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Tax Basics

 

Filing Status

Every year, some employees overpay their income taxes because they use the wrong filing status. Don't let this happen to you. The Mobile Tax Man is in the business of saving you money.

 

Your tax filing status is vital because it determines:

  • Whether you are required to file a return

  • The correct rate at which you should be taxed

  • The amount of your standard deduction

  • The tax credits and deductions to which you are entitled

The five IRS tax filing status categories are:

  • Single

  • Married Filing Jointly

  • Married Filing Separately

  • Head of Household

  • Qualifying Widow(er) with dependent child

When considering which tax filing status you can use, you should also consider:

  • Your marital status on December 31 determines your marital status for the entire year.

  • You cannot change your tax filing status from Married Filing Jointly to Married Filing Separately after the due date of the return.

  • If you and your spouse choose to file a joint return and there are state or federal taxes due, you will both be responsible for the debt.

  • A joint return requires both signatures. If your spouse is away from home, you should either sign the completed return and send it to your spouse to sign and mail, or obtain a power of attorney to allow you to sign for your spouse.

If more than one tax filing status applies to you, you should choose the one that gives you the lowest tax. Married Filing Jointly and Qualifying Widow(er) with Dependent Child usually give you the lowest tax and highest standard deduction, followed by Head of Household, Single, and Married Filing Separately, respectively.

 

Your marital status helps determine which tax filing status you qualify to use. You are considered unmarried for tax filing status purposes if you have never been married, or if your marriage has been annulled. You are also considered unmarried for the entire tax year if you are divorced or legally separated under a separate maintenance decree on the last day of the year.

Marriage Qualifying Tests

Generally, you are considered married for the entire tax year if you and your spouse meet any of the following tests on December 31 of the year:

  • You are legally married and living together. Legal marriage includes a marriage between two people of the same gender entered preformed and registered in a state, country or other jurisdiction where same gender marriage is legal.

  • You are married and not living together, but you are not divorced or legally separated under a separate maintenance decree.

  • You are living together in a common law marriage that is recognized in the state where you now live or in the state where the common law marriage began.

  • State law governs whether you are considered married, divorced, or legally separated under a separate maintenance decree.

  • You must end a marriage through divorce, annulment, or a legal separation to be no longer married.

  • State law where you reside governs your marital status for the state tax return.

If you do not live with your spouse during the last six months of the year and you meet certain other tests, you may be considered unmarried for the Head of Household filing status, even if you are not divorced or legally separated.

 

If your spouse died during the tax year, you are considered married for the entire year for filing status purposes.

 

Contact The Mobile Tax Man office for more information or assistance. 214-317-9927

Single

Use this tax filing status if you are unmarried or legally separated from your spouse (by divorce or separate maintenance) and do not qualify for any other filing status. Your tax filing status may also be Single if you were widowed in a previous year and did not get married again during the year. (See also Head of Household and Qualifying Widow(er) with Dependent Child, which carry lower tax rates and higher standard deductions.)

Married Filing Jointly

You and your spouse may choose to file a joint return, which combines your incomes and allowable expenses. The tax rate may be lower than the rates for other filing statuses and, if you do not itemize deductions, the standard deduction could be higher.

 

If you file a joint return, both you and your spouse may be held responsible, jointly and individually, for the tax and any interest or penalty due on that return. Each spouse may be held responsible for all the tax due even if only one spouse earned all the income. However, in some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return if they can satisfy certain IRS requirements.

 

If you are divorced under a final decree by the last day of the year, you are considered unmarried for the whole year and you cannot choose Married Filing Jointly or Married Filing Separately as your tax filing status.

Married Filing Separately

The tax rate for this status is higher than the rates for other filing statuses. This status may benefit you if you choose to be liable only for your own tax or if both you and your spouse have high incomes or certain itemized deductions. If you use this status and either you or your spouse decide to itemize your individual deductions, you both must itemize your individual deductions. Certain credits such as the Earned Income Tax Credit and the Child and Dependent Care Credit are usually not allowed when you are Married Filing Separately.

Unless you are required to file separately, you should calculate your tax both ways (using Married Filing Jointly and using Married Filing Separately as your tax filing status). This ensures you choose the tax filing status that gives you and your spouse the lowest combined tax.

If you file a separate return, you generally report only your own income, exemptions, credits, and deductions. You usually cannot take the personal exemption for your spouse and you can never claim your spouse as your dependent.

After the due date of the tax return, you usually cannot change the tax filing status on your return from Married Filing Jointly to Married Filing Separately. You can only make this change if you file the corrected returns before their original due date.

