to traditional IRAs set up for employees. It is ideal as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.

Simplified Employee Pension: Better known simply as an SEP-IRA, it is a written plan that allows an employer to make contributions toward their own retirement and their employees’ retirement without getting involved in a more complex qualified plan. An SEP is owned and controlled by the employee.

ROTH IRA: An IRA that is subject to the same rules as a traditional IRA with certain exceptions. For example, a taxpayer cannot deduct contributions to a Roth IRA. However, if the IRA owner satisfies certain requirements, qualified distributions are tax-free.

Contribution: The amount of money someone puts into their IRA. There are limits to the amount that someone can put into their IRA annually. These limits are based on the age of the IRA holder and the type of IRA they have.

Distribution: Essentially a withdrawal. This is the amount someone takes out from their IRA.

Required distribution: A taxpayer cannot keep retirement funds in their account indefinitely. Someone with an IRA generally must start taking withdrawals from their IRA when they reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

Rollover: This is when the IRA owner receives a payment from retirement plan and deposits it into a different IRA within 60 days.

More Information:

IRS warns of scams related to natural disasters

WASHINGTON ― In the wake of Hurricane Florence, the Internal Revenue Service is reminding taxpayers that criminals and scammers try to take advantage of the generosity of taxpayers who want to help victims of major disasters.

Fraudulent schemes normally start with unsolicited contact by telephone, social media, e-mail or in-person using a variety of tactics.

  • Some impersonate charities to get money or private information from well-intentioned taxpayers.
  • Bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information.
  • They even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.
  • Others operate bogus charities and solicit money or financial information by telephone or email.

Help for disaster victims

Comprehensive information on disaster-related tax issues, including provisions for tax relief, can be found on the disaster relief page on IRS.gov. In the case of a federally declared disaster, affected taxpayers may also call the IRS Special Services Help Line, 866-562-5227, with disaster-related tax questions. Details on available relief can be found on the disaster relief page on IRS.gov.

Donate to real charities

To help taxpayers donate to legitimate charities, the IRS website, IRS.gov, has a search feature, Tax Exempt Organization Search, that helps users find or verify qualified charities. Donations to these charities may be tax-deductible.

  • Contribute by check or credit card. Never give or send cash.
  • Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution.

Taxpayers suspecting fraud by email should visit IRS.gov and search for the keywords “Report Phishing.” More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.”

Six Things For Extension Filers To Remember

Oct. 15 is almost here, and it’s the last day to file for most people who requested an automatic six-month extension for their 2017 tax returns. These taxpayers should remember that they can file any time before Oct. 15 if they have all their required tax documents. They can also pay their tax bill in full, or make a partial payment, anytime, by visiting IRS.gov/payments.

As extension filers prepare to file, here are some things they should know:

  • They can still use IRS Free File.  Nearly everyone can e-file their tax return for free through IRS Free File. The program is available on IRS.gov now through Oct. 15IRS e-file is easy, safe and the most accurate way for people to file their taxes. E-file also helps people get all the tax benefits they’re entitled to claim.
  • A refund may be waiting.  Anyone due a refund should file as soon as possible to get their money. The sooner someone files, the sooner they’ll get it. Don’t forget to use Direct Deposit. It is the best and fastest way for taxpayers to get their tax refund electronically deposited for free into their financial account.
  • They should consider IRS Direct Pay.  Taxpayers who owe taxes can pay them with IRS Direct Pay. It’s the simple, quick and free way to pay from a checking or savings account. Taxpayers can just click on the ‘Pay’ at IRS.gov.
  • Here’s what taxpayers should do about a missed deadline. Anyone who did not request an extension by this year’s April 17 deadline should file and pay as soon as possible. This will stop additional interest and penalties from adding up. IRS Direct Pay offers a free, secure and easy way to pay taxes directly from a checking or savings account. There is no penalty for filing a late return for people who are due a refund.
  • Taxpayers should remember the Oct. 15 Deadline.  Taxpayers who aren’t ready to file yet should remember to file by Oct. 15 to avoid a failure-to-file penalty. Taxpayers who owe and can’t pay their balance in full should pay as much as they can to reduce interest and penalties for late payment. They can use the Online Payment Agreement tool to apply for more time to pay or set up an installment agreement. In most cases, the failure-to-file penalty is 10 times more than the failure-to-pay penalty.
  • More Time for the MilitaryMembers of the military and others serving in a combat zone get more time to file. These taxpayers typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.