What You Need to Know About the Child and Dependent Care Tax Credit

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Don’t overlook the Child and Dependent Care Tax Credit. It can reduce the taxes you pay. Here are the facts from the IRS about this important tax credit:

1. Child, Dependent or Spouse. You may be able to claim the credit if you paid someone to care for your child, dependent or spouse last year.

2. Work-Related Expense. The care must have been necessary so you could work or look for work. If you are married, the care also must have been necessary so your spouse could work or look for work. This rule does not apply if your spouse was disabled or a full-time student.

3. Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can be your child under age 13. A qualifying person can also be your spouse or dependent who lived with you for more than half the year and is physically or mentally incapable of self-care.

4. Earned Income. You must have earned income for the year, such as wages from a job. If you are married and file a joint tax return, your spouse must also have earned income. Special rules apply to a spouse who is a student or disabled.

5. Credit Percentage / Expense Limits. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on the amount of your income. Your allowable expenses are limited to $3,000 if you paid for the care of one qualifying person. The limit is $6,000 if you paid for the care of two or more.

6. Dependent Care Benefits. If your employer gives you dependent care benefits, special rules apply.

7. Qualifying Person’s SSN. You must include the Social Security number of each qualifying person to claim the credit.

8. Care Provider Information. You must include the name, address and taxpayer identification number of your care provider on your tax return.

 Contact us today at (877)305-1040 or (310)820-1080 or email us at info@onts9.com to make sure all your Tax credits are done correctly.

We are here all year round to help you with all your Tax and Accounting needs.

Tax Savings from Higher Education Costs

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Money you paid for higher education in 2015 can mean tax savings in 2016. If you, your spouse or your dependent took post-high school coursework last year, there may be a tax credit or deduction for you. Here are some facts from the IRS about key tax breaks for higher education.

The American Opportunity Credit (AOTC) is:

  • Worth up to $2,500 per eligible student.
  • Used only for the first four years at an eligible college or vocational school.
  • For students earning a degree or other recognized credential.
  • For students going to school at least half-time for at least one academic period that started during or shortly after the tax year. Claimed on your tax return using Form 8863, Education Credits.

The Lifetime Learning Credit (LLC) is:

  • Worth up to $2,000 per tax return, per year, no matter how many students qualify.
  • For all years of higher education, including classes for learning or improving job skills.
  • Claimed on your tax return using Form 8863, Education Credits.

The Tuition and Fees Deduction is:

  • Claimed as an adjustment to income.
  • Claimed whether or not you itemize.
  • Limited to tuition and certain related expenses required for enrollment or attendance at eligible schools.
  • Worth up to $4,000.

 

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What You Need to Know about Taxable and Non-Taxable Income

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All income is taxable unless a law specifically says it isn’t.

Here are some basic rules you should know to help you file an accurate tax return:

  • Taxable income.  Taxable income includes money you earn, like wages and tips. It also includes bartering, an exchange of property or services. The fair market value of property or services received is normally taxable.

Some types of income are not taxable except under certain conditions, including:

  • Life insurance.  Proceeds paid to you upon the death of an insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount you get that is more than the cost of the policy is taxable.
  • Qualified scholarship.  In most cases, income from a scholarship is not taxable. This includes amounts used for certain costs, such as tuition and required books. On the other hand, amounts you use for room and board are taxable.
  • Other income tax refunds.  State or local income tax refunds may be taxable. You should receive a Form 1099-G from the agency that paid you. They may have sent the form by mail or electronically. Contact them to find out how to get the form. Report any taxable refund you got even if you did not receive Form 1099-G.

Here are some items that are usually not taxable:

  • Gifts and inheritances
  • Child support payments
  • Welfare benefits
  • Damage awards for physical injury or sickness
  • Cash rebates from a dealer or manufacturer for an item you buy
  • Reimbursements for qualified adoption expenses

As always we hope these information are valuable for you and hope you can share and help us in our mission to help more people. Do not hesitate to contact with us for any Tax and Accounting needs.

                 Email us at info@onts9.com or call us at 310.820.1080

Advance Payments of the Premium Tax Credit

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When you enroll in coverage through the Marketplace during Open Season, which runs through Jan. 31, 2016, you can choose to have monthly advance credit payments sent directly to your insurer. If you get the benefit of advance credit payments in any amount, or if you plan to claim the premium tax credit, you must file a federal income tax return and use Form 8962.

Form 8962, Premium Tax Credit (PTC), reconciles the amount of advance credit payments made on your behalf with the amount of your actual premium tax credit. You must file an income tax return for this purpose even if you are otherwise not required to file a return.

