Perhaps you missed a credit or deduction for which you were eligible.  Perhaps you failed to include income reported on a Form 1099.  Don’t fret.  You can amend your return using IRS Form 1040X, Amended U.S. Individual Income Tax Return.

What returns can I amend?  Form 1040X can be used to correct previously filed Forms 1040, 1040A or 1040EZ.

How far back can I amend?  Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.  Be sure to enter the year of the return you are amending at the top of Form 1040X.

When should I not amend?  Generally, you do not need to file an amended return to correct simple math errors because the IRS will automatically make that correction.   Also, do not file an amended return just because you forgot to attach tax forms such as W-2s or schedules.  The IRS normally will send a request asking for these items.

Can I e-file my amended return?   Nope.   An amended return cannot be e-filed.  You must file it by paper by mailing it in to the appropriate IRS office as listed in the instructions to Form 1040X.

What if I’m amending a few returns?  If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS office as listed in the Form 1040X instructions.

Do I have to attach schedules?  Yes.  If the changes involve another schedule or form, you must attach that schedule or form to the amended return.

What if I’m already entitled to a refund?  If you are filing an amended return to claim an additional refund, you should wait until you have received your original refund before filing Form 1040X.  This will avoid unnecessary delay and you may cash that check while waiting for any additional refund.

What if I owe additional tax?  If you owe additional 2011 tax, you should try to file Form 1040X and pay the tax before the due date (or as soon as possible) to limit interest and penalty charges that could accrue on your account.  Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.

If you have any questions or would like assistance in filing an amended return, contact us.

Muiños & Morales

Today is the deadline for filing your income tax return or filing for a six-month extension of time to file your return.  You need to mail either your tax return or your request for extension TODAY.  We recommend mailing your return or request for extension via certified mail return receipt requested and having your white slip stamped by the post office.

If you are unable to complete your income tax return today, an extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due.  You will owe interest on any amount not paid by the deadline, plus you may owe penalties.

Requesting an Extension

You can request an extension in the following ways:

1. IRS Free File:  Traditional Free File and Free File Fillable Forms can both be used to file an extension for free.   You can access free file here.

2. IRS e-file:  Use IRS e-file to request an extension by using tax preparation software on your own computer or by going to a tax preparer.

3.  Form to File:  Mail in IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.  It must be postmarked by today, April 17, 2012.

Paying Your Taxes

Taxpayers that are ready to file their returns and those that have already filed and need to pay a tax bill have payment options:

1.  E-file:  File electronically and authorize an electronic funds withdrawal via tax preparation software or a tax professional.

2.  Phone or Online:  Pay by phone or online using a credit card here.

3.  Mail:  Pay by check or money order made payable to the “United States Treasury.”  Be sure to include your name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number.  Complete and include Form 1040-V, Payment Voucher, when mailing your payment to the IRS.

File Your Tax Return – Even If You Can’t Afford to Pay

You should file your return even if you can’t afford to pay.  The IRS can assess a penalty if you fail to file, fail to pay or both.  Filing your return on time (or timely requesting an extension) will avoid an unnecessary failure-to-file penalty, which is usually more than the failure-to-pay penalty.  See our prior discussion on this issue here.

IRS Options

If you owe tax with your federal tax return, but can’t afford to pay it all when you file, the IRS has options to help you keep interest and penalties to a minimum.  File your return on time and pay as much as you can with the return, then request additional time to pay in the following two ways:

1.  Additional time to pay:  You may request a short additional time to pay your tax in full using the Online Payment Agreement application on www.irs.gov. Taxpayers who request and are granted an additional 120 days to pay the tax in full generally will pay less in penalties and interest than if the debt were repaid through an installment agreement over a greater period of time.  There is no fee for this short extension of time to pay.

2.  Extension of time to pay:  Qualifying individuals may request an extension of time to pay and have late payment penalties waived as part of the IRS Fresh Start initiative.  To see if you qualify visit http://www.irs.gov and get Form 1127-A, Application for Extension of Time for Payment.  This application must be filed by today, April 17, 2012.

