U S Taxation – April 18, 2017 Filing Deadline : Time to ponder

Nothing delights the hearts of CPAs and tax preparers in the USA and elsewhere dealing with US Taxation than the arrival of ginger biscuits, mulled hot chocolates or local wine which indicate the slow and cooled demise of the tax year 2015 and the arrival of 2016, (January 2016 – December 2016) tax year. Most of them would have updated their records of their clients, sent letters wherever needed or had telephonic talks on timely payment of taxes.

For me, personally, the sudden telephone from U.S.A. tunnelled me to look for the latest communication from Internal Revenue Service (IRS), the torch bearer of the world’s best tax collector and one of the most dynamic tax agency of the Federal Government of United States Government. Luckily, I found their communication dated Dec 9, 2016, which spills the beans for tax payers for the tax season 2017.

2017 Tax Filing Season

Since my first article on American Taxation – How to file returns – Individual Tax Returns, in TaxGuru, has introduced even a novice about U S Taxation, we are now in a position to directly delve into the information provided by IRS in its letter dated Dec 9, 2016, for the forthcoming tax season 2017. The following information is based on its communication, naturally.

IRS announced the arrival of US Taxation on Monday, Jan. 23, 2017 when IRS would begin accepting electronic tax returns (nearly 153 million returns are expected). Since most of the individual tax payers would receive their W-2 returns by Jan 31, 2017, this is of technical nature only. Though as a CPA, I do not mind accepting the tax returns before that date, I can only file electronically after IRS systems open. Expectedly, most of my clients leave it to myself to take care of their filing returns. The following passage from IRS communication nails the truth.

“The IRS reminds taxpayers that a new law requires IRS to hold refunds claiming the Earned Income Tax Credit (EITC) and the Additional Tax Credit (AITC) until Feb 15. In addition, the IRS wants the taxpayers to be aware of it will take several days for these refunds to be released and processed through financial institutions. Factoring in weekends and the President’s Day Holiday, the IRS cautions that many affected taxpayers may not have actual access to their refunds until the week of Feb. 27, 2017.”

It is important to know that the last date for filing of tax returns is April 18, 2017, instead of conventional April 15th.

This has happened since April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday – April 17. However, Emancipation Day – a legal holiday in the District of Columbia – will be observed on that Monday, which pushes nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, the legal holidays in the District of Columbia affect the filing deadline across the nation. I still vividly recollect my first lesson on the filing of tax returns with this fact. Very strange, but true that America with its vast culture and adherence to traditions has grown into a huge economic nation with millions of tax returns being filed electronically.

How to prepare for electronic filing of tax returns, even though CPAs who would handle your tax burden

Please collect the following papers before you approach them:

• Form W-2
• SSN of all taxpayers like husband, wife and children
• Interest/other declarations from banks/others (popularly known as 1099 forms)
• All the required papers for filing various schedules like A, B, C, D, E or F(For a routine US Taxpayer, these schedules are easily understood for beginners, my article under reference may explain the intricacies)
• Business entities may require various information which can be collected from their CPAs.
• IRS in its communication has reassured its taxpayers that it has been working months and months of work with tax industry, state revenue departments and other stake holders as part of its security summit to strengthen its processing systems to protect taxpayers from theft and refund fraud. It has addressed the addition of new provisions in this regard.

We are aware that choosing e-file and direct deposit of refunds remains the fastest and safest way to file an accurate income tax return and receive a refund. The IRS still anticipates issuing the refunds in more than nine out of ten refunds within 21 days. More information was given by IRS as enumerated below throw interesting facts:

