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A Tax Preparation and Financial Planning Guide

Special Supplement to

The Crescent-News Thursday, January 28, 2016

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2 2016 Tax & Finance The Crescent-News, Defiance, Ohio - Thursday, January 28, 2016

Tax season starts as IRS begins to accept returnsWASHINGTON (AP)

— What’s new when you file your taxes this year? Taxpayers without health insurance will face larger penalties, and those insured by their employers will get a new tax form. There also have been adjustments for inflation, and Congress extended expiring tax breaks, some permanently.

“The good news is that we finally have some certain-ty,” said Kathy Pickering, executive director of the Tax Institute at H&R Block.

The arrival of the new year means it’s time to start thinking about gathering the documents needed to file taxes. They include W-2 forms reporting wages or salaries, which employers will send out this month. You’ll also need Form 1099 reporting interest and divi-dend income, Form 1098 showing interest paid on a

home mortgage, and Form 1095-A if you bought cov-erage through the Health Insurance Marketplace.

MORE TIME TO FILETax season opened Jan. 19,

when the Internal Revenue Service began accepting returns.

If you like to procrastinate, you’ll have four extra days — counting Feb. 29 because this is a leap year — to file without needing an exten-sion. The deadline is April 18 because of the celebra-tion of Emancipation Day in the District of Columbia. If you live in Massachusetts or Maine, Patriots Day means you’ll have still another day to file.

Taxpayers will not see many significant chang-es when they start filling out their forms, said Greg Rosica, tax partner at Ernst & Young LLP.

But do take into account any changes in your per-sonal life, he urged. Did you get married, have a child or begin caring for an elderly relative, for example?

“As things change in your personal life, so do taxes change,” he said.

Tax brackets, the value of each exemption and the standard deduction have been adjusted for inflation. So have the levels at which certain tax credits and deductions begin to phase out.

Fewer people are itemiz-ing because the standard deduction continues to creep upward, said Barbara Weltman, a consultant and author of books on taxes, law and finance.

For 2015, the standard deduction is $6,300 for sin-gle filers, $12,600 for mar-ried couples filing jointly and $9,250 for heads of

household.Each personal exemption

is worth $4,000, up from

$3,950 in 2014, according to the IRS.

AP Photo

In this Dec. 30 file photo, IRS new forms, 1095B and 1095C, for employer provided health insurance or for use if a taxpayer got health insurance from the mar-ketplace are displayed in Los Angeles. Taxpayers who didn't have coverage in 2015 will face significantly higher penalties than the previous year, meaning a bigger tax bill come April or a smaller refund.

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The Crescent-News, Defiance, Ohio - Thursday, January 28, 20162016 Tax & Finance 3

FILING ELECTRONICALLYTaxpayers increasingly

are choosing to file elec-tronically.

Electronic filing was up 2.4 percent in 2015 from 2014. Similarly, the use of direct deposit for refund checks also is gaining in popularity. Last year, more than 86 million tax refunds were paid through direct deposit, up 2.7 percent over 2014.

Overall, the average refund in 2015 was $2,797, a slight increase over the previous year.

“Choosing e-file and direct deposit for refunds remains the fastest and saf-est way to file an accu-rate income tax return and receive a refund,” the IRS said on its website.

The agency expects to pay more than 90 percent of refunds in less than 21 days.

IDENTITY THEFTIdentity theft continues

to be a problem. Sometimes the first indication is a notice from the IRS that a tax return already has been filed with a taxpayer’s Social Security number.

To combat the problem, the IRS launched a pub-lic awareness campaign in November and began issu-ing a series of tips on how to protect data online.

“The IRS and the states have been working to get better at detecting these false returns, but as the criminals steal more and more per-sonal data, they can do an

even better job of making a tax return look legitimate,” IRS Commissioner John Koskinen said in a state-ment.

“In short, the criminals are evolving, and so must we,” he said.

At an IRS security sum-mit, tax preparers, software companies and the agency came together “to establish standards for authenticat-ing tax filers online, and sharing information with the IRS and state depart-ments of revenue on pat-terns of fraudulent behav-ior,” Pickering said.

Taxpayers filing electron-ically might see requests for stronger passwords, and security questions to help validate that they are who they say they are.

The extra security “shouldn’t be burden-some,” Pickering said, and could help taxpayers feel “a little more protected.”

States also are tak-ing steps, she said; more than a dozen now require employers to send copies of the W-2 directly to them by Jan. 31. The IRS also plans to require that in the future.

Taxpayers should know that the IRS “does not ini-tiate contact by email to request personal or finan-cial information,” the agency emphasizes on its website. “This includes any type of electronic com-munication, such as text messages and social media channels.”

If your identity is stolen, resolving the issue can take months, even longer. “It’s very difficult for taxpayers as well as practitioners to effectively resolve issues,” said Joseph Perry, the part-ner in charge of the tax and business services at Marcum LLP.HEALTH INSURANCE

AND TAXES“The Affordable Care

Act has now made health care a tax issue,” Pickering said.

In a report to Congress earlier this month, National Taxpayer Advocate Nina Olson said the IRS faced “a few unanticipated chal-lenges” last year regarding

the tax-related provisions of the health care law. “In general,” she said, “the IRS has sufficiently addressed the issues as they arise in order to avoid similar issues in future filing sea-son.”