Types and Amounts of Penalties

If you do not file by the deadline, you might face a failure-to-file penalty.  If you do not pay by the due date, you could face a failure-to-pay penalty.

Failure-to-File Penalty.  The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.  If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Failure-to-Pay Penalty.   If you do not pay your taxes by the due date, you will generally have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.

NOTE:  If you request an extension of time to file by the tax deadline and you paid at least 90 percent of your actual tax liability by the original due date, you will not face a failure-to-pay penalty if the remaining balance is paid by the extended due date.

Both Penalties Can Be Imposed.   If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty.  However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

Excuses, Excuses.   You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.

If you would like to speak with us regarding your options, please contact us.

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1.  Qualifying Person.  In order to claim this tax credit, the care you paid for must have been provided for one or more qualifying persons.    Qualifying persons include your dependent child age 12 or younger, as well as your spouse and certain other individuals who are physically or mentally incapable of self-care.  You must identify each qualifying person on your tax return.

2.  Residence of Qualifying Person.  The qualifying person must have lived with you for more than half of 2011. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents.  See Publication 503, Child and Dependent Care Expenses.

3.  Circumstances under which care was provided.  The care must have been provided so you (and your spouse if you file jointly) could work or look for work.

4.  Payment to Caregiver.  The payments for care must not have been paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent.  You must identify the care provider(s) on your tax return.

5.  Filing Status.  Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

6.  Earned Income.  You (and your spouse if you file jointly) must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment.  One spouse may be considered as having earned income if he or she was a full-time student or were physically or mentally unable to care for themselves.

7.  Amount of Credit.  The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.  For 2011, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

8.  Employer provided benefits.  The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income, such as a flexible spending account for daycare expenses.

On a side note:  If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax.  See Publication 926, Household Employer’s Tax Guide.

If you have any questions, please contact us.

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1. Qualifying expenses.  The decision of whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year.  If the total amount you spent on qualifying medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions is more than your standard deduction, you can usually benefit by itemizing.

2. Standard deduction amounts.  Your standard deduction is based on your filing status and is subject to inflation adjustments each year.  For 2011, the amounts are:
Single:     $5,800
Married Filing Jointly:   $11,600
Head of Household:   $8,500
Married Filing Separately:  $5,800
Qualifying Widow(er):  $11,600

3. Different standard deductions for some taxpayers.   The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether another taxpayer can claim an exemption for you.  If any of these apply to you, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions.

4. Limited itemized deductions.  Your itemized deductions are no longer limited because of your adjusted gross income.

5. Married filing separately.  When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.

6. Some taxpayers are not eligible for the standard deduction.  Non-eligible taxpayers include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.

7. Forms.  The standard deduction can be taken on Forms 1040, 1040A or 1040EZ.  To itemize your deductions, you must use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

If you have any questions or would like our assistance in determining whether to itemize or take the standard deduction, contact us.

The following are some important points:

1.  Amount of Debt Forgiven.  You may be able to exclude up to $2 million of debt forgiven on your principal residence.  The limit is $1 million for a married person filing a separate return.

2.  Method of Debt Forgiveness/Reduction.  You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.

3.  Type of Debt.  To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.  Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.  Proceeds of refinanced debt used for other purposes – for example, to pay off credit card debt – do not qualify for the exclusion.

4.  Claiming the Exclusion.  If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.

5.  Debt that Does Not Qualify.  Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions – such the exception for insolvency – may be applicable.  IRS Form 982 provides more details about these provisions.

6.  Form 1099-C.   If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.  Examine the Form 1099-C carefully.  Notify the lender immediately if any of the information shown is incorrect.  You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information see IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments.   Please contact us if you need assistance.

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• Amount.   With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under age 17.

• Qualification.   A “qualifying child” for this credit is someone who meets the qualifying criteria of the following seven tests: age, relationship, support, dependent, joint return, citizenship and residence.

