7 Reasons Why Your Tax Return Should be Prepared Early
Benefits to early filing…
As soon as you receive your W-2 forms and all other documents necessary to prepare your tax return, you should have your tax return prepared.
If you’re not sure what to bring to your appointment, call Peoples Tax. Even if it’s before the January 31st date that IRS will accept individual tax returns, you should have your tax return prepared and ready to be filed. The following are seven ways you might benefit by having your tax return prepared as early as possible.
- Get Your Tax Refund Faster. Obviously if the IRS owes you money, you should get it as soon as possible. If your return is prepared early, it will be among the first returns to be e-filed on January 31st and you will be among the first people to receive your refund.
- Budget Your Tax Liability if you owe IRS. Even if you expect to owe the IRS, you have the option of filing early and waiting until the April 15th deadline to pay what you owe. Knowing what you will owe will give you more time to budget for that expense. You will also have the option of arranging an installment payment plan by April 15th.
- Avoid the Last Minute Rush. If you file early, you won’t have to wait for an appointment with your tax preparer. Your tax preparer will also be able to spend more time with you when he/she is not swamped with clients.
- Use Your Tax Refund to Fund an IRA. You and/or your spouse can increase your tax refund by deducting a contribution made to a traditional Individual Retirement Account (IRA). The IRA contribution does not have to be funded until your tax filing deadline (April 15th for most people). Assuming your Federal and Virginia marginal tax rate is typical at 30.75% (25% Federal and 5.75% VA), every $1,000 you invest in an IRA would increase your refund by $307.50. Therefore, it would cost you only $692.50 for every $1,000 you save for retirement. By filing early, you will be able to use your enhanced refund to fund your IRA contribution on or before April 15th.
- Having Your Tax Return May Help in Getting Financing. Banks and other lenders, especially small business lenders, often require current tax returns to be submitted with loan applications. If you have children applying for college financial aid, your tax return information may be required for the financial aid form.
- Reduce the Possibility of Errors. Preparing yourreturn early will enable you and your preparer adequate time to review the return before filing without feeling rushed. A careful review will reduce the possibility of errors or omissions. At Peoples Tax all returns are checked by a tax preparer other than the one who prepared the return, regardless of how knowledgeable the preparer may be. Anyone can make a mistake and this policy greatly reduces the possibility of errors.
- Minimize Your Risk of Identity Theft. By filing early, you will provide less time for someone to file a false return to obtain a refund using your identity.
Some 2013 Tax Year Deadlines Extend into 2014
A few options remain to taxpayers:
IRAs: Taxpayers have until April 15, 2014, to make tax-deferred contributions to a traditional individual retirement account (IRA). The amount any one taxpayer may contribute to an IRA is limited to $5,500 per taxpayer ($6,500 for taxpayers age 50 or older).
This amount begins to phase out after the taxpayer has adjusted gross income (AGI) over a certain amount ($59,000 for single and head of household filers; $95,000 for married filers). The phase out is complete once the taxpayer’s AGI exceeds $69,000 (single and head of household filers) or $115,000 (married filers).
If the taxpayer has already contributed to an IRAfor 2013 (including a Roth IRA), the allowed $5,500 contribution is reduced by the amount of those previous contributions.
HSAs: Taxpayers covered under a high-deductible health plan (HDHP) also have until April 15, 2014, to make tax-deferred contributions to a health savings account (HSA). An HSA is a tax-exempt trust or custodial account established for the purpose of paying the beneficiary’s qualified medical expenses.
Other notable tax deadlines, other than the looming April 15, 2014 deadline for individual returns, include: March 15: Taxpayers who contributed funds during 2013 to an employer-sponsored cafeteria plan through a flexible spending arrangement (FSA) have until March 15, 2014 to use them on any qualified medical expenses. Generally taxpayers must use all funds contributed to an FSA before the end of the year, unless their employer has amended the cafeteria plan to allow a grace period up until March 15. Taxpayers who are unsure of whether or not their flexible spending arrangement provides this grace period should contact their employer.
Taxpayers that have traditional IRAs are required to start taking minimum distributions from their IRAs in the year in which they turn age 70½. These are called required minimum distributions (RMDs), and they are calculated based on the account holder’s life expectancy. RMDs are required for traditional IRAs, but not Roth IRAs.
Taxpayers who just turned 70½ during 2013 may delay the first payment until April 1, 2014. However, for all years thereafter, the taxpayer must take the RMD by December 31 of the tax year. This means that a taxpayer who delays his or her first RMD payment until April 1, 2014, will be required to to include two RMDs in his or her 2014 income.
