It’s that time of year to start getting your documents together for the 2016 tax season.
Something to know this year is there are new security measures, so you might have to devote more of your precious time to getting your taxes done.
In May, the Internal Revenue Service said hackers had stolen personal information, including back tax data, of some 104,000 taxpayers. The IRS estimates it paid out some $5.8 billion in fraudulent tax refunds in 2013, while it stopped attempted fraud involving more than four times that amount.
According to a CBS News reports, among the expected changes for taxpayers are more stringent passwords to access tax software; a new feature that will lock users out after a certain period of time and unsuccessful log-in attempts; and additional security questions.
Under new policies announced by the IRS, taxpayers may receive a letter when the service stops suspicious tax returns. The IRS has agreed to reverse its policy and provide identity theft victims with copies of the fraudulent tax return that has been filed under their name by scammers, so they can take the proper steps to secure their personal information.
Take advantage of credits and deductions
Besides added security measures, another thing that most students should know is they are eligible for tax credits and deductions. The American Opportunity Tax Credit and the Lifetime Learning Credit can reduce what you pay in taxes to help offset the cost of higher education, according to the IRS.
“A tax credit reduces the amount of the tax you may have to pay, and a deduction reduces your taxable income, before your tax is calculated,” Catherine Rice, MBA, CFE, MPM, chair of the accounting program at Minnesota School of Business in Blaine, said.
American Opportunity Tax Credit is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you, according to the IRS.
The Lifetime Learning Credit is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses–including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return, according to the IRS website.
See if you are eligible to claim an education credit here. If you qualify for both credits you can choose to claim either credit, but not both.
Rice says the qualified tuition and fees you paid during the year can reduce the amount of your taxable income even if you take the standard deduction by up to $4,000. These fees and expenses include course-related books, supplies and equipment paid to your school.
“Look at all your options and don’t be afraid to ask a tax-preparer or seek help from the local IRS office which has Taxpayer Assistance Centers and online help resources for common questions,” Rice suggests.
Other things to know
Free tax prep for some
This year the free online tax preparation and e-filing site is available to individuals with adjusted gross incomes of $62,000 or less, regardless of filing status.
The IRS also reminds taxpayers to make sure you are using a trusted tax professional who can help with the ever-changing tax code. Tips for choosing a return preparer and details about national tax professional groups are available on IRS.gov.
Affordable Care Act changes for individuals
The individual mandate penalty increases to the higher of two percent of yearly household income or $325 person per year, with a maximum penalty per family for those using this method of $975. In addition, federal poverty level guidelines, used to determine if the individual qualifies for subsidy, have increased.
Proposed salary threshold for overtime pay
Under new rules proposed by the Obama administration, the Department of Labor would require most salaried workers earning less than $50,440 annually to be paid 1.5 times their normal pay for time worked beyond 40 hours. At this point, the proposal has not been passed. You will want to watch the news for updates.
Employees are required to supply you with W-2s no later than Jan. 31. Failure to do so, or to file your employers’ copies of the W-2s by the IRS deadline, could result in penalties.
Taxpayers will have until April 18, 2016, to file their returns and make their first estimated tax payment. This deadline is later than the usual date of April 15. The extra days to file is thanks to Emancipation Day celebrated in Washington, D.C., on April 15.