How to Maximize Your Refund!

From Fox Business, comes great advice on how to maximize your return! That is - if you haven't already spent it somewhere else...!

5 Simple Steps to Triple The Value of Your Tax Refund
By: Chuck Saletta

According to the IRS, the average refund taxpayers received during the 2016 filing season was $2,732. That's a substantial chunk of change, but what if I told you that you could take that money and potentially triple its value for you by the end of this year?


Indeed, you can turn that average refund into over $8,000 toward your retirement by the end of this year, with absolutely no impact to your lifestyle. All you need to do is follow these five simple steps.

Step 1: Contribute your refund check to your IRA
For 2016, if you or your spouse are working, you can potentially contribute up to $5,500 each to either a Roth IRA or a Traditional IRA. If you're age 50 or up, that potential contribution increases to $6,500.

• Your taxable compensation for the year, if your compensation was less than this dollar limit.

A refund check of $2,732 fits easily within those limits, which makes it a straightforward way to turn your tax refund into money for your retirement.

Step 2: Increase your contributions to your traditional 401(k) or equivalent plan at work
Your tax refund isn't a gift from the Government. It's the return to you of an interest-free loan you handed Uncle Sam during the year by over-withholding your taxes. Take that money back and put it to productive use for yourself. You can contribute pre-tax money to your traditional 401(k) and get not only your money working for you but also money Uncle Sam would have otherwise taxed from you.

To fully make use of your refund check, increase your 401(k) contributions by enough to make up for both the refund itself and the tax you won't be paying on the contributed income. The basic math is Refund / (1-marginal tax bracket). If you're in the 25% tax bracket and got that typical refund, that would turn into $2,732 / (1-0.25) = $3,642.67.

Step 3: Adjust your withholding at work to get it closer to break even
In step 2, you invested the money that you had over paid Uncle Sam, but in doing so, you did decrease your take home paycheck. Key to making this plan neutral to your everyday lifestyle is to decrease the amount Uncle Sam withholds every paycheck. Using IRS Form W-4 or your employer's substitute, you can adjust your withholdings to make it so you won't be making another large interest free loan to Uncle Sam this year.

When you're making this adjustment, your objective should be to get close to break even when it comes time to filing your taxes next year. If you reduce your withholdings too much, you could have to pay underpayment penalties on top of any taxes you owe. The key is to be within one of the IRS' "Safe Harbor" limits. For 2016, the key Safe Harbor limits are:

• If you owe less than $1,000 in taxes for 2016 when it comes time to file in 2017
• You've paid at least 90% of what you owe for 2016 (66 and 2/3% for farmers and fishermen)
• You've withheld or paid via timely estimated tax payments at least 100% of what you owed for 2015 (110% if your income in 2015 was above $150,000 or if it's above $75,000 and your filing status is "married filing separately")

Step 4: Thank your employer for its 401(k) match
Many employers offer a match to encourage employees to contribute money toward their own retirement. Matches vary by company, but a common practice is a $0.50 match for every $1.00 the employee contributes, up to some percentage of salary. On that $3,642.67 contribution you made in step 2, a 50% match would be an additional $1,821.33, contributed into your retirement account, on your behalf.

Step 5: Count your cash
Your $2,732 IRA contribution from your refund check plus your $3,642.67 contribution to your 401(k) plus your employer's match of $1,821.33 brings your total to $8,196. That's triple your original refund amount, now working on your behalf to help fund your retirement.

Perhaps best of all, you just figured out how to save that $8,196 with no impact to your everyday lifestyle. Every penny of that money came straight from your tax refund this year, from the money that would otherwise have been a tax refund next year, and/or from your employer's matching program.

How often can you come up with $8,000 that easily?
As fun as it might be to hold that $2,732 refund check, wouldn't it be even more fun to see it turn into more than $8,000 this year? On top of that, once you've taken these five steps, that $8,196 will be in your retirement accounts, where it can grow tax-deferred on your behalf for the rest of your career.

That's an amazing opportunity available to you simply by choosing to no longer offer Uncle Sam an interest free loan, instead putting that very same stack of your own money to work for you. So get started today, and turn that tax refund into the foundation for your financial future.


To see the original article, click here.

Premium Tax Credits Being Reviewed by IRS

An article on AccountingToday.com, by Michael Cohn, recently highlighted how the IRS has been advised to review the Premium Tax Credits due to the fact that "the IRS is unable to ensure that individuals claiming the PTC met the most important eligibility requirement: that insurance was purchased through an exchange."  The IRS has updated procedures to spot fraudulent claims, but not without stretching its resources.

IRS Miscalculating Tax Credits for Obamacare
By  Michael Cohn

The Internal Revenue Service’s computer systems miscalculated the allowable Premium Tax Credits for more than 27,000 taxpayers who received subsidies for health insurance under the Affordable Care Act, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, evaluated the effectiveness of the IRS’s verification of health care tax credit claims during the 2015 filing season. According to the IRS, almost $11 billion in Advance Premium Tax Credits were paid to insurers in fiscal year 2014.  As of June 11, 2015, the IRS processed more than 2.9 million tax returns involving the Premium Tax Credit, and taxpayers received approximately $9.8 billion in PTCs that were either received in advance or claimed at filing.

The ACA requires health insurance exchanges to provide the IRS with information regarding individuals who are enrolled by the exchange on a monthly basis. The data is referred to as Exchange Periodic Data, or EPD. TIGTA’s analysis of more than 2.6 million tax returns with a PTC claim that were filed between January 20, 2015, and May 28, 2015, for which the IRS had EPD, found that the IRS accurately determined the allowable PTC on more than 2.4 million (93 percent) returns.

