Dealing with the IRS in 2016

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There are changes in 2016 as to how you can deal with the IRS to improve your tax filing experience.

  1. Thankfully, in 2016 if you actually try and call the IRS you might get through to a real person. In 2015 only 38% of all calls actually reached a person at the IRS, even after very long wait times. An astonishing 8 million calls to the IRS in 2015 ended in what they call a “courtesy disconnect”, they just hand up on you. Thanks to a getting an additional $290 million from Congress the IRS plans to hire about 1,000 additional people. I guess that is good news, but if you just start hiring them now, how experienced will they be this tax season to answer your questions?
  2. Did you know that the IRS provides access to FREE TAX FILING SOFTWARE and electronic submissions? It’s called the IRS Free File program, check it out HERE. There are some income restrictions and the IRS estimates that 70% of all taxpayers will qualify for the free software.
  3. It is in your best interest to get your taxes filed electronically as soon as possible, especially if like me you live in Florida. Why? Well we’d all like to get refunds faster, but the real reason is to combat identity theft. About 110 million taxpayers will file for a refund this year. In 2013 about 1 million fraudulent filings were made and these were worth $5.8 billion! The IRS says they are getting better at spotting fraud, we’ll see. In prior years the IRS accepted fraudulent returns from people who deposited up to 50 tax returns checks into the same exact bank account! This year the limit is 3 deposits into the same account.
  4. Tax audit rates will continue to drop again due to budget issues. More bad news is that when the IRS does an audit it is usually 2-3 years behind and difficult for the taxpayer to recall all the details.

New Permanent Tax Breaks for Your 2015 Returns

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US taxpayers no longer have to worry each December if Congress will extend certain tax benefit items for the taxes we begin filing just one month later. Last month the Protecting Americans from Tax Hikes Act of 2015 was signed into law. Here is a complete copy of the Act …..Actual Act from Congress.gov.

So how does it affect you and your 2015 tax filing?

  1. For us Florida residents we have the ability to elect a deduction for state and local sales taxes instead of state and local income taxes, since we have none. This is now a permanent.
  2. The American Opportunity Credit is also made permanent. (It was previously scheduled to expire at the end of 2017.) The American Opportunity Credit is a credit of up to $2,500 per year for paying qualified higher education expenses for yourself, your spouse, or your dependent. Many people miss this simple credit, it is more valuable than a “deduction” for other “educational expenses” items.
  3. For those of us in retirement, with a qualified charitable distribution, a taxpayer over age 70.5 has his or her RMD for the year distributed directly to a qualified charitable organization. This distribution satisfies the annual RMD requirement while being excluded from gross income. The benefit is that this is an exclusion from gross income rather than an itemized deduction (which is what you would ordinarily get for a charitable donation). This is important because it means that this income will not be included in your adjusted gross income, which then determines many things such as how much of your Social Security benefits will be taxable and whether you qualify for other credits/deductions). Furthermore, you can take advantage of this tax break even if you use the standard deduction.
  4. School teachers can now deduct certain expenses from income, on a permanent basis.
  5. Enhancements were made to the CTC, Child tax Credit and the EIC, Earned Income Credit. These two credits are very valuable in assisting low income taxpayers or even middle income taxpayers with large families to not just lower their taxes, but get money back even if they pay no taxes whatsoever.

The bottom line is that beginning with our current 2015 tax returns we can count on these items and more to be a permanent part of our tax planning strategy.

By the way your 2015 tax filing is not due until April 18th this year.