Taxpayers will see some new forms, 1095B and 1095C, if they have employ-er-provided health insur-ance or got it outside the marketplace. Lisa Greene-Lewis, CPA and editor of the TurboTax blog, called the forms a “non-issue.” She said they are informa-tional only.

“The IRS computers are going to be able to verify your information that you and your dependents had the coverage,” she said.

Taxpayers who didn’t have coverage in 2015 or didn’t qualify for an exemption from coverage will face significantly high-er penalties than last year, meaning a bigger tax bill come April or a smaller refund.

“The fee is calculated two different ways — as a per-centage of your household income and per person,” according to the federal website healthcare.gov. “You’ll pay whichever is higher.”

For those who don’t qualify for an exemption, the penalty for not having insurance in 2015 is gen-erally the greater of $325 per person or 2 percent of taxable income over the fil-ing threshold up to certain limits.

Last year was the first time penalties were col-lected. Recently released IRS numbers indicate that 7.9 million households paid fines averaging $210 apiece on their tax returns for 2014. The penalties then were lower — $95 for the flat fee, or 1 percent of tax-able income.

Many lower-income people are exempt from the penalty, so taxpayers should check if they qual-ify for an exemption (use Form 8965 to do so).

About 3.5 million returns were filed that included the health insurance pre-

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AP Photo

In this 2013 file photo, Kathy Pickering, executive director of the Tax Institute at H&R Block, speaks about the implications of health care reform in Springfield, Ill.

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mium tax credit — a key part of the health care law.

Taxpayers can either get the credit in advance when buying insurance through the exchanges or receive it as a refund on their taxes. Either way, they need to fill out Form 8962 and attach it to their return.

GAY MARRIAGESame-sex married cou-

ples should have an easier time filing taxes as a result of a Supreme Court deci-

sion last June. With gay marriage now recognized across the nation, gay and lesbian couples can file as married, filing jointly on both their state and federal returns.

TAX BREAKS EXTENDED

Congress acted in mid-December to extend about 50 expiring tax breaks for individuals and business-es. “Some of the credits and deductions which are pretty popular with people have been extended per-manently,” Pickering said.

The American Opportu-

nity Tax Credit, for exam-ple, provides eligible stu-dents with a maximum annual credit of $2,500 for the first four years of col-lege. The congressional action making it perma-nent helps students or their parents plan four years out, she said.

Congress also made per-manent the $250 above-the-line deduction for elementary and secondary-school teachers who use their own money to buy school supplies, as well as the deduction for state and local sales taxes, primarily designed for people who live in states without a state income tax.

As part of the legislation, small-business owners will be able to take a deduc-tion right away for up to $500,000 in eligible proper-ty without depreciating it.

Also made permanent was the expanded and enhanced earned income tax credit for taxpayers with three or more chil-dren.

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Three ways to plan ahead for tax season nowTaxes are an unpleasant fact of

life for most people, but planning ahead can make the task a little easier. Addressing each of the fol-lowing areas can also help you legally minimize your taxes, and leave more money in your pocket.

MINIMIZE TAXABLE INCOME

Taxes are based on the income an individual earns each year, but not all cash a person receives is treated the same way. “There are numer-ous tax laws that individuals need to take into account when trying to plan the best way to manage their tax liability,” said Bill Rivero, a partner at accounting firm Correia, Rivero and LeFebvre. “An accoun-tant or tax professional can help with this problem.”

One way you can minimize your tax liability is to shift as much income into long-term capital gains as possible. Investment assets held for more than 365 days are gener-ally taxed at a much lower rate than ordinary income or short-term capital gains (those held for less than 365 days). This reality can

influence investment choices for many individuals.

Individuals whose income var-ies from year to year might want to consider shifting some of that income to the next calendar year, to more evenly distribute their income over time. This can help you to avoid paying very high tax rates one year, and then very low tax rates the next year. For instance, salespeople, those working on commission or expecting a bonus can ask their employers to defer a December payment until January. In some cases, waiting a couple extra weeks for a check can mean thousands of dollars in tax savings.

MAXIMIZE 401(k) CONTRIBUTIONS

A 401(k) plan ranks as one of the best ways to manage one’s tax lia-bility, but it requires some advance planning. An individual can con-tribute up to $18,000 of pretax income to a qualified 401(k) plan each year, and when it’s matched by an employer, the individual gets an automatic 100 percent return on their investment. The catch with

401(k) plans is that since the money is intended for retirement, it can’t be withdrawn until the individual is 591⁄2 years old. Any funds with-drawn before that time face hefty fines and taxes from the IRS.

However, not everyone has access to a 401(k) plan, and some people who do might not take full advantage of it because they want to save more than $18,000 annu-ally. For those facing that dilemma, maximizing deductions is critical. Some of the most important and common tax deductions include those for mortgage interest, stu-dent loan interest, charitable con-tributions, union dues and foreign taxes. Smart planning can help you identify and take advantage of all the deductions for which you’re eligible.

