A foreclosure is a legal procedure by which mortgaged real estate property is sold by the lender in full or partial satisfaction of a mortgage debt. A short sale is a sale of mortgaged real estate property in which the proceeds from selling the property will fall short of the total balance owed by the borrower. The borrower and the lender generally enter into a short sale agreement. A deed in lieu of foreclosure is when a borrower returns mortgaged property back to the lender in full satisfaction of the mortgaged outstanding debt balance upon an agreement with the lender. An abandonment is treated as an exchange of property when the owner gives up possession and use of the property voluntarily and permanently to the lender, with the intention of ending his or her ownership and does not pass it on to anyone else. An abandonment may lead to foreclosure proceedings in order for the lender to obtain legal possession of the property.
Property secured by recourse debt
Property secured by recourse debt is not a sale of the property until the actual foreclosure sale occurs; whereas property that is secured by nonrecourse debt is considered a sale upon the foreclosure or an abandonment that is acknowledged by the lender. Throughout the presentation, I will use the term foreclosure, which will also represent short sales, deed in lieu of foreclosures, and abandonments where nonrecourse debts secured the property. These transactions are all considered sales of real property for federal tax purposes. The type of disposition does not change how the gain or loss is determined. Further, cancellation of debt income is determined by the type of loan that secures the property, and I will discuss the type of loan shortly
Generally, payments issued in connection with a claim or lawsuit brought by employees or non-employees are performed by personnel in accounts payable at the request of management or legal counsel. Normally, because of the sensitive or confidential nature of the matter, crucial information on the purpose of the payments isn’t routinely provided to the personnel. However, sufficient information should be shared among the respective departments to determine the proper tax treatment of any payments. This presentation will focus on the treatment of proceeds from a payment awarded in a legal proceeding, such as a lawsuit, arbitration, or mediation to an employee, former employee, or non-employee.
Information Needed To Tax Lawsuit Payments
You should consider the following when determining the correct treatment of payments arising from a legal settlement or judgment: (1) Determine the character of the payment and the nature of the claim; (2) Determine whether the payment constitutes gross income for income tax purposes; (3) Determine whether the payment constitutes wages for Federal Employment Tax Withholding; and (4) Determine the appropriate reporting requirements for the payment and any fees paid to an attorney.
When is a payment from a lawsuit taxable?
Internal Revenue Code, or IRC, Section 61, states that all income from whatever source derived is taxable, unless specifically excluded by another code section. IRC Section 104 is the exclusion from taxable gross income for certain compensation for injuries or sickness with respect to lawsuits, settlements, and awards. IRC Section 104(a)(2) provides for an exclusion of certain payments from income. This section excludes from gross income damages received from lawsuits or settlements on account of personal physical injuries, or physical sickness.
What is a legal award and settlement?
Legal awards and settlements can be divided into two distinct groups. One group includes those arising from a physical injury, and the other arises from a non-physical injury. The claims from each of the two groups will usually fall into three categories: (1) actual damages resulting from the physical or non-physical injury, (2) emotional distress damages arising from the actual physical or non-physical injury, and (3) punitive damages.
What does the IRS Consider a Physical Injury?
The IRS has not published a formal position on what qualifies as a personal physical injury. The administrative position, however, is that observable bodily harm, such as bruising, cuts, swelling, or bleeding, qualifies as a personal physical injury. In 1996, IRC Section 104(a)(2) was amended to narrow the exclusion from gross income to any amount of any damages other than punitive damages received on account of personal physical injuries or physical sickness.
What is a considered a payment in a lawsuit?
The language in Section 104(a) states: Emotional distress shall not be treated as a physical injury or physical sickness. As discussed in the previous slide, to be excludable from income, an emotional distress recovery must be on account of personal physical injuries or physical sickness, unless the amount is for reimbursement of actual medical expenses related to emotional distress and was not previously deducted under Section 213. The amount of excludable damages shall not be in excess of the amount paid for non-deducted medical care attributable to emotional distress. The term “emotional distress” includes physical symptoms such as insomnia, headaches, and stomach disorders which may result from such emotional distress.
Punitive damages are not excludable from gross income
Punitive damages are not excludable from gross income under IRC Section 104(a)(2). With the enactment of the Small Business Job Protection Act, or SBJPA, Public Law 104-188, Section 1605(a), in 1996, Congress made it clear that punitive damages are taxable regardless of the nature of the underlying claim.