• It is possible one can have the option of filing until April 18, 2017, but timely payment of required tax before December 31, 2016, is expected. Otherwise, when the taxpayer is asked to pay for a penalty, he may not be surprised.
• Please go to the same tax preparer like a CPA who can keep your records in a good software and produce the records at a moment’s notice.
• Please pay a good money as professional fees so that when your child needs help in producing the tax documents or preparing for FAFSA documents, the delay is avoided. The writer invariably lands in helping the parents with anxiety or depression for improper preparation of documents.
• Please do ensure that the taxpayer living in India files his American tax return with required tax payments in time but may file his/her tax returns after incorporating the global income later after two months – a period permissible for those US citizens living in India. My earlier articles on global income can be referred for guidance.
• The IRS will begin releasing EITC and ACTC refunds starting Feb. 15, 2017, but however, IRS cautions taxpayers that these refunds won’t arrive in their bank accounts or debit cards until the week of Feb. 27, 2016 (assuming there are no processing delays with tax returns with improper details or with wrong bank details for direct deposit).
• During peak season, financial institutions do struggle to credit tax refunds on time if proper details have not been fed into the tax returns.
• Where is My Refund? On IRS.gov and the IRS2Go phone app will be updated with projected deposit dates for early EITC and ACTC refund filers a few days after Feb. 15, 2016. The tax payers are cautioned that till then. Even the best software with the most efficient CPA would not help the exact date of refund except fromWhere is My Refund? Information from IRS website. Ideally, it is better to confer with your CPA for guidance.
• For name changes due to marriage or birth of a child, please inform Social Security Administration(SSA) so that new information will match IRS or SSA records.
• Effective Jan. 1, 2017, any Individual Taxpayer Identification Number (ITIN) not used at least once on a tax return in the past 3 years will no longer be valid for usage in the tax return. An ITIN with middle digits 78 or 79 will expire on Jan. 1, 2017. Those with expiring ITIN who need to file tax returns need to renew their ITINs.
• Taxpayers who are over age 70.5 years are generally required to receive their individual retirement accounts and workplace retirement plans by the end of 2016, though a special rule allows those who reached 70.5 years in 2016 to wait until April 15, 2017, to receive them
• Most workplace retirement account contributions are expected to be made by the end of the year, but IRA contributions may be made until April 18, 2017. For 2016, the limit for a 401(k) is $18,000. For traditional and Roth IRAs, the limit is $6,500 if age 50 or older and up to $15,500 for a simple IRA for age 50 or older.

Who should file tax returns for the tax year 2016?

At the time of publication of this article, IRS web site did not contain any instructions for the tax year 2016, and it is presumed that it continues to hold the same tax structure as shown under instructions for the tax year 2015. I have given below some information for those filing single and those filing jointly, (details for 65 years or more are given separately);

• If your filing status is single and at the end of 2015, (the writer presumes the same for 2016 too), you are under 65, you would file a return if your gross income was at least $10,300.
• If your filing status is single and at the end of 2015, (the writer presumes the same for 2016 too), you are 65, or older, you would file a return if your gross income was at least $11,850
• If your filing status is married filing jointly and at the end of 2015, (the writer presumes the same, for 2016, too), you are under 65, you would file a return if your gross income was at least $20,600.
• If your filing status is married filing jointly and at the end of 2015, (the writer presumes the same, for 2016, too), you are 65, or older (one spouse), you would file a return if your gross income was at least $21,850.
• If your filing status is married filing jointly and at the end of 2015, (the writer presumes the same, for 2016, too), you are 65, or older (both spouses), you would file a return if your gross income was at least $23,100.

For married filing, separately or qualifying widow, you may refer to IRS website and request “1040-instructions “under search column to find out the eligible income for the filing of tax returns.

Generally asked questions about form 1040

1. What form to use, whether 1040, 1040ez or 1040A? Depending upon the complexity of the tax return, the form to be used changes. Most of the tax payers with houses, small businesses, small investments or rental units use 1040. But kindly leave it to experts who would handle your return.

2. Can I anyway get the help of a CA in the USA to avoid the taxes totally? Most of the CAs in the USA get their credentials as CPA and legally practice. A CA can not practice in the USA unless he registers as a tax preparer which is a simple position and can’t appear before IRS and it does not help a tax payer. Kindly engage a CPA to get the returns properly done and have a regular follow up if needed.

3. Many Indian IT professionals feel that they can handle tax issues themselves since even the programming of these softwares may be vaguely known to these professionals. I have come across so many IT experts who fail to report capital gains since they had capital losses, repeatedly shown hobby losses as a tool to reduce the taxes and show abnormal travel expenses including their travels to India as part of travels. This is due to primary lack of knowledge of prior court cases or IRS rulings.