TIGTA said, however, that it is continuing to work with the IRS to determine the cause for calculation differences in 150,385 of the remaining 182,884 (7 percent) tax returns. Computer programming errors resulted in an incorrect computation of the allowable PTC for 27,827 tax returns. For 4,672 tax returns, the IRS did not have the authority to correct the PTC claim during processing.

The Affordable Care Act created the health insurance marketplace, also known as an exchange. The exchange is where taxpayers find information about health insurance options, purchase qualified health plans, and, if eligible, obtain help paying premiums and out-of-pocket costs. The ACA also created a new refundable tax credit, the Premium Tax Credit, to help offset the cost of health care insurance for those with low or moderate income. Individuals can receive the PTC in advance or can claim the PTC on their tax return. Individuals who received the PTC in advance are required to reconcile the amount paid on their behalf to the allowable amount of the PTC on their tax return.

The House Committee on Appropriations requested that TIGTA evaluate the IRS processes to ensure that unauthorized payments or overpayments of the PTC are fully recouped.

The exchanges did not provide the EPD to the IRS prior to the start of the 2015 filing season as required. In addition, IRS system issues prevented the IRS from being able to use most of the EPD received between Jan. 20, 2015, and March 29, 2015, according to TIGTA.

Without the required EPD, TIGTA noted, the IRS is unable to ensure that individuals claiming the PTC met the most important eligibility requirement: that insurance was purchased through an exchange. TIGTA’s analysis of tax returns filed between Jan. 20, 2015, and May 28, 2015, identified 438,603 tax returns for which the IRS did not have EPD at the time the tax returns were processed or the EPD were incorrect.

“The IRS did develop manual processes in an effort to verify Premium Tax Credit claims associated with Exchanges that did not provide the required Exchange Periodic Data,” said TIGTA Inspector General J. Russell George in a statement. “However, these processes resulted in the IRS having to suspend tax returns during processing, which uses additional resources and increases the burden on taxpayers entitled to these claims.”

TIGTA verified that the IRS processes to identify potentially fraudulent PTC claims are operating as intended. In addition, the IRS corrected programming errors identified by TIGTA that resulted in tax returns not being identified for further review during processing.

TIGTA recommended the IRS review the 27,827 tax returns that TIGTA identified to ensure that these individuals receive the correct PTC, and that the IRS modify the income and family size verification processes to use the most current information available when determining if a taxpayer has reconciled APTCs received in the prior calendar year.

The IRS agreed with both of TIGTA’s recommendations and said it will review the 27,827 tax returns to prioritize them against existing workload demands and resource constraints so that they may be addressed accordingly. The IRS also said that implementation of agreed changes to the income and family size verification process is subject to budgetary constraints, limited resources and competing priorities.

“For those 27,827 returns where the PTC claim may have been incorrectly verified, due to the reliance on projected partial-year data and programming errors, it is important to note that the IRS does not have statutory authority to correct discrepancies without following deficiency procedures,” wrote Debra Holland, commissioner of the IRS’s Wage and Investment Division, in response to the report. “Deficiency procedures, also known as audit procedures, are costly and compete with other enforcement priorities for scarce resources. We will review those returns to identify those that merit appropriate follow-up activity.”

For the full article, click here.

Don't Forget Your 1095-A

There are three forms you should have received in the mail this year and those are forms 1095-A, B, and C.  These forms come from the Marketplace (A), other insurers (B), or your employer (C), and their official purpose is to be your proof of qualifying health coverage.

1095-A
You should have received this document already, but if you haven't there are still ways to get it or file without the form.  This is important to save and file with your return because it exempts you from having to make a "shared responsibility payment," or penalty under the Affordable Care Act.  However, if you have made more in 2015 than you had anticipated, you may end up owing back any Advanced Premium Tax Credits you've received throughout the year.

1095-B & 1095-C
This means you've obtained insurance through your employer or private means.  The important thing is to save these documents along with your annual tax files.  If you've switched coverage, you will receive these forms for each of the plans that you've held.  If you haven't gotten your 1095-C yet, it may still be on its way.  In December, an extension was granted for these forms and may arrive past the March 31 deadline.

Those with a 1095-A don't be caught off guard this year with a bigger tax liability than expected!  But also, congratulations on making more than you anticipated.

How Should You File?

As the personal tax deadline approaches, those that are self-employed, independent contractors and entrepreneurs are weighing their options when it comes to filing this year.  I have reintroduced personal tax filing to my services as I've seen tax preparation costs go up and quality go down.  I'm offering these services as inexpensively as possible, without inflating my cost but then offering a discount, for a straightforward, valuable service.

If you're still wondering whether or not hiring a tax professional is the best options for you, here are 3 reasons, from an article on Business.com on why it may be the way to go.

Someone to speak with. Perhaps the biggest benefit of hiring a professional is that you get to interact with a real person. While DIY tax software may be able to suggest certain deductions and exemptions, there’s only so much a computer algorithm can do. An accountant has spent years in the industry and understands the complexities of the IRS code. As a result, they can suggest tax savings and help you develop strategies for saving the most.

Better software. The tax software you purchase for personal use is certainly efficient and accurate, but it’s nothing compared to the software CPAs use. They regularly pay thousands of dollars for their technology, which means it comes packed with extra capabilities and resources. This reduces the risk of error and makes the process more thorough.

Less risk. “There are so many things that can go wrong,” says Mike Ryan, director of the Twin Cities Small Business Development Center in Minneapolis, when asked about the DIY approach to tax filing. All it takes is one misstep and you could tip the IRS off to bigger issues. However, when you use an accountant, you’re able to mitigate that risk. There’s a much smaller chance that you’ll be audited when you use a professional.

To Read the entire article "Accountant or Do It Yourself: How Should Entrepreneurs File Taxes?" by Anna Johansson.