Claims for Wrongful Death and Injury
Claims for wrongful death usually encompass compensatory damages for physical and mental injury, as well as punitive damages for reckless, malicious, or reprehensible conduct. As a result, both claims may generate settlement amounts. Any amounts determined to be compensatory for the personal physical injuries are excludable from gross income under IRC Section 104(a)(2), and any amounts determined to be punitive are not.
Tort Lawsuits and the IRS
There are two types of lawsuit claims. Tort is one of these and involves: • a civil wrong not involving breach of contract for which a remedy may be obtained, or • a wrongful act committed by one person against another person or his or her property, or • the breach of a legal duty imposed by law other than by contract, or • an act that may cause or constitute but is not necessarily a personal injury. A tort award may be received from litigation or settlement of a claim for physical injury or illness, mental pain and suffering, interference with economic relations and/or property damage.
Whether damages based on a contractual claim are taxable usually depends on the underlying claim
Whether damages based on a contractual claim are taxable usually depends on the underlying claim. For example, damages recovered under a contract of insurance would be excludable from gross income if received for personal physical injuries or physical fitness. Please note: recoveries for physical injuries or physical fitness under no-fault statutes can qualify under IRC 104(a)(2).
How to tax Compensatory Lawsuit Damages?
Compensatory damages intend to compensate the taxpayer for a loss; for example, payment to compensate the injured party for the injury sustained and nothing more. This loss may be purely economic, for example, arising out of a contract; or personal, for example, sustained by virtue of a physical injury. Punitive damages, as previously discussed, are also a claim type. The facts and circumstances of each lawsuit settlement must be considered to determine the purpose for which the money was received. Then it can be determined whether these amounts are taxable or excludable. Finally, if prior deductions under IRC Section 213 or any other applicable code section were taken – for example, medical deductions, interest expense, attorney fees, et cetera – then pursuant to the Tax Benefit Rule, amounts received for reimbursement of these expenses would be taxable to the extent includable under the inclusionary part of the Tax Benefit Rule.
Example of Lawsuit Taxation
Assume that a taxpayer is in an automobile accident, suffers actual physical injuries, and as a result of that injury suffers: (a) medical expenses, (b) lost wages, and (c) pain, suffering and emotional distress that cannot be measured with precision. If the taxpayer settles a resulting lawsuit for $30,000, the entire amount would be excludable under IRC Section 104(a)(2).
The medical expenses for the injuries arising out of the accident clearly constituted damages received on account of personal injuries. Similarly, the portion of the settlement intended to compensate for pain and suffering constituted damages on account of personal injury. Finally, the recovery for lost wages is also excludable as being on account of personal injuries, as long as the lost wages resulted from the time in which the taxpayer was out of work as a result of the injuries. The critical point this example illustrates is that each element of the settlement is recoverable, not simply because the taxpayer received a tort settlement but rather because each element of the settlement satisfies the requirement set forth in IRC Section 104(a)(2), that the damages were received on account of personal physical injuries or physical fitness.
Employment Related Lawsuits and Taxes
Employment-related lawsuits may arise from wrongful discharge or failure to honor contract obligations. Damages received compensate for economic loss for items such as lost wages, business income, and benefits are not excludable from gross income unless a personal physical injury caused the loss. The taxpayer can exclude under IRC Section 104(a)(2) only the amount of damages for actual, out-of-pocket medical costs paid to treat any emotional distress if those medical costs had not been deducted on his or her tax return. Libel or defamation of character can result in awards resulting from damages to one’s reputation. Because damage to reputation, be it personal or business, is a non-physical injury, only compensation for out-of-pocket costs to treat emotional distress can be excluded if not previously deducted. Punitive damages and any other compensatory damages arising from these cases are taxable. Discrimination suits usually are brought alleging infringements in the areas of age, race, gender, religion, or disability.