1. Age test.   To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2011.
2. Relationship test.   To claim a child for purposes of the Child Tax Credit, the child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew.  An adopted child is always treated as your own child.  An adopted child includes a child lawfully placed with you for legal adoption.
3. Support test.   In order to claim a child for this credit, the child must not have provided more than half of his/her own support.
4. Dependent test.   You must claim the child as a dependent on your federal tax return.
5. Joint return test.   The qualifying child can not file a joint return for the year (or files it only as a claim for refund).
6. Citizenship test.   To meet the citizenship test, the child must be a U.S. citizen, U.S. national or U.S. resident alien.  There is an exception to this rule for adopted children.  If you are a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household in 2011, that child meets the citizenship test.
7. Residence test.   The child must have lived with you for more than half of 2011.  There are some exceptions to this residence test which are too detailed to discuss here.

• Limitations.   The credit is limited if your modified adjusted gross income is above a certain amount.  The amount at which this phase-out begins varies by filing status.  For married taxpayers filing a joint return, the phase-out begins at $110,000.  For married taxpayers filing a separate return, it begins at $55,000.  For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax and any alternative minimum tax you owe.

• Additional Child Tax Credit.   If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.  This Additional Child Tax Credit may give you a refund even if you do not owe any tax.

For more information contact us or see IRS Publication 972, Child Tax Credit.   You can also use the Interactive Tax Assistant to determine if you’re eligible for the Child Tax Credit.   The Interactive Tax Assistant will ask you a series of questions and provide you with responses.

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1.  Inform the Social Security Administration of your name change.  If you changed your name after a recent marriage or divorce (or if you hyphenated your last names), you to take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration.  A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.

To update your Social Security details, fill in Form SS-5, Application for a Social Security Card, at your local SSA office or by mail and provide a recently issued document as proof of your legal name change.  The form is available on Social Security Administration’s Web site at http://www.ssa.gov or by calling 800-772-1213 or at local offices.  Your new card will have the same number as your previous card, but will show your new name.

If you adopted your spouse’s children after getting married and their names changed, you’ll need to update their names with SSA too.  For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return.

2.  Inform the IRS and U.S. Postal Service of a change of address.  Avoid missing any IRS correspondence.  To update your address with the IRS, fill in Form 8822, Change of Address.

3.  Inform your employer of your change in marital status, name change and change of address.  This will ensure you receive your Form W-2 Wage early next year.

4.  Determine your tax filing status.  Depending on when you were married or divorced, your filing status may be single, married filing jointly or married filing separately.  In some circumstances, you can choose the most beneficial filing status, based on your individual earnings and tax obligations, that will allow you to pay the least amount of taxes.  Additionally, there may be other reasons why one filing status maybe be better under your individual circumstances.

5.  Determine your withholding amount.  If you choose to file jointly as a newly married couple, your combined salaries may put you in a higher tax bracket.  If you are newly single, your tax bracket may also change.  Thus, your withholding amount may need to change.   You can calculate the amount you should be having withheld by using the IRS Withholding calculator.   Once you have determined the correct amount, fill out a new Form W-4, Employee’s Withholding Allowance Certificate, and provide it to your employer so the correct amount is withheld from your pay.

If you need assistance with any of these issues, please contact us.

Muiños & Morales

Unemployment compensation generally includes any amounts received under the unemployment compensation laws of the United States or of a state.  It includes state unemployment insurance benefits and benefits paid to you by a state or the District of Columbia from the Federal Unemployment Trust Fund.  It also includes railroad unemployment compensation benefits.  However, it does not include worker’s compensation payments.

If you received unemployment compensation during the year, you should receive Form 1099-G, showing the amount you were paid.  Any unemployment compensation received must be included in your income and is reported on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.

If you received unemployment compensation, you may be required to make quarterly estimated tax payments.  However, you can avoid this burden by asking the payor to withhold federal income tax by filing a Form W-4V, Voluntary Withholding Request.  If you have done neither of these things, and had no other income tax withheld previously during the year 2011, you may have difficulty paying the taxes you owe this year.

