IRS Launches More Rigorous e-Authentication Process and Get Transcript Online

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WASHINGTON — With the assistance of top digital experts at U.S. Digital Service and other security authorities, the Internal Revenue Service today launched a more rigorous e-authentication process for taxpayers that will significantly increase protection against identity thieves impersonating taxpayers to access tax return information through the IRS Get Transcript online service.  This enhanced authentication process will also provide a foundation for additional IRS self-help services in the future.

After being disabled last spring, Get Transcript Online is now available for all users to access a copy of their tax transcripts and similar documents that summarize important tax return information. Today’s formal relaunch of Get Transcript Online addresses increased cybersecurity threats by using a new, more secure access framework. This framework enables the IRS to require a two-step authentication process for all online tools and applications that require a high level of assurance.

“The IRS is committed to the protection of taxpayer information and the security of our systems,” said IRS Commissioner John Koskinen. “Criminals are becoming increasingly sophisticated and continue to gather vast amounts of personal information as the result of data breaches at sources outside the IRS. In the face of that threat, we must provide the strongest possible authentication processes, while trying to enhance the ability of taxpayers to legitimately access their data and use IRS services online. We recognize that enhanced security will increase the challenge for taxpayers accessing our on-line services.”

While some taxpayers may now find it more difficult to authenticate their identities with this strengthened process, the IRS is committed to making sure everyone accessing the site will be able to do so in a safe and secure way. The IRS continues to support multiple options for those taxpayers who may be unable to access online features or who prefer to obtain information in more traditional ways. These options currently include ordering transcripts online or by phone for receipt by mail, which typically are delivered to the address of record within five to 10 days. The IRS continues to look for ways to expand options for all taxpayers.

“The incident with Get Transcript Online illustrates a wider truth about identity theft in general, which is that there are no perfect systems,” Koskinen said. “No one, either in the public or private sector, can give an absolute guarantee that a system will never be compromised. For that reason, we continue our comprehensive efforts to update the security of our systems, protect taxpayers and their data and investigate crimes related to stolen identity refund fraud.”

Tax transcripts are summaries of tax returns. Transcripts often are used for non-tax purposes, such as income validation for mortgages or student loans. Taxpayers also can use transcripts to obtain their prior-year adjusted gross income (AGI), which they need in order to e-file their tax returns.

Starting last year, the IRS began working with U.S. Digital Service to create a new e-authentication platform for Get Transcript and other IRS.gov tools. U.S. Digital Service is a branch under the Office of Management and Budget (OMB) that brings some of the private sector’s best tech experts into government to resolve complex issues facing federal agencies. The new secure access process meets the security standards set by the National Institute of Standards and Technology (NIST) and the OMB.

To access the new Get Transcript Online feature, taxpayers must have an email address, a text-enabled mobile phone and specific financial account information, such as a credit card number or certain loan numbers. Taxpayers who registered using the older process will need to re-register and strengthen their authentication in order to access the tool.

As part of the new multi-factor process, the IRS will send verification, activation or security codes via email and text. The IRS warns taxpayers that it will not initiate contact via text or email asking for log-in information or personal data. The IRS texts and emails will only contain one-time codes.

See Fact Sheet 2016-20 for details on what you need to successfully access Get Transcript Online.

New features also allow taxpayers to see the date and time the Get Transcript Online page was last accessed. Returning users must always receive and enter a text code prior to being able to obtain access.

The IRS maintains a multi-pronged, strategic approach to combating identity theft and assisting taxpayers who become victims. Last year, the IRS, state tax agencies and the tax industry joined forces for a Security Summit Initiative that identified and enacted new security safeguards for taxpayers in 2016.  The Security Summit partners are currently exploring additional safeguards for 2017.

