Can I use form 1040EZ to file taxes?

20 Jan

If you use software to e-file it will select the right form for you. Filing electronically is the easiest way to file a complete and accurate return. The software asks questions that guide you, minimizes errors and helps you get the tax credits and deductions that you are entitled to claim. If you do file a paper return, here are some tips to help you use the right forms.

You can generally use the 1040EZ if:

  • Your taxable income is below $100,000;
  • Your filing status is single or married filing jointly;
  • You don’t claim dependents; and
  • Your interest income is $1,500 or less.

Note: You can’t use Form 1040EZ to claim the new Premium Tax Credit. You also can’t use this form if you received advance payments of this credit in 2014.

The 1040A may be best for you if:

  • Your taxable income is below $100,000;
  • You have capital gain distributions;
  • You claim certain tax credits; and
  • You claim adjustments to income for IRA contributions and student loan interest.

You must use the 1040 if:

  • Your taxable income is $100,000 or more;
  • You claim itemized deductions;
  • You report self-employment income; or
  • You report income from sale of a property.

This also means that if you take the mileage deduction you can’t use 1040EZ. We recommend however that you use our mileage log calculator and tax filing software to e-file because the time and money savings are worth it.

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Free File for Your Federal Taxes including new Obamacare Law

18 Jan

The IRS and the Free File Alliance offer Free File, which makes brand-name tax software products and electronic filing available to most taxpayers for free. Free File software can help taxpayers with tax preparation, including the health care law that will affect almost everyone.

Free File is available only at IRS.gov/FreeFile, thanks to a partnership between the IRS and the Free File Alliance, a consortium of 14 leading tax software companies that make their branded products available for free. Since 2003, more than 43 million people have used Free File, saving $1.3 billion based on a conservative $30-fee estimate.

If you earned $60,000 or less last year, you are eligible to choose from among 14 software products. If you earned more, you are still eligible for Free File Fillable Forms, the electronic version of IRS paper forms. This more basic Free File option, which is best for people comfortable preparing their own tax return, will be available January 20.

More than 70 percent of all taxpayers – 100 million people – are eligible for the software products. Each of the 14 companies has its own special offers, generally based on age, income or state residency. Taxpayers can review each company offer or they can use a “Help Me” tool that will find the software for which they are eligible.

Free File offers easy-to-use products that ask questions and you supply the answers. The software will find the right forms, find the right tax credits and deductions and even do the math for you.

Some companies also offer free state tax return preparation as well.

Free File also can help taxpayers with the new health care requirements. Almost everyone will need to do something new when filing a tax return this year. For each month in 2014, you and everyone on your return must:

  • Report health care coverage, or
  • Claim an exemption from coverage or
  • Make a shared responsibility payment with your tax return.

Most people will simply have to check a box to report health care coverage for the entire year.

If you or anyone on your return purchased coverage from the Health Insurance Marketplace, you may be allowed to take the Premium Tax Credit. If you opted for any advance payments of the Premium Tax Credit to help with your monthly insurance premium payments, you must file a tax return, even if you were not required to file. You must reconcile your advance payments with the amount you were due. Learn more at IRS.gov/aca.

Free File will be available through October 2015. Taxpayers have the option to prepare their return at any time and schedule a tax payment as late as the April 15 deadline. Taxpayers who cannot meet the April 15 tax filing deadline can also use Free File to file a six-month extension.

Here are some common tax-related documents you will need to complete your tax return. Remember, you must also have documentation of any credit or deduction you are claiming as well.

  • A copy of last year’s tax return;
  • Valid Social Security numbers for yourself, spouse and children;
  • All income statements, i.e. W-2 forms, from all employers;
  • Interest/dividend statements, i.e. 1099 forms;
  • Form 1099-G showing any state refunds;
  • Unemployment compensation amount, if any;
  • Form 1095-A if you purchased coverage from a Health Insurance Marketplace;
  • Proof of health care insurance coverage for you and everyone on your return.

Need tax assistance from the IRS? Prepare to be on hold for 30 min.

17 Jan

From National Taxpayer Advocate Nina Olson’s 2014 annual report to Congress:

Nearly 200 million Americans interact with the IRS each year, more than three times as many as any other federal agency.  (Individuals file nearly 150 million returns, including about 50 million joint returns.)  Because of the complexity of the tax code, large numbers of taxpayers turn to the IRS for assistance.  The IRS typically receives more than 100 million telephone calls, 10 million letters, and 5 million visits at its walk-in sites from taxpayers each year.