Here are four things to know about advance payments of the premium tax credit:

  • If the premium tax credit computed on your return is more than the advance credit payments made on your behalf during the year, the difference will increase your refund or lower the amount of tax you owe. This will be reported in the ‘Payments’ section of Form 1040.
  • If the advance credit payments are more than the amount of the premium tax credit you are allowed, you will add all or a portion of the excess advance credit payments made on your behalf to your tax liability by entering it in the ‘Tax and Credits’ section of your tax return. This will result in either a smaller refund or a larger balance due.
  • If advance credit payments are made on behalf of you or an individual in your family, and you do not file a tax return, you will not be eligible for advance credit payments or cost-sharing reductions to help pay for your Marketplace health insurance coverage in future years.
  • The amount of excess advance credit payments that you are required to repay may be limited based on your household income and filing status.

If your household income is 400 percent or more of the applicable federal poverty line, you will have to repay all of the advance credit payments. Repayment limits by household income as a percentage of the federal poverty line are listed below.

Repayment Limitation

If your household income is less than 200 percent of the Federal Poverty Line, the limitation amount is $300 for single filers and $600 for all other filing statuses.

If your household income is at least 200 percent, but less than 300 percent of the Federal Poverty Line the limitation amount is $750 for single filers and $1,500 for all other filing statuses.

If your household income is at least 300 percent, but less than 400 percent of the Federal Poverty Line the limitation amount is $1,250 for single filers and $2,500 for all other filing statuses.

If your household income is more than 400 percent of the Federal Poverty Line, there is no limitation amount for any filing status.

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

The Premium Tax Credit – The Basics

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 If you – or anyone on your federal tax return enrolled in health insurance coverage through the Health Insurance Marketplace, you may be eligible for the premium tax credit.

Here are some basic facts about the premium tax credit.

What is the premium tax credit?

The premium tax credit is a credit that helps eligible individuals and families with low or moderate income afford health insurance purchased through the Health Insurance Marketplace.

What is the Health Insurance Marketplace?

The Health Insurance Marketplace is the place where you will find information about private health insurance options, purchase health insurance, and get help with premiums and out-of-pocket costs, if you are eligible. Learn more about the Marketplace at HealthCare.gov.

How do I get the premium tax credit?

When you apply for coverage, the Marketplace will estimate the amount of the premium tax credit that you may be able to claim for the tax year, using information you provide about your family composition and projected household income. Based upon that estimate, you can decide if you want to have all, some, or none of your estimated credit paid in advance directly to your insurance company to be applied to your monthly premiums.

If you choose to have all or some of your credit paid in advance, you will be required to reconcile on your income tax return the amount of advance payments that the government sent on your behalf with the premium tax credit that you may claim based on your actual household income and family size. You must file an income tax return for this purpose even if you are otherwise not required to file a return.

You’ll file Form 8962, Premium Tax Credit, with your tax return to claim or reconcile the credit. Failing to file your tax return will prevent you from receiving advance credit payments in future years. Filing electronically is the easiest way to file a complete and accurate tax return.

What happens if my income or family size changes during the year?  

 The actual premium tax credit for the year will differ from the advance credit amount estimated by the Marketplace if your family size and household income as estimated at the time of enrollment are different from the family size and household income you report on your return. The more your family size or household income differs from the Marketplace estimates used to compute your advance credit payments, the more significant the difference will be between your advance credit payments and your actual credit.

Contact US today at (877)305-1040 or email us at info@onts9.com for more detailed information and let us make sure you are in great hands.

 

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

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.

 

 

The Individual Shared Responsibility Provision and Your 2015 Income Tax Return

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The Affordable Care Act requires you, your spouse and your dependents to have qualifying health care coverage for each month of the year, qualify for a health coverage exemption, or make an Individual Shared Responsibility Payment when filing your federal income tax return. If you had coverage for all of 2015, you will simply check a box on your tax return to report that coverage.
However, if you don’t have qualifying health care coverage and you meet certain criteria, you might be eligible for an exemption from coverage. Most exemptions are can be claimed when you file your tax return, but some must be claimed through the Marketplace.
If you or any of your dependents are exempt from the requirement to have health coverage, you will complete IRS Form 8965, Health Coverage Exemptions and submit it with your tax return. If, however, you are not required to file a tax return, you do not need to file a return solely to report your coverage or to claim an exemption.
For any months you or anyone on your return do not have coverage or qualify for a coverage exemption, you must make a payment called the individual shared responsibility payment. If you could have afforded coverage for yourself or any of your dependents, but chose not to get it and you do not qualify for an exemption, you must make a payment. You calculate the shared responsibility payment using a worksheet included in the instructions for Form 8965 and enter your payment amount on your tax return.
Whether you are simply checking the box on your tax return to indicate that you had coverage in 2015, claiming a health coverage exemption, or making an individual shared responsibility payment, your tax professional can prepare and file your tax return electronically.
 
Make sure all your documents are in place and contact with us with any other questions you might have, we are here to help you get the best experience in Tax Preparation Services. Call us @ 310.820.1080 or email @ info@onts9.com

How Obamacare subsidies could impact your tax refund

If you depend on your tax refund and you’re one of the millions of Americans getting tax credits to subsidize your health insurance premiums under President Barack Obama’s law, it’s not too early.

Here’s why: If your income for 2014 exceeds the estimate you provided when you applied for health insurance, then complex connections between the health law and the tax code can reduce or even eliminate your tax refund next year.

