It’s a new year and many people are anticipating the need to get their taxes in order. For those who have experience in filing their own taxes, you know that each year there are changes in the tax laws. The Internal Revenue Service (IRS) expects you to know what those changes are and how they affect you.
Various tax changes will inevitably occur from year to year. These can range from minor adjustments to the complete elimination of various tax programs. The IRS releases information on a number of tax changes each tax year. Don’t forget that tax returns are due by April 15th!
So what do you need to know about filing your taxes this year? Well, there are a few things that you should take into consideration:
Inflation Adjustments –
We should all know about “evil” inflation, but just in case you don’t…Inflation is defined as a sustained increase in the prices of goods and services. It’s measured as an annual percentage increase. As inflation rises, every dollar that you own buys a smaller percentage of a good or service.
To ensure that American taxpayers keep pace with the rising costs of inflation, the Internal Revenue Service periodically adjusts the value of certain deductions and/or exemptions. With the increasing deductions and exemptions, you get to protect more of your money from becoming taxable income.
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Some key inflation adjustments to keep an eye out for include: Personal and dependent exemptions rise to $4,000. The standard deduction rises to $12,600 for married taxpayers filing jointly, $9,250 for heads of household, and $6,200 for singles and married taxpayers filing separately. These are just a few examples of how inflation affects deductions and exemptions.
Taxes and Healthcare Cross Over –
For the second consecutive year, your taxes and health care will intersect. The Affordable Care Act will again appear on your tax form. For most people who have health insurance through work, the change will be simple: checking a box on the tax form that says, “Yes, I had health insurance all year.”
It will be more complicated for an estimated 30 million people who didn’t have health insurance all year or who bought subsidized coverage through the health care marketplace exchanges. Look for new Form 1095-A in the mail from the Marketplace. It is important that you do not file your taxes until you receive this form. If you haven’t received a Form 1095-A by early February, you should contact the Marketplace Call Center at 1-800-318-2596. TTY users should call 1-855-889-4325.
Other Changes That Could Increase Taxes –
This tax season may be more miserable than previous years because of budget cuts that were approved by Congress that give the IRS its lowest level of funding since 2010. This year’s budget is around $10.9 billion. That’s a BILLION less than five years ago. As a result, there will be an estimated 13,000 fewer IRS employees (14% decline) to process returns, issue refunds, and answer phone calls. The budget cut could slow down the overall process, and things might get a little backed up.
Another change is that unreimbursed medical expenses will increase from 7.5% to 10% of your Adjusted Gross Income for most taxpayers. There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016, for individuals age 65 and older and their spouses. If you or your partner are 65 years or older or have turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your Adjusted Gross Income (AGI). The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.
We can expect to see higher taxes for those lucky enough to be making over $250,000 or fewer tax cuts, depending on how you choose to look at it. You may not have to consider this in your tax returns, but those who were receiving mortgage debt forgiveness will no longer be able to do so.
Quick Return Tips & Suggestions –
If a taxpayer expects to receive a refund, they are being advised to submit their returns through e-filing as this will facilitate an earlier refund date. Regardless of when the IRS decides to get refunds rolling, as taxpayers, we should have our documentation prepared well in advance. Don’t wait until the last minute and totally stress out. That’s when mistakes happen!
Taxpayers lose opportunities to reduce their tax liability through missed deductions, a fact that can usually be rectified through a competent tax preparer, such as H&R Block, Jackson Hewitt, or a small local tax preparation office.
Some taxpayers believe that they can save money by processing the returns for themselves, with programs such as TurboTax. These tax programs have come a long way, but they are still just computer software. A true tax professional might be able to dig deeper and find more deductions for you. So, NOW is the time to get your paperwork in order, keep your receipts, print out emails and other taxable deduction information, and separate your business from personal expenses. This will all help to speed up the process.
How to File a Tax Extension and Other Tax Season Tips –
Tax season is here again and just like in past years, many people will inevitably ask for an extension. Hey, I totally get it, life just happens and things get busy! Luckily the IRS is more forgiving than most people realize and it’s easy to ask for some extra time. Of course, when filing for an extension, the person filing must know what they are doing.
Here are a few tips on dealing with the IRS this tax season:
- A taxpayer must remember; an extension is not an extension of the amount the taxpayer owes to the IRS. To get started, one needs to file a form 4868. This form allows a taxpayer to get an automatic six-month extension for filing their taxes. Many software programs and online tax filing places will help a taxpayer with the 4868 form though it should not be difficult to fill out said form.
- As previously mentioned above, by filing a 4868 form, a taxpayer still must make the required full tax payments. If a filer does not know the amount, he or she must make an estimated payment. When a filer fails to make an estimated payment, he or she will be subject to penalties. Remember, the only good reason to ask for an extension is when the taxpayer needs more time to complete everything.
- When filing your taxes this year, don’t be like most people who just file and forget about it. When a consumer files their taxes and then just forgets about everything, they will probably be okay, but mistakes could happen and they could get audited. It’s a good idea for taxpayers to be prudent and to save all of their paperwork. The IRS is not out to get people, but it’s necessary sometimes to go back and check out old paperwork or data to solve any issues, should any problems arise. Not only that, but you may need to keep paperwork for non-tax related issues, such as proof of income for a loan.
- The IRS is easier to deal with than most people realize. Unfortunately, a lot of people put off dealing with the IRS out of fear or insecurity. When a taxpayer has all of their information and makes an attempt to do their taxes, the IRS will be friendly with the taxpayer and help them any way that they can. One should also remember that the IRS has a lot of resources that a taxpayer can access online at www.irs.gov.
Tax season does NOT have to be so stressful or confusing. Read up on everything to educate yourself and be as knowledgeable as possible. There are definitely some changes going on this year, especially with the Affordable Care Act and those associated penalties being brought to life when you go to file your return.
If you don’t make a lot of money and can’t afford to pay for professional tax preparation services or pay for a program like TurboTax, then look into a service called Free File. If your income is $62,000 or less, Free File offers free Federal tax preparation and e-filing. It’s available only on the IRS.gov website.
Do you have any tax related questions for us? If so, let us know by leaving a comment below and we’ll get back to you. Thank you!