Taxation of Employment Law Suits
These types of cases can generate compensatory, contractual, and punitive awards, none of which are excludable under IRC Section 104(a)(2). Revenue Rule 96-65 states that back pay received in satisfaction of a claim for denial of a promotion due to disparate treatment employment tax discrimination under Title VII is not excludable from gross income under Section 104(a)(2) because it is completely independent of personal physical injuries or physical sickness under that section. Therefore, amounts received for emotional distress in satisfaction of such a claim are not excludable from gross income under Section 104(a)(2) except to the extent that they are damages paid for medical care attributable to emotional distress. Revenue Ruling 96-65 also contains information concerning its effect on other rulings and references to treatments of amounts as wages and compensation. Revenue Ruling 96-65 should be consulted for guidance in certain employment discrimination cases.
How to Allocate Claims for Taxes
Claims are generally resolved in one of two ways: a jury or court verdict or in an out-ofcourt settlement. Determining the correct allocation among taxable and non-taxable payments is usually the most difficult part of the conclusion of the adversarial process. Many issues arise concerning allocations or lack of allocations in settlement cases. In general, an allocation in a settlement agreement is binding for tax purposes to the extent that the agreement is reached after adversarial negotiations at arm’s length and in good faith.
If damages have been clearly allocated to an identifiable claim in an adversarial proceeding by a judge or jury, the IRS will usually not challenge their character because of the impartial and objective nature of the determinations. However, where the Court’s decision is simply an eradication of a settlement entered into by the parties in where there was not an impartial and objective determination of the allocation of the award to its components, a reconsideration of the allocation may be warranted by the IRS.
IRS Data Thefts and Protecting Client Tax Information for CPAs
You and your clients are on the frontlines in defending against identity thieves. You will hear more about our security summit in a minute, but I want you to know we are committed to working in partnership with you and the tax professional’s organizations to protect the integrity of the tax system. We, the tax industry, states, and the IRS, all have a role to play in this effort. We all share a common enemy, those who are stealing your clients’ personal information and committing refund fraud. And we all share a common goal, protecting taxpayers.
Identity Theft and Tax Returns
It is clear that criminals have been able to gather significant amounts of personal information as the result of data breaches at sources outside the IRS, which makes protecting taxpayers increasingly challenging and difficult. That’s why we had the security summit that Ken will talk about today, and why we joined with the states and the tax industry to make substantive changes for 2016. No one of us can fight this enemy alone, but together we have a chance to achieve our goal of protecting taxpayers
IRS Publication 4524, Security Awareness and Identity Theft
This publication is aimed at taxpayers. You can easily print it and include it in the completed tax package you give your clients. There will also be updated information on IRS.gov this filing season.
The IRS has made significant inroads in combatting tax-related identity theft, but the depth and breadth of the problem continues to present a challenge, not only to the IRS but I would argue to every business and organization in the country. This includes the tax-preparer industry. Personal data, whether it’s credit card numbers or names, bank accounts, addresses, and social security numbers, are commodities, products that can be stolen and then bought and sold on a global black market, and used for fraudulent purposes. The thieves can be international cybercriminals beyond our reach, or they can be that disgruntled employee you just fired. The Bureau of Justice Statistics reports identity theft now costs U.S. victims more than all other property crimes combined. The Federal Trade Commission reports identity theft is the number one compliant by citizens.
How much do criminals steal on tax returns?
A March 2015 study by a California research company found criminals stole $16 billion from 12.7 million American consumers in 2014. That’s a new fraud victim every two seconds, and two-thirds of those victims were data breach victims. Also this spring, IBM issued a study that found more than one billion personal records, many with personally identifiable information, were stolen in 2014. Many of these data breaches most often in the news involve credit cards. But, more important, especially for the tax industry, are the data thefts involving personally identifiable information, or PII. This often involves an individual’s name, social security number, address, and maybe even a list of their dependents and their SSNs. Criminals can do far greater damage to victims with stolen PII.
IRS Identity Theft and Tax Transcripts
Generally, you’re not liable for elicit charges to your credit card, but if a thief opens a financial account in your name or, even worse, hijacks your bank account, you can suffer horrible financial, emotional, and personal losses. The Department of Health and Human Services keeps a record of data thefts involving health care-related entities involving more than 500 people. So far, for 2015, data thefts involving health care-related entities results in more than 150 thefts of PII and/or health care information for more than 100 million Americans. There is a glut of PII on the black market. A good illustration of this is our own “Get Transcript” application. In this sophisticated effort, third parties succeeded in clearing a multi-step authentication process that required prior personal knowledge about the taxpayer, including social security number, date of birth, tax filing status, and street address before accessing IRS system.
