There’s still time to act to avoid surprises at tax-time

Even though only a couple months remain in 2015, you still have time to act so you aren’t surprised at tax-time next year. You should take steps now to avoid owing more taxes or getting a larger refund than you expect.

Here are some actions you can take to bring the taxes you pay in advance closer to what you’ll owe when you file your tax return:

• Adjust your withholding. If you’re an employee and you think that your tax withholding will fall short of your total 2015 tax liability, you may be able to avoid an unexpected tax bill by increasing your withholding. If you are having too much tax withheld, you may get a larger refund than you expect. In either case, you can complete a new Form W-4, Employee’s Withholding Allowance Certificate, and give it to your employer. If you feel you will be short, enter the added amount you want withheld from each paycheck until the end of the year on Line 6 of the W-4 form. You usually can have less tax withheld by increasing your withholding allowances on line 5. You can use the IRS Withholding Calculator tool on IRS.gov to help you fill out the form.
• Change taxes with life events. You may need to change the taxes you pay when certain life events take place. A change in your marital status or the birth of a child can change the amount of taxes you owe. When they happen you can submit a new Form W–4 at work or change your estimated tax payment.
• Be accurate on your W-4. When you start a new job, you fill out a Form W-4. It’s important for you to accurately complete the form. For example, special rules apply if you work two jobs or you claim tax credits on your tax return. Your employer will use the form to figure the amount of federal income tax to withhold from your pay.
• Pay estimated tax if required. If you get income that’s not subject to withholding, you may need to pay estimated tax. This may include income, such as self-employment, interest or rent. If you expect to owe $1,000 or more in tax, and meet other conditions, you may need to pay this tax. You normally pay the tax four times a year. Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay the tax.

Your kids might be able to earn you some credit — at least with your taxes

Believe it or not, your kids don’t always have to separate you from your money. Sometimes they can actually help you keep some — especially at tax time. Before you file your tax return, read below and find out if you qualify for one or more of these tax credits.

Dependents

In most cases, you can claim your child as a dependent. You can deduct $3,950 for each dependent you are entitled to claim. You must reduce this amount if your income is above certain limits. For more on these rules, see Publication 501, Exemptions, Standard Deduction and Filing Information.

Child Tax Credit

You may be able to take this credit for each of your children under age 17. The Child Tax Credit may be worth as much as $1,000 per qualifying child depending upon your income. If you can’t claim the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. You can find out more by reading Publication 972, Child Tax Credit.

Child and Dependent Care Credit

You may be able to claim the Child and Dependent Care Credit if you pay someone to care for your children, age 13 or younger, so you can work or look for work. See Publication 503, Child and Dependent Care Expenses, for more on this credit.

Earned Income Tax Credit

The EITC is a tax benefit for people who work and have earned income from wages, selfemployment or farming. EITC reduces the amount of tax you owe and could give you a refund. To qualify, you must meet certain requirements and file a tax return, even if you do not owe any tax or are not required to file. You can qualify with or without children. You can get up to $6,242 in EITC. Go to the EITC page on IRS.gov and see Publication 596, Earned Income Tax Credit, to learn more.

Adoption Credit

You may be able to claim a tax credit for certain costs you paid to adopt a child. For details, see Form 8839, Qualified Adoption Expenses.

Education Credit

Education tax credits can help offset the costs of higher education by letting you claim qualifying education-related expenses. The American Opportunity Tax Credit and the Lifetime Learning Credit can be subtracted in full from your federal income tax, not just deducted from your taxable income. Check out Publication 970, Tax Benefits for Education, and Form 8863, Education Credits (Hope and Lifetime Learning Credits), to learn more. For information about these credits and more, visit the IRS YouTube Channel.

Student loan interest

You may be able to deduct interest you paid on a qualified student loan. You can claim this benefit even if you do not itemize your deductions. For more information, see Publication 970.

Self-employed health insurance deduction

If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid during the year. This may include the cost to cover your children under age 27, even if they are not your dependent. See Publication 535, Business Expenses, for details.

What to do if you haven’t filed your tax return

Have you filed your federal income tax return for this year or previous years?

If not, let the IRS help you get back on track. You can find help & resources, such as the Interactive Tax Assistant, Frequently Asked Questions and Answers, and Tax Trails, on IRS.gov.

Not sure if you’re required to file a return? Find out using Do I Need to File a Tax Return? or refer to Publication 17, Your Federal Income Tax for Individuals. You can download and view Publication 17 on most e-Readers and other mobile devices as an eBook from IRS.gov/forms.