For further information or assistance, please call us at 310.820.1080 or Toll Free at 877.305.1040 or you may also email us at info@onts9.com

IRS Warns of Latest Scam Variation Involving Bogus “Federal Student Tax”

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WASHINGTON — The Internal Revenue Service today issued a warning to taxpayers about bogus phone calls from IRS impersonators demanding payment for a non-existent tax, the “Federal Student Tax.”

Even though the tax deadline has come and gone, scammers continue to use varied strategies to trick people, in this case students. In this newest twist, they try to convince people to wire money immediately to the scammer. If the victim does not fall quickly enough for this fake “federal student tax”, the scammer threatens to report the student to the police.

“These scams and schemes continue to evolve nationwide, and now they’re trying to trick students,” said IRS Commissioner John Koskinen. “Taxpayers should remain vigilant and not fall prey to these aggressive calls demanding immediate payment of a tax supposedly owed.”

Scam artists frequently masquerade as being from the IRS, a tax company and sometimes even a state revenue department. Many scammers use threats to intimidate and bully people into paying a tax bill. They may even threaten to arrest, deport or revoke the driver’s license of their victim if they don’t get the money.

Some examples of the varied tactics seen this year are:

  • Demanding immediate tax payment for taxes owed on an iTunes gift card.
  • Soliciting W-2 information from payroll and human resources professionals (IR-2016-34) 
  • “Verifying” tax return information over the phone (IR-2016-40) 
  • Pretending to be from the tax preparation industry (IR-2016-28) 

The IRS urges taxpayers to stay vigilant against these calls and to know the telltale signs of a scam demanding payment.

The IRS Will Never:

  • Call to demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for credit or debit card numbers over the phone.

If you get a phone call from someone claiming to be from the IRS and asking for money and you don’t owe taxes, here’s what you should do:

  • Do not give out any information. Hang up immediately.
  • Contact TIGTA to report the call. Use their IRS Impersonation Scam Reporting web page or call 800-366-4484.
  • Report it to the Federal Trade Commission by visiting FTC.gov and clicking on “File a Consumer Complaint.” Please add “IRS Telephone Scam” in the notes.
  • If you think you might owe taxes, call the IRS directly at 1-800-829-1040.

For further information or assistance, please call us at 310.820.1080 or Toll Free at 877.305.1040 or you may also email us at info@onts9.com

IRS to Hold Webinar on May 25 to Assist International Taxpayers; June Filing Deadlines Nearing for Most Americans Abroad

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WASHINGTON — The Internal Revenue Service on Wednesday will hold a free online, web-based information session to assist U.S. overseas taxpayers in understanding their filing obligations.

The webinar will take place on May 25, 2016, from 1-3 p.m. EDT, (18:00-2100 hours UTC-0). To attend this webinar, taxpayers or tax professionals interested in learning more about these requirements, should log in using the Overseas Taxpayers webinar link. It is recommended attendees log in 10 minutes prior to the start time.

The session will be recorded and made available at a later time.

The IRS also today reminded U.S. citizens and resident aliens, including those with dual citizenship who have lived or worked abroad during all or part of 2015, that they may have a U.S. tax liability and a filing requirement in 2016. The IRS encourages taxpayers with foreign assets, even relatively small amounts, to check if they have an FBAR and/or FATCA filing requirement.

Most People Abroad Need to File

A filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit , that substantially reduce or eliminate their U.S. tax liability. These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return.

The filing deadline is Wednesday, June 15, 2016, for U.S. citizens and resident aliens whose tax home and abode are outside the United States and Puerto Rico, and for those serving in the military outside the U.S. and Puerto Rico. To use this automatic two-month extension, taxpayers must attach a statement to their return explaining which of these two situations applies. See U.S. Citizens and Resident Aliens Abroad for details.

Nonresident aliens who received income from U.S. sources in 2015 also must determine whether they have a U.S. tax obligation. The filing deadline for nonresident aliens can be April 18, 2016, or June 15, 2016, depending on sources of income. See Taxation of Nonresident Aliens on IRS.gov.