MAXIMIZE TAX CREDITSAlthough tax deductions lower

one’s taxable income, they do not lower taxes as much as tax credits do. A $100 deduction for a person at the 25 percent rate will lower tax liability by $25. In contrast, a $100 tax credit lowers tax liability

by $100. Tax credits vary from year to year, and small business owners can take advantage of several cred-its not available to most individu-als. Still, there are tax credits even the average employee can take advantage of with proper planning.

Common tax credits include the earned income tax credit, the American opportunity tax credit and the child tax credit. Under the child tax credit, individuals are given up to a $1,000 credit for each qualifying child under the age of 17. This credit only applies to individuals with incomes under $110,000 for married couples, and under $75,000 for those filing indi-vidually. The earned income tax credit applies to those with low incomes.

Finally, the American opportuni-ty credit is available to people who have college education expenses, and whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married cou-ples filing jointly. The credit can be worth up to $2,500, but the value drops as an individual’s income increases.

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Government trying to make it easier to save for retirementWASHINGTON (AP)

— Saving for retirement might seem like a luxury to Americans living paycheck to paycheck, but the gov-ernment is trying to make it a bit easier.

The saver’s — or retire-ment savings contributions — credit is sometimes over-looked. Aimed at low- and moderate-income workers, the credit “helps offset part of the first $2,000 work-ers voluntarily contribute to IRAs and 401(k) plans and similar workplace retirement programs,” the Internal Revenue Service said.

The credit is on top of the allowable reduction in income on tax returns for contributions to qualified retirement plans.

“It’s one of the few times that the law lets you dou-ble dip,” said Barbara Weltman, a consultant and author of books on taxes, law and finance. “You get two benefits for the price of one.”

As with many other tax credits or deductions, the saver’s credit phases out as incomes become higher. For single taxpayers, the credit phases out at $30,500, at $61,000 for married couples filing jointly, and at $45,750 for heads of households.

In addition to the income requirements, a person has to be at least 18. Taxpayers who were full-time stu-dents in 2015 or could be claimed as a dependent on another person’s tax return are not eligible.

To claim the credit, fill out Form 8880.

“Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed,” the IRS says. It cautioned, though, that the credit often is less than the maximum $1,000 for single filers or $2,000 for married couples filing joint-ly because of other deduc-tions and credits claimed.

Kathy Pickering, execu-tive director of the Tax Institute at H&R Block, said the company is working to

determine what it would take to get people to save.

“While oftentimes low-income people do under-

stand and want to save for retirement, their economic situation makes it very dif-ficult,” she said.

Joseph Perry, partner in charge of the tax and busi-ness services at Marcum LLP, points to another rea-son why people might not have had an incentive to save: low interest rates. But with the Federal Reserve indicating interest rate increases in 2016, “it’s pos-sible we’ll see some better returns. We might see more people willing to save.”

There’s still time to con-tribute to an IRA and have it impact your 2015 taxes; the deadline is April 18, the same as the deadline for fil-ing your tax return.

Another federal program aimed at getting people to save for retirement is myRA, which was created by President Obama a year ago. The program targets people who don’t have a

401(k) or other retirement plan at work.

“myRA is designed to remove common barriers to saving, and give people who want to save an easy way to get started,” U.S. Treasury Secretary Jacob Lew said in a statement on the pro-gram’s website. “myRA has no fees, no complicated investment options, no risk of losing money, and no minimum balance or contri-bution requirements.”

According to the Treasury Department, people can contribute through an employer, through con-tributions from a bank account, or by directing all or part of their tax refund to their myRA account.

Contributions are limited to $5,500 per year, or $6,500

AP Photo

The U.S. Department of the Treasury website page for myRA — My Retirement Account is displayed on a mobile phone. myRA is designed to remove common barriers to saving and give people who want to save an easy way to get started.

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Program provides tax-free savings for disabled childrenWASHINGTON (AP)

— Americans who are dis-abled or have a dependent who is, might be able to take advantage of a series of tax benefits designed to ease the burden.

The newest program, called ABLE, was created in 2014 and is similar to the 529c programs adminis-tered by the states for edu-cation expenses.

“Supporters of the law pointed out that the U.S. tax code provided signifi-cant tax benefits to parents who save money for their children’s college educa-tion in 529 plans,” accord-ing to Intuit, publisher of TurboTax. “But parents of people with disabilities had no similar way to save for their children’s future needs, such as occupational therapy or assisted living.”

ABLE accounts allow parents to do just that. Contributions of up to $14,000 — the annual tax-

free gift limit — can be made to ABLE accounts. The earnings are not tax-able if they are withdrawn and used to pay for dis-ability-related expenses. Among eligible expenses, according to the Internal Revenue Service: housing, education, transportation, medical care, job training and others.

“There’s no federal tax benefit, but the money in that ABLE account can grow tax-free,” said Kathy Pickering, executive direc-tor of the Tax Institute at H&R Block. She called it a “very important mecha-nism” for attending to the needs of a disabled depen-dent.

Barbara Weltman, a con-sultant and author of books on taxes, law and finance, said the program’s defini-tion of disability is broad but is restricted to people who became disabled before age 26.

“It’s designed to allow for savings for disabled chil-dren without causing them the loss of government ben-efits,” she said.