In 2012, tax returns passed through 11 filters. Today, returns must pass through nearly 200 filters. We also have accelerated, to the extent we can under present law, the use of information returns in order to identify mismatches earlier. We are also limiting the number of refunds that can be electronically deposited into a single financial account or prepaid debit card. We have implemented a variety of mechanisms to stop the growing use by criminals of decreased individuals’ identity information to perpetuate tax fraud. We routinely lock accounts of deceased taxpayers, and have locked nearly 29 million accounts to-date. Also, the Bipartisan Budget Act of 2013 included the administration’s proposal to limit public access to the Death Master File, which should further help to reduce identity theft related totax fraud.
EFINs, Electronic Filing Identification Numbers
For those of you who have EFINs, Electronic Filing Identification Numbers, you should know we are doing a comprehensive review of this program to determine what we can do to improve safeguards. We already have stepped up efforts to expel those who are abusing EFINs for fraudulent purposes. We are working hard to prevent them from using stolen identities to obtain your EIN or using your EIN to e-file identity theft returns. Also, we have increased our number of on-site visits as a part of our monitoring program to ensure EFINs are being used properly.
Registration for E-services is a multi-step registration process. First, you need to create an IRS E-services account. Go to IRS.gov, and type “TIN matching” as a keyword search. If you’re new to E-services, click on the blue link, “Register to use E-service.” Then complete a short online form by filling in blanks with your name, mailing address, Social Security Number, date of birth, email, phone, and adjusted gross income for either the current year or prior year. The application process is necessary to protect the integrity and security of the electronic filing system.
Registering for IRS E-Services Account
You also create a user name, password, and PIN using the registration form. You receive a confirmation letter from the IRS in the mail. It could take up to 45 days for the IRS to approve your application. You can find more information in Publication 3112, IRS E-file Application and Participation, which is available online at IRS.gov, and deals with submitting an e-file application. You can also call the IRS E-help desk. The phone number again is 1-866-255- 0654.
Making an IRS E-services account
I can tell you that the TIN matching is probably the most used product to date within E-services. The TIN matching product enables a payer to forward the name and Taxpayer Identification Number to the IRS to match using one or two methods based on the number of requests. The first method is interactive and is designed to allow the payer to receive an instant response of 25 matches or less. The bulk TIN matching allows you to send as many as 100,000 TIN and name combinations to the user’s Eservice online mailbox, within 24 hours. Under Internal Revenue Code Section 6724, we can waive penalties assessed under Code Section 6721 if the filer can show that the failure to provide a correct TIN on an information return was not a result of willful neglect, and that due diligence was used as a means to show reasonable cause. In short, providing a copy of the printscreen of your TIN request will serve as a due diligence precaution, and help to abate any penalties, because it proves that the TIN and name combination you submitted matched IRS records. Well over 10,500 payers have been confirmed. And in addition, over 9 million interactive online TIN match requests have been submitted. This is nothing to the more than 216 million bulk TIN match requests we’ve received. For more information on the E-services online TIN matching program, please look at Publication 2108-A.
Now you know that the IRS provides TIN matching for EIN numbers assigned to employers. Well, the SSA also supports Social Security Number verification at their business services online site. This service is available to businesses 24/7. Preventing mismatches by running checks like the TIN matching program and the SSN verification service, known as SSNVS, can prevent you from needing to withhold, send out notices, and follow up with your vendors on these issues.
Here some tips that taxpayers can take into account when selecting a tax professional:
- Select a preparer with ethics. Taxpayers trust some of your most important personal information with the person who prepares your tax return, including income, investments and Social Security numbers.
- Ask Questions. Avoid preparers who based their fees on a percentage of the refund or those who say they can get refunds higher than others. Taxpayers should make sure that any refund that is due to them be sent to them or deposited in your bank account, not in a tax preparer bank account.
- Be sure to choose a preparer with an identification number (PTIN). Paid tax preparers must have a current PTIN to prepare a tax return. It is also a good idea to ask the tax preparer if they belong to a professional organization and attends continuing education classes for learn about 2015 tax changes.