However, we remind you that you should always timely file your income tax return, regardless of whether you can pay the amount owed or not, in order to avoid unnecessary failure to file penalties.  See our previous blog post here explaining additional reasons why you generally should always file.  There are IRS payment plans and other tax debt relief solutions available to you to pay off this debt.

If you have questions or would like our assistance please contact us. 

For more information, see Unemployment Benefits in Publication 525.

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Here are ten things the IRS wants you to know about this valuable credit, which has been making the lives of working people a little easier since 1975.

1.  As your financial, marital or parental situations change from year to year, you should review the EITC eligibility rules to determine whether you qualify.  Just because you didn’t qualify last year doesn’t mean you won’t this year.

2.  If you qualify, the credit could be worth up to $5,751.  EITC not only reduces the federal tax you owe, but could result in a refund.  The amount of your EITC is based on your earned income and whether or not there are qualifying children in your household.  The average credit was around $2,240 last year.

3.  If you are eligible for EITC, you must file a federal income tax return and specifically claim the credit – even if you are not otherwise required to file.  Remember to include Schedule EIC, Earned Income Credit when you file your Form 1040 or, if you file Form 1040A, use and retain the EIC worksheet.

4.  You do not qualify for EITC if your filing status is Married Filing Separately.

5.  You must have a valid Social Security number for yourself (and your spouse if filing a joint return) and any qualifying child listed on Schedule EIC.

6.  You must have earned income.  You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.

7.  Married couples and single people without children may qualify. If you do not have qualifying children, you must also meet the age and residency requirements, as well as dependency rules.

8.  Special rules apply to members of the U.S. Armed Forces in combat zones.  Members of the military can elect to include their nontaxable combat pay in earned income for the EITC.  If you make this election, the combat pay remains nontaxable.

9.  It’s easy to determine whether you qualify.  The IRS has developed an interactive tool called the EITC Assistant, which is available on the IRS.gov website.   Just answer a few simple questions to find out if you qualify and estimate the amount of your EITC.

10.  Free help is available at Volunteer Income Tax Assistance (“VITA”)  sites to help you prepare and claim your EITC.  If you are preparing your taxes electronically, the software will figure the credit for you.  To find a VITA site near you, click here.

For more information about the EITC, see IRS Publication 596, Earned Income Credit.

Muiños & Morales

Here are ten tips from the IRS to keep in mind when choosing a tax return preparer:

1. Check the preparer’s qualifications.   New regulations require all paid tax return preparers to have a Preparer Tax Identification Number (“PTIN”).  In addition to making sure they have a PTIN, ask if the preparer is affiliated with a professional organization and attends continuing education classes.  The IRS is also phasing in a new test requirement to make sure those who are not an enrolled agent, CPA, or attorney have met minimal competency requirements.  Those subject to the test will become a Registered Tax Return Preparer once they pass it.

2. Check on the preparer’s history.  Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Enrollment for enrolled agents.

3. Ask about their service fees.  Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.  Also, always make sure any refund due is sent to you or deposited into an account in your name.  Under no circumstances should all or part of your refund be directly deposited into a preparer’s bank account.

4. Ask if they offer electronic filing.  Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return.  More than 1 billion individual tax returns have been safely and securely processed since the debut of electronic filing in 1990.  Make sure your preparer offers IRS e-file.

5. Make sure the tax preparer is accessible.  Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date, in case questions arise.

6. Provide all records and receipts needed to prepare your return.  Reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions and other items.  Do not use a preparer who is willing to electronically file your return before you receive your Form W-2 using your last pay stub.  This is against IRS e-file rules.

7. Never sign a blank return.  Avoid tax preparers that ask you to sign a blank tax form.

8. Review the entire return before signing it.   Before you sign your tax return, review it and ask questions.  Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

9. Make sure the preparer signs the form and includes their PTIN.   A paid preparer must sign the return and include their PTIN as required by law. Although the preparer signs the return, you are responsible for the accuracy of every item on your return.  The preparer must also give you a copy of the return.

10. Report abusive tax preparers to the IRS.  You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 from http://www.irs.gov or order by mail at 800-TAX-FORM (800-829-3676).

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