Special Reporting for Foreign Accounts and Assets

Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

Taxpayers with an interest in, or signature or other authority over, foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2015 must file with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). It is due to the Treasury Department by June 30, 2016, must be filed electronically and is only available online through the BSA E-Filing System website. For details regarding the FBAR requirements, see Report of Foreign Bank and Financial Accounts (FBAR).

In addition, under the Foreign Accounts Tax Compliance Act (FATCA), certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets.  Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Expatriate Reporting

Taxpayers who relinquished their U.S. citizenship or ceased to be lawful permanent residents of the United States during 2015 must file a dual-status alien return, attaching Form 8854, Initial and Annual Expatriation Statement. A copy of the Form 8854 must also be filed with Internal Revenue Service Philadelphia, PA 19255-0049, by the due date of the tax return (including extensions). See the instructions for this form and Notice 2009-85, Guidance for Expatriates under Section 877A, for further details.

We are here for all your Tax and Accounting needs all year round. For further information or assistance, please call us at 310.820.1080 or Toll Free at 877.305.1040 or you may also email us at info@onts9.com

May 16 Is Filing Deadline for Many Tax-Exempt Organizations; Do Not Include Social Security Numbers or Personal Data

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WASHINGTON — The Internal Revenue Service today reminded tax-exempt organizations that many have a filing deadline for Form 990-series information returns in mid-May.

With the May 16 filing deadline facing many tax-exempt organizations, the IRS today cautioned these groups not to include Social Security numbers (SSNs) or other unneeded personal information on their Forms 990, and consider taking advantage of the speed and convenience of electronic filing.

Form 990-series information returns and notices are due on the 15th day of the fifth month after an organization’s tax year ends. Many organizations use the calendar year as their tax year, making May 15 the deadline for them to file for 2015. However, because May 15 falls on a Sunday, the deadline this year moves to Monday, May 16.

Many Groups Risk Loss of Tax-Exempt Status

By law, organizations that fail to file annual reports for three consecutive years will see their federal tax exemptions automatically revoked as of the due date of the third required filing. The Pension Protection Act of 2006 mandates that most tax-exempt organizations file annual Form 990-series information returns or notices with the IRS. The law, which went into effect at the beginning of 2007, also imposed a new annual filing requirement for small organizations. Churches and church-related organizations are not required to file annual reports.

No Social Security Numbers on Forms 990

The IRS generally does not ask organizations for SSNs and, in the Form 990 instructions, and cautions filers not to provide them on the form. By law, both the IRS and most tax-exempt organizations are required to publicly disclose most parts of Form 990 filings, including schedules and attachments. Public release of SSNs and other personally identifiable information about donors, clients or benefactors could give rise to identity theft.

The IRS also urges tax-exempt organizations to file forms electronically in order to reduce the risk of inadvertently including SSNs or other unneeded personal information.

Tax-exempt forms that must be made public by the IRS are clearly marked “Open to Public Inspection” in the top right corner of the first page. These include Form 990, Form 990-EZ, Form 990-PF and others.

What to File

Small tax-exempt organizations with average annual gross receipts of $50,000 or less may file an electronic notice called a Form 990-N (e-Postcard), which asks organizations for a few basic pieces of information. Tax-exempt organizations with average annual gross receipts above $50,000 must file a Form 990 or 990-EZ depending on their receipts and assets. Private foundations must file Form 990-PF.

Organizations that need additional time to file a Form 990, 990-EZ or 990-PF may obtain an automatic three-month extension. An organization may also request an additional three-month extension; however, the organization must show reasonable cause for the additional time requested. Use Form 8868, Application for Extension of Time to File an Exempt Organization Return, to request extensions. The request for extension must be filed by the due date of the return. Note that no extension is available for filing the Form 990-N (e-Postcard).