It’s important to file an accurate return for several reasons:

• You may be eligible for a tax credit or deduction. The Earned Income Tax Credit, Child and Dependent Care Credit and Education Credits help millions of taxpayers and their families every year.
• Loan approvals may be delayed if you haven’t filed your return. For example, financial institutions and mortgage lenders may require income verification that includes copies of filed tax returns submitted when you buy or refinance a home, get a loan for a business, or apply for federal aid for higher education.
• If advance payments of the Premium Tax Credit were paid on behalf of you or an individual in your family in 2014, and you do not file a 2014 tax return, you will not be eligible for advance payments of the premium tax credit or cost-sharing reductions to help pay for your Marketplace health insurance coverage in 2016. This means you will be responsible for the full cost of your monthly premiums and all covered services. In addition, the IRS may contact you to pay back some or all of the 2014 advance payments of the premium tax credit.
• If you owe taxes and have not filed a timely return, you may be subject to the failure to file penalty, unless you can show reasonable cause for failing to file timely.
• If you did not pay your tax in full by the due date of the return, you may also be subject to the failure to pay penalty, unless you have reasonable cause for your failure to pay timely, or the IRS has approved your Application for Extension of Time for Payment of Tax Due to Undue Hardship. Interest is charged on taxes and penalties not paid by the due date, even if you have an extension of time to file.
• If you are required to file a return, but you cannot pay all of the tax due on your return, we may be able to help you establish a payment agreement. Go to IRS.gov/payments for additional information on tax payment options.

Regardless of your reason for not filing, you should file your federal tax return as soon as possible. Take advantage of all the available tools found on IRS.gov.

Tax Preparedness Series: Most Retirees Need to Take Required Retirement Plan Distributions by Dec. 31

IRS Issue Number:    IR-2015-122

WASHINGTON — The Internal Revenue Service today reminded taxpayers born before July 1, 1945, that they generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by Dec. 31.

Known as required minimum distributions (RMDs), these payments normally must be made by the end of 2015. But a special rule allows first-year recipients of these payments, those who reached age 70½ during 2015, to wait until as late as April 1, 2016 to receive their first RMDs. This means that those born after June 30, 1944 and before July 1, 1945 are eligible for this special rule. Though payments made to these taxpayers in early 2016 can be counted toward their 2015 RMD, they are still taxable in 2016.

This is the second in a series of weekly tax preparedness releases designed to help taxpayers begin planning to file their 2015 return.

The required distribution rules apply to owners of traditional, Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs but not Roth IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2015 RMD, this amount is on the 2014 Form 5498 normally issued to the owner during January 2015.

The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, for example, a taxpayer who turned 70½ in 2014 (born after June 30, 1943 and before July 1, 1944) and received the first RMD (for 2014) on April 1, 2015 must still receive a second RMD (for 2015) by Dec. 31, 2015.

The RMD for 2015 is based on the taxpayer’s life expectancy on Dec. 31, 2015, and their account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Use the online worksheets on IRS.gov or find worksheets and life expectancy tables to make this computation in the Appendices to Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

For most taxpayers, the RMD is based on Table III (Uniform Lifetime Table) inIRS Publication 590-B. So for a taxpayer who turned 72 in 2015, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than 10 years younger and is the taxpayer’s only beneficiary.

Though the RMD rules are mandatory for all owners of traditional, SEP and SIMPLE IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulations inPublication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

Find more information on RMDs, including answers to frequently asked questions, on IRS.gov.

IRS Urges Public to Stay Alert for Scam Phone Calls

  IRS Special Edition Tax Tip 2015-18

The IRS continues to warn consumers to guard against scam phone calls from thieves intent on stealing their money or their identity. Criminals pose as the IRS to trick victims out of their money or personal information. Here are several tips to help you avoid being a victim of these scams:

• Scammers make unsolicited calls.  Thieves call taxpayers claiming to be IRS officials. They demand that the victim pay a bogus tax bill. They con the victim into sending cash, usually through a prepaid debit card or wire transfer. They may also leave “urgent” callback requests through phone “robo-calls,” or via phishing email.
• Callers try to scare their victims.  Many phone scams use threats to intimidate and bully a victim into paying. They may even threaten to arrest, deport or revoke the license of their victim if they don’t get the money.
• Scams use caller ID spoofing.  Scammers often alter caller ID to make it look like the IRS or another agency is calling. The callers use IRS titles and fake badge numbers to appear legitimate. They may use the victim’s name, address and other personal information to make the call sound official.
• Cons try new tricks all the time.  Some schemes provide an actual IRS address where they tell the victim to mail a receipt for the payment they make. Others use emails that contain a fake IRS document with a phone number or an email address for a reply. These scams often use official IRS letterhead in emails or regular mail that they send to their victims. They try these ploys to make the ruse look official.
• Scams cost victims over $23 million.  The Treasury Inspector General for Tax Administration, or TIGTA, has received reports of about 736,000 scam contacts since October 2013. Nearly 4,550 victims have collectively paid over $23 million as a result of the scam.

