With snow reportedly falling in Philadelphia, USA and other places, Internal Revenue Service(IRS), the most dynamic tax collecting wing of the Federal Government of USA, opened the electronic filing window on January 29, 2018, enabling millions of tax payers to start the process of tax filing and aspire for tax refunds, if eligible. Yes, this is for the tax year (January 1, 2017-December 31, 2017).
For myself, one of my clients rang the cell bell requesting me to provide transcript for the earlier tax year for his ward who is undergoing under graduation in one of the leading universities in USA. After ensuring his requirement, the news that IRS has started the tax season prompted me towards this article.
Individual tax 1040 – 2017 Tax update
Since my first article on American Taxation – How to file returns – Individual in Tax guru contains detailed information about individual tax returns, this article naturally will directly deal with the latest instructions issued by IRS in its web site, for tax payers.
Tax year 2017 – Form 1040 Modernized e-filing due dates
| 1. Begin transmitting live IRS e-file returns | January 29, 2018 |
| 2. Last date for transmitting timely filed returns | April 17, 2018 |
| 3. Last date for transmitting timely filed forms 4868 | April 17,2018 |
It is important to know that the last date for filing tax returns is April 17, 2018 instead of April 15, 2018, the conventional date every year because April 15 is a Sunday and the Emancipation Day holiday in the District of Columbia is observed on April 16, 2018 even if one does not live in the District of Columbia. I still vividly recollect my first lesson on filing of tax returns with this lesson. Very strange, but true that America with its vast culture and adherence to various traditions has grown into a huge economic nation with millions of tax returns being filed electronically. (nearly 150.2 million till November 23,2017).
Yes, most successful tax returns are filed through CPAs who would handle the tax burden but still,
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.
Who should file tax returns for the tax year 2017?
Yes, for most people but special categories can go to specialist like a CPA for guidance.
If you are filing and status is– and at the end of 2017 and you were — File return if gross Income was at least
| Single | Under 65 | $10,400 |
| 65 or older | 11,950 | |
| Married filing jointly | Under 65(Both spouses) | $20,800 |
| 65 or older (One spouse) | 22,050 | |
| 65 or older (both) | 23,300 | |
| Married filing separately | any age | $4,050 |
| Head of household | Under 65 | $13,400 |
| 65 or older | 14,950 | |
| Qualifying widow (er) | Under 65 | $16,750 |
| 65 or older | 18,000 |
If you were born on Jan1, 1953, then your age is 65 at the end of December 2017.
*Gross income means all income you received in the form of money, goods, property, and services that isn’t exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Don’t include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time in 2017 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly).
Gross income includes gains, but not losses, reported on Form 8949 or Schedule D.
Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. But, in figuring gross income, don’t reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9.
One can easily understand that technical interpretations invite the help of specialist like a CPA.
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 throwing 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, 2017, is expected. Otherwise, when the taxpayer is asked to pay for a penalty, he may 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.
- I am often surprised to receive repeated telephonic calls from some of my clients that refunds are not sent on time. Right now, with reduction in man power, some time I spend 8-10 hours on telephone to get information from IRS representatives. So, delay is not unusual while dealing with refunds.
- 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 70,71,72 or 80 will expire on Dec31, 2017. Those with expiring ITIN who need to file tax returns need to renew their ITINs.
- Personal exemption phaseout amounts increased for certain taxpayers. Your personal exemption is $4,050 but the amount is reduced if your adjusted gross income is more than $156,900 if married filing separately; $261,500 if single; $287,650 if head of household; or $313,800 if married filing jointly or qualifying widow(er).
- Limit on itemized deductions. You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than $156,900 if married filing separately; $261,500 if single; $287,650 if head of household; or $313,800 if married filing jointly or qualifying widow(er).
- Standard deduction amounts increased. For 2017, the standard deduction for married individuals filing a joint return and qualifying widow(er)s has increased to $12,700; for head of household filers the amount has increased to $9,350; and for single filers and married individuals filing separate returns the amount has increased to $6,350.