Head of Household

This status applies if you are unmarried on the last day of the year and if, for more than six months of the tax year, you paid more than half the cost of the upkeep of a home for yourself and a qualifying person. Other tests apply for a married individual to be "considered unmarried" for this status. Generally, your tax rate will be lower and your standard deduction higher than if you use the Single or Married Filing Separately filing statuses.

Use the Head of Household Qualifying Tests table and the Who Is a Qualifying Person for the Head of Household Filing Status table to help you determine whether you qualify for this filing status.

Head of Household Qualifying 

Not Married
Married Considered Unmarried

Who Is a Qualifying Person for the Head of Household Tax Filing Status?1

  1. 1A person cannot qualify more than one taxpayer to use the Head of Household tax filing status for the year.

  2. 2If you can claim a person as a dependent only because of a multiple support agreement, that person cannot be a qualifying person.

  3. 3You are related to an uncle or aunt if they are the brother or sister of yours or your spouse's mother or father. You are related by blood to a nephew or niece if they are the child of yours or your spouse's brother or sister.

  4. 4This child is a qualifying person even if you cannot claim the child as a dependent.

  5. 5This child is a qualifying person if you could claim the child as a dependent except that the child's other parent claims them under the special rules for a noncustodial parent.

For the tests a child must meet to be considered your qualifying child for the Head of Household filing status, please see Qualifying Child under the Dependents topic.

Note: Individuals that are using the "considered unmarried" rules to claim head of household must have a child, stepchild, or foster child for the relationship test.

Qualifying Widow(er) with Dependent Child

If you are a widow(er) and you have a qualifying child, you may be able to use this filing status. You must meet all of the following tests:

  • You qualified to file a joint return with your spouse for the year your spouse died. It does not matter whether you actually filed a joint return.

  • You must have provided more than half of the cost of upkeep for you and your dependent's main home during the tax year.

  • You have a child, stepchild, adopted child, or foster child who you can claim as a dependent.

  • You must not have remarried before the end of the tax year.

  • Your spouse must have died in either of the two years preceding the current tax year

Note: If your spouse died during the current tax year, you may qualify to use the Married Filing Jointly status.

Contact The Mobile Tax Man office. 214-317-9927

 

Dependents

Claiming someone as your dependent may significantly reduce the tax liability on your federal tax return. You  may claim a Child Tax Credit of up to $1,000 per qualifying child under age 17. Claiming someone as a dependent may also affect your filing status. You may qualify for the Head of Household filing status or the Qualifying Widow(er) filing status if you have a dependent.

Note: For 2018  on the new tax reform, the exemption for dependent is not longer available

Additionally, if you pay educational expenses for this person, claiming the person as a dependent may allow you take advantage of education credits, the tuition and fees deduction, or the student loan interest deduction. A dependent does not have to be your child. Dependents can include others who are either related to you, such as a parent, or who have lived with you during the entire year as a member of your household.

To claim a dependent you must not be able to be claimed as a dependent by any other taxpayer. In addition, you generally cannot claim an exemption on a dependent who is married if they file a joint return. You cannot claim a person as a dependent unless that person is a U.S. citizen, a U.S. resident, U.S. national, or a resident of Canada or Mexico for some part of the year. To be a dependent, the person must be your qualifying child or qualifying relative.

 

Qualifying Child

A child is your qualifying child for dependency if all six of the following tests are met:

  • Relationship Test - Your qualifying child must be your:

    • Child (son, daughter, stepchild, adopted child, or eligible foster child) or descendant (for example, grandchild or great grandchild)

    • Sibling, half sibling, step-sibling, or descendant (for example, nephew or niece)

  • Age Test - Your qualifying child must be younger than you and under age 19, a full-time student under age 24, or any age if permanently and totally disabled.

  • Residency Test - Your qualifying child must have the same main home as you for more than half the year. Special rules may apply for kidnapped children and for temporary absences due to special circumstances such as illness, education, business, vacation, and military service.

  • Support Test - Your qualifying child must not provide more than half of their own support. For full-time students, amounts received for scholarships at an educational organization are not considered amounts paid for support.

If a child is the qualifying child for you and another person, you will need to decide who will claim that child as a dependent. If both of you claim the same child, the IRS will use the following tie-breaker rule to determine who can claim the child:

  • If only one of you is the child's parent, the parent can claim the child.

  • If both of you are the child's parents and you do not file a joint return together:

     

    • The parent with whom the child lived the longest period of time during the year can claim the child.

    • If the child lived with both parents the same amount of time, the parent with the highest adjusted gross income can claim the child.

  • If neither of you are the child's parent and the child is a qualifying child for both, the individual with the highest adjusted gross income may claim the child.

See the qualifying relative rules for a child who is not related to you and is not claimed by their parent.

 

If a person does not meet the tests for being a qualifying child, they may qualify as your dependent under the qualifying relative tests.