The IRS will not:

• Call you to demand immediate payment. The IRS will not call you if you owe taxes without first sending you a bill in the mail.
• Demand that you pay taxes and not allow you to question or appeal the amount you owe.
• Require that you pay your taxes a certain way. For instance, require that you pay with a prepaid debit card.
• Ask for your credit or debit card numbers over the phone.
• Threaten to bring in police or other agencies to arrest you for not paying.

If you don’t owe taxes, or have no reason to think that you do:

• Do not give out any information. Hang up immediately.
• Contact TIGTA to report the call. Use their “IRS Impersonation Scam Reporting” web page. You can also call 800-366-4484.
• Report it to the Federal Trade Commission. Use the “FTC Complaint Assistant” on FTC.gov. Please add “IRS Telephone Scam” in the notes.

If you know you owe, or think you may owe tax:

• Call the IRS at 800-829-1040. IRS workers can help you.

Phone scams first tried to sting older people, new immigrants to the U.S. and those who speak English as a second language. Now the crooks try to swindle just about anyone. And they’ve ripped-off people in every state in the nation.

Stay alert to scams that use the IRS as a lure. Tax scams can happen any time of year, not just at tax time. For more, visit “Tax Scams and Consumer Alerts” on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

IRS Grants Tax Relief to Drought-Stricken Farmers and Ranchers in 48 States and Puerto Rico

 IRS Special Edition Tax Tip 2015-19

If you are a farmer or rancher forced to sell your livestock because of the drought that affects much of the nation, special IRS tax relief may help you. The IRS has extended the time to replace livestock that their owners were forced to sell due to drought. If you’re eligible, this may help you defer tax on any gains you got from the forced sales. The relief applies to all or part of 48 states and Puerto Rico affected by the drought. Here are several points you should know about this relief:

• Defer Tax on Drought Sales.  If the drought caused you to sell more livestock than usual, you may be able to defer tax on the extra gains from those sales.
• Replacement Period.  You generally must replace the livestock within a four-year period to postpone the tax. The IRS can extend that period if the drought continues.
• IRS Grants More Time.  The IRS has added one more year to the replacement period for eligible farmers and ranchers. The one-year extension of time generally applies to certain sales due to drought.
• Livestock Sales that Apply.  If you are eligible, your gains on sales of livestock that you held for draft, dairy or breeding purposes apply.
• Livestock Sales that Do Not Apply.  Sales of other livestock, such as those you raised for slaughter or held for sporting purposes and poultry, are not eligible.
• Areas Eligible for Relief.  The IRS relief applies to any farm in areas suffering exceptional, extreme or severe drought conditions during any weekly period between Sept. 1, 2014, and Aug. 31, 2015. The National Drought Mitigation Center has listed all or parts of 48 states and Puerto Rico that qualify for relief. Any county that borders a county on the NDMC’s list also qualifies.
• 2011 Drought Sales. This extension immediately impacts drought sales that occurred during 2011.
• Prior Drought Sales.  However, the IRS has granted previous extensions that affect some of these localities. This means that some drought sales before 2011 are also affected. The IRS will grant additional extensions if severe drought conditions persist.

Get more on this relief in Notice 2015-69 on IRS.gov. This includes a list of states and counties where the IRS relief applies. For more on these tax rules see Publication 225, Farmer’s Tax Guide on IRS.gov.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

The Health Care Law and You: Nine Facts about Letters Sent by the IRS

IRS Issue Number:    HCTT-2015-57

The IRS sent letters to taxpayers this summer who were issued a Form 1095-A, Health Insurance Marketplace Statement, showing that advance payments of the premium tax credit were paid on the taxpayer’s behalf in 2014. At the time, the IRS had no record that the taxpayer filed a 2014 tax return.

Here are nine facts about these letters and the actions you should take:

• IRS letters 5591, 5591A, or 5596 remind you of the importance of filing your 2014 federal tax return along with Form 8962, Premium Tax Credit.
• You must file a tax return to reconcile any advance credit payments you received in 2014 and to maintain your eligibility for future premium assistance.
• If you do not file, you will not be eligible for advance payments of thepremium tax credit in 2016.
• Even if you don’t usually file or if you requested an extension to Oct. 15, you should file your 2014 tax return as soon as possible.
• Until you file a 2014 tax return to resolve the issue with your Marketplace, you will not be eligible to get advance payments of the premium tax credit to help pay your health coverage premiums in 2016 from the Marketplace.
• You should have received a Form 1095-A, Health Insurance Marketplace Statement, earlier this year if you or a family member purchased health insurance coverage through the Marketplace in 2014.  This form provides the information you need to complete Form 8962. You must attach Form 8962 to the income tax return you file.
• Contact your Marketplace if you have questions about your Form 1095-A.
• If you have recently filed your 2014 tax return with Form 8962, you do not need to file another tax return or call the IRS about these letters.   In general, if you filed your tax return electronically, it takes three weeks before it is processed and your information is available. If you mailed your tax return, it takes about six weeks. However, processing times can vary based on other circumstances.
• You should follow the instructions on any additional IRS correspondence that you receive to help the IRS verify information to process your tax return.