We are here for all your Tax and Accounting needs all year round. For further information or assistance, please call us at 310.820.1080 or Toll Free at 877.305.1040 or you may also email us at info@onts9.com

 

Tax Brackets, Deductions, and Exemptions for 2016

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More than 50 tax provisions, including the tax rate schedules and other tax changes are adjusted for inflation in 2016. Let’s take a look at the ones most likely to affect taxpayers like you.

The tax rate of 39.6 percent affects singles whose income exceeds $415,050 ($466,950 for married taxpayers filing a joint return), up from $413,200 and $464,850, respectively. The other marginal rates–10, 15, 25, 28, 33 and 35 percent–and related income tax thresholds–are found at IRS.gov.

The standard deduction remains at $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly. The standard deduction for heads of household rises to $9,300, up from $9,250.The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).

The personal exemption for tax year 2016 rises to $4,050, up from the 2015 exemption of $4,000. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)

The Alternative Minimum Tax exemption amount for tax year 2016 is $53,900 and begins to phase out at $119,700 ($83,800, for married couples filing jointly for whom the exemption begins to phase out at $159,700). The 2015 exemption amount was $53,600 ($83,400 for married couples filing jointly). For tax year 2016, the 28 percent tax rate applies to taxpayers with taxable incomes above $186,300 ($93,150 for married individuals filing separately).

For 2016, the maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,242 for tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.

Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000, up from a total of $5,430,000 for estates of decedents who died in 2015.

For 2016, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $148,000, up from $147,000 for 2015.

For 2016, the foreign earned income exclusion rises to $101,300, up from $100,800 in 2015.

The annual exclusion for gifts remains at $14,000 for 2016.

The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains at $2,550.

Under the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,900 for tax year 2016, up from $25,800 for 2015.

Need help with tax planning in 2016?

Help is just a phone call away! Please feel free to contact us for more information at (877)305-1040 or email us at info@onts9.com

10 Tax Breaks Reauthorized for Tax Year 2015

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Congress finally took action in late December and passed a tax extender bill formally known as the Protecting Americans from Tax Hikes Act of 2015 (PATH), which was then signed into law. Retroactive to January 1, 2015, many tax provisions were made permanent while others were extended through 2016 or 2019. Let’s take a look at some of the tax provisions most likely to affect taxpayers when filing their 2015 tax returns.

1. Teachers’ Deduction for Certain Expenses
Primary and secondary school teachers buying school supplies out-of-pocket may be able to take an above-the-line deduction of up to $250 for unreimbursed expenses. An above the line deduction means that it can be taken before calculating adjusted gross income. This deduction was made permanent and indexed for inflation.

2. State and Local Sales Taxes 
The deduction for state and local sales taxes was made permanent by PATH. Taxpayers that pay state and local sales tax can deduct the amounts paid on their federal tax returns (instead of state and local income taxes)–as long as they itemize.

3. Mortgage Insurance Premiums
Mortgage insurance premiums (PMI) are paid by homeowners with less than 20 percent equity in their homes. These premiums were deductible in tax years 2013, 2014, and now, once again in 2015. This deduction was extended through 2016. Mortgage interest deductions for taxpayers who itemize are not affected.

4. Exclusion of Discharge of Principal Residence Indebtedness
Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision has been extended through 2016, allowing homeowners whose homes have been foreclosed on or subjected to short sale to exclude up to $2 million of canceled mortgage debt. Also included are taxpayers seeking debt modification on their home.

5. Distributions from IRAs for Charitable Contributions
Taxpayers who are age 70 1/2 or older can donate up to $100,000 in distributions from their IRA to charity. Some people do not want to take the mandatory minimum distributions (which are counted as income) upon reaching this age and instead can contribute it to charity, using it as a strategy to lower income enough to take advantage of other tax provisions with phaseout limits. This deduction was made permanent by PATH.

6. Parity for Mass Transit Fringe Benefits
This tax extender allows commuters who used mass transit in 2015 to exclude from income (up to $250 per month), transit benefits paid by their employers such as monthly rail or subway passes, making it on par with parking benefits (also up to $250 pre-tax). Like many other tax extenders, this provision was made permanent.