 

Maybe you’re collecting more sales commissions in an improving economy. Or your spouse got a promotion. It could trigger an unwelcome surprise.

The danger is that as your income grows, you don’t qualify for as much of a tax credit. Any difference will come out of your tax refund, unless you have promptly reported the changes.

“If you got too much of a subsidy, consumers will see money coming out of their refund,” Meg Sutton, a senior advisor for tax and healthcare services at H&R Block, told CBS News.

The tax credits are available to individuals with household incomes between 100 and 400 percent of the federal poverty level, taking into account factors like family size. Nearly 7 million households have received subsidies, and major tax preparation companies say most of those consumers appear to be unaware of the risk.

“More than a third of tax credit recipients will owe some money back, and (that) can lead to some pretty hefty repayment liabilities,” said George Brandes, vice president for health care programs at Jackson Hewitt Tax Service.

Two basic statistics bracket the potential exposure:

The average tax credit for subsidized coverage on the new health insurance exchanges is $264 a month, or $3,168 for a full 12 months.

The average tax refund is about $2,690.

Having to pay back even as little as 10 percent of your tax credit can reduce your refund by several hundred dollars.

Tax giant H&R Block says consumers whose incomes grew as the year went on should act now and contact HealthCare.gov or their state insurance exchange to update their accounts.

They will pay higher health insurance premiums for the rest of this year, but they can avoid financial pain come spring.

“As time goes on, the ability to make adjustments diminishes,” warned Mark Ciaramitaro, H&R Block’s vice president of health care services. “Clients count on that refund as their biggest financial transaction of the year. When that refund goes down, it really has reverberations.”

The Obama administration says it’s constantly urging newly insured consumers to report changes that could affect their coverage.

But those messages don’t drive home the point about tax refunds.

“What probably isn’t clear is that there may be consequences at tax time,” said Ciaramitaro.

Aaron Albright, a spokesman for the Health and Human Services department, said the administration plans to “ramp up” its efforts.

Concern about the complex connection between the health care law and taxes has increased recently, after the Internal Revenue Service released drafts of new forms to administer health insurance tax credits next filing season.

The forms set up a final accounting that ensures each household is getting the correct tax credit that the law provides. Various factors are involved, including income, family size, where you live and the premiums for a “benchmark” plan in your community.

Even experts find the forms highly complicated, requiring month-by-month computations for some taxpayers.

Taxpayers accustomed to filing a simplified 1040EZ will not be able to do so if they received health insurance tax credits this year.

Some highlights:

— You may have heard that the IRS cannot use liens and levies to collect the law’s penalty on people who remain uninsured. But there is no limitation on collection efforts in cases where consumers got too big a tax credit. If your refund isn’t large enough to cover the repayment, you will have to write the IRS a check. “They are not messing around,” Brandes said.

– Health insurance is expensive, and with that in mind, the repayment amount the IRS can collect is capped for most people. For individuals making less than $22,980 the IRS can only collect up to $300 in repayments. That rises to $750 for individuals making between $22,980 and $34,470. For individuals making between $34,470 and $45,960, the cap is $1,250.

For families, the cap is double the amount that individuals can be charged, but the income thresholds vary according to household size. An IRS table may help simplify computation, which is based on the federal poverty levels for 2013.

— There is no collection cap for households making more than four times the federal poverty level. They face the greatest financial risk from repayments, because they would be liable for the entire amount of the tax credit they received.

Those income thresholds are $45,960 and above for an individual, $78,120 and above for a family of three, and $94,200 for a family of four. Ciaramitaro says people facing that predicament should try to minimize their taxable income through legal means, such as putting money into an IRA. The IRS says it will work with taxpayers who can’t pay in full so they understand their options.

— If you overestimated your income and got too small a tax credit for health care, the IRS will increase your refund.

Funneling health insurance subsidies through the income-tax system was once seen as a political plus for Obama and congressional Democrats. It allowed the White House to claim that the Affordable Care Act is “the largest tax cut for health care in American history.”

But it also made an already complicated tax system more difficult for many consumers.

IRS Mistakenly Sends Waitress a $434,712 Tax Refund

Ginny Hopkins, a waitress who has worked for nearly two decades at a Cleveland restaurant, received a tax refund check for $434,712 in the mail from the Internal Revenue Service instead of the $754 she had been expecting.

Hopkins heard mixed advice on whether or not to keep the money. But she decided to bring the check to the local IRS office, reasoning she would be arrested if she tried to cash it. “They’ll put me in Alcatraz, waiting on the night shift in Alcatraz,” she told WKYC-TV in Cleveland. “They’ll reopen the place.”

An IRS employee apologized, promising to investigate how the mistake happened, and to get another refund check sent to her quickly. Hopkins had been waiting expectantly for the $754 refund check to arrive as she needed the money for car repairs and other expenses. Her friends at the restaurant where she works, Johnny’s Downtown, and WKYC-TV have lent her the needed funds in the meantime.

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