This article appears in the February 16, 2017, online addition of the Journal of Accountancy.
The IRS announced that it will not reject tax returns just because a taxpayer has not indicated on the return whether the taxpayer had health insurance, was exempt, or made a shared-responsibility payment under Sec. 5000A. The IRS disclosed the change on its webpage, ACA Information Center for Tax Professionals, in response to President Donald Trump’s Jan. 20 executive order mandating that federal agencies reduce the burden of the Patient Protection and Affordable Care Act, on taxpayers.
Sec. 5000A, enacted as part of PPACA, requires taxpayers who do not maintain minimum essential health coverage for each month of the year and who do not qualify for an exemption to pay a shared-responsibility payment with the filing of their Form 1040, U.S. Individual Income Tax Return.
If you are not a naturally organized person, keeping your tax records in one place might not be easy. However, gathering the appropriate records ahead of time will make it easier on yourself and help ensure the accuracy of your tax return. Choose a place to collect your records and include the following:
The basics: Full name, social security number, and date of birth for yourself and your spouse (if filing jointly).
Dependent(s) information: Dates of birth, social security or tax ID numbers, and childcare records.
Even though the IRS has started accepting tax returns, most of us aren't yet ready to file. There are, however, reasons to consider filing your return early. Here are some of the most common:
Get a faster refund: If you file in February or March, the IRS will not likely be as busy as they are in April or later. While new legislation delays receiving refunds for tax returns claiming the Earned Income Credit and the Additional Child Tax Credit until after February 15, the sooner your tax return is in the queue, the sooner you will receive your refund.
A deduction is allowed only if you keep proper records “substantiating” the deduction. In other words, maintain good paperwork. Recordkeeping for education expenses can be especially important, because federal tax benefits are available that can significantly reduce your tax liability. If you’re claiming benefits such as the American Opportunity Credit or the Lifetime Learning Credit, you must keep underlying documents proving your payments. Estimates or approximations do not qualify as proof.
Here are common items that can substantiate the amount you claim on your tax return.
Tuition statements. Retain these statements with proof of your check or credit card payment and match them to the Form 1098-T, Tuition Statement, received from the educational institution. Note: Beginning with your 2016 tax return, you’ll need to make sure that you receive Form 1098-T from the educational institution. Recently passed legislation requires that students have a valid Form 1098-T in order to claim tax benefits.
In addition to intangible benefits, charitable giving offers breaks that can help reduce the amount you owe on your federal income tax return. Along with your monetary donations, you may be able to deduct other expenses incurred in support of your favorite charity, such as vet bills for your local humane society, or lumber and nails for a charity that provides or improves housing.
As an illustration, in one tax court case, deductions were allowed for mileage at the prescribed IRS rate, as well as air fare, lodging, and meals during trips to benefit a charity, even though the charity did not initiate, control, supervise, or assist with the trips. Actions taken by the charity helped the court reach the favorable ruling. For example, the charity was qualified under IRS rules, and provided letters of commendation serving as introductions to other charitable groups. After the trip, the charity publicized the efforts to related charities.
Do you have a financial plan that works for both you and your spouse? Here are suggestions that can help.
1. Organize your finances. Get a handle on your income and spending, by both of you individually and as a couple. By reviewing the overall picture of how you spend money, you can focus on potential problem areas.
2. Set goals. How much will you accumulate in bank accounts and investments over the next three years? Five years? Ten years? Have you anticipated future expenses? Say, for example, you're dreaming of a vacation in Europe for your anniversary. You'll want to start saving now so you won't need to finance the trip with credit cards.
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