Qualifying Relative

Qualifying relatives can include children who do not meet the qualifying child Age Test, other relatives (for example, parents, grandparents, uncles, aunts, and in-laws), and unrelated members of the household. Dependents under the qualifying relative status do not qualify the taxpayer for the EIC or child tax credits.

A person is your qualifying relative if all of the following tests are met:

  • Not a Qualifying Child Test - Your qualifying relative must not be a qualifying child for any taxpayer.

  • Note: An exception to this rule is when the other taxpayer for whom the child is a qualifying child is not required to, and does not, file a tax return. For example, Amanda and her son, Travis, live with Jeremy all year. Amanda worked during the holiday and earned $3,800. Amanda does not file a tax return because she is not required to so Jeremy can claim Travis as a qualifying relative. Jeremy is unable to claim the Child Tax Credit, Additional Child Tax Credit, or the Earned Income Credit for Travis.

  • Member of Household or Relationship Test - Your qualifying relative must either live with you for the entire year as a member of your household (but the relationship cannot violate local law) or be related to you in one of the following ways:

    • Child (son, daughter, or adopted child), or descendant (for example, grandchild or great grandchild)

    • Stepchild

    • Sibling, half sibling, or step-sibling

    • Parent or direct ancestor (for example, grandparent or great grandparent)

    • Stepfather or stepmother

    • Uncle or aunt

    • Nephew or niece

    • Father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law. Special rules may apply for kidnapped children and for temporary absences due to special circumstances such as illness, education, business, vacation, and military service.

     

  • Gross Income Test - Your qualifying relative cannot have a gross income in excess of the dependent exemption amount for the year.

  • Support Test - Generally, you must provide more than half of your qualifying relative's total support. Special rules may apply when more than one person is providing support for an individual or for children of divorced or separated parents.

Contact The Mobile Tax Man office for more information. 214-317-9927

Filing Your Return

The Mobile Tax Man offers two ways to file your tax return. Customers can choose IRS e-file or request that we mail a paper return to the IRS.

Click one of the following links for more information on filing your return:

  • Filing a Paper Return

  • Electronic Filing

  • When to File

  • Filing Late

  • Amended Returns

  • Filing an Extension

  • Electronic Filing of Extensions

  • Installment Agreement

  • Record Keeping

  • Getting Copies of Past Tax Returns

  • Estimated Taxes

  • Estimated Tax Penalty

  • $3 Presidential Election Campaign

  • Change of Address

  • Deadline for Sending Forms W-2

Contact The Mobile Tax Man office for more information or assistance. 214317-9927

Filing a Paper Return

While the IRS no longer mails out tax packets, you can still file your tax return on paper through the mail. It is important to realize that the processing time and chances for an error increase when you mail your return because it must be entered by a data entry clerk into the IRS computer system before processing. You may be mailing your return to a different address than in the past because the IRS has changed the filing locations for several areas. To find the address of the appropriate Internal Revenue Service Center listed for your state check the Form 1040 Instructions or go to the IRS website. If you are a The Mobile Tax Man customer, you'll find the filing address on the Customer Letter you received with your tax return.

Electronic Filing

IRS e-file is the electronic transmission of your tax return to the IRS. The Mobile Tax Man provides free electronic filing of federal and state returns for all customers who pay for tax preparation. For a fee, we can also e-file a tax return that you prepared yourself, or that was not prepared by The Mobile Tax Man for more information.

You must have a valid tax identification number, such as a Social Security Number (SSN) or an Individual Taxpayer Identification Number (ITIN), for every person included on the return to qualify for electronic filing.

When to File

April 15h 2019 is the due date for most taxpayers to file their 2018 income tax returns. If you file an extension by April 17, you must file your tax return no later than October 15, 2019.

Paper Returns

Your paper return is filed on time if it is mailed in an envelope that is properly addressed and postmarked by the due date. If you send your return by registered mail, the date of the registration is the postmark date. The registration is evidence that the return was delivered. If you send a return by certified mail and have your receipt postmarked by a postal employee, the date on the receipt is the postmark date. The postmarked certified mail receipt is evidence that the return was delivered.

If you use a private delivery service designated by the IRS to send your return, the postmark date generally is the date the private delivery service records in its database or marks on the mailing label. The private delivery service can tell you how to obtain written proof of this date. IRS designated private delivery services are listed below:

  • Federal Express (FedEx): FedEx First Overnight, FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, FedEx International First, FedEx First Overnight, FedEx International Next Flight Out, and FedEx International Economy

  • United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, UPS Worldwide Express, and UPS Next Day Air Early AM

  • DHL: DHL Express 9:00, DHL Express 10:30, DHL Express 12:00, DHL Express Worldwide, DHL Express Envelope, DHL Import Express 10:30, DHL Import Express 12:00, DHL Import Express Worldwide

e-Filed Returns

If you e-file, your return is considered filed on time if the authorized electronic return transmitter postmarks the transmission by the due date. The electronic postmark is a record of when the authorized electronic return transmitter received the transmission of your electronically filed return on its host system. The date and time in your time zone controls whether your electronically filed return is timely.