Under the program, the first $100,000 in an ABLE account is not considered a personal asset, according to Intuit. “This is important because federal law gener-ally bars individuals from receiving assistance such as Medicaid, housing aid and Supplemental Security Income if they have more than $2,000 worth of finan-cial assets,” the company said.

Congress last month made it easier for people to set up ABLE accounts by removing the residency requirement.

“By allowing ABLE ben-eficiaries the ability to enroll in programs outside their state, individuals will now have greater options in choosing which program best meets their needs,” the National Disability Institute said on its website. “In addition, this could mean qualified persons may have the ability to open an ABLE account much sooner than previously anticipated.”

Already, nearly three dozen states have passed legislation implementing the ABLE program, accord-ing to the National Down Syndrome Society, one of a consortium of groups advo-cating for the disabled that

had pushed for the law.The IRS said two new

forms will be required for those participating in the accounts: Form 1099-QA for reporting distributions and Form 5498-QA for reporting contributions.

Among other tax breaks or benefits that the IRS says might be available to the disabled: a higher standard deduction for people who are legally blind; a credit for working taxpayers pay-ing the cost of caring for a spouse or dependent who is physically or mentally unable to care for them-selves; a deduction for impairment-related work expenses, and a deduction for unreimbursed, disabili-ty-related medical expenses.

The IRS said taxpayers also might be eligible for the Earned Income Tax Credit if they are disabled or have a child who is. The refundable credit benefits people with low or moder-ate income, and the agency estimates that as many as 1.5 million eligible taxpay-ers with disabilities fail to claim it each year.

AP Photo

In this 2015 file photo, Vice President Joe Biden talks to Kayla Kosmalski of Bear, Del., during a celebration of the ABLE Act (Achieving a Better Life Experience Act) with members of Congress.

• ABLE, Page 11

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IRS Web move may leave older, poorer filers behindNEW YORK (TNS) — Think

reaching a human at the Internal Revenue Service last tax filing sea-son was tough? National Taxpayer Advocate Nina Olson anticipates even less telephone and face-to-face customer service in future years.

A planned expansion of IRS online offerings will leave taxpay-ers seeking help the old-fashioned way “up a creek,” Olson said, list-ing it as the No. 1 problem in a report to Congress released recent-ly.

The analysis by the Taxpayer Advocate Service, an independent office within the IRS, must include at least 20 of the “most serious problems” taxpayers face when dealing with the agency. The main focus this year: what it says is an emphasis on enforcement over cus-tomer service in the IRS’s long-term strategic plan, and how it could force many to pay tax preparers for advice they used to get for free.

Olson’s warning comes as Congress, after an abysmal 2015 tax

season, gave the cash-starved agen-cy an additional $290 million at the end of the budgeting process. The money is “targeted solely for tax-payer services to ensure the agency responds to taxpayer questions in a timely manner, and to improve fraud detection and prevention and cybersecurity,” according to a sum-mary of the bill from the House Appropriations Committee.

Responding to the taxpayer advocate’s report, the IRS says it “does not paint a full picture” of evolving, long-term planning. “The Advocate seems to want the IRS to do business the way we did 10 years ago,” the agency wrote in a statement to Bloomberg. The IRS “believes increasing the availability of self-service interaction frees up in-person resources for taxpayers who truly need them.”

Here are some of the other major problems the taxpayer advocate identified in its report:

LACK OF TRANSPARENCYSince 2014 the IRS has spent “sev-

eral million dollars” working with management consultants to devel-

op a plan for how it will operate over the next five years. The details in the report haven’t been made public or shared with Congress, and the IRS hasn’t solicited com-ments from a broad pool of constit-uents, the advocate’s report notes.

Additionally, the IRS has never asserted so many times that data and documents the taxpayer Advocate planned to include were for “official use only” and couldn’t be made public. That made this year’s report difficult to write, Olson said, “because while the intent to reduce telephone and face-to-face service has been a central assumption in the five-year ‘Future State’ planning process, little about service reductions has been com-mitted to writing.”

Olson is calling for congressional hearings on the IRS plan over the next few months, and will solicit comments at public hearings held across the country. Among groups she plans to invite are those with the greatest need for free help, including the elderly, the disabled, small businesses, low-income tax-payers, and people with limited

English proficiency.UNREALISTIC

EXPECTATIONS FOR ONLINE EFFORTS

The impression the taxpayer advocate’s office has, based on dis-cussions with IRS officials, is that the agency’s ultimate goal is “to get out of the business of talking with taxpayers.” It would do that in part by creating online accounts for filers, which Olson sees as a good way to supplement, not replace, existing service — as long as data security concerns are addressed.

While far more people file elec-tronically now, and the IRS has taken many steps to limit the need for taxpayers to phone the IRS, the demand for personal service hasn’t decreased. In fact, over the past decade the number of calls the IRS received on its accounts manage-ment lines rose from about 64 mil-lion for fiscal year 2006 to about 102 million for fiscal year 2015.

Automating customer service even more, the report said, “will mean only those with the means to

By SUZANNE WOOLLEYBloomberg News

• ELDERLY, Page 10

Helpware: Solving one of life’s two inevitabilities

It’s too soon for the inevi-table, but all things consid-ered, I’ll choose taxes every time. I want to peer into the dark recesses of the Internal Revenue Service and find out what evil lurks in the hearts of men. (The Shadow knows.)

