Can you believe that it is tax filing time – again? With the new administration and new Congress, it is a time of uncertainty in terms of many things. When it comes to taxes, we are all wondering what changes will be forthcoming — and for that we will stay tuned.
For now, we’ll look at some of the changes and significant issues that will affect the filing of our 2016 tax returns. Filing season for e-filed tax returns began on 1/23/2017 and there are some important new things to report, many of them having to do with security of taxpayer data and identity theft – and many mandated by Congress.
Lots in the news about the Affordable Care Act (which is actually called the Patient Protection and Affordable Care Act) being repealed. For now it is still law, and on 2016 tax returns we still have to confirm whether we had health insurance in place for all 12 months or, if not, we either pay a penalty or we claim an exemption from that penalty. Also, your Premium Tax Credit will still be reconciled on your tax return. If you had insurance purchased through the health insurance marketplace and you received a subsidy you’ll see whether you got too much or too little, based on your actual 2016 income, and that will be calculated on Form 8962 and reported on your tax return.
The IRS and state tax departments are on alert and continually evolving more safeguards to protect taxpayer data and to prevent fraudulent refunds generated by fake tax returns. IRS has announced, for example, that it will hold refunds for any tax returns claiming Earned Income Credit or Advance Child Tax Credit. These credits are refundable credits, which means that they can reduce your tax below $0 and you receive a refund of the difference. Refunds for tax returns claiming these credits will be held at least until February 15 and from what we have heard from the IRS the actual receipt of the refunds may actually be delayed until the end of February. Hopefully this will allow IRS enough time to match up the data claimed on these tax returns with information reported by employers and other payers. More detail is here: https://www.irs.gov/uac/as-holidays-approach-irs-reminds-taxpayers-of-refund-delays-in-2017
While most IRS refunds will be processed in less than 21 days, some will be delayed for various reasons. Another point to note about IRS tax refunds is that if your refund is delayed beyond 45 days the IRS will pay you interest on the refund (current interest rate is 4%).
You may see something new on your W-2 forms this year – a verification code. This is part of the new security effort and by entering this code you will help the IRS to confirm that the W-2 information you submit is indeed from a legitimate W-2 form. More information is here: https://www.irs.gov/individuals/w-2-verification-code
The due date for employers submitting W-2 forms and Forms 1099-MISC reporting non-employee compensation (box 7), both forms familiar to and near and dear to musicians, has been moved up to January 31. This is mandated by Congress and is part of the general effort to combat fraudulent tax returns using fake W-2 forms to claim fake refunds on phony tax returns. While these forms have always been due to be issued to the recipients by January 31, the requirement that the payers submit these forms to the IRS used to be end of February for paper-filed returns and end of March for e-filed returns. Now that the IRS will get the data earlier, there should be better systems in place to prevent issuing refunds that are fraudulent. As a side benefit, hopefully you will have received your tax forms earlier than you have in prior years.
Some filing dates have changed for this tax filing season. IRS filing deadline for individual tax returns is April 18 (because April 15 falls on a weekend and April 17 is a holiday in DC), but please be sure to check with state tax departments to be sure that they conform to the federal 4/18 deadline. NYS does.
Here are some important changes in filing dates for entity tax returns: Partnership & S Corp returns are now due on March 15. C Corporation returns are now due April 15 (or 4/18 for this filing season).
Do you have a foreign bank account or signature authority over a foreign account? New filing deadline for FBAR returns is April 15 (or 4/18 for this filing season). This is a major change from the old June 30 deadline for these forms. The good news is that there will be an automatic extension of time to file until October 15 and no form needs to be filed for this extension.
This provision may not affect too many readers here, but I mention it just in case. If you have an ITIN (issued to foreign nationals not eligible for a SSN) there are new rules for renewing and some ITINs are expiring. Details are in IRS Notice 2016-48 and you can find out more here: https://www.irs.gov/individuals/itin-expiration-faqs
I also wanted to mention some new requirements for tax preparers – because you may notice, if you work with a tax professional, that he/she is asking you a lot more questions about a lot more things. This is because there is new law mandating increased “due diligence” rules for tax professionals – and there are additional questions, documentation, and procedures that must be performed by the person who is preparing your income tax return. Please understand that these additional questions are not meant to be intrusive or in any way imply that your tax pro does not trust you. This is new law for us in the tax industry and the penalties for not complying are actually quite large.
Another thing that is new this year is that NYS requires that taxpayers and/or tax professionals who are filing electronically MUST include driver’s license and/or state-issued non-driver ID data. Here is a handy link to the NYS DMV website that shows where the data requested is found on the various license types: https://dmv.ny.gov/id-card/sample-photo-documents
And here is more on the NYS requirement: https://www.tax.ny.gov/tp/driverlicense.htm
Some general things: IRS has a new online tool so that taxpayers can create an account and be able to view the amount of tax they owe. More details are here: https://www.irs.gov/uac/irs-launches-new-online-tool-to-assist-taxpayers-with-basic-account-information
Congress passed a new law requiring IRS to use private debt collection services to help with what are called inactive collection accounts (i.e. accounts not being actively worked by the IRS, which could be because they can’t find the taxpayer, taxpayer is just not responding, etc.). Please remember that IRS will actually work with you to resolve any outstanding tax liabilities that you cannot pay in full. There are many options and if you do not feel comfortable handling this on your own you can find a tax professional, such as an Enrolled Agent, to assist you.
IRS has an online tool to find out the status of your refund here: https://www.irs.gov/refunds
IRS has what they call an interactive tax assistant, which is a great resource for figuring out all sorts of useful information about your tax situation: https://www.irs.gov/uac/interactive-tax-assistant-ita-1
You can find out whether you’re eligible for tax credits, see who can be claimed as a dependent, find out whether you are eligible for health insurance premium tax credit, and get many other tax-related questions answered without waiting on hold for the IRS.
Have you ever received an IRS letter or notice that makes no sense to you? Did you know that there is a law that mandates that federal agencies use plain language – and that IRS has a webpage to give feedback? Well, they do – and here it is: https://www.irs.gov/uac/plain-language-at-irs
A lot of tax provisions that used to expire at the end of each year and then were “extended” for another year, sometimes retroactively, by Congress were made permanent by the PATH Act legislation passed at the end of 2015. This is good news for planning as we no longer have to wonder whether these benefits would be around for more than 1 more year. However, there were a few things that did not get permanently extended and expired on 12/31/2016. These are the tuition and fees deduction, the mortgage insurance premium deduction, and the provision that allowed discharge of personal residence debt not to be included in taxable income as cancellation of debt. Could these provisions be retroactively enacted? Well, yes – but of course we have no way of knowing and my advice would be not to plan for this to happen. So, these provisions are still good on the 2016 tax returns but going forward (unless they are reinstated) we can say goodbye to them.
Please, please, please be vigilant about protecting your own taxpayer data and be suspicious about e-mails, phone calls purporting to be from IRS or others asking for your personal information or telling you that you owe tax and need to pay money immediately. There are so many scams out there and better to be safe than sorry.
Tax returns are never fun, but they sure are interesting and challenging. Happy Tax Filing Season – and (sorry, I can’t help myself) many happy returns!
Phyllis Jo Kubey is an Enrolled Agent who specializes in performing artists. She can be e-mailed at firstname.lastname@example.org