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2015 Tax Filing Season Tips

I usually write a post about this time every year talking about the changes to the tax code, especially as people file their prior year taxes. 2014 is very similar to 2013 with the slight addition of the Affordable Care Act. So, below I’ve listed some old tips and new tips for the current tax season.

Affordable Care Act Quick Summary

Health care: individual responsibility. You must either:

  • Indicate on your 2014 federal income tax return that you, your spouse (if filing jointly), and your dependents had health care coverage throughout 2014 (all you have to do is check a box);
  • Claim an exemption from the health care coverage requirement for some or all of 2014 and attach Form 8965 to your return; or
  • Make a shared responsibility payment if, for any month in 2014, you, your spouse (if filing jointly), or your dependents did not have coverage and do not qualify for a coverage exemption.

Premium tax credit. You may be eligible to claim the premium tax credit if you, your spouse, or a dependent enrolled in health insurance through the Health Insurance Marketplace.

Advance payments of the premium tax credit. Advance payments of the premium tax credit may have been made to a health insurer to help pay for the insurance coverage of you, your spouse, or your dependent. If advance payments of the premium tax credit were made, you must file a 2014 return and Form 8962.

There is a great deal more nuance about the Affordable Care Act, but the above sentences summarize it nicely. If you are looking for more information, the IRS has a website full of information. However, if you prefer a more relaxed reading of the tax implications of the Affordable Care Act, I recommend Publication 5157, the resource that IRS created for individuals that volunteer to help others with their taxes. It covers most of the topics in a narrative form that I find easier to read than the regular Publication 17 or the instructions for the individual forms.

Use a Volunteer Income Tax Assistance (VITA) site or a Tax Counseling for the Elderly (TCE) site

These free federal and state tax assistance sites help prepare and file returns for their target audiences. VITA focuses on people who make $53,000 or less. TCE focus on people over 60 years of age. To find the VITA or TCE site near you, visit the IRS locator tool; if you’re looking for sites in Columbia, view our times and locations online. If you are looking for the online alternative to a free tax preparation site, the website can help prepare free federal and state tax returns for people with incomes of less than $60,000.

File a tax return even if you are not required to

There are three excellent reasons to file a tax return even if you do not have a filing requirement:

First, you might get a refund! You may be able to receive a refund of income taxes withheld from your paycheck or pension; this is money that was withheld to pay tax, but no tax is actually due on the return. Also, there are several refundable tax credits that can generate a refund even if you have no tax to offset with the credit. Some examples include the Earned Income Credit, the Additional Child Tax Credit, and the American Opportunity Credit. You can read more about these refundable credits by clicking the links above.

Second, you can lower the chance that the IRS will audit you later. The statute of limitations for a tax return is generally three years from the latter of the due date of the return or the date the return was actually filed. If a taxpayer omitted over 25% of their gross income, then the limitation is extended to six years. If the taxpayer files a fraudulent return, the statute never expires. The statute also never expires if you never file an income tax return. If your income is low enough that you do not need to file, then it is extremely unlikely that the IRS would later request that you pay tax. However, by just filing a simple tax return, the statute of limitation starts to run out, and the extremely unlikely chance that the IRS will request that you pay tax will become a 0% chance (unless you committed fraud).

Finally, you may uncover situations where your identity is stolen. If you are not required to file because of a known circumstance (unemployed, receiving only Social Security income, too young to work, etc.), identity thieves that have your name and Social Security number may file a return with you listed as a spouse or dependent. I recently had an older client whose return was rejected by the IRS because a return had already been filed for that tax year with her listed as a spouse; however, her husband had died several years earlier. Thieves had guessed that she would not file a return and filed a fraudulent return listing her as a spouse. I helped the client prepare a Form 14039 Identity Theft Affidavit that she could file with her paper return alerting the IRS to the fraud. To help combat this theft, the IRS issues Identity Protection PINs that the taxpayer must file with their return. These PINs provide greater security by requiring another layer of authentication before the return is processed. The IRS is piloting a program to provide this extra security to all taxpayers.

Collect your tax documents in one place

This tip is simple, but many clients come to the tax site missing a document. Forgetting a W2, photo ID, 1099 INT, last year’s property or real estate tax receipts, etc… is common. Putting a folder or large envelope where you open your mail can help organize the documents before you have your taxes prepared. If you receive electronic documents, print them out and place them in the folder or envelope.

Never spend your refund before it arrives

Most refunds arrive in client’s accounts quickly. Some, however, take much longer. The IRS is very concerned about fraud, so some returns may be subject to more intense scrutiny. Spending your refund before it arrives in your bank account (or in your mailbox) may leave you in a precarious financial position. This could include paying high rates of interest on a short term loan or even having the collateral on your loans repossessed or sold.

If choosing Direct Deposit, triple check your routing and account number

If you or your tax preparer mistypes your routing or account number on your tax return, then the IRS will likely try to deposit your refund in a bank account that does not exist. In this case, the IRS will usually try to deposit the money several times. If the account does not exist, the money will be returned to the IRS, and a paper check will be mailed to the taxpayer. However, it is possible to mistype your routing and account numbers and have the money deposited in an account that does exist that is not your account. If this very unlikely event occurs, there is no formal system for retrieving the money. From the website: IRS assumes no responsibility for taxpayer error. I find it good to repeat that: IRS assumes no responsibility for taxpayer error.

Your public pension may not be taxed in MO

If you are receiving a public pension from any local, state, or federal entity, you may not have to pay MO state tax on the income. This includes PSRS/PEERS, MOSERS, LAGERS, the University of Missouri, and even public plans from other states. See the MO Department of Revenue webpage for more details.

As always I welcome your feedback. I would also be interested in your tax time tips. What would you like to share?