I have a good reason to be concerned about my 2015 tax bill, since my situation will change dramatically next year.

Intuit, the maker of TurboTax, has a bunch of free online what-if tools to help figure things out for folks like me. The tools (https://turbotax.intuit.com/tax-tools/) will tell you approximately how much you’ll pay the federal government, or how much

of a refund you’ll get. A tool will also tell you how much your penalty will be if you don’t get health insurance, among other bad news items. It also will tell you which version of TurboTax will serve your needs. There’s even a free online version that Intuit offers for folks whose taxes are sim-ply the difference between money earned and the taxes already paid through with-holding.

I chose the online ver-sion of TurboTax this year for the simple reason that despite all my backups I had the devil of a time find-ing last year’s file. When you file online, you open a TurboTax account, com-plete with sign-on and pass-word. Each time you call up

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Workers in ‘on demand’ economy face different tax issuesWASHINGTON (AP) —

Did you start driving for Uber or Lyft last year? Rent your house out through Airbnb? You could be in for some surprises come tax time if you didn’t pay any estimated taxes.

About 14.6 million people — roughly 10 percent of the U.S. workforce — were self-employed in 2014, accord-ing to a Pew Research Center analysis of Census Bureau data.

Of those, about 3.2 mil-lion are working in the so-called “on-demand” or gig economy, accord to Intuit, the software company that produces TurboTax. The company defines the on-demand economy “as an online marketplace or application that connected providers-freelancers with customers.”

In addition to transpor-tation and home or apart-ment rentals, that also can include job sites or other services.

Some people just starting out with Uber, Airbnb or another on-demand service might not realize they’re in a business or are a business owner, said Lisa Greene-Lewis, a CPA and editor of the TurboTax blog.

“It’s new and different, and everyone is super-excited about it,” said Kathy Pickering, executive director of the Tax Institute at H&R Block, but the tax implications can catch peo-ple by surprise.

Drivers for Uber and similar companies are often considered indepen-dent contractors who are self-employed. Rather than receive a W-2, they’ll get a

1099 form reporting their income.

“It’s different from being an employee, where income taxes are automatically with-held, where Social Security and Medicare taxes are automatically withheld,” said Barbara Weltman, a consultant and author of “J.K. Lasser’s Guide to Self-Employment,” and other books on taxes, law and finance.

“The money comes in and they think it’s theirs to spend, and they don’t fig-ure that a portion of what they take in has to be appor-

tioned to taxes,” she said.Independent contractors

are subject not only to regu-lar income taxes but also to the self-employment tax, which the Internal Revenue Service said “is a Social Security and Medicare tax primarily for individuals who work for themselves.”

The taxes are on the busi-ness’ net profit.

“The good news with Uber is everything is automated and tracked,” Pickering said. That makes it easier to keep track of business mileage.

Keep track of other

expenses too, like the cost of a car wash, or provid-ing water or snacks for rid-ers. “You want to keep the best records you can so you don’t pay more taxes than you have to,” she said.

But if the car also is used for personal use, you’ll have to determine how much and deduct only a percent-age for business use.

Schedule C is used to report profit and loss from business income. Schedule SE is used to compute the self-employment tax.

Renting your home out through sites like Airbnb

also can have tax implica-tions, depending on how many days you rent it out.

People who live near the site of the Super Bowl, for instance, have rented their homes out for the long foot-ball weekend and taken in “huge bucks,” Weltman said. But if that’s all they do for the year, they’re not required to report the rental income for taxes. The threshold for reporting rental income is more than two weeks.

“If you rent your home out for 15 days or more

AP Photo

In this 2013 photo, Lyft passenger Christina Shatzen gets into a car driven by Nancy Tcheou, in San Francisco. Drivers for Uber and other companies most

often are considered independent contractors who are self-employed. Rather than receive a W-2, they'll get a 1099 form reporting their income.

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now, you need to start reporting that rental income and the expenses associated with it,” Pickering said.

Deductible expenses like utilities must be allocated according to the proportion of business versus personal use.

Weltman recommends that people work-ing in the on-demand economy set aside

money to pay their tax bill so it “doesn’t snowball into an amazing amount.” That includes making estimated tax payments. Jan. 15 was the last date to pay estimated taxes for the fourth quarter of 2015.

For more information, Publication 334 is the IRS’ Tax Guide for Small Business. Publication 527 focus on rental income and expenses, and Publication 463 pro-vides information on the use of a car for business.

ON-DEMANDFrom Page 8

AP Photo

Dominic Hrabe holds the family dog, Gracie, in front of his home that he is renting out for Super Bowl weekend in Phoenix. The family is vacating the

house for two nights after using airbnb to rent their place to people attending the NFL Super Bowl football game.

The how and why of a great expense policyMost office managers

have probably faced ques-tions from employees about which type of restaurant is appropriate for a client lunch, or whether they’re able to take a convenient, but more expensive, flight home from a business trip. What is the best balance between being a responsi-ble employee and being too extravagant (or stingy)?

While understanding proper business etiquette and using good judgment are often the best starting points, a company expense policy can help validate employees’ selections and,

more importantly, ensure corporate dollars are being spent on valuable items and initiatives.