Account owners who do not withdraw the full RMD amount by the deadline will be liable for tax at the rate of 50 percent of the amount not withdraw.
For more information on the upcoming tax return filing season, please contact our offices.
Tips for Taxpayers, Victims about Identity Theft and Tax
Learn how to protect yourself…
Taxpayers can encounter identity theft involving their tax returns in several ways. One instance is where identity thieves try filing fraudulent
refund claims using another person’s identifying information, which has been stolen and their refunds are delayed.
Here are some tips to protect you from becoming a victim, and steps to take if you think someone may have filed a tax return using your name:
Tips to protect you from becoming a victim of identity theft
- Don’t carry your Social Security card or documents with your Social Security number (SSN) or Individual Taxpayer Identification Number (ITIN).
- Don’t give a business your SSN or ITIN just because they ask.
- Check your credit report every 12 months.
- Protect your personal computers by using firewalls and anti-virus software, updating security patches and changing internet account passwords.
- Don’t give personal information over the phone, through the mail or on the Internet unless you know who you are dealing with.
If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Protection Specialized Unit at 800-908-4490, extension 245 (Monday – Friday, 7 a.m. – 7 p.m. local time; Alaska and Hawaii follow Pacific time).
If you believe you’re a victim of identity theft
Be alert to possible identity theft if you receive a notice from the IRS or learn from your tax professional that:
- More than one tax return was filed for you;
- You have a balance due, refund offset or have had collection actions taken against you for a year you did not file a tax return;
- IRS records indicate you received more wages than you actually earned or
- Your state or federal benefits were reduced or cancelled because the agency received information reporting an income change.
If you believe you’ve been the victim of identity theft, contact the IRS Identity Protection Specialized Unit at 800- 908-4490, extension 245 right
away so they can take steps to secure your tax account and match your SSN or ITIN. Also, fill out the IRS Identity Theft Affidavit, Form 14039.
You should also take steps with agencies outside the IRS:
- Report incidents of identity theft to the Federal Trade Commission at www.consumer.ftc.gov or the FTC Identity Theft hotline at 877-438-4338.
- File a report with the local police.
- Contact the fraud departments of the three major credit bureaus:
1. Equifax – www.equifax.com, 800-525-6285
2. Experian – www.experian.com, 888-397-3742
3. TransUnion – www.transunion.com, 800-680-7289
Close any accounts that have been tampered with or opened fraudulently.
Tax Breaks for Fostering Pets
Some expenses may be deductible
In 2009, a judge finally ruled that because her expenses were used toward a charitable organization, she was legally allowed to claim them. See QuickTip for Individuals #3 in top right section of this page for more details.
- Retain all receipts associated with foster pet purchases.
- Write notes on all receipts and be specific (ie, if you go to a hardware store and buy cat litter or lights for the room the dogs are kept in, circle the items on the receipt and write a note about the purpose of the item)
- If expenses add up to more than $250 for the year, a letter is required from the charitable organization that confirms your foster or volunteer status. An approved charity is one that is recognized by the IRS with the 501(c)(3) designation as a Not-for-Profit organization.
- As of right now, the only tax deductible purchases are for foster pets, not resident pets.
The Affordable Care Act:
What you should know as a taxpayer
The Affordable Care Act is now in effect, although still evolving, and individual and small business taxpayers need to know how it will affect them. If you are uninsured, the Affordable Care Act means that you must obtain insurance on your own by March 31, 2014 or pay a penalty for not having coverage. Businesses with 50 or more employees must offer affordable healthcare coverage to employees starting in 2015 or pay penalties.
Individual Shared Responsibility Provision
This provision requires that you obtain the minimum essential coverage, qualify for an exemption, or pay a penalty when filing your federal income tax return. Some taxpayers may be eligible for exemption or subsidies through tax credits based on their income and family size.
A key part of the ACA is the federal exchange which allows individuals who are not insured to shop for the best rates and policies and purchase insurance through the exchange.
Whether or not you qualify for a premium subsidy is determined by defined income requirements. You would only be eligible if you purchase
insurance coverage through the federal exchange system. Subsidies will be available for families who earn as much as 400 percent of the federal poverty rate. Health insurance premiums and subsidies can be determined using the Kaiser Foundation Subsidy Calculator.
Your Peoples Tax Preparer can review your tax return and advise you of your options.