IRS taxpayer service reached its high-water mark in fiscal year (FY) 2004.  In that period, the IRS answered 87% of calls from taxpayers seeking to speak with an assistor, and hold times averaged 2.5 minutes.  The IRS also responded to a wide range of tax-law questions, both on its toll-free lines and in its roughly 400 walk-in sites, prepared nearly 500,000 tax returns for taxpayers who requested help (particularly low income, elderly, and disabled taxpayers), and maintained a robust outreach and education program that touched an estimated 72 million taxpayers.

By comparison, the IRS’s diminished service expectations for FY 2015 are as follows:

  • The IRS is unlikely to answer even half the telephone calls it receives, and levels of service may average as low as 43%.
  • Taxpayers who manage to get through are expected to wait on hold for 30 minutes on average and considerably longer at peak times.
  • The IRS will answer far fewer tax-law questions than in past years.  During the upcoming filing season, it will not answer any tax-law questions except “basic” ones.  After the filing season, it will not answer any tax-law questions at all, leaving the roughly 15 million taxpayers who file later in the year unable to get answers to their questions by calling or visiting IRS offices.
  • Tax return preparation assistance has been eliminated.

On the workload side, the IRS is receiving 11% more returns from individuals, 18% more returns from business entities, and 70% more telephone calls (through FY 2013) than a decade ago.  During the upcoming filing season, implementation of the Patient Protection and Affordable Care Act and the Foreign Account Tax Compliance Act are both expected to add considerable new work.

On the resources side, the IRS’s budget has been reduced by about 17% in inflation-adjusted terms just since FY 2010.  As a consequence, the IRS has already reduced its workforce by nearly 12,000 employees and projects further reductions will be needed during FY 2015.  In addition, the IRS has reduced the amount it spends on employee training since FY 2010 by 83%.  These cutbacks leave the IRS with a shrinking workforce whose employees are less equipped to do their jobs.

Tax Treatment of Employer-Provided Meals

16 Jan

Meals Provided for the “Convenience of the Employer”

Internal Revenue Code (IRC) §119 provides an exclusion from income for the value of meals provided by the employer under certain circumstances. Cash, or a cash equivalent, provided for the purchase of meals is not excludable under this Code section. In addition, if an employee has an option to receive additional wages in place of actual meals, then the meals are taxable.

Federal law takes precedence over a state statute, or an employment or union contract, in determining the Federal tax liability for furnished meals. The actual facts and circumstances and the requirements of IRC §119 determine the liability for Federal income taxes, as well as social security (if covered employment), and Medicare taxes.

Employer-provided meals are excludable from the wages of the employee if they are provided:

  • On the employer’s business premises; and
  • For the employer’s convenience.

For meals to be excludable, both the “business premises” and “convenience of employer” tests must be met.

Business Premises

“On the employer’s business premises” means the meals must be provided either at:

  • A place where the employee performs a significant portion of his or her duties; or
  • The premises where the employer conducts a significant portion of its business.

Example: Meals are provided at no cost to employees on a state ferry. The employee performs a significant portion of duties on the ferry; therefore the ferry qualifies as the employer’s premises. If the meals are furnished for the convenience of the employer (for example, because the employer cannot stop the ferry to allow the employees to go to lunch) the meals are not taxable.

Convenience of the Employer

Meals are provided for the convenience of the employer if they are provided for a substantial noncompensatory (not intended as compensation) business reason. Whether or not a meal is provided for the convenience of the employer depends on the facts and circumstances of the case.

Meals are regarded as furnished for substantial noncompensatory business reasons in situations such as:

  • Where meals are furnished during working hours so that the employee is available for emergency calls during the meal (as long as there is evidence to show that emergencies occur);
  • When the nature of the business (not merely a preference) requires short meal periods and employees could not be expected to obtain meals elsewhere in such a short period;
  • Where employees cannot otherwise obtain a meal within a reasonable meal period, such as when there are insufficient eating facilities available in the surrounding area of the business premises; and
  • When meals are furnished to restaurant employees, before, during or after work hours.

Meals provided to improve general morale or goodwill, or to attract prospective employees, are not provided for a substantial noncompensatory business reason and are taxable.

Meals provided before or after working hours are not for the convenience of employer, unless:

  • They are provided for a restaurant or cafeteria employee; or
  • Duties prevent the employee from taking a meal until immediately after working hours.