Management should keep in mind the following con-siderations when devel-oping their organization’s expense policy:

UNDERSTAND LEGAL LIMITS

Understanding IRS and state regulations is abso-lutely paramount when developing an expense pol-icy. Regulations may vary for things like spending limits or rates for certain businesses and industries.

Information about nation-al or state-specific poli-cies (e.g., keeping expense

records for three years) can be found on the IRS website or through the General Services Administration. Employers can also refer to independent tax firms that may offer more conserva-tive suggestions.

SECURE EXECUTIVE AND DEPARTMENTAL

INSIGHTExpense policies may

change based on corpo-rate or departmental activ-ity. For instance, the sales team may require specific rules around client lunch-es, whereas the marketing department may need to set particular policies for per diems. Connect with each team when finalizing the

expense policy to get their feedback and ensure that the rules do not hinder departmental goals.

BE AS CLEAR AS POSSIBLE

Expense policies should clearly outline what must be included when expens-es are submitted, the time frame for submission and what employees should expect for a reimbursement period.

However, it’s important to remember that there will inevitably be exceptions to these rules. For instance, sending an employee on a last-minute trip may require a hotel stay above the allot-ted policy budget.

PROVIDE EASY ACCESS

This one sounds simple but is incredibly impor-tant. If employees don’t have easy access to the expense policy, they won’t know what rules to follow. Businesses should consider using an inter-nal website or expense management tool to make sure employees can

quickly refer to the policy no matter where they are.

EASE REPORTING PROCESSES

Work expenses don’t always happen in the office. In fact, it’s rare that they do. Typically, expenses are incurred in cabs, restau-rants or airports. To save employees the hassle of tot-ing crumpled receipts at the bottom of their briefcases, businesses should think about using an expense management solution that can be used on the go.

If companies do invest in technologies that simplify the expense management process, they should make sure that the solution can integrate with their existing accounting software.

This will decrease manual data entry and administra-tive tasks for the finance team.

(Omar Qari writes for Business Management Daily, which has been pro-viding sound business news, insight and advice since 1937. Distributed by Tribune Content Agency, LLC.)

By OMAR QARIBusiness Management Daily

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pay for it can receive help with their taxes.”

DELAYED REFUNDS

DUE TO ANTIFRAUD FILTERS

Some of the filters used by the IRS, while increas-ingly necessary to iden-tify tax fraud, have a high false positive rate. That

causes refund delays for hundreds of thousands of legitimate taxpayers. The filter that halts returns potentially tied to identify theft, for example, had a 36 percent rate of false posi-

tives last year, according to the report.

Compounding the hassle for taxpayers caught up in the filter’s web was that they were asked to verify their identification over the

phone or online. But for three straight weeks dur-ing last year’s filing sea-son, fewer than 10 percent of taxpayer calls about those flagged returns were answered.

ELDERLYFrom Page 7

the program, a code is sent to your phone or email account, and you can’t sign in without it. That’s the kind of security that convinced me to use the online version.

Other online versions, now on sale, start at $35 and go to $80, the latter for business owners (not including Amazon or IBM, of course). Comes the dawn of a new day, corporate taxes will be simple enough that a $55 program will suffice. There also is a version for people who own property and have investments, but that version probably isn’t appropriate for Donald Trump. Most tax filers will use the Deluxe version for $35. Those are sale prices; they could change as it gets closer to serious tax time. That’s if you use the online versions. Free e-filing of federal returns and state returns (but no free-filing) are included. I always e-file, since I get confirmation that my return was accepted by the IRS within a matter of days. Refunds arrive very quickly, as opposed to mailing the return to the IRS.

For folks who want the down-load or CD versions, prices are higher, and there’s no free version. A version for corpo-rations and partnerships costs about $150. Again, Amazon or Microsoft corporate bean coun-ters need not apply.

I’ve been using TurboTax ever since I discovered that the accountant who was preparing my taxes was using a similar program and charging me $500 (in 1990 dollars). Through the years, the program has got-ten slicker, more friendly and more able to handle complex situations. The latest version, TurboTax for the 2015 tax year, has a breezy feel to it, almost as if Mr. Rogers were doing the interviewing. I’m waiting for the day when the interview is actually vocalized to the point where it would seem like you’re in your accountant’s office with

the lights down low, a glass of sherry in your hand.

Entire tax returns don’t have to be done in one sitting. Each time you sign out of the online version, the return is saved to the cloud. That means you can access and work on your return from any device capable of con-necting to the Internet.

There was a time when I would hunt through a drawer full of receipts and bank state-ments before I did my return. And then I discovered Quicken, which allows you to download bank account, credit card and investment transactions on a daily basis. If you pay your bills online through financial institu-tions you can either pay bills on the bank’s website or pay directly through Quicken. The advantage of using Quicken is that you can transfer all your tax-related data into TurboTax. True, it takes a few minutes a day, or week, to download those transactions, but the con-venience it provides at tax time more than makes up for the daily downloads.