4. What should be my filing status and who are my dependents?

5. What are exemptions and how does one claim them?

6. Whether to use itemised deductions or standard deduction?

7. What are the credits available for reducing the taxes?

8. I am a self- employed person, an artist or have a small agricultural land for production of honey and how to use Schedule C. Can I show the loss in my tax-return on regular basis?

9. How to use charitable contributions and my contribution every day in the cash box of the temple after totalling $10,000 can be claimed under Itemised deductions, charitable contribution. I actually saw a lady doctor in Minneapolis who claimed charitable contributions for the said amount requesting every devotee to come to IRS to testify.

10. Questions 4-9 are easily answered by a CPA who would take care of your return while being engaged for this purpose. It is generally said in the USA that one should specialise in his area of expertise and leave other experts to handle their problems. Recently, a great cloth designer landed in the jail term for defending his case in the court.

11. If I owe no more taxes, does it matter whether I file the tax return at the beginning of the tax season or at the end, the first week of April 2017? Suppose your tax return does not include EITC or it falls under high tax bracket where many credits do not help for tax refunds, the timing of filing the tax return is irrelevant as far as it is filed before April 18, 2017. But for many US citizens with college going kids, copies of tax returns may be required for claiming educational scholarships/Penn grants/scholarships from colleges.

12. For those professionals from TCS, INFOSYS or others who work as contractors in U.S.A. and also in many states, every one of them is expected to file their tax returns. Many of these people believe their companies to take care of their tax issues. Legally, they are personally responsible for their earnings and filing of their taxes. It is ideal to hand over their tax issues to professionals like CPAs for continuity and easy reference in case of receipt of letters from the States or IRS.

Conclusion

Filing of tax returns either directly electronically or through CPAs seamlessly, in U.S.A. has been a pleasure for tax payers provided the prescribed rules and regulations are followed. With 85% filing, electronically, the inter face of the human being has been considerably reduced. Even myself with vast experience in the USA has found contacting IRS a painful experience. Sometimes nearly 4 hours are spent unnecessarily in sorting out the tax issues. Recent experience for ITIN registration or enquiry about refunds has been time-consuming. Though the US Congress claims to have increased its funding for IRS, tax payers still bear the brunt. It is time to gather the records on time, approach the nearest CPA and hand over work for smooth sailing.

Wishing bon voyage for the coming tax season.

Let us not forget, April 18, 2017, is the tax filing deadline.

References

• Form 1040 instructions https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
• Filing status IRS Pub.501https://www.irs.gov/pub/irs-pdf/p501.pdf
• Investment income and expenses including capital gains and losses IRS Pub 550 https://www.irs.gov/pub/irs-pdf/p550.pdf
• Charitable contributions IRS Pub 526 https://www.irs.gov/pub/irs-pdf/p526.pdf
• Itemised deductions Schedule A https://www.irs.gov/uac/about-schedule-a-form-1040
• Deluxe edition 2015 Tax year The Tax Book by Tax Materials, Inc.MN 55435 USA, the most authoritative book on USA taxes on 1040, small business, estates and trusts.

J. K. Lasser’s book titled “Your Income Tax 2015”, having completed 75 years of publication and one of the most widely read by tax professionals around the globe.

About the author:

Subramanian Natarajan C.P.A. (USA), M.Sc., CAIIB took voluntary retirement in 2000 from Punjab National Bank after handling various facets of banking like deposit mobilisation, foreign exchange, auditing and borrower accounts. After living in the USA for 12 years during which period he worked in international auditing firms specialising in international tax, auditing, IFRS etc, he continues his practice in New Delhi, India. He can be reached at subcpa@gmail.com. Tel: 7503562701, 9015613229. He currently lives in Delhi. His name appears as the tax consultant on the web site of the American embassy, New Delhi. He is thankful for various suggestions received from readers and is delighted to see the enormous enthusiasm of the readers.