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College students should study up on these two tax credits

Issue Number: Tax Tip 2022-123


College students should study up on these two tax credits

Anyone pursuing higher education, including specialized job training and grad school, knows it can be pricey. Eligible taxpayers who paid higher education costs for themselves, their spouse or dependents in 2021 may be able to take advantage of two education tax credits. The American opportunity tax credit and the lifetime learning credit can help offset education costs by reducing the amount of tax they owe. If the American opportunity tax credit reduces the tax to zero, the taxpayer could receive a refund up to $1,000.

To be eligible to claim either of these credits, a taxpayer or a dependent must have received a Form 1098-T, Tuition Statement, from an eligible educational institution. However, there are exceptions for some students. To claim either credit, taxpayers must complete Form 8863, Education Credits, and file it with their tax return.

Here are some key things taxpayers should know about each of these credits.

The American opportunity tax credit is:

  • Worth a maximum benefit of up to $2,500 per eligible student
  • Only available for the first four years at a post-secondary or vocational school
  • For students pursuing a degree or other recognized education credential
  • Partially refundable; Taxpayers could get up to $1,000 back

The lifetime learning credit is:

  • Worth a maximum benefit of up to $2,000 per tax return, per year, no matter how many students qualify
  • Available for all years of postsecondary education and for courses to acquire or improve job skills
  • Available for an unlimited number of tax years

Taxpayers can use the Interactive Tax Assistant tool on IRS.gov to figure out if they’re eligible for either of these credits.

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2021 Personal Income Tax Check List

Lannele and Associates

Personal Information
Tax Identification Numbers are mandatory items on your checklist. All taxpayers will need the following to do their taxes.
• Your social security number or tax ID number

• Your spouse’s full name, social security number or tax ID number, and date of
birth

• Information about your stimulus payment — also known as an economic impact payment
(EIP)

— if applicable — you may have IRS Notice 1444 or other records showing your EIP amount

• Identity Protection PIN, if one has been issued to you, your spouse, or your
dependent by the
IRS
• IRS Letter 6475 – your 2021 Economic Impact Payment, to determine eligibility to
claim the
Recovery Rebate Credit
• Routing and account numbers to receive your refund by direct deposit or pay your
balance due
if you choose
Dependent(s) Information
Parents and caregivers should gather this information as they review what they need to file their
taxes.

• Dates of birth and social security numbers or tax ID numbers

• Childcare records (including the provider’s tax ID number) if applicable

• Income of dependents and of other adults in your home

• Form 8332 showing that the child’s custodial parent is releasing their right to
claim a child to
you, the noncustodial parent (if applicable)

• IRS Letter 6419 – official documentation that has the details you need to report
your advance

Child Tax Credit (CTC) payments
Sources of Income
Many of these forms won’t be needed to file taxes every year. For example, you will only receive
the
investment forms you may need to file your taxes if you had distributions or other activity.
• Employed

o Forms W-2

• Unemployed

o Unemployment (1099-G)
• Self-Employed

o Forms 1099, Schedules K-1, income records to verify amounts not reported on 1099-

MISC or new 1099-NEC

o Records of all expenses — check registers or credit card statements, and receipts

o Business-use asset information (cost, date placed in service, etc.) for depreciation

o Office in home information, if applicable

o Record of estimated tax payments made (Form 1040–ES)

• Rental Income
o Records of income and expenses
o Rental asset information (cost, date placed in service, etc.) for depreciation

o Record of estimated tax payments made (Form 1040–ES)
Retirement Income

o Pension/IRA/annuity income (1099-R)
o Traditional IRA basis (i.e., amounts you contributed to the IRA that were already taxed)

o Social security/RRB income (SSA-1099, RRB-1099)
Savings & Investments or Dividends

o Interest, dividend income (1099-INT, 1099-OID, 1099-DIV)

o Income from sales of stock or other property (1099-B, 1099-S)

o Dates of acquisition and records of your cost or other basis in property you sold (if
basis is not reported on 1099-B)
o Health Savings Account and long-term care reimbursements (1099-SA or 1099-LTC)
o Expenses related to your investments

o Record of estimated tax payments made (Form 1040–ES)

o Transactions involving cryptocurrency (Virtual currency)

• Other Income & Losses
o Gambling income (W-2G or records showing income, as well as expense records)
o Jury duty records

o Hobby income and expenses

o Prizes and awards

o Trust income
o Royalty Income 1099–MISC

o Any other 1099s received

o Record of alimony paid/received with ex-spouse’s name and SSN

o State tax refund
Types of Deductions
The types of deductions you can take depend a lot on your life situation. It’s likely you won’t need all of the documents listed below for your taxes.