- Investigue history of the tax preparer. Check with the Better Business Bureau (BBB) to see if your tax preparer has a questionable record. To check the status of an enrolled agent license, check with the registration office of the IRS (enrolled agents are licensed by the IRS and are trained specifically in the federal tax planning, preparation and representation). For certified public accountants (CPAs), check with the State Board of accountancy; for attorneys, call the State Bar Association.
- Request E – file. Any tax preparer that prepares and files more than 10 tax returns for customers, in general must submit returns electronically to the IRS
- Provide tax records. A good preparer will ask you to show your records and receipts. Avoid the tax preparer who is willing to file a return electronically using the last paystub rather than the form W-2. This goes against the rules of e – file for IRS.
- Make sure that the tax preparer is available throughout the year. This can be useful if you have questions about taxes. Taxpayers can designate your pay or other third party tax preparer to speak with the IRS regarding the preparation of your tax return, problems with the payment and/or refund and mathematical errors. The box of permission of the third party in the form 1040, 1040A, and 1040EZ gives the third designated the authority to receive and inspect statements and declarations information for one year from the original deadline for the tax return (without taking into account the extensions).
- Check the tax return and ask questions before you sign it. Taxpayers are legally responsible for what appears on their tax return, regardless if someone else prepared it. Make sure that it is accurate before you sign it.
- Never sign a blank tax return. If a taxpayer signed a blank 1040, the preparer could put whatever he wants in the tax return – even his own bank account for tax refund number.
- The tax preparer must sign the tax return and include their PTIN as required by law.
What is an IRS Enrolled Agent?
What is a Certified Public Account (CPA)?
What is a Lawyer?
Non-Registered Tax Preparers
IRS Registration of Tax Preparers
There are several ways that people can legally reduce their taxes by doing certain behavior the government wishes to reward. Make sure to remember these last minute items when filing taxes in 2015.
Common Tax Deductions for 2015
In short, do things the government incentivizes through the tax code. I’m just going to spout off the ones that come to mind and this is by no means complete. Some of them may sound ridiculous but all have positive tax consequences.
- Have children. Bonus points if they’re adopted!
- Financially support dependents like a relative
- Keep health insurance (both to reduce your pretax income and to avoid the Obamacare penalty)
- If your employer makes it available, take advantage of a pre-tax transportation program
- Save money for retirement though a traditional IRA and/or a 401k through your employer
- Move somewhere far away to start a new job
- If you’re divorced, pay alimony
- Go back to school
- Incur thousands of dollars in qualified medical expenses
- Donate thousands of dollars to qualified charities
- Suffer a causality of theft that exceeds 10% of your adjusted gross income
- Make qualified energy efficiency improvements to your home
- Buy a qualified alternative fuel vehicle
Earn Tax-Free Income to reduce Taxes
Certain types of income aren’t subject to income tax at all. The single best way to avoid taxes is to earn as much tax-free income as possible. There are many ways to do this. Some of the most common are selling your home (the home sale tax exclusion), saving money for your children’s education, investing in municipal bonds, contributing to a health savings account, receiving health insurance and certain other employee benefits from your employer, spending some of your salary on out-of-pocket health costs, and giving some investments to your children.
Take Advantage of Tax Credits
Obtaining a tax credit is the next best thing to paying no taxes at all because it reduces your taxes dollar for dollar — something a deduction does not do. Congress has taken a great liking to tax credits in recent years and is adding new credits all the time. Some examples include tax credits for buying a hybrid car or making certain home energy improvements, such as adding insulation or a solar water heater to your home. There are also child and child care tax credits and education tax credits.
You’ll have to pay income tax on your taxable income sooner or later, but you’ll usually be better off if you make it later. Deferring payment of taxes to a future year is like getting a free loan from the government. There are many ways to do this, from postponing an employer bonus to investing in IRAs and other retirement accounts. Step 4: Maximize Your Tax Deductions. Perhaps the most well-known way to reduce taxable income is to take tax deductions.
What is the benefit of tax deductions?
The more deductions you have, the less tax you’ll pay. People in business can deduct all their business expenses, such as inventory, office or home office, travel, operating costs, and so on. Every taxpayer is entitled to take a standard deduction or itemize their deductions. Itemized deductions are usually personal in nature and include things like your home mortgage interest, property taxes, charitable contributions, and state income tax. There are many ways you can increase your business or personal itemized tax deductions.