Filing Late

If you do not file your return by the due date, you may be subject to a failure-to-file penalty and interest. To avoid penalties and interest, file for an extension by April 16, 2019.

If you were due a refund, but you did not file a return, you must file within three years from the date the return was originally due to obtain that refund.

Amended Returns

If you filed a tax return and later realized that you have omitted income or overlooked some deductions, you can amend your return by filing Form 1040X, Amended U.S. Individual Income Tax Return . Generally, you must file your amended return within three years of the date you filed your original return or two years after paying taxes, whichever is later. You cannot change your filing status from Married Filing Jointly to Married Filing Separately after the due date of the original return.

Do not file Form 1040X to file an injured spouse claim. Instead mail Form 8379, Injured Spouse Claim and Allocation, by itself to the same Internal Revenue Service Center where you filed the joint return. Include copies of all Forms W-2, W-2G, and 1099-R that show income tax withheld.

Do not include any penalties or interest on Form 1040X. They will be adjusted accordingly.

File a separate Form 1040X for each year you are amending. When you amend your federal return, you may also need to amend your state return. It may take the IRS two to three months to process Form 1040X.

Amended returns cannot currently be e-filed.

For example, Henry filed his return in January, and paid the $129 balance due with that return. Two weeks later, Henry received an additional Form W-2. Because Henry had already filed his Form 1040, he must file Form 1040X to amend his return and report this additional income.

Filing an Extension

When you file an extension, you can postpone filing your return until October 15, 2018. However, if you do not pay any tax due by April 17, 2018, you will accrue penalty and interest charges. Complete Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to file for a six-month extension. If you estimate that you have a balance due, include this payment with the form.

For example, James and Sally are married and file a joint return. Their home was damaged by a tornado and they have contacted their investment company to resend them Forms 1099 so they can file their tax return. It does not appear that they will have this information by the filing due date, so they decide to ask for an extension by filing Form 4868. James and Sally estimate that their total tax liability will be $1,843. Their Forms W-2 indicate that a total of $1,215 of federal income tax has been withheld. To avoid late payment penalty and interest, James and Sally should pay $628 with their Form 4868.

E-filing Extensions

The IRS offers e-filing of extension applications. The IRS will process Form 4868 through the original due date of your tax return. By filing an extension, you postpone the filing date of your return until October 15, 2019; however, any tax due on the return will be subject to interest and penalties if not paid by the due date, or April 16, 2019.

Installment Agreement

If you are not in bankruptcy and have a balance due, but cannot pay your full tax liability by April 16, you should consider the IRS installment plan. To request an installment agreement, complete Form 9465, Installment Agreement Request, and attach it to the front of your tax return or include it with an e-filed return. You can also request an Installment Agreement after you file your tax return by filing Form 9465 by itself to the address shown in the form instructions or by e-filing Form 9465 by itself. If the IRS approves the request, you will be charged a fee and interest on any unpaid balance. Although you generally may have up to 60 months to pay, you should make the payments large enough so that the balance due will be paid off by the due date of your next return. Interest will be assessed on the outstanding balance each month until the balance is paid in full. Before requesting an Installment Agreement, you should consider less costly alternatives, such as a bank loan.

To learn how The Mobile Tax Man can help you pay your balance due, ask your tax preparer to tell you how to proceed.

Record Keeping

It is a good idea to keep your previous tax returns, as well as other important documents that have affected your income and deductions, for at least three years. If you need a copy of a prior-year return, you can obtain it for a fee from the IRS by filing Form 4506, Request for Copy of Tax Return. If you are a The Mobile Tax Man customer, you can receive free copies of your prior-year tax returns.

Getting Copies of Past Tax Returns

If you are buying a home, your mortgage banker may ask for copies of several prior years' tax returns. If you cannot locate them, file Form 4506 with the IRS immediately. For a fee, the IRS will mail you copies of your past returns. This can take up to 60 calendar days. If you are a The Mobile Tax Man customer, you can receive free copies of your prior-year tax returns much quicker.

Estimated Taxes

Taxpayers who expect to owe at least $1,000 in taxes after subtracting withholding and credits are usually required to pay estimated quarterly taxes. For estimated tax purposes, the year is divided into four payment periods. Generally, payments are due on April 15, June 15, September 15, and January 15 of the next year. If the due date falls on a weekend or a legal holiday, the due date will be the next business day.

