Some people want to "break even" at tax time. Others prefer to over withhold as a financial planning tool so they can save up for some thing big. That may work for some people, others not so much. These are the top 7 things my informal survey reveals people save their refunds for: 1) Pay Back Rent, 2) Pay for Car Repairs/Insurance/Etc., 3) Pay home Property Tax bill, 4) Pay for Christmas bills, 5) Pay down credit cards, 6) Pay for/save for a vacation, 7) Pay to fix up/remodel house. You have to go all the way to number 6 before that refund is spent on something fun!
Fraudulent refunds in the area of the Earned Income Credit (which requires kids) and in the corresponding Additional Child Tax Credit are generating $20 Billion in improper claims in 2013--yes $20 Billion. This fraud is escalating rapidly -- from approximately $5 Billion in 2011 and just under a million in 2010. I had a single client that was unemployed for 2 years due to a serious illness. During the time he was sick, someone got a hold of his social and filed two years of fraudulent returns on his "behalf". The IRS agent accidentally let it slip, while I was trying to clear up his situation, that it was an EIC return ("He has two children correct? And his income was $X? No and no.) I know advise all clients to file every year--even senior citizens who don't need to file, those under the requirement cap, those on non-taxable disability income due to injury to file a tax return, even if they have to write in $1 in interest to make it e-file. All to protect them from someone "bad" somehow, someway grabbing their socials. As citizens, we should file a letter writing campaign to demand that these refundable credits be converted to funds that welfare agencies can more monitor and distribute directly to those in need with proof of both need and identity.
Form 1095-A will begin being mailed out starting January 20th. This form will serve as proof of insurance for tax payers as well as specify how much federal subsidies they received for their health insurance. If there were months you didn't have coverage and you believe it to be the fault of the exchange or the insurer, you can contact Covered California and request an exemption. There are more than 30 potential exemptions available ranging from religious reasons to financial reasons. Whether you receive too much or too little federal subsidies for your insurance purchase, will be calculated in your 2014 tax return resulting in your refund going either up or down as a result. There will be some unhappy folks should the adjustment turn the refund they were counting on to pay bills into an IOU to the IRS.
There was so much misinformation out there last year as folks were signing up for insurance through Covered California courtesy of the Affordable Care Act. Surprises are going to be in-store for some good citizens in the form of health care penalties as a result. For example, just Friday, a client came in and got hit with a plus $500 penalty. She was claiming her boyfriend as a dependent who did not work and who they both thought could not get insurance because of the lack of income. Since he was on her return, the health law deems that she is the responsible for insuring all those on her return were covered. I signed him up with a great affordable plan within minutes. Another single client came in and didn't realize he could get insurance until very late in the year. He got hit with a prorated penalty for the months he wasn't covered. I just hope there aren't too many surprises instore for folks out there.
I just finished cleaning up and/or closing down a series of corporations opened by a client who had used one of the on-line incorporating sites. It's not the first time I've had to clean up and change a LLC to an S Corp a C Corp to a LLC or an LLC to a S Corp and around and around we can go. Each return had an $800 or more Franchise Tax Fee to clear up among other things. Over the course of the last 50 years we as a nation have become more and more self-serve and technology has certainly advanced in many cases for us to do so. I believe it started out with self-serve gas. Then before you knew it, it became self-serve sodas, self-serve restaurants, self-serve photo development, self-serve publishing, etc. There are two things I firmly believe should not be self-serve for many people. Self-serve legal advice can be very tricky. When people incorporate through an on-line legal site, I always advise them to also hire an attorney to review and revise the standard operating agreement which is beyond generic to cover what happens in the case of death, divorce, marriage or the desertion of a partner as well as a slew of other standard bullet points. The operating agreement .
The IRS funding was cut again for 2015. The budget of the IRS now stands at about the level it did in 2008! The tax payer service's budget actually increased a puny 1.6% but that won't be enough to decrease the insane wait times we now all experience to get through or to reinstate any of the help-the-tax-payer call centers designed to help regular folk not make mistakes filling out their tax returns. Oops, I guess that might mean a few more people will need to enlist the help of a tax accountant professional this year....just saying:) Funding for enforcement was once again slashed....this time by about 5%. What does that mean for you? Lower risk of being audited. In fact, the exam rate fell below 1% in 2013 and with this year's budget cuts should fall even more this year. So happy e-filing.
Most key tax breaks initiated as part of the great recession fix have been continued for one more year. These include: forgiven debt on personal residence, 50% bonus depreciation, American Opportunity Credit for certain higher education expenses, EIC for third child and more. This is good news. When these finally go away many tax payers will be shocked, surprised and/or saddened depending on their unique situation. We tax accountants may have to supply a shoulder to cry upon.
The IRS has updated its e-filing start date to January 20th. This is good news for those tax payers anxious to receive a refund. Note though that the IRS has stated it will have a team of 3,000 targeting tax identity theft. Like last year, this will very likely result in a large percentage of early refunds being set aside for additional inspection.
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New and Noteworthy:
>IRS opens for e-Filing starting January 30th. First refund checks are expected to be released 2 – 4 weeks after that date. IRS will continue to hold up the release of a good number of returns refunds as part of its identify theft reduction program.
>Affordable Care Act (Obama Care) Open Enrollment period is on NOW until February 15th! Call to enroll or renew Certified Enrollment counselors available by appointment only.
>College Students: IRS wants both box 1 and 2 to be filled out by your institutions. If the amount paid box is empty, please contact your school or download from your student portable proof of your expenditures to keep handy in case the IRS sends a letter requesting more information.
>Identify theft still causing major headaches. IRS is asking preparers to get copies of socials, driver’s licenses and proof of residency if you receive the Earned Income Credit.
This just in...The IRS is officially accepting e files beginning on the very late date of January 22nd. This is about a working week later than last year. They are also advising that it will take 21 days to get refunds. Last year, the IRS refund cycle chart ran in about a 14 day window. With W2, investment, banking and mortgage statements arriving earlier and earlier, this is going against the trend trend of tax payers wanting to get their taxes preparered earlier and earlier. Tax Accountants beware. Warn your early filers to delay those kitchen remodel projects they want to start on when their refund is received. I susspect the IRS opening later due to last years big software bug that delayed initial refunds by up to 3 weeks. Additionally, I suspect they are doing this because they intend to pull aside for additional inspection a great percentage of returns this year than last.