• Home Ownership

o Forms 1098 or other mortgage interest statements

o Real estate and personal property tax records

o Receipts for energy-saving home improvements (e.g., solar panels, solar water heater)

o All other 1098 series forms
• Charitable Donations

o Cash amounts donated to houses of worship, schools, other charitable organizations

o Records of non-cash charitable donations

o Amounts of miles driven for charitable or medical purposes
• Medical Expenses

o Amounts paid for healthcare, insurance, and to doctors, dentists, and hospitals
• Health Insurance

o Form 1095-A if you enrolled in an insurance plan through the Marketplace (Exchange)

• Childcare Expenses

o Fees paid to a licensed day care center or family day care for care of an infant or

preschooler

o Amounts paid to a baby-sitter or provider care of your child under age 13 while you

work

o Expenses paid through a dependent care flexible spending account at work

• Educational Expenses

o Forms 1098-T from educational institutions

o Receipts that itemize qualified educational expenses

o Records of any scholarships or fellowships you received

o Form 1098-E if you paid student loan interest
• K-12 Educator Expenses

o Receipts for classroom expenses (for educators in grades K-12)

• State & Local Taxes

o Amount of state and local income or sales tax paid (other than wage withholding)

o Invoice showing amount of vehicle sales tax paid and / or personal property tax on

vehicles

• Retirement & Other Savings

o Form 5498-SA showing HSA contributions

o Form 5498 showing IRA contributions

o All other 5498 series forms (5498-QA, 5498-ESA)
• Federally Declared Disaster

o City/county you lived/worked/had property in

o Records to support property losses (appraisal, clean-up costs, etc.)

o Records of rebuilding/repair costs

o Insurance reimbursements/claims to be paid

o FEMA assistance information

o Check the FEMA website to see if your county has been declared a federal disaster
area

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December Advance Child Tax Credit Payment

Families will soon receive their December advance Child Tax Credit payment; those not receiving payments may claim any missed payments on the upcoming 2021 tax return

 

IR-2021-249, December 15, 2021

WASHINGTON — The Internal Revenue Service and the Treasury Department announced today that millions of American families will soon receive their final advance Child Tax Credit (CTC) payment for the month of December. Eligible families who did not receive advance payments can claim the Child Tax Credit on their 2021 federal tax return to receive missed payments and the other half of the credit.

This final batch of advance monthly payments for 2021, totaling about $16 billion, will reach more than 36 million families across the country. Most payments are being made by direct deposit.

Under the American Rescue Plan, eligible families have received more than 200 million payments totaling more than $93 billion. Most eligible families received payments dated July 15, August 13, September 15, October 15, November 15 and December 15. For eligible families, each payment is up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17.

Here are more details on the December payments:

  • Families will see the direct deposit payments in their accounts starting December 15. Like the prior payments, the vast majority of families will receive them by direct deposit.
  • For those receiving payments by paper check, be sure to allow extra time, through the end of December, for delivery by mail.
  • Payments are going to eligible families who filed a 2019 or 2020 federal income tax return. Returns processed by December 1 are reflected in these payments. This includes people who don’t typically file a return but either during 2020 successfully filed a return to register for Economic Impact Payments using the IRS Non-Filers tool on IRS.gov, or in 2021 successfully filed a return by using the Non-filer Sign-up Tool for advance CTC.
  • Families who did not get a July, August, September, October or November payment and are getting their first monthly payment this month will still receive their total advance payment amount for the year (which is half of their total Child Tax Credit). This means that the total advance payment amount will be made in one December payment.

Claim the full Child Tax Credit on the 2021 tax return

Eligible families who did not receive any advance Child Tax Credit payments can claim the full amount of the Child Tax Credit on their 2021 federal tax return, filed in 2022. This includes families who don’t normally need to file a return.

Families who received advance payments will need to file a 2021 tax return and compare the advance Child Tax Credit payments they received in 2021 with the amount of the Child Tax Credit they can properly claim on their 2021 tax return.

To help taxpayers reconcile the advance payments, the IRS will send Letter 6419 in January 2022 with the total amount of advance Child Tax Credit payments taxpayers received in 2021 and the number of qualifying children used to calculate the advance payments. People should keep this and any other IRS letters about advance Child Tax Credit payments with their tax records.

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Tax Extension

With the Covid19 Pandemic, the IRS have extended the date to both file and pay your income taxes.

Please contact to schedule a virtual appointment.

 

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Personal Tax Prep Checklist

LAE Business Services, Inc.

                                        P: 631-664-1390         F: 631-382-8334
   www.laebusiness.com      Email: info@laebusiness.com
 

Click to print  Checklist- What Documents Do I Need to File My Taxes 

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RS Gives Tax Relief to Victims of California Wildfires; Extension Filers Have Until Jan. 31 to File

IR-2017-172, