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:
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:
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);
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.
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.
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 email@example.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.