When it comes to transactions between family members, the tax laws are frequently overlooked, if not outright trampled upon. The following are three commonly encountered situations and the tax ramifications associated with each.
The most recent data from the IRS on individual tax returns indicates that of 131 million returns filed, about 5 million were expected to be amended. This comes to less than 4 percent, but that projection still affects a significant number of taxpayers. Filing an amended tax return can be a hassle that you definitely want to avoid if possible. But there are some situations where you’ll have to do so, and it’s prudent to seek out the help of a tax advisor who can guide you through the process. Here’s why you may need to file an amended tax return.
1. You made a math or data entry mistake and didn’t realize it until after you submitted your tax return.
For example, you added up your charitable deductions, and after filing your return, you realize you added them up incorrectly, and the difference was sizeable. Filing an amended return can correct that math error and get a refund.
Perhaps you were entering your gross income from your self-employed business into your software while it was late and you were tired, and you inadvertently transposed the numbers and entered the gross income as $78,000 when it was really $87,000. You will need an amended return to correct that error.
However, you would not usually amend a return if you incorrectly entered W-2 income since the IRS receives a copy of the W-2 and will compare it with what you reported and if there was an error, they will automatically make a correction and send you a bill or a refund as the case might be. The IRS website instructs taxpayers not to amend a return in such a situation.
The statute of limitations for refunds is three years for the due date the tax return and if the IRS has not automatically made the correction and you have a refund coming don’t let the statute of limitations expire before filing an amended return. That holds true for any situation were an amended return will result in a refund.
2. You used an incorrect filing status.
Single parents, caregivers of elderly parents, and recently married or divorced people often make the mistake of using “Single” status when it’s the wrong one. “Heads of Household” miss out on crucial tax benefits, while married people will generally need to use “Married Filing Separately” if they don’t wish to file a joint return with their spouse. Because filing status affects so many elements of your tax return, you need to file an amended return to pay additional taxes you owe or receive a refund once the correct one is used.
3. You didn’t realize that there was a tax benefit you qualified for, and you’d like to claim it now.
There are many frequently overlooked tax benefits a tax professional would be aware of that the average DIY person wouldn’t, such as the ability for most individuals and small business owners to make pension and profit-sharing contributions in a new year before the tax-filing deadline and still have it count for the current filing season.
This also works in reverse in that people accidentally claim benefits they weren’t actually entitled to. Often, the best way to know for sure is to consult a tax professional.
4. You had investing activities that affect your tax return.
Typically, you don’t realize a capital gain or loss until you actually sell an asset. But if securities become worthless, this results in a capital loss that needs to be reported the year it was deemed worthless, and not the year you discovered the fact. If this security was deemed worthless a long time ago, you may have to amend prior year returns to account for the capital loss.
This can be significant since you are limited to deducting $3,000 in capital losses from all of your other income and result in capital loss carryovers that last several years. If you have any other investment losses that were forgotten or miscalculated on your original tax return, filing an amended return is the next logical stop to ensure your carryovers are done correctly for future tax returns.
5. You received tax forms after filing your tax return.
If you were due a W-2 or 1099 form, you might not receive it when you’re initially preparing your taxes. It could be a surprise corrected form or the payer was just late sending it to you. But if you already filed your tax return, then got additional forms later on, amending your tax return becomes inevitable.
Amending your tax return can be a cumbersome process, especially if you’re self-employed and/or have a great deal of investing activity. Asking a tax professional to assist you with filing amended returns can eliminate the headaches that come with the process. Many even offer a free review of self-prepared returns and ask the right questions to determine if it’s worth it to amend this year’s return and any prior years’. You may also have to amend your state tax return(s), which can grow more complex if your residency is or was multistate.
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- Business Use of Home
- Prorated Use
- Owned Home
- Rented Home
- Exclusive Use
- Meal Allowance
- Other Deductions
- Shared Responsibility Payment
- Executive Order
- Hardship Exemption
- Exemption Certification Number
Increased Standard Deduction
- Tax-Exempt Income
- Impairment-Related Work Expenses
- Financially Disabled
- Earned Income Tax Credit
- Child or Dependent Care Credit
- Special Medical Deductions
- Qualified Medicaid Waiver Payments
- ABLE Accounts
- Income Deferral
- Earnings Deferral
- Individual Retirement Accounts
- Retirement Accounts
- Bank Savings
- Short- and Long-Term Capital Gains
- Education Savings Accounts
- Health Savings Accounts
When you are attempting to save money for your children’s future education or your retirement, you may do so in a number of ways, including investing in the stock market, buying real estate for income and appreciation, or simply putting money away in education savings accounts or retirement plans.
Knowing how these various savings vehicles are taxed is important for choosing the ones best suited to your particular circumstances. Let’s begin by examining the tax nuances of IRA accounts.
If you dread every minute of the time you spend on accounting, you should know how QuickBooks Online can change your outlook.
How long would it take you to determine:
- What your total expenses for this quarter are?
- Whether or not your business is profitable as of today?
- How much you’ve sold every month this year?
- Which invoices are overdue?
If you’re using QuickBooks Online, you can get answers to all those questions—and more—in the time it takes you to sign on to the website.
That’s not an exaggeration. The first thing QuickBooks Online displays is what’s called its Dashboard. This is the site’s home page, which contains an array of charts and account balances that provide a quick overview of your finances. Click on an element here—say, a checking account balance—and you’ll be able to drill down and see the details behind it (in this case, an online account register). Click on the Expense graph, and a transaction report opens.
• SALT Tax Limits
• State Work-arounds
• Converting Tax Deductions to Charitable Contributions
• IRS Regulations
• Taxpayer Beware
Original Article by Catherine Morehouse
- The Oregon Supreme Court approved the use of a privilege tax to fund the state’s Clean Vehicle Rebate Program on Sunday, after AAA Oregon/Idaho and Trucking Associations Inc. challenged the tax in November 2017, saying it violated Oregon’s Constitution.
- The program is integral to Democratic Gov. Kate Brown’s 2017 initiativeto address greenhouse gases and climate change. One of the goals of the initiative is to have 50,000 or more registered and operating electric vehicles (EVs) in the state by 2020, according to Oregon Department of Environmental Quality (DEQ) air quality planner Rachel Sakata.
- The clean vehicle program offers both a standard rebate option and a “charge ahead” option for qualifying low-to-middle income (LMI) customers. The standard rebate is $2500 towards a purchase or lease of a new EV with a battery capacity of 10 KWh or more, and $1500 with a battery capacity of less than 10 KWh. Charge-ahead rebates are worth $2500-$5000.
- Parents Attempting to Shift Income to Children
- Kiddie Tax
- Tax Reform Changes
- Tax on Child’s Unearned Income
- Tax on Child’s Earned Income