IRS Tax Tip 2017-06: How Exemptions and Dependents Can Reduce Taxable Income

Source: IRS Tax Tip 2017-06: How Exemptions and Dependents Can Reduce Taxable Income

 

How Exemptions and Dependents Can Reduce Taxable Income

Most taxpayers can claim an exemption for themselves and reduce their taxable income on their tax return. They may also be able to claim an exemption for each of their dependents. Each exemption normally allows them to deduct $4,050 on their 2016 tax return. Here are seven key points to keep in mind on dependents and exemptions:

1. Personal Exemptions.  Taxpayers can usually claim exemptions for themselves and their spouses on a jointly filed tax return. For married taxpayers filing separate returns, an exemption can only be claimed for a spouse if that spouse:

  • Had no gross income,
  • Is not filing a tax return, and
  • Was not the dependent of another taxpayer.

2. Exemptions for Dependents.  A dependent is either a child or a relative who meets a set of tests. Taxpayers can normally claim dependents as exemptions. List a Social Security number for each dependent. For more on these rules, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.

3. No Exemption on Dependent’s Return. If a taxpayer can claim a person as a dependent, then that dependent cannot claim a personal exemption on his or her own tax return. This is true even if no one claims that person on a tax return.

4. Dependents May Have to File. A dependent may have to file a tax return. This depends on certain factors like total income, whether they are married and if they owe certain taxes.

5. Exemption Phase-Out.  Taxpayers earning above a certain amount will lose part or all the $4,050 exemption. See Publication 501 for details.

6. E-file Your Tax Return.  The IRS urges taxpayers to kick the paper habit. IRS E-file options include free Volunteer Assistance, IRS Free File, commercial software and professional assistance.

7. Try the IRS Online Tool.  Get questions answered by using  the Interactive Tax Assistant tool on IRS.gov.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

IRS YouTube Videos:

Use the EITC Assistant: Earned Income Tax Credit 

This credit phases out depending on qualified dependents and income requirements.

 

In the event you qualify for the EITC, refunds will be delayed until after February 15, 2017 .   This is due to erroneous credits claimed for unqualified dependents last year as well as other taxpayer fraud.

 

Be prepared to answer the Due Diligence questions!

 

Source: Use the EITC Assistant

Delayed refunds for returns claiming certain credits.

Due to changes in the law, the IRS can’t issue refunds before February 15, 2017, for returns that claim the earned income credit or the additional child tax credit.

This delay applies to the entire refund, not just the portion associated with these credits. Although the IRS will begin releasing refunds for returns that claim these credits on February 15, because of the time it generally takes banking or financial systems to process deposits, it is unlikely that your refund will arrive in your bank account or on a debit card before the week of February 27 (assuming your return has no processing issues and you elect direct deposit).

If you filed your return before February 15, you can check Where’s My Refund on IRS.gov (IRS.gov/refunds) a few days after February 15 for your projected deposit date. Where’s My Refund and the IRS2Go phone app remain the best ways to check the status of any refund.

FORWARDED | IRS Tax Tip # 11: IRS, States, Industry Urge Taxpayers to Learn Signs of Identity Theft

IRS, States, Industry Urge Taxpayers to Learn Signs of Identity Theft

No matter how careful you are, identity thieves may be able to steal your personal information. If this happens, thieves try to turn that data quickly into cash by filing fraudulent tax returns.

The IRS, state tax agencies and the nation’s tax industry ask for your help in their effort to combat identity theft and fraudulent returns. Working in partnership with you, we can make a difference.

That’s why we launched a public awareness campaign called “Taxes. Security. Together.” We’ve also started a new series of security awareness tips that can help protect you from cybercriminals.

Here are a few signs that you may be a victim of tax-related identity theft:

  1. Your attempt to file your tax return electronically is rejected. You get a message saying a return with a duplicate Social Security number has been filed. First, check to make sure you did not transpose any numbers. Also, make sure one of your dependents, for example, your college-age child, did not file a tax return and claim themselves. If your information is accurate, and you still can’t successfully e-file because of a duplicate SSN, you may be a victim of identity theft. You should complete Form 14039, Identity Theft Affidavit. Attach it to the top of a paper tax return and mail to the IRS.
  2. You receive a letter from the IRS asking you to verify whether you sent a tax return bearing your name and SSN. The IRS holds suspicious tax returns and sends taxpayers letters to verify them. If you did not file the tax return, follow the instructions in the IRS letter immediately.
  3. You receive income information at tax time from an employer unknown to you. Employment-related identity theft involves the use of your SSN by someone, generally an undocumented worker, for employment purposes only.
  4. You receive a tax refund that you did not request. You may receive a paper refund check by mail that the thief intended to have sent elsewhere. If you receive a tax refund you did not request, return it to the IRS. Write “VOID” in the endorsement section, and include a note on why you are returning it. If it is a direct deposit refund that you did not request, contact your bank and ask them to return it to the IRS. Search IRS.gov for “Returning an Erroneous Refund” for more information.
  5. You receive a tax transcript by mail that you did not request. Identity thieves sometimes try to test the validity of the personal data they have chosen or they attempt to use your data to steal even more information. If you receive a tax transcript in the mail and you did not request it, be alert to the possibility of identity theft.
  6. You receive a reloadable, pre-paid debit card in the mail that you did not request. Identity thieves sometimes use your name and address to create an account for a reloadable prepaid debit card that they use for various schemes, including tax-related identity theft.