Estimated Tax Penalty

If you did not pay enough tax either through withholding or by making estimated tax payments, you will have an underpayment of estimated tax and you may be subject to a penalty. Generally, there will be no penalty for underpayment unless the amount you owe is $1,000 or more. If the amount you owe is $1,000 or more, you can avoid a penalty by withholding or making estimated tax payments equal to at least 90% of your current year tax. Another way to avoid a penalty is by withholding or making estimated tax payments that are at least equal to the tax shown on your last year's tax return (110% of that amount if the adjusted gross income on last year's return is $150,000 or more, or, if Married Filing Separately, $75,000). If you filed a tax return last year and did not have a tax liability, you do not owe a penalty this year, no matter how much tax you owe.

$3 Presidential Election Campaign

There is a check box that asks you if you want $3 to go to the Presidential Election Campaign. If you mark the check box, it will not change the tax you pay or the refund you will receive. This fund helps pay the expenses of presidential election campaigns.

Change of Address

Are you planning a move before the end of the year? The IRS has an official change-of-address form, Form 8822, Change of Address. You should complete and mail this form to the IRS whenever your address changes. The IRS and the federal courts considers any mail sent to the last address on-file as timely delivered and all collection processes can commence within any timeframe quoted, even though you no longer live at that address.

Deadline for Certain Forms To Be Sent To Taxpayers

Generally, the IRS requires employers to mail Forms W-2, Wage and Tax Statement , 1095-B, Health Coverage, and 1095-C, Employer-Provided Health Insurance Offer and Coverage, to their employees on or before January 31. In addition, if you purchased health insurance through a State Marketplace, they are required to issue your Form 1095-A, Health Insurance Marketplace Statement, on or before January 31. If you have not received your forms within a reasonable number of days after January 31 contact your employer or the applicable Marketplace. If a Form W-2 is not provided in a reasonable time, you may use payroll stubs to determine the income from that employer for income tax purposes. The information from the payroll stubs can be used to complete Form 4852, Substitute for Form W-2, Wage and Tax Statement, Etc.

Generally, the IRS requests you wait at least until February 15 before filing with a substitute Form W-2.

The Mobile Tax Man may be able to download your W-2 information before you receive your Forms W-2 in the mail. Find out if you can take advantage of this free service to jump-start your tax return!

 
 

Record Keeping

Income tax regulations place the burden of proof on the taxpayer. Because of this, to prepare your tax return, you need to keep accurate records that support the income, expenses and credits you report. Generally, these are the same records you use to monitor your business or track your personal finances.

If you operate a business, your records must be available for inspection by the IRS or other tax authority. If the IRS examines any of your tax returns, you may be asked to explain the items reported. A complete set of records will speed up the examination.

For more information about record keeping, click one of the links below:

  • Types of records to keep

  • How to keep track of your expenses

  • Proof of expenses

  • Length of time to keep your records

  • How to handle an audit notice

Types of records to keep

What records does the individual taxpayer need to keep? You should keep copies of your tax return information with all the supporting documents. You should keep documents that identify sources of income and expenses. You should also keep documents to back up claims for credits, as well as for adjustments and deductions. Items that can be used as records for income and investments include Forms W-2, Forms 1099, bank statements, brokerage statements and mutual fund statements. Items that can be used as records for expenses include canceled checks, receipts, sales slips, invoices, and account statements. If you own your home or sell real estate you own, keep records such as closing statements (when purchased and when sold), mortgage statements, purchase and sales invoices, proof of payment, insurance records, receipts showing costs of improvements, and Form 2119, Sale of Your Home (if you sold a home before 1998).

How to keep track of your expenses

You must be able to substantiate the business use of a vehicle with written documentation. This generally includes a record of the dates of business trips, customers visited, purpose of the trips, number of business miles traveled, and the total number of miles the vehicle was used during the year. If you deduct actual expenses, you must save records for gas, oil, insurance, licenses, and other car maintenance receipts.

You must be able to prove your deductions for travel, entertainment, business gifts, and local transportation expenses. You should keep adequate records or have sufficient evidence that will support your statement. When required for medical reasons, your miles traveled to and from the doctor, pharmacy, or hospital and travel away from home are deductible and should be recorded.

Keep records of your volunteer expenses and your charitable mileage that is directly incurred in giving services to a charitable organization. Keep your receipts or canceled checks from recognized charities. A receipt or bank record is required for all cash contributions and must include the name of the charity, the date, and the amount of the cash contribution.