7. Energy Efficient Improvements (including Appliances
This tax break has been around for a while, but if you made your home more energy efficient in 2015, now is the time to take advantage of this tax credit on your 2015 tax return. The credit reduces your taxes as opposed to a deduction that reduces your taxable income and is 10 percent of the cost of building materials for items such as insulation, new water heaters, or a wood pellet stove.

Note: This tax is cumulative, so if you’ve taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. If, for example, you took a credit of $300 in 2013, the maximum credit you could take this year is $200.

8. Qualified Tuition and Expenses
The deduction for qualified tuition and fees, extended through 2016, is an above-the-line tax deduction, which means that you don’t have to itemize your deductions to claim the expense. Taxpayers with income of up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to $4,000 in expenses. Taxpayers with income over $130,000 but under $160,000 (joint) and over $65,000 but under $80,000 (single) can take a deduction up to $2,000; however, taxpayers with income over those amounts are not eligible for the deduction.

Qualified education expenses are defined as tuition and related expenses required for enrollment or attendance at an eligible educational institution. Related expenses include student-activity fees and expenses for books, supplies, and equipment as required by the institution.

9. Donation of Conservation Property
Also made permanent was a tax provision that allowed taxpayers to donate property or easements to a local land trust or other conservation organization and receive a tax break in return. Under this tax provision, deductions of qualified conservation contributions up to 50 percent of a taxpayer’s contribution base (100 percent for qualified farmers and ranchers) are allowed.

10. Small Business Stock
If you invested in a small business such as a start-up C-corporation in 2015, consider taking advantage of this tax provision on your 2015 tax return. If you held onto this stock for five years, you can exclude 100 percent of the capital gains–in other words, you won’t be paying any capital gains. This deduction was made permanent by PATH.

If you’re wondering whether you should be taking advantage of these and other tax credits and deductions, please call us  at (877)305-1040 or email info@onts9.com TODAY!

Tax Changes for 2016: A Checklist

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Welcome, 2016! As the New Year rolls around, it’s always a sure bet that there will be changes to current tax law and 2016 is no different. From health savings accounts to retirement contributions and standard deductions, here’s a checklist of tax changes to help you plan the year ahead.

Individuals

For 2016, more than 50 tax provisions are affected by inflation adjustments, including personal exemptions, AMT exemption amounts, and foreign earned income exclusion.

For 2016, the tax rate structure, which ranges from 10 to 39.6 percent, remains the same as in 2015, but tax-bracket thresholds increase for each filing status. Standard deductions and the personal exemption have also been adjusted upward to reflect inflation. For details see the article, “Tax Brackets, Deductions, and Exemptions for 2016,” below.

Alternative Minimum Tax (AMT)
Exemption amounts for the AMT, which was made permanent by the American Taxpayer Relief Act (ATRA) are indexed for inflation and allow the use of nonrefundable personal credits against the AMT. For 2016, the exemption amounts are $53,900 for individuals ($53,600 in 2015) and $83,800 for married couples filing jointly ($83,400 in 2015).

“Kiddie Tax” 
For taxable years beginning in 2016, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $1,050 (same as 2015). The same $1,050 amount is used to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax.” For example, one of the requirements for the parental election is that a child’s gross income for 2016 must be more than $1,050 but less than $10,500.

For 2016, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to “kiddie tax” is $2,100.

Health Savings Accounts (HSAs) 
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

For calendar year 2016, a qualifying HDHP must have a deductible of at least $1,300 for self-only coverage or $2,600 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,550 for self-only coverage and $13,100 for family coverage.

Medical Savings Accounts (MSAs) 
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).

Self-only coverage. For taxable years beginning in 2016, the term “high deductible health plan” means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,250 ($2,200 in 2015) and not more than $3,350 (up $50 from 2015), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,450 (same as 2015).