More information about tax-related identity theft can be found at Identity Protection: Prevention, Detection and Victim Assistance as well as the Taxpayer Guide to Identity Theft – all on IRS.gov.

The IRS, state tax agencies and the tax industry joined together as the Security Summit to enact a series of initiatives to help protect you from tax-related identity theft.

To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. Also read Publication 4524, Security Awareness for Taxpayers.

FORWARDED | IRS Taxes. Security. Together. Tax Tip Number 12: Security Awareness for Taxpayers: The Tax Community Needs Your Help

Security Awareness for Taxpayers: The Tax Community Needs Your Help

The IRS, the states and the tax industry are committed to protecting you from identity theft. But, we need your help to join us in this effort.

By taking a few simple steps, you can better protect your personal and financial data online and at home.

In recent weeks, we’ve issued a series of IRS Security Awareness Tax Tips designed to help you take steps to protect yourself. If you missed them, we’ve created an IRS Security Awareness Tax Tips page for you to catch up or review.

Remember, cybercriminals continue stealing large amounts of personal data from outside the tax system. They can use that data to file fraudulent tax returns or commit other crimes while impersonating the victims.

The IRS, the states and the tax industry joined together in the Security Summit initiative to help fight back against these criminals. We’ve made significant progress to help taxpayers, but we can do an even better job with your help.

Please consider these steps to protect yourselves and your data:

Keep Your Computer Secure

  • Use security software and make sure it updates automatically; essential tools include using a firewall, virus/malware protection and file encryption for sensitive data
  • Treat your personal information like cash, don’t leave it lying around
  • Check out companies to find out who you’re really dealing with
  • Give personal information only over encrypted websites – look for “https” addresses.
  • Use strong passwords and protect them
  • Back up your files

Avoid Phishing and Malware

  • Avoid phishing emails, texts or calls that appear to be from the IRS, tax companies  and other well-known business; instead, go directly to their websites
  • Don’t open attachments in emails unless you know who sent it and what it is
  • Download and install software only from websites you know and trust
  • Use a pop-up blocker
  • Talk to your family about safe computing practices

Protect Personal Information

Don’t routinely carry your Social Security card or documents with your SSN. Do not overshare personal information on social media. Information about past addresses, a new car, a new home and your children help identity thieves pose as you. Keep old tax returns and tax records under lock and key or encrypted, if electronic. Shred tax documents before trashing.

Watch out for IRS Impersonators. The IRS will not call you with threats of jail or lawsuits. The IRS will not send you an unsolicited email suggesting you have a refund or that you need to update your account. The IRS will not request any sensitive information online. These are all scams, and they persistent and change frequently. Don’t fall for them. Forward IRS-related scam emails to phishing@irs.gov. Report IRS-impersonation telephone calls at www.tigta.gov.

Additional steps:

  • Check your credit report annually; check your bank and credit card statements often;
  • Review your Social Security Administration records annually: Sign up for My Social Security at www.ssa.gov.
  • If you are an identity theft victim whose tax account is affected, review http://www.irs.gov/identitytheft for details.

Publication 4524, Security Awareness for Taxpayers, outlines this information. Consider printing and sharing this form with your family, friends, clients or employees.

This tax tip concludes the 2017 filing season Security Awareness Tax Tip series, which is part of the Taxes. Security. Together. public education campaign. This is a joint effort  by the Security Summit partners, which includes the IRS, state tax agencies and the private-sector tax industry.

Remember: Taxes. Security. Together. We all have a role to play in protecting your data.

Share this tip on social media — Security Awareness for Taxpayers: The Tax Community Needs Your Help. http://go.usa.gov/x9Zt5#IRS

Fourth Quarter Estimated Tax Payments

Fourth Quarter Estimated Tax Payments – Message from Drake Software.

The January 17, 2017 deadline for estimated tax payments is approaching. Drake Software provides taxpayers an easy way to pay their federal estimated tax payment electronically using their credit or debit card.

Taxpayers can go to the Drake E-Payment Center, www.1040PayTax.com at any time to make their payment.