Filing an Amended Tax Return

What should you do if you already filed your federal tax return and then discover a mistake? First of all, don’t worry. In most cases, all you have to do is file an amended tax return. But before you do that, here is what you should be aware of when filing an amended tax return.

Taxpayers should use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended (corrected) tax return.

You must file the corrected tax return on paper. An amended return cannot be e-filed. If you need to file another schedule or form, don’t forget to attach it to the amended return.

An amended tax return should only be filed to correct errors or make changes to your original tax return. For example, you should amend your return if you need to change your filing status, or correct your income, deductions or credits.

You normally do not need to file an amended return to correct math errors because the IRS automatically makes those changes for you. Also, do not file an amended return because you forgot to attach tax forms, such as W-2s or schedules. The IRS normally will mail you a request asking for those. Read more

Five Things you Should Know about the AMT

You may not know about the Alternative Minimum Tax (AMT) because you’ve never had to pay it before. However, your income may have changed and you may be required to pay it when you file your 2016 tax return next year. The AMT is an income tax imposed at nearly a flat rate on an adjusted amount of taxable income above a certain threshold. If you have a higher income, you may be subject to the AMT.

Here are five facts you should know about the AMT:

1. Know when the AMT applies. You may have to pay the AMT if your taxable income, plus certain adjustments, is more than your AMT exemption amount. Your filing status and income define the amount of your exemption. In most cases, if your income is below this amount, you will not owe the AMT.

2. Know exemption amounts. The 2016 AMT exemption amounts are:

• $53,900 if you are Single or Head of Household.
• $83,800 if you are Married Filing Jointly or Qualifying Widow(er).
• $41,900 if you are Married Filing Separately.

You will reduce your AMT exemption if your income is more than a certain amount.

3. Use a qualified tax professional. Keep in mind that the AMT rules are complex. The best way to prepare and file your tax return is to use a qualified tax professional.

4. AMT Assistant Tool. Use the AMT Assistant tool on the IRS website to quickly find out if you will need to pay the tax.

5. Use the right forms. Usually, if you owe the AMT, you must file Form 6251, Alternative Minimum Tax — Individuals. Some taxpayers who owe the AMT can file Form 1040A and use the AMT Worksheet in the instructions.

Wondering if the AMT affects you this year? Give the office a call today and find out.

Tax Tips for Children with Investment Income

Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five important points to keep in mind if your child has investment income this year:

1. Investment Income. Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Parent’s Tax Rate. If your child’s total investment income is more than $2,100 then your tax rate may apply to part of that income instead of your child’s tax rate. See the instructions for Form 8615, Tax for Certain Children Who Have Unearned Income.

3. Parent’s Return. You may be able to include your child’s investment income on your tax return if it was more than $1,050 but less than $10,500 for the year. If you make this choice, then your child will not have to file his or her own return. See Form 8814, Parents’ Election to Report Child’s Interest and Dividends, for more information.

4. Child’s Return. If your child’s investment income was $10,500 or more in 2016 then the child must file their own return. File Form 8615 with the child’s federal tax return next April.

5. Net Investment Income Tax. Your child may be subject to the Net Investment Income Tax if they must file Form 8615. Use Form 8960,Net Investment Income Tax, to figure this tax.

Questions?

Please call if you have any questions about your child’s investment income.

Employee Business Expenses

If you pay for work-related expenses out of your own pocket, you may be able to deduct those costs. In most cases, you can claim allowable expenses if you itemize on IRS Schedule A, Itemized Deductions. You can deduct the amount that is more than two percent of your adjusted gross income. Here are five other facts you should know:

1. Ordinary and Necessary. You can only deduct unreimbursed expenses that are ordinary and necessary to your work as an employee. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is appropriate and helpful to your business.

2. Expense Examples. Some costs that you may be able to deduct include:

• Required work clothes or uniforms not appropriate for everyday use.
• Supplies and tools you use on the job.
• Business use of your car.
• Business meals and entertainment.
• Business travel away from home.
• Business use of your home.
• Work-related education.

This list is not all-inclusive. Special rules apply if your employer reimbursed you for your expenses. To learn more call the office or check out Publication 529, Miscellaneous Deductions. You should also refer to Publication 463,Travel, Entertainment, Gift and Car Expenses.

3. Forms to Use. In most cases, you report your expenses on Form 2106 or Form 2106-EZ. After you figure your allowable expenses, you then list the total on Schedule A as a miscellaneous deduction.

4. Educator Expenses. If you are a K-12 teacher, you may be able to deduct up to $250 of certain expenses you pay in 2016. These may include books, supplies, equipment and other materials used in the classroom. Claim this deduction as an adjustment on your return, rather than an itemized deduction. For more on this topic, please call.

5. Keep Records. You must keep records to prove the expenses you deduct so that you can prepare a complete and accurate income tax return. The law doesn’t require any special form of records; however, you should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim. If you file a claim for refund, you must be able to prove by your records that you have overpaid your tax. For what records to keep, see Publication 17,Your Federal Income Tax.

Please call the office if you have any questions about employee expenses or need help setting up a recordkeeping system to document your expenses.

Qualified Charitable Distributions from IRAs

If you’re age 70 1/2 or older, you can now take advantage of recent legislation allowing you to avoid paying income tax on IRA withdrawals transferred directly to a qualified charitable organization.

Referred to as Qualified Charitable Distributions (QCDs), they can also be used to satisfy all or part of your required minimum distribution. Here’s an example:

Let’s say your required minimum distribution in 2016 is $22,000. If you make a qualified charitable distribution of $15,000 for 2016, then you would need to withdraw another $7,000 to meet the amount required for your 2016 required minimum distribution.

Required minimum distributions (RMDs) must be taken each year beginning with the year you turn age 70 1/2–whether you are still working or not. The RMD for each year is calculated by dividing the IRA account balance as of December 31 of the prior year by the applicable distribution period or life expectancy. This rule does not apply to your Roth IRAs. Read more