Proof of expenses

To deduct an expense on your tax return, you must be able to prove that payment was made and the payment was for something deductible. In most instances, the IRS has considered a cash receipt or canceled check as adequate proof of payment. However, because some banks no longer return canceled checks, the IRS will accept certain other information from a bank account statement as proof of payment. The statement must show the check number, amount, the date the bank posted the check to the account, and the name of the payee.

If you pay for expenses by credit card or electronic funds transfer, you also may be able to use an account statement to prove expenses. For electronic funds transfer, the statement must show the amount transferred, the date the transfer was posted to the account, and the name of the payee. For credit cards, the statement must show the amount charged, the transaction date, and the name of the payee. If the expenses are withheld from your paycheck, you can use your pay statements to prove payment.

Once proof of payment has been established, it is still necessary to determine the tax treatment of that payment. It is important to keep other documents, such as detailed receipts listing the items purchased, to show the relationship between those expenses and the deduction claimed.

Length of time to keep your records

If there are any transactions which you feel might be questioned in the future, be sure to retain your canceled checks and documentation. You should keep records as long as they are relevant for your tax situation. For example, if you take a deduction for property you use in your business, including standard mileage for a vehicle, you should keep records for that property for at least three years after you dispose of the property. Although it is important to keep your tax returns and records for at least three years, if the IRS suspects fraud, it may request information beyond that time span. If you have any questions on what to keep, consult The Mobile Tax Man  office.

How to handle an audit notice

If you receive a notice in the mail from the IRS or other tax authority, it is important to respond promptly. It is wise to consult a tax professional who may be able to resolve the issue by mail.

 

Audits

If you receive an audit notice from the IRS, you need to acknowledge it and respond promptly. If you had your taxes prepared at The Mobile Tax Man then you should contact your local office before sending information or additional money to the IRS in response to an audit notice. The IRS may have made an error in the amount they state you owe and the audit item may require the knowledge that only your tax professional can provide.

How Are Returns Chosen for Audit?

Returns that are examined are chosen either by computerized screening, by random sample or by an income document matching program. There are circumstances that may cause the IRS to examine your return more closely. For example, the IRS may request more information if your itemized deductions are very high or if you claim tax shelter losses. Your tax return may also be selected for examination on the basis of information received from third-party documentation, such as a Form 1099 or a Form W-2, that does not match the information reported on your return. You may also be selected to address the questionable treatment of an item on your tax return. If your business expenses or charitable contributions of cash are substantial in relation to your income, you may receive an audit notice. Many examinations result in a refund or acceptance of the tax return without change, but some may result in a change in tax liability.

The Examination Process

The IRS audit notice may either require you to attend a subsequent meeting in person or to send additional information by mail. You may choose to have The Mobile Tax Man assist you during your audit. A representative will appear with you at an audit, at no charge, to explain how your tax return was prepared. The Mobile Tax Man cannot act as your legal counsel, financial advisor or otherwise represent you in connection with an audit.

If the examination results in a change to your tax liability, you may want the IRS to reconsider your case. The IRS may reconsider your case if you are submitting additional information that could result in a change to the additional amount they determined that you owe, you are filing an original delinquent return after they determined that you owe an additional amount, or you have identified a mathematical or processing error they made. You should gather copies of your records, tax returns, and canceled checks, and any other necessary information to support your case. Your reasons for disagreeing cannot be based only on moral, religious, political, constitutional, conscientious, or similar grounds.

If you cannot reach an agreement regarding the proposed changes to your tax return, the IRS may send you Letter 525, General 30-day Letter, notifying you of your rights to appeal, a copy of the tax examiner's report and an agreement or a waiver form. If you do not respond to this letter, or if you still do not reach an agreement with the appeals officer, the IRS will send you a Letter 531, Notice of Deficiency. You have 90 days from the date of this notice to file a petition with the Tax Court. If you do not file this petition, you will receive a bill for the amount due. Please consult The Mobile Tax Man office for more information. 214-317-9927

Innocent Spouse Relief

If you filed a joint tax return, you are jointly and individually responsible for the tax and any interest or penalty due on the joint return, even if you later divorce. In some cases, a spouse may be relieved of the tax, interest, and penalties on a joint return. You can request relief no matter how small the liability. Three types of relief are available:

  • Innocent spouse relief - This may apply to all joint filers.

  • Separation of liability - This may apply to joint filers who are divorced, widowed, legally separated, or have not lived together for the past 12 months.

  • Equitable relief - This applies to all joint filers.

Innocent spouse relief and separation of liability apply only to items incorrectly reported on a joint tax return. If a spouse does not qualify for innocent spouse relief or separation of liability, the IRS may grant equitable relief. Each type of relief is different and each has different requirements. You must file Form 8857, Request for Innocent Spouse Relief, to request any of these methods of relief.

The Mobile Tax Man office provides free audit assistance for customers for whom we prepared returns. Contact us at 214-317-9927 for more information or assistance.