Intuit makes tax experts avail-able at no cost in the event that you need help preparing your taxes. As an added touch, you’ll be able to see the expert on your monitor, but he or she won’t be able to see you. Free basic help on running the program is available, too. The folks at Intuit pledge that you’ll get connected to an agent within one minute. With a base of 30 million people using the various versions of TurboTax, that’s quite an under-taking. As you do your taxes, the program also tells you why your refund or liability is chang-ing.

Folks who have complex tax issues still might benefit from having their tax returns done by professionals, but for many peo-ple, TurboTax, either the online or the download/CD versions, should do the job just fine.

(Harold Glicken is a retired news-paper editor. He can be reached at [email protected] <mailto:[email protected]>.)

HELPwAREFrom Page 75 tips to protect your identity

and celebrate refund season(BPT) — The holidays may be over,

but refund season is just beginning, and there’s a lot to celebrate. This tax season, while consumers are eagerly awaiting their refund, tax prepara-tion companies, tax officials and the IRS are working together to combat one of the fastest growing threats for tax season 2016 — tax identity fraud.

Based on IRS data, nearly 3 mil-lion people have been victims of tax identity theft since 2010. Every year, criminals use increasingly advanced tactics — particularly geared toward taxpayers filing online — to steal taxpayers’ personal information, file fraudulent tax returns in their names and steal their refunds. After fraud occurs, it can take months and multiple steps by the victim to access a stolen refund and regain an identity with the IRS.

Protect your identity — and your refund — with these five tax tips from H&R Block:

1. File early and be cautious. Filing your taxes early will allow you to claim your refund before a criminal can. Before you file, protect your personal information by installing a security software with anti-virus and firewall protections.

2. Keep your paper records safe. Shred records you are no longer using and keep your Social Security card and any sensitive documents under lock and key.

3. Do not respond to individuals posing as a tax agency. The IRS does not demand immediate payment without sending a bill in the mail first. If you receive a phone call or an email with an external link, do not click on the link or share personal or financial information unless you personally know the person on the other end.

4. Change your password. The 2015 tax season saw a significant increase of tax fraud in the do-it-

yourself (DIY) space. When using at-home tax software, such as H&R Block’s DIY products, create a strong password with capitalization, num-bers, and symbols or avoid the risk by visiting a tax preparer.

5. Use tax identity protection ser-vices. Visit the IRS website to learn more about how to protect your identity. Additionally, H&R Block’s Tax Identity Shield provides clients with tools to reduce the risk of tax identity theft and resolution ser-vices, if a client becomes a victim of tax identity theft.

This tax season, take away the stress and put the “fun” back in “refund” by filing early. Plus, this year, you’ll have a chance to boost your refund — as an extra incentive, H&R Block is celebrating refund season by awarding $1,000 a day to 1,000 people. The first drawing for this limited time offer was Jan. 16. Visit hrblock.com/grand for rules and an alternate method of entry. Enter early to protect your refund and for more chances to win.

Photo courtesy of Brandpoint

By following a few simple and common sense practices, you can make it nearly impossible for criminals to compromise your per-sonal information and potentially steal your identity during tax filing season.

10


per year for those over 50. The money is invested in U.S. Treasury retirement savings bond and will earn interest until the value of the account reaches $15,000 or you have held it for 30 years. The account can be rolled over to a Roth IRA at any time.

“It’s kind of a cool program for someone who is just get-ting started but maybe understands the value of savings,” Pickering said.

RETIREMENTFrom Page 5

The National Disability Institute said the credit is critical “considering the disproportionate number of Americans with disabili-ties living at or below pov-erty, as compared to their non-disabled peers.”

There are income limits

for the credit based on fil-ing status and the number of children in the house-hold. For the 2015 tax year, the maximum credit is $6,242 if there are three or more children in the home. It phases down to $503 for taxpayers with no children.

“If the taxpayer’s child is disabled, the age limitation for EITC is waived,” the IRS said.

ABLEFrom Page 6

AP Photo

In this 2010 file photo, shoppers go into a Goodwill store in Paramus, N.J. Did you donate a car to a charitable organization in 2015 or some clothing to

the church thrift shop or Goodwill store? If you want to take a deduction for the donation, you have to itemize on your tax return.

Donate to a charity? IRS sets rules for taking a deduction

WASHINGTON (AP) — Did you donate a car to a charitable organization in 2015, or some clothing to the church thrift shop? Maybe you made a cash contribution to your alma mater or in memory of a loved one.

If you want to take a deduction for the donation, you have to itemize on your tax return. But there’s more to it than that.

First, you have to make sure the organization to which you’re donating is a qualified charity. And the money can’t be targeted to a particular individual, even if it’s going through that charity, said Dave Du Val, vice president for consumer advocacy at taxaudit.com.

He uses this example: Say you’re driving to Goodwill to drop off some clothes and you see a homeless man in the street. You give him one of the coats that you were planning to donate. “It suits (you) well in the next life, but it’s not a deduction,” he said.

Similarly, if your neigh-bors’ house burns down and your church starts a fund to help them rebuild,

a contribution to the fund isn’t deductible, Du Val said. However, if the church has a fund to help people in need, but not specifically your neighbor, you could take the deduction.

For a cash contribution, you need proof that you made the donation. That could be a canceled check or an itemized line on your credit card statement. So, Du Val said, if you put a $10 bill in the bucket of a Salvation Army bell ringer, that’s not deductible. But if you wrote out a check to the Salvation Army and put that in the bucket, it is.