If meals are furnished for the convenience of the employer to more than half of the employees on the business premises, then all the meals served on the business premises will be considered furnished for the convenience of the employer.

Examples of meals furnished for the convenience of the employer include:

  • Meals furnished to firefighters on duty at the firehouse
  • Meals furnished to employees at a remote logging camp with no other eating facilities in the area
  • Meals furnished to bank employees by a bank that experiences its highest customer demand during the lunch hour and establishes a short meal period so that employees are available to meet this demand

Meals While Traveling

In order for meals reimbursed as a travel expense to be excludable from wages, employees must be traveling away from their tax home on their employer’s business. As with other travel-related expenses, the general area of work, not the employees’ residence, determines the tax home. Reimbursements or allowances must meet the accountable plan rules in order to be excludable.

Traveling “away from home” means:

  • The employee must be traveling away from the general area of the tax home substantially longer than an ordinary day’s work, and
  • The employee needs to obtain substantial sleep or rest to meet the demands of the work while away from home.

Example: An employee is required to travel out of town to work for the day. The employer agrees to pay for the employee’s meals while away. The employee leaves home at 7:00 a.m. and returns home at 9:00 p.m. Before the employee returns in the evening, the employee takes a nap in his car for an hour. Although the employee is away from his tax home for substantially longer than a normal work day and even stops for rest, the rest is not considered to be substantial. The employee is not traveling away from home and any meal money that the employee receives is taxable as wages.

Meals reimbursed as a travel expense are discussed in detail in the Publication 5137, FSLG Fringe Benefit Guide, and in Publication 463, Travel, Entertainment, Gift, and Car Expenses.

How IRS Tax Forms are Changing because of Health Care Law

15 Jan

This year, there are some changes to tax forms related to the Affordable Care Act. Along with a few new lines on existing forms, there will also be two new forms that will need to be included with some tax returns. While most taxpayers will simply need to check a box on their tax return to indicate they had health coverage for all of 2014, there are also new lines on Forms 1040, 1040A, and 1040EZ related to the health care law.

To help navigate these changes, taxpayers and their tax professionals should consider filing their return electronically. Using tax preparation software is the best and simplest way to file a complete and accurate tax return as it guides individuals and tax preparers through the process and does all the math. There are a variety of electronic filing options, including free volunteer assistance, IRS Free File for taxpayers who qualify, commercial software, and professional assistance.

Here is information about the new forms and updates to the existing forms:

Form 8965, Health Coverage Exemptions

  • Complete this form to report a Marketplace-granted coverage exemption or claim an IRS-granted coverage exemption on the return.
  • Use the worksheet in the Form 8965 Instructions to calculate the shared responsibility payment.

Form 8962, Premium Tax Credit

  • Complete this form to reconcile advance payments of the premium tax credit, and to claim this credit on the tax return.

Additionally, if individuals purchased coverage through the Health Insurance Marketplace, they should receive Form 1095-A, Health Insurance Marketplace Statement, which will help complete Form 8962.

Form 1040

  • Line 46: Enter advance payments of the premium tax credit that must be repaid
  • Line 61: Report health coverage and enter individual shared responsibility payment
  • Line 69: If eligible, claim net premium tax credit, which is the excess of allowed premium tax credit over advance credit payments

Form 1040A

  • Line 29: Enter advance payments of the premium tax credit that must be repaid
  • Line 38: Report health coverage and enter individual shared responsibility payment
  • Line 45: If eligible, claim net premium tax credit, which is the excess of allowed premium tax credit over advance credit payments

Form 1040EZ

  • Line 11: Report health coverage and enter individual shared responsibility payment
  • Form 1040EZ cannot be used to report advance payments or to claim the premium tax credit

For more information about the Affordable Care Act and filing your 2014 income tax return visit IRS.gov/aca.

Ley de Cuidado de Salud Trae Cambios a Formularios del IRS

15 Jan

Este año, existen algunos cambios en los formularios tributarios relacionados a la Ley de Cuidado de Salud a Bajo Precio.  Además de varias líneas nuevas en los formularios, también habrá dos formularios nuevos que deberán incluirse con algunas declaraciones de impuestos. Mientras que la mayoría de los contribuyentes solo tendrán que marcar una casilla en su declaración de impuestos para indicar que tuvieron cobertura de salud durante todo el 2014, también hay líneas nuevas en los Formularios 1040, 1040A y 1040EZ relacionadas a la ley de cuidado de salud.

