The filing season opens January 23, 2017 and will end April 18, 2017. We recommend you schedule your appointments or drop your tax documents off as early as possible to avoid extensions. Although extensions sometimes may be necessary, the IRS will still impose late payment penalties for those that have a tax liability after April 18, 2016.
The IRS will be holding some refunds until February 15th. According to a new tax law change, the IRS cannot issue refunds before February 15th for tax returns that claim the Earned Income Tax Credit or the Additional Child Tax Credit. This applies to the entire refund, even the portion not associated with these credits. The IRS will begin to release EITC/ACTC refunds starting February 15th. However, the IRS cautions taxpayers that these refunds likely won’t arrive in bank accounts until the week of February 27th. You are still encouraged to file early with our office to avoid any delays in preparation of your return.
The New 1099 Penalties
Congress has gotten serious about not issuing 1099’s. In prior years the penalty for not issuing (or timely issuing) a 1099 was $50 per event. For 2016, the penalty could be as much as $1,000 per each omitted or incorrect 1099-Misc. A 1099-Misc is required whenever you pay a non-corporate entity $600 or more in one year in business transactions. The 1099-Misc must be provided to the taxpayer by January 31, 2017 and this year the IRS’ copy must also be provided by January 31, 2017 or those penalties will apply. The problem you may encounter is those sub-contractors that don’t want you to issue them one, so make sure you get them to fill out a W-9 form before you issue them a payment. Make sure you issue the 1099’s to every individual who is not incorporated.
Affordable Care Act
Once again, all Americans are affected by the Affordable Care Act (Obamacare). The Affordable Care Act requires you, your spouse and your dependents to have qualifying health care coverage for each month of the year. You may have employer-sponsored health coverage, coverage through the Marketplace or some other form of qualifying coverage. If you did not have qualifying health coverage, you may qualify for a health coverage exemption, otherwise you must make an Individual Shared Responsibility Payment (oftentimes called the Health Care Penalty) when filing your federal income tax return. For Tax Year 2016, the penalty could be as high as $695.00 per person or 2.5% of your AGI, whichever is higher.
If you had coverage through the Marketplace, you will receive a Form 1095-A from the agency in the mail. This form is REQUIRED to file your tax return.
Medical Cost Deductions
The threshold for claiming a deduction on out-of-pocket medical costs remain at 10% of your income before a deduction can occur, so weigh carefully whether to go to the trouble of summarizing these costs. If you are self-employed, we still need to know how much you paid for health insurance.
ALL deductions of any amount must have a receipt. Any individual contribution over $250 must also have an acknowledgement letter from the charity, and the letter must be dated by the date we file your return. The letter should show the date and amount of any individual contribution over $250 and should also state that no goods or services were received in return for the contribution. Remember if you charge a charitable contribution to a credit card by 12/31/2016 we are able to deduct it in 2016!
If you have an account, retirement account, or business interest with a value over $10,000 in a foreign country, or a foreign business ownership (not through a mutual fund), please let us know as some special rules will apply to you. There are substantial penalties for failure to disclose these items.
Children/Student Tax Returns
Again for 2016, we strongly encourage that you do not allow your dependent children or college students to file their own returns this year. Allowing a child to file their own return, particularly a student, can cost the child and parent literally thousands of dollars in Health Care penalties and/or Education credits. This is extremely important if you have a child in college.
Traditional/Roth IRA Contributions
You have until April 18, 2017 to contribute to your Traditional or Roth IRA accounts and have it apply to your 2016 tax return. Please call us for an appointment to discuss your individual limits for contributing and how they will affect your tax return. If you converted your traditional IRA to a Roth in 2016, this will affect your tax return so please inform of us of any conversions done in 2016.
The amount you may give to one person in one year without any return filing requirements remains at $14,000. Very few Americans need to worry about Federal estate taxes because of changes in the estate tax limit at the Federal level.
State of Ohio Changes
Ohio individual income tax rates have been indexed for inflation for 2016. The rates still remain the lowest they have been in many years. If you are a business owner, you may qualify for a 100% income tax reduction up to $250,000 in net income. This allows for many business owners to free up funds to invest in their business growth.
Fighting Identity Theft
The State of Ohio is continuing to use the “Identity Confirmation Quiz” for 2016. Many of you received this quiz last year to verify you filed and were claiming an Ohio refund. We strongly urge you to respond to the quiz if you receive it to avoid delays in processing your state refunds. In addition, although you may have been coming to our office for many years, we are requiring your driver’s license or state ID number when filing your returns this year. We will enter this information in your return before e-filing. Both of these safeguards will help reduce identity theft and expedite the filing process for Ohio income tax refunds.