If the contribution is more than $250, you also will need a receipt from the organization.

The Internal Revenue Service makes clear, “If you get something in return for your donation, your dona-tion is limited. You can only deduct the amount of your gift that is more than the value of what you got in return.”

The IRS lists possible items received for dona-tions, including meals,

• CHARITY, Page 12

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merchandise or tickets. Charitable organizations often will include on your receipt the amount that is deductible.

Congress, as part of the tax extender bill passed late last year, made perma-nent the ability of people 70 1⁄2 years old or older to roll over up to $100,000 from their IRA to a charity tax-free. Those who take advantage of that provi-sion won’t have to count the distribution from the IRA as income. But there’s no double-dipping. If you make the direct donation, you can’t also deduct it on your return.

Du Val said taxpay-ers who want to donate are “generally better off” if they don’t have to deal with the extra income and the resulting taxes. He said

the distribution also counts toward the required mini-mum distribution that IRA holders have to start taking at that age.

What about deductions for contributions of cloth-ing and other property?

You can only deduct the fair market value of an item or what it would sell for at a thrift store, for example. “Even if the shirt is new and still has the tag on it, people aren’t going to go into the thrift store and pay $100 for it,” Du Val said.

And there’s no deduction for sentimental value.

If the non-cash donation is more than $500, you must fill out Section A of Form 8283 and file it with your return. If it’s more than $5,000, Section B also is required. You’ll also need a valid appraisal of the item in hand when you file your taxes, Du Val said.

If you donate a car, the deduction is not the fair value of the car but what the charitable organization sells it for, according to Du Val. However, there is an exception: If the organi-zation gives the car to a needy family, for example, or uses it for an ambulance, you can take the fair mar-ket value, he said. In either case, you have to substanti-ate the vehicle’s value.

Don’t forget that if you’re delivering the donation or doing other work for a charitable organization, you can deduct the mile-age. The rate for 2015 was 14 cents a mile for using your car for charitable work.

As the presidential cam-paign moves toward the first primaries and cau-cuses, taxpayers should be aware that donations to political candidates are not deductible.

CHARITYFrom Page 11

Key numbers to know as you prepare your tax returnsKey numbers to know when fil-

ing your 2015 taxes, according to the Internal Revenue Service:

PERSONAL EXEMPTION• Each personal or dependent

exemption is worth $4,000.• Phase-out begins at incomes of

$258,250 for individuals, $284,050 for heads of household, $309,900 for married filing jointly.

STANDARD DEDUCTION• $12,600 for married couples fil-

ing a joint return, and qualifying widows and widowers.

• $6,300 for singles and married individuals filing separate returns.

• $9,250 for heads of household.

Taxpayers who are 65 or older or who are blind may be eligible for a higher standard deduction.

ALTERNATIVE MINIMUMTAX THRESHOLD

• $83,400 for married couples fil-ing jointly.

• $53,600 for singles and heads of household.

INCOME TAX BRACKETS• 10 percent, 15 percent, 25 per-

cent, 28 percent, 33 percent, 35 per-cent, 39.6 percent.

EARNED INCOME TAX CREDITTo qualify, income must be no

greater than:• $47,747 ($53,267 married filing

jointly) with three or more qualify-

ing children.• $44,454 ($49,974 married filing

jointly) with two qualifying chil-dren.

• $39,131 ($44,651 married filing jointly) with one qualifying child.

• $14,820 ($20,330 married filing jointly) with no qualifying children.

Maximum credit:• $6,242 with three or more quali-

fying children.• $5,548 with two qualifying chil-

dren.• $3,359 with one qualifying

child.• $503 with no qualifying chil-

dren.CAPITAL GAINS

• 0 percent if taxpayer is in the

10 percent or 15 percent income tax brackets.

• 15 percent top rate if in the 25 percent, 28 percent, 33 percent or 35 percent income tax bracket.

• 20 percent if taxed at the 39.6 percent rate.

ESTATE AND GIFT TAXES• Exclusion of $5,430,000 for indi-

vidual estates of people who died in 2015.

• Gift tax exclusion of $14,000. Married couples can each give $14,000 to the same person before it becomes taxable.IRA CONTRIBUTIONS

• Contribution limit: $5,500.• Additional contribution if 50 or

over: $1,000.

By Associated Press

(BPT) — With 2015 coming to a close, it might be prudent to consider making adjustments to manage your tax liability.

Compare your income now with what you anticipated when you set up your 2015 tax withholding or estimated tax payments. Is the income what you expect-ed? More? Less? If more, do you need to increase your withholding or your esti-mated payments to ensure you’re not under withheld and subject to penalties?

Remember, there’s a withholding safe

harbor that allows you to pay either 100 percent of your prior year tax liability or 90 percent of your current year liability to avoid penalties. For those who make more than $150,000, the safe harbor is met when you pay 110 percent of your prior year tax liability or 90 percent of your current-year liability.

Taxpayers with wage income, who have withheld less than they should for 2015 should consider paying more tax by adjust-ing withholding immediately.

Making last minute tax adjustments could save you money

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