Change Your Name

Did you get married or divorced last year? Did your name change for any reason during the last year? If so, you must change your name legally by contacting the Social Security Administration (SSA) and requesting your name on your Social Security card be changed. To do so you must provide proof of your name change, such as your marriage license or divorce decree. If your Form W-2, Wage and Tax Statement, still has your previous name, you can still send it with your return. On the Form W-2, simply cross out your previous name and write in your new name.

If you were married or divorced last year and have not changed the name on your Social Security card to your new name but your Form W-2 is in your new name, you should contact the SSA and have your records changed. It is important that the name the SSA has for your Social Security number agrees with the name on your tax return. If you try to e-file your tax return, it will be rejected if the name in the SSA's records differs from the name on your tax return. When your return is rejected, it means the return has not been filed. After changing your records at the SSA, allow 4 to 5 business days before submitting or resubmitting your return electronically.

 
 

Tax Refund Timing

Your Tax Refund

When it comes to taxes, the first question we are often asked at The Mobile Tax Man is, “Will I get a tax refund?” For the majority of our clients, that answer is YES! This good news leads almost immediately to the next question, “How quickly can I get my refund?”

For millions of Americans, your tax refund is the biggest paycheck you’ll receive all year! This means filing your taxes is the most important financial transaction. After 34 tax seasons, our Tax Preparers have some tips on what to do to get the maximum refund you deserve, and to get money early.

Tax Refund Timing

According to the IRS, most refunds are funded within 21 days of filing. This clock starts after the IRS begins processing tax returns for the year. However, this year new provisions included in the Protecting Americans from Tax Hikes Act (or PATH Act) impact certain tax return’s refund timing. For tax returns that contain the Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit (ACTC), those refunds will begin being funded the week of February 27, 2017. Also, the refund status for those clients may not be available on the IRS.gov website until Feb 15.

What is the PATH Act?

The PATH Act was passed into law in December of 2015 with a number of consumer benefits. It includes $620 billion in tax reductions for families and businesses, extending specific tax provisions, and includes elements designed to protect Americans against identity theft and tax fraud. This new law requires issuers of W2s and 1099-MISC and 1099-Rs to submit forms to the Social Security Administration by January 31 each year. It also gives the IRS more time to review returns with specific tax credits, like EITC and ACTC, and to compare W2 forms from employers against the individual tax return.

Refund Identity Theft

The PATH Act includes provisions to help combat identity theft and protect your tax refund. Last year, identity thieves affected 10 million taxpayers, stealing tax refund dollars from hardworking Americans. The IRS initiated a Security Summit last year to combat SIRF. Along with the new laws, the IRS will exercise new security measures to protect Americans.

Will Your Refund Be Delayed?

In the end, how quickly you receive your tax refund depends on when you file your taxes, how you choose to file, and, now, what credits and deductions you might claim. While refunds including EITC and CTC/ACTC will be funded no earlier than February 15, you will benefit by filing early. You are giving the IRS plenty of time to review your return, verify your EITC and CTC/ACTC eligibility, and W2 authenticity, which is required before your return is in processed. Additionally, filing with a tax professional that efiles, rather than submits a paper return by mail, will also save you time.

Tax Credits, Deductions, and Getting Your Biggest Refund

One of the first elements to getting your biggest refund is making sure you don’t miss any tax credits or deductions. If your circumstances have changed from last year, there may be a number of new credits or tax deductions available to you. Because you may not know that you’re eligible, a Tax Advisor can help you make sure you don’t leave any money on the table. 

Life Changes and Your Tax Refund

Tax credits and deductions are often connected to major life circumstances, so they may change from year to year based on your personal changes. For example, moving for a job, getting married, having a baby, or retiring could all have an impact on your taxes. Don’t miss out on some of these common overlooked areas.

  • Deductions or credits for Students: If you are a student, or have one on your tax return, you may qualify for credits or deductions for the tuition and fees paid or for a deduction of the student loan interest paid.

  • Single parents should look at their filing status. They may be missing out by not filing Head of Household.

  • Nearing 60? Look at your IRA deductions. There are increases to contributions creating tax savings and increasing your retirement funds and you don’t want to miss.

  • Caregivers, like many of us with aging parents, may be missing out on claiming a dependent exemption, dependent care credit, and medical deductions based on the cost of caring for our parents when they can’t care for themselves.

The $6431 Check One in Five Taxpayers May Miss

Earned Income Tax Credit (EITC) is a federal tax credit that has been available for the last 36 years and helps millions of families each year. It was created to help hard working Americans, and qualification is based on adjusted gross income. It is available to those earning less than $53,505.