Family coverage. For taxable years beginning in 2016, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $4,450 (same as 2015) and not more than $6,700 (up $50 from 2015), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,150 (same as 2015).

AGI Limit for Deductible Medical Expenses
In 2016, the deduction threshold for deductible medical expenses remains at 10 percent (same as 2015) of adjusted gross income (AGI); however, if either you or your spouse were age 65 or older as of December 31, 2015, the new 10 percent of AGI threshold will not take effect until 2017. In other words, the 7.5 percent threshold that was in place in earlier tax years continues to apply for tax year 2016 for these individuals. In addition, if you or your spouse turns age 65 in 2016, the 7.5 percent of AGI threshold applies for that year (through 2016) as well. Starting in 2017, the 10 percent of AGI threshold applies to everyone.

Eligible Long-Term Care Premiums 
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2016, the limitation is $390. Persons more than 40 but not more than 50 can deduct $730. Those more than 50 but not more than 60 can deduct $1,460 while individuals more than 60 but not more than 70 can deduct $3,900. The maximum deduction is $4,870 and applies to anyone more than 70 years of age.

Medicare Taxes 
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly), which went into effect in 2013, remains in effect for 2016, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the new tax.

Foreign Earned Income Exclusion 
For 2016, the foreign earned income exclusion amount is $101,300, up from $100,800 in 2015.

Long-Term Capital Gains and Dividends
In 2016 tax rates on capital gains and dividends remain the same as 2015 rates; however threshold amounts are indexed for inflation. As such, for taxpayers in the lower tax brackets (10 and 15 percent), the rate remains 0 percent. For taxpayers in the four middle tax brackets, 25, 28, 33, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 39.6 percent, whose income is at or above $415,050 ($466,950 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Pease and PEP (Personal Exemption Phase-out) 
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been permanently extended (and indexed to inflation) for taxable years beginning after December 31, 2012, and in 2016, affect taxpayers with income at or above $259,400 for single filers and $311,300 for married filing jointly.

Estate and Gift Taxes 
For an estate of any decedent during calendar year 2016, the basic exclusion amount is $5,450,000, indexed for inflation (up from $5,430,000 in 2015). The maximum tax rate remains at 40 percent. The annual exclusion for gifts remains at $14,000.

Individuals – Tax Credits

Adoption Credit 
In 2016, a non-refundable (only those individuals with tax liability will benefit) credit of up to $13,460 is available for qualified adoption expenses for each eligible child.

Earned Income Tax Credit 
For tax year 2016, the maximum earned income tax credit (EITC) for low and moderate income workers and working families’ rises to $6,269, up from $6,242 in 2015. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Child Tax Credits 
For tax year 2016, the child tax credit is $1,000 per child.

The enhanced child tax credit was made permanent this year by the Protecting Americans from Tax Hikes Act of 2015 (PATH). In addition to a $1,000 credit per qualifying child, an additional refundable credit equal to 15 percent of earned income in excess of $3,000 has been available since 2009.

Child and Dependent Care Credit
If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2016. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Individuals – Education

American Opportunity Tax Credit and Lifetime Learning Credits 
The American Opportunity Tax Credit (formerly Hope Scholarship Credit) was extended to the end of 2017 by ATRA, but was made permanent by PATH in 2015. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000 per return.

Interest on Educational Loans 
In 2016 (as in 2015), the $2,500 maximum deduction for interest paid on student loans is no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($130,000 joint filers).

Individuals – Retirement

Contribution Limits 
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains at $18,000 . Contribution limits for SIMPLE plans remain at $12,500. The maximum compensation used to determine contributions remains at $265,000.

Income Phase-out Ranges 
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $61,000 and $71,000 (unchanged from 2015).

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range remains unchanged at $98,000 to $118,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s modified AGI is between $184,000 and $194,000, up from $183,000 and $193,000.

The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000 in 2015. For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000.