Reduce Your Tax Rate
Federal income tax rates can vary dramatically, from as low as 0% (capital gains tax rate for people in the 10% and 15% tax brackets) to as high as 39.6%. You can benefit from the lowest rates available if you earn income from long-term investments like stocks, bonds, mutual funds, and real estate. The profits you earn from these investments are taxed at long-term capital gains rates, which are lower than federal income tax rates. The capital gains tax rate on long-term gains is 20% for people in the highest tax bracket (39.6% marginal tax bracket). For anyone in the 25%, 28%, 33% and 35% tax brackets, the capital gains tax rate is 15%. The rate is zero for people in the 10% and 15% tax brackets. In contrast, the average working stiff must pay income tax on salary or business income at ordinary income rates, which can be as high as 39.6%.
Shift Income to Others
If you’re in a high tax bracket you can save substantial taxes by shifting your income to someone in a lower tax bracket–for example, your children. This process is called income shifting or income splitting. Recent changes in the tax law make this harder to do than it was in the past, but it’s still a viable planning tool for many taxpayers. Step 7: Take Advantage of Your Filing Status and Tax Exemptions. Few people give much thought to their tax filing status, but it can have a big effect on the taxes you pay.
Choosing a tax filing status
Which filing status you choose (and taxpayers often have a choice) will determine the tax bracket you fall in. Your filing status is also crucial for calculating your standard deduction, personal exemptions, and income levels for phase-outs of your itemized deductions and personal exemptions. It’s also important to know about tax exemptions and which ones you are entitled to take. There are personal exemptions for you and your spouse and dependent exemptions for children and other family members. Not everyone can take advantage of tax exemptions because they are subject to income restrictions.
The Internal Revenue Service (IRS) informs taxpayers who receive requests from the IRS to verify your identity website Identification Service IRS Identity,idverify.irs.gov offers the quickest and easiest way completing this task. Taxpayers may receive a letter when the IRS takes taxes suspicious statements with evidence of identity theft, but contain the true name and / or social security number of the taxpayer. Only those taxpayers who receive a 5071C Charter must enter idverify.irs.gov . Many fraudsters try to take advantage of this.
How-to Verify Identity with the IRS
The IRS website will ask a series of questions that only the true taxpayer can respond. Once your identity is verified, the taxpayer can confirm whether or not you filed in doubt. If you did not file a return, the IRS can take action at that time to help. If in fact filed that return, it will take about six weeks to process and issue a refund.
What is IRS Letter 5071C?
The letter 5071C is sent through the US Postal Service to address in the statement. Requests the taxpayer verify your identity so that the IRS can complete the processing of the statement if that indeed was filed by the taxpayer or reject it if the taxpayer did not submit it. The IRS does not request such information by email, nor call directly to a taxpayer to request this information without the taxpayer before receiving a letter. The number of the card is in the top corner of the page.
The menu offers two options for taxpayers to communicate with the IRS and confirm whether or not they presented the declaration. Taxpayers can use the site idverify.irs.gov or call a toll-free hotline that is listed in the letter. Due to high volume of calls to hotlines, the site sponsored by the IRS,idverify.irs.gov is the fastest and safest option for taxpayers with internet access.
Taxpayers should have on hand his statements last year and the current year if presented, including supporting documents, such as W-2 and 1099 Forms and Appendices A and C.
The IRS provides free assistance to members of the armed forces and their families. VITA has sites help inside and outside military bases to help service members prepare their taxes. This includes VITA sites to help our military abroad. Here are five tips on free tax help for military personnel and more information on how military personnel can contact VITA for help with their taxes.
Tax Help for Military Personnel
Armed Forces Tax Council
The Armed Forces Tax Council oversees the operation of the military tax programs worldwide, conducting outreach with the IRS to military personnel and their families. The AFTC consists of tax program coordinators for the Marine Corps, Air Force, Army, Navy and Coast Guard.
The volunteers trained by the IRS VITA sites serve in military bases. They receive training in military taxation, such as tax benefits combat zone .Volunteers can help with special extensions for filing the tax return and pay the tax or special rules that apply to the earned income tax credit. They can also help with the new provisions of the Affordable Care Act.