Foreign tax credit
Line 48 Foreign Tax Credit: (From form number 1040)
If you paid income tax to a foreign country or U.S. possession, you may be able to take this credit. Generally, you must complete and attach Form 1116 to do so. Exception. You don’t have to complete Form 1116 to take this credit if all of the following apply. 1. All of your foreign source gross income was from interest and dividends, and all of that income and the foreign tax paid on it were reported to you on Form 1099-INT, Form 1099-DIV, or Schedule K-1 (or substitute statement).
2. The total of your foreign taxes wasn’t more than $300 (not more than $600 if married filing jointly).
3. You held the stock or bonds on which the dividends or interest were paid for at least 16 days and weren’t obligated to pay these amounts to someone else.
4. You aren’t filing Form 4563 or excluding income from sources within Puerto Rico.
5. All of your foreign taxes were: a. Legally owed and not eligible for a refund or reduced tax rate under a tax treaty, and b. Paid to countries that are recognized by the United States and don’t support terrorism.
During my long experience of tax consultation/filing, normally tax payers ask many questions and expect answers. I have given below many of them for better understanding:
1. What form to use, whether form number 1040, 1040ez or 1040A?
2. It depends upon factors like owning a house, paying student loan repayments, investments in stocks, bonds, IRAs, conducting small business, or having rental units. It is recommended that experts like CPAs with the best software would be able to prepare the proper tax return, file it on time, guide regularly the tax to be paid and extend the appropriate consultancy to reply to IRS or state authorities when the emergency arises.
3. How about using the help of an Chartered Accountant in USA for tax purposes?
4. History repeatedly indicates that most of these tax consultants study for CPA examinations and get certified as CPAs so as to register with federal/state tax authorities. Ideally, one should get a CPA who is fully active in service and registered with federal/state authorities. It has been my experience that some times IRS raises valid queries and the tax payer if he has not used the services of a CPA would find it difficult to answer them.
5. Questions related to filing status, exemptions available, preparation of a business return, estate returns, availability of proper credits, inclusion of global income or availing foreign credit, inclusion of capital gains/losses can better be left to a USA CPA to handle the tax returns and face the problems professionally. Failure to report information on time, may result in penalty/interest burden.
6. Many times, I have seen the tax payers requiring the CPAs like myself to answer various questions raised by educational authorities related to the wards of the tax payers who study abroad. This is warranted on account of filing of FAFSAS or tax transcripts to avail scholarships, grants or other financial assistance from the college or private sources.
7. Even after we hear so many cases of our professionals who get their bank accounts frozen on account of non-filing of tax returns to various state authorities for lack of professional tax knowledge, unless the IT professionals engage CPAs to handle their tax returns, the position may not improve in future. Centralization of records is very essential in tax matters.
Conclusion
Filing of tax returns either directly through electronic means or by engaging tax professionals like CPAs seamlessly, is possible provided the rules and regulations related to tax matters are followed. With 90% of tax returns being filed electronically, the inter face of human being has been reduced considerably by IRS. Even myself with vast experience in USA finds it increasingly difficult to contact IRS authorities directly since some times it takes 4 or more hours of engagement over phones.
Recent experience to get tax transcripts for Obamacare purposes or submission of transcripts to colleges for availing tax scholarships, annulment of partial/full college fees has been painful and, in some cases, adequate progress could not be made. The purpose of this article is to give some basic knowledge to US Tax payers for better management of their tax returns.
Reference
Form number 1040 instructions
https://www.irs.gov/pub/irs-prior/i1040gi–2017.pdf
Filing status: Publication 501, from IRS web site irs.gov
Itemized deductions, schedule A, from irs.gov web site.
An enclosure on “Health coverage” from IRS Website.
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
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 mobilization, foreign exchange, auditing and borrower accounts. After living in USA for 12 years during which period he worked in international auditing firms specializing in international tax, auditing, IFRS etc. He can be reached at subcpa@gmail.com. Tel: 7503562701, 9015613229. He currently lives in Delhi. His name appears as tax consultant in web site of American embassy, New Delhi.
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