Saver’s Credit 
In 2016, the AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low and moderate income workers is $61,500 for married couples filing jointly, up from $61,000 in 2015; $46,125 for heads of household, up from $45,750; and $30,750 for married individuals filing separately and for singles, up from $30,500.

Businesses

Standard Mileage Rates 
The rate for business miles driven is 54 cents per mile for 2016, down from 57.5 cents per mile in 2015.

Section 179 Expensing 
The Section 179 expense deduction was made permanent at $500,000 by the Protecting Americans from Tax Hikes Act of 2015 (PATH). For equipment purchases, the maximum deduction is $500,000 of the first $2 million of qualifying equipment placed in service during the current tax year. The deduction is phased out dollar for dollar on amounts exceeding the $2 million threshold amount and eliminated above amounts exceeding $2.5 million. In addition, Section 179 is now indexed to inflation in increments of $10,000 for future tax years.

The 50 percent bonus depreciation has been extended through 2019. Businesses are able to depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016 and 2017. However, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019.

Work Opportunity Tax Credit (WOTC) 
Extended through 2019, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more), and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.

Research & Development Tax Credit

Starting in 2016, businesses with less than $50 million in gross receipts are able to use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.

Employee Health Insurance Expenses

For taxable years beginning in 2016, the dollar amount is $25,900. This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.

Employer-provided Transportation Fringe Benefits 
If you provide transportation fringe benefits to your employees, in 2016 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $255 and the monthly limitation for qualified parking is $255 (up $5 from 2015). Parity for employer-provided mass transit and parking benefits was made permanent by PATH.

While this checklist outlines important tax changes for 2016, additional changes in tax law are more than likely to arise during the year ahead. Don’t hesitate to call if you want to get an early start on tax planning for 2016!

 As we all know it is Tax Season and we are always here to help! We encourage you to send us all your tax information so we can process your tax return sooner. Please feel free to contact us for more information at (877)305-1040 or email us at info@onts9.com

Get to Know Your Taxpayer Bill of Rights

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Every taxpayer has a set of fundamental rights. The “Taxpayer Bill of Rights” takes the many existing rights in the tax code and groups them into 10 categories. You should be aware of these rights when you interact with the IRS.

Publication 1, Your Rights as a Taxpayer, highlights a list of your rights and the agency’s obligations to protect them. Here is a summary of the Taxpayer Bill of Rights:

1.The Right to Be Informed. Taxpayers have the right to know what is required to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices and correspondence. They have the right to know about IRS decisions affecting their accounts and clear explanations of the outcomes.

2.The Right to Quality Service. Taxpayers have the right to receive prompt, courteous and professional assistance in their dealings with the IRS and the freedom to speak to a supervisor about inadequate service. Communications from the IRS should be clear and easy to understand.

3.The Right to Pay No More than the Correct Amount of Tax. Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties. They should also expect the IRS to apply all tax payments properly.

4.The Right to Challenge the IRS’s Position and Be Heard. Taxpayers have the right to object to formal IRS actions or proposed actions and provide justification with additional documentation. They should expect that the IRS will consider their timely objections and documentation promptly and fairly. If the IRS does not agree with their position, they should expect a response.

5.The Right to Appeal an IRS Decision in an Independent Forum. Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including certain penalties. Taxpayers have the right to receive a written response regarding a decision from the Office of Appeals. Taxpayers generally have the right to take their cases to court.

6.The Right to Finality. Taxpayers have the right to know the maximum amount of time they have to challenge an IRS position and the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS concludes an audit.

7.The Right to Privacy. Taxpayers have the right to expect that any IRS inquiry, examination or enforcement action will comply with the law and be as unobtrusive as possible. They should expect such proceedings to respect all due process rights, including search and seizure protections. The IRS will provide, where applicable, a collection due process hearing.