What to Bring to Military VITA
Bring the following documents to your military VITA site for you to prepare your tax return:
- Valid photo ID
- Cards SSN yourself, your spouse and dependents
- Dates of birth of you, your spouse and dependents
- Forms wages and income statements such as W-2s, W-2G and 1099-R
- Declarations of interest and dividends (1099)
- Declaration Market Health Insurance (Forms 1095-A)
- Number of Certificate of Exemption for each exemption has been obtained by Market
- A copy of last year’s federal return if any
- Routing and account numbers for direct deposit of your refund
- The total paid to the nursery and the identification number of the caregiver. Usually, this is the employer number or Social Security number
- Other relevant information about income and expenses
Although no guidelines or regulations required to submit proof of health insurance coverage when you file your tax return, if you have documents that verify your coverage, you should show them to the coach. The IRS will proceed with its normal strategy of enforcement to receive statements and you may ask to support the information on your tax return. You should keep your documents with your tax records. Learn more about the documents that must care for and maintain in our Gather Your Documentation Medical Coverage.
4. Joint Declarations. If you are married and filing jointly, generally, both spouses must be present to sign. If both can not be present, generally must bring a legal power. Use Form 2848 , Power of Attorney and Declaration of Representative. There is a special exception to this rule if your spouse is in a combat zone. The exception allows this tax with a document signed by explaining that your spouse is in a combat zone and can not sign.
5. IRS Free File. Prepare and file your own taxes with the IRS Free File. You can use free software brand or interactive online forms. If your income was $ 60,000 or less, you qualify for Free File software. If you earned more than $ 60,000, you can use the forms to fill for Free File. Learn more at IRS.gov/freefile .
See Publication 3 , Tax Guide for the Armed Forces for more information on this topic.
Additional Resources IRS on Military Taxes:
Some individuals with substantial income in addition to salaries may find that the amount of tax withheld from their salaries isn’t enough to cover their required estimated tax payments. This can be a problem because if the correct amount of taxes is not withheld, there could be IRS penalties applied when tax returns are filed.
IRS Penalties from Wrong Paycheck Withholding
An individual subject to the estimated tax must pay, on each of four installment dates (normally, April 15, June 15, September 15 and January 15 of the following year for a calendar-year taxpayer), 25% of the “required annual payment” for the current year. The required annual payment generally is the lesser of 100% of the tax shown on the taxpayer’s return for the preceding year or 90% of his tax for the current year. However, taxpayers whose 2013 AGI was over $150,000 must pay the lesser of 110% of the tax shown on the 2013 return or 90% of their 2014 tax liability.
The applicable test is applied separately to each installment. Thus, a taxpayer may be penalized for the underpayment of estimated taxes for any installment for which his estimated tax payments plus taxes withheld from salary (and certain other payments) don’t total at least 25% of the required annual payment.
What happens with Underpayment of Estimated Taxes?
An individual who has underpaid an estimated tax installment can’t avoid the penalty by increasing his estimated tax payment for a later period (although payment in a later period will reduce the period for which the penalty applies). But a possible solution is increased withholding.
Income tax withheld by an employer from an employee’s wages or salary is treated as paid in equal amounts on each of the four installment due dates unless the individual establishes the dates on which the amounts were actually withheld. Thus, if an employee asks his employer to withhold additional amounts for the rest of the year, the penalty can be retroactively eliminated. This is because the heavy year-end withholding will be treated as paid equally over the four installment due dates.
Retroactive Payments of Estimated Tax
Other amounts may also be treated as retroactive payments of estimated tax. The same rules described above in regard to amounts withheld from wages and salaries also apply to overpayments of Social Security taxes and to income taxes withheld from:
- supplemental unemployment compensation benefits, sick pay, pensions, annuities and other deferred income (e.g., 20% withholding on certain “eligible rollover distributions” from qualified retirement plans and other deferred income arrangements). A taxpayer who has underpaid estimated tax should consider taking an eligible rollover distribution from a qualified plan before the end of 2014. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2014. The taxpayer can then timely roll over the gross amount of the distribution, as increased by the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2014, but the withheld tax will be applied pro rata over the full tax year to reduce previous underpayments of estimated tax.
- interest and dividends subject to backup withholding.
- gambling winnings.