Para ayudar a navegar estos cambios, los contribuyentes y sus profesionales de impuestos deben considerar presentar su declaración electrónicamente.El uso de software para la preparación de impuestos es la manera más efectiva y fácil de presentar una declaración de impuestos completa y exacta, pues guía a los individuos y preparadores de impuestos a través del proceso y realiza todos los cálculos matemáticos. Existe una variedad de opciones electrónicas para presentar su declaración y que incluyen asistencia voluntaria gratuita, Free File del IRS para contribuyentes elegibles, software comercial, y asistencia professional.

A continuación, información acerca de los nuevos formularios y actualizaciones de los formularios existentes:

Formulario 8965 (en inglés), Exenciones de Cobertura Médica

  • Complete este formulario para reportar en su declaración una exención otorgada por el Mercado o reclamar una exención otorgada por el IRS.
  • Utilice la hoja de cálculo en las Instrucciones del Formulario 8965 para calcular el pago de la responsabilidad compartida para individuos.

Formulario 8962 (en inglés), Crédito Tributario de Prima

  • Complete este formulario para conciliar pagos por adelantado del crédito tributario de prima y para reclamar este crédito en la declaración de impuestos.

Además, si los individuos compraron cobertura de salud a través del Mercado de Seguros Médicos, deben recibir el Formulario 1095-A (en inglés), Declaración de Cobertura Médica del Mercado, que ayuda a completar el Formulario 8962.

Formulario 1040 (en inglés)

  • Línea 46: Incluya los pagos por adelantado del crédito tributario de prima que debe pagar
  • Línea 61: Reporte su cobertura de salud e incluya el pago de responsabilidad compartida para individuos
  • Línea 69: Si es elegible, reclame el crédito tributario de prima neto, que es el exceso del crédito tributario de prima permitido sobre los pagos por adelantado de crédito

Formulario 1040A (en inglés)

  • Línea 29: Incluya los pagos por adelantado del crédito tributario de prima que debe pagar
  • Línea 38: Reporte su cobertura de salud e incluya el pago de responsabilidad compartida para individuos
  • Línea 45: Si es elegible, reclame el crédito tributario de prima neto, que es el exceso del crédito tributario de prima permitido sobre los pagos por adelantado de crédito

Formulario 1040EZ (en inglés)

  • Línea 11: Reporte su cobertura de salud e incluya el pago de responsabilidad compartida para individuos
  • El Formulario 1040EZ no puede utilizarse para reportar pagos por adelantado o para reclamar el crédito tributario de prima

Para información adicional acerca de la Ley de Cuidado de Salud a Bajo Precio y cómo presentar su declaración de impuestos de 2014 visite IRS.gov/aca.

Invest in a Small Wind Energy Property and Qualify for Energy Credit under Section 48

14 Jan

Notice 2015-04 provides guidance on the energy credit under section 48 of the Internal Revenue Code (Code).  Specifically, this notice provides performance and quality standards that small wind energy property must meet to qualify for the energy credit under section 48. 

Notice 2015-04 will be published in Internal Revenue Bulletin 2015-4 on Jan. 26, 2015. Until then here’s an excerpt.

For purposes of computing the investment credit under section 46 of the Code, section 48(a)(1) provides, in part, that the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year. Section 48(a)(3)(A)(vi) provides that energy property includes qualified small wind energy property. Section 48(a)(2)(A)(i)(IV) provides that the energy percentage in the case of qualified small wind energy property is 30 percent for periods ending before January 1, 2017.

Under section 48(a)(3), energy property includes qualified small wind energy property that is constructed, reconstructed, or erected by the taxpayer (or acquired by the taxpayer if the original use of the property commences with the taxpayer), subject to depreciation (or amortization in lieu of depreciation), and meets the performance and quality standards (if any) that have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy) and are in effect at the time of the acquisition of the property.

Section 48(c)(4) defines qualified small wind energy property as property that uses a “qualifying small wind turbine” to generate electricity. A qualifying small wind turbine is a wind turbine that has a nameplate capacity of not more than 100 kilowatts (kW). Qualified small wind energy property shall not include any property for any period after December 31, 2016.

SMALL WIND ENERGY PROPERTY STANDARDS

.01 Performance and Quality Standards. To qualify as small wind energy property under section 48, the property must use a wind turbine that has a nameplate capacity of not more than 100 kW and meets the performance and quality standards as set forth in either of the following:

(1) American Wind Energy Association Small Wind Turbine Performance and Safety Standard 9.1-2009 (AWEA); or

(2) International Electrotechnical Commission 61400-1, 61400-12, and 61400-11 (IEC).