8.The Right to Confidentiality. Taxpayers have the right to expect that their tax information will remain confidential. The IRS will not disclose information unless authorized by the taxpayer or by law. Taxpayers should expect the IRS to take appropriate action against employees, return preparers and others who wrongfully use or disclose their return information.

9.The Right to Retain Representation. Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

10.The Right to a Fair and Just Tax System. Taxpayers have the right to expect fairness from the tax system. This includes considering all facts and circumstances that might affect their underlying liabilities, ability to pay or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

We are always here to help! Call or email us today at (877)305-1040 or info@onts9.com so we can process your tax return sooner.

 

 

Standard Mileage Rate

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The IRS has released the 2016 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. The following chart reflects the new 2016 standard mileage rates compared to the 2015 and 2014 tax year standard mileage rates.

2016 2015 2014
Business rate per mile 54.0¢ 57.5¢ 56.0¢
Medical and moving rate per mile 19.0¢ 23.0¢ 23.5¢
Charitable rate per mile 14.0¢ 14.0¢ 14.0¢
Depreciation rate per mile 24.0¢ 24.0¢ 22.0¢

On December 18, 2015, the President signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The new law extends several tax provisions retroactive to the beginning of 2015, and also makes some provisions permanent.

Additional Child Tax Credit. The refundable portion of the Child Tax Credit had an income threshold amount of $10,000, indexed for inflation. The extender legislation permanently sets the threshold at an unindexed $3,000, which will allow for a higher credit for taxpayers who qualify

Enhanced American Opportunity Tax Credit (Hope Credit). The American Opportunity Tax Credit (AOTC) is an enhanced version of the Hope Credit, allowing a credit of up to $2,500 for four years of post-secondary education. The new law makes the enhanced AOTC permanent.

Enhanced Earned Income Credit (EIC). As an extender item, the EIC credit amount was temporarily increased for taxpayers with three or more children, and the marriage penalty was reduced by increasing phase out ranges. The new law makes the enhanced EIC permanent.

Educator expenses. The new law makes the adjustment to income for qualified expenses of elementary and secondary school teachers permanent. The law also indexes the current expense cap of $250 for inflation beginning in 2016.

As always we hope this information is valuable to you and the ones you will share it with. Please do not hesitate to contact with us in case of any needs. 310.820.1080 or info@onts9.com

New W-2 Verification Code

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For filing season 2016, the Internal Revenue Service will test a capability to verify the authenticity of Form W-2 data. This test is one in a series of steps to combat tax-related identity theft and refund fraud.

The objective is to verify Form W-2 data submitted by taxpayers on e-filed individual tax returns. The IRS has partnered with certain Payroll Service Providers (PSPs) to include a 16-digit code and a new Verification Code field on a limited number of Form W-2 copies provided to employees.

The code will be displayed in four groups of four alphanumeric characters, separated by hyphens. Example: XXXX-XXXX-XXXX-XXXX.

The Verification Code will appear on some versions of payroll firms ’ Form W-2 copies B and C, in a separate, labeled box (Copy B is “To be filed with employee ’s federal tax return” and Copy C is “For employee ’s records.”)

The form will include these instructions to taxpayer and tax preparers:

Verification Code. If this field is populated, enter this code when it is requested by your tax return preparation software. It is possible your software or preparer will not request the code. The code is not entered on paper-filed returns.

Some W-2s that employees receive will have a “Verification Code” box which is blank. These taxpayers do not need to enter any code data into their tax software product.

For the purposes of the test, omitted and incorrect W-2 Verification Codes will not delay the processing of a tax return. The IRS will analyze this pilot data in a “test-and-learn” review to see if it is useful in evaluating the integrity of W-2 information.

The code will not be included in Forms W-2 or W-2 data submitted by the PSPs to the Social Security Administration or any state or local departments of revenue. Nor will this pilot affect state and local income tax returns or paper federal returns.

We hope you find this information valuable and in case of any questions call our office at 310.820.1080 or email us at info@onts9.com