In addition to these letters from the IRS, your health insurance company may contact you to remind you to file your 2014 federal tax return along with Form 8962. In some cases, they may contact you even if you did not receive advance credit payments in 2014. If you are not otherwise required to file a tax return, you do not have to file a return if you or anyone on your return did not receive advance credit payments in 2014.

For more information, see the Affordable Care Act Tax Provisions for Individuals and Families page on IRS.gov/aca.

Many Businesses Must File Their Tax Returns by Sept. 15; More Businesses Are Choosing e-file as the Best Option

WASHINGTON — The Internal Revenue Service today reminded corporations and partnerships that took extensions to file their income tax returns by the Sept. 15 deadline, which applies to any business whose fiscal year is also the calendar year.

The IRS continues to see strong growth in corporations and partnerships shifting from paper returns to e-file. As of Aug. 30, more than 6 million corporations and partnerships have electronically filed their returns this year, representing a nearly 8 percent overall increase from the prior year.

Most large corporations and partnerships are already required to e-file. Corporations with $10 million or more in total assets are generally required to e-file Forms 1120 and 1120S. Partnerships with more than 100 partners as defined by their Schedules K-1 filings are also generally required to e-file their returns.

The use of e-file has also shown strong growth this year among businesses not required to use it.

Information on the benefits of e-file and details about the Modernized e-File (MeF) program are available at IRS.gov. The IRS expects to receive millions more e-filed returns by the deadline.

Tax Returns e-filed by Corporations and Partnerships

Category of e-filers	Aug. 31, 2014	Aug. 30, 2015	% Change
Large Corporation Tax Returns	51,295	53,343	4.0%
Other Corporate Returns	3,394,652	3,634,705	7.1%
Total Corporate Returns	3,445,947	3,688,048	7.0%
Large Partnership Tax Returns	70,872	78,762	11.1%
Other Partnership Returns	2,120,548	2,301,964	8.6%
Total Partnerships	2,191,420	2,380,726	8.6%
Total Returns	5,637,367	6,068,774	7.7%

Interest Rates Remain the Same for the Fourth Quarter of 2015

Issue Number:    IR-2015-106

WASHINGTON – The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning October 1, 2015.  The rates will be:

•  three (3) percent for overpayments [two (2) percent in the case of a corporation];
• one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000
• three (3) percent for underpayments; and
• five (5) percent for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during July 1 2015 to take effect Aug. 1, 2015, based on daily compounding.

Revenue Ruling 2015-17 announcing the rates of interest is attached and will appear in Internal Revenue Bulletin 2015-39, dated Sept. 28, 2015.

Moving this Year? If You Receive the Premium Tax Credit, Report this Life Event

IRS Issue Number:    HCTT-2015-54

If you moved recently, you’ve probably notified several organizations – like the U.S. Postal Service and utility companies – about your new address. You may have even notified the IRS about your address change.  If you get health insurance coverage through a Health Insurance Marketplace, you should add one more important notification to your list: the Marketplace.

If you are receiving advance payments of the premium tax credit, it is particularly important that you report changes in circumstances, including moving, to the Marketplace. There’s a simple reason. Reporting your move lets the Marketplace update the information used to determine your eligibility for a Marketplace plan, which may affect the appropriate amount of advance payments of the premium tax credit that the government sends to your health insurer on your behalf.

Reporting the changes will help you avoid having too much or not enough premium assistance paid to reduce your monthly health insurance premiums. Getting too much premium assistance means you may owe additional money or get a smaller refund when you file your taxes. On the other hand, getting too little could mean missing out on monthly premium assistance that you deserve.

Changes in circumstances that you should report to the Marketplace include:

• an increase or decrease in your income, including lump sum payments like a lump sum payment of Social Security benefits
• marriage or divorce
• the birth or adoption of a child
• starting a job with health insurance
• gaining or losing your eligibility for other health care coverage

Many of these changes in circumstances – including moving out of the area served by your current Marketplace plan – qualify you for a special enrollment period to change or get insurance through the Marketplace. In most cases, if you qualify for the special enrollment period, you will have sixty days to enroll following the change in circumstances. You can find information about special enrollment periods at HealthCare.gov.

The Premium Tax Credit Change Estimator can help you estimate how your premium tax credit will change if you experience a change in circumstance during the year.