Just because you didn’t qualify last year, doesn’t mean you won’t this year. Nearly 20% of taxpayers eligible to claim EITC last year did not claim it. That is 1 in 5, and it’s costing individual taxpayers thousands. Married couples and single people without children may qualify, and may not even know it. The maximum credit for 2018 is $6431 and the average credit in 2017 was about $2,200. As your marital, parental, or income levels change, you should check or ask a Tax Pro if you qualify.

Qualifying for the Earned Income Tax Credit

How do you know if you qualify for EIC? There are a number of key requirements.

You must have earned income from an employer or from being self-employed. If you are married and file a joint return, at least one spouse must have earned income.

Earned Income Credit Table: reference to determine eligibility for the EIC. Adjusted gross income must each be less than:

  1. You must have been a U.S. citizen or resident alien for the entire tax year.

  2. You must have a valid social security number for yourself, your spouse if filing a joint return, and any qualifying children listed on schedule EITC

  3. Your filing status must be Single, Married Filing Jointly, Head of Household, or Qualifying Widower. You do not qualify for EITC if your filing status is Married Filing Separately.

  4. Most importantly, you must file a tax return, even if you're not required to

To find out if you qualify, just answer a few simple questions using the EITC Assistant on the IRS website. Last year, the average credit was worth over $2,200. (Link to IRS site calculator)

Members of the U.S. Armed Forces

If you were in a combat zone during the year, you may elect to include combat pay as earned income when calculating EITC. Nontaxable combat pay is not included in income when calculating your federal income tax, but you should calculate your return both ways to determine which way gives you the more advantageous result.

The Importance of Filing, Even If You Don’t Owe Any Taxes

Even if you do not owe any taxes or are not required to file a tax return, it may make sense to see a tax pro. EITC and ACTC are “refundable credits”, meaning you can get these credits back after you cover your taxes. If the credits are greater than your total taxes paid, you may receive a refund - even if you have little or no income tax withheld from your paycheck(s). However, you must file a tax return to receive this credit.

What are the Child Tax Credit (CTC) and Additional Child Tax Credit (ACTC)?

The Child Tax Credits (CTC/ACTC) are federal tax credits that can total as much as $1,000 per dependent child, depending on your income and the age of your children. This credit doesn’t affect the deductions for dependent children, and it is only allowed if you can claim a qualifying child as your dependent. This is a twofer, because you can get the dependent exemption amount of $4,050 AND the credit amount of $1,000 for each qualifying child.

Qualifying for the Additional Child Tax Credit

How do you know if you can claim this credit? First, your children must be claimed as a dependent. Then they must be under the age of 17 on December 31, 2016. Your child must be a U.S. citizen or resident, with a valid tax identification number. Finally, you must be eligible for the Child Tax Credit and unable to use all, or part of, the available amount.

The term “qualifying child” includes your child, stepchild, adopted child, grandchild or great-grandchild, as well as siblings, step-siblings and half-siblings that live with you. Foster children qualify if they were placed with you by a court or authorized agency. To claim the credit, children must live with you more than half the year and must not provide more than half of their own support.

There are income minimums and thresholds associated with this tax credit. For example, you must have $3,000 in taxable wages or self-employment income to qualify, and the credit is reduced, and eventually completely phased out, if your income exceeds the following:

  • $110,000 on a joint return

  • $75,000 for an unmarried individual

  • $55,000 for a married individual filing a separate return

Credits vs. Deductions

One important thing to remember: Tax credits directly reduce your taxes due. Deductions, on the other hand, reduce the amount of your income that is taxable. This can make a big difference on your bottom line. If you’ve been doing your own tax returns, and possibly missed this, there’s good news. You are allowed to go back three years to amend a tax return. The Mobile Tax Man will review your returns and determine if you have any missing credits or deductions. This means that you could get additional money in refunds from previous years.

Filing Requirements

Having your tax materials organized will help you gather what you need to file taxes and get your refund as early as possible.You can get started with your paystub or other income verification documents at The Mobile Tax Man , and complete 99% of the tax interview. No W2? No Problem. With The Mobile Tax Man, you can start in December with your paystub.  As soon as your W-2 comes in, you don’t even need to come back into the office. In many cases, we can download your W2. Your tax pro will ensure your W2 data matches the return, and will submit your return to the IRS.

Getting Your Taxes Done Early

At The Mobile Tax Man, we know taxes are complicated. And this year, refunds for millions of Americans are going to be delayed. That’s why we’re working hard to help you get off to a good financial start. Talk to a Tax Pro. Make sure you get the maximum refund you deserve. Understand your options for filing taxes early and getting money as quickly as possible.

Faster access compared to standard tax refund electronic deposit and subject to IRS submitting refund information to the bank before release date. IRS may not submit refund information early.