.02 Time of Acquisition. For these purposes, a small wind turbine must meet the performance and quality standards of the AWEA or the IEC that are in effect at the time of acquisition of the small wind turbine. In the case of a small wind turbine constructed, reconstructed, or erected by the taxpayer, the time of acquisition for purposes of this section 3.02 of this Notice shall be the time the small wind turbine is placed in service.

IRS Launches IDES (International Data Exchange Service) for FATCA (Foreign Account Tax Compliance Act) Reporting

13 Jan

This is of particular interest if you have a foreign bank account.

The IRS announces the opening of the International Data Exchange Service (IDES) for enrollment.  Financial institutions and host country tax authorities will use IDES to securely send their information reports on financial accounts held by U.S. persons to the IRS under the Foreign Account Tax Compliance Act (FATCA) or pursuant to the terms of an intergovernmental agreement (IGA), as applicable.

More than 145,000 financial institutions have registered through the IRS FATCA Registration System. The U.S. has more than 110 IGAs, either signed or agreed in substance. Financial institutions and host country tax authorities will use IDES to provide the IRS information reports on financial accounts held by U.S. persons.

“The opening of the International Data Exchange Service is a milestone in the implementation of FATCA,” said IRS Commissioner John Koskinen. “With it, comes the start of a secure system of automated, standardized information exchanges among government tax authorities. This will enhance our ability to detect hidden accounts and help ensure fairness in the tax system.”

Where a jurisdiction has a reciprocal IGA and the jurisdiction has the necessary safeguards and infrastructure in place, the IRS will also use IDES to provide similar information to the host country tax authority on accounts in U.S. financial institutions held by the jurisdiction’s residents.

Using IDES, a web application, the sender encrypts the data and IDES encrypts the transmission pathway to protect data transfers. Encryption at both the file and transmission level safeguards sensitive tax information. 

Host country tax authorities in Model 2 IGA jurisdictions and financial institutions are encouraged to begin the enrollment process well in advance of their reporting deadline. To begin transmitting information in IDES, a financial institution or tax authority will need to first obtain a digital certificate. Digital certificates bind digital information to physical identities and provide data integrity. IDES stores each user’s public key and related digital certificate. All IDES enrollees (including host country tax authorities) must obtain a proper digital certificate in order to enroll; there is a list of approved Certificate Authorities available on irs.gov.

For host country tax authorities in Model 1 IGA jurisdictions, the IRS will directly notify them to let them know when it is time to enroll. Financial institutions will initiate enrollment online on their own; in order to enroll, the financial institution will need to have registered as a participating financial institution through the IRS FATCA Registration System and have a global intermediary identification number (GIIN) that appears on the IRS FATCA FFI list. The online address for IDES enrollment can be found here. IDES runs on all major browsers, including Chrome, Internet Explorer, Safari, and Firefox and will support application-to-application exchanges through the SFTP transmission protocol enabling a wide variety of users to interact with IDES without building additional infrastructure to support transmission.

Further information on IDES can be found here. The IDES User Guide with instructions for enrolling and using the IDES can be found here. The IRS has posted Frequently Asked Questions about FATCA and IDES on irs.gov and will continue to update the FAQs as questions are received. In addition, there is a comments link on irs.gov to submit questions specifically on IDES and another for other FATCA-related questions.

Mileage Rate for 2014 is $0.56

12 Jan

The Internal Revenue Service today issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

IRS announced that beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The business, medical, and moving expense rates decrease one-half cent from the 2013 rates. Of course, taxpayers have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

MileLogr makes it amazingly simple to get mileage logs that let you take advantage of this tax deduction. It connects to your online calendar and uses your appointment information to generate the mileage logs.

You can try MileLogr for free now at www.milelogr.com.

Tax Filing Season Starts Jan. 20. Are you ready?

9 Jan

IRS has a variety of online tools to assist you this filing season. Visit Basic Tools for Tax Professionals for information you need to file returns for your clients and e-Services for Tax Pros a suite of web-based tools that allow you to complete certain transactions online. ACA is a hot topic this year, so bookmark the ACA Information Center for Tax Professionals page. And if you have questions about FATCA, take a look at the Foreign Account Tax Compliance Act page.

And of course, calculate your mileage log using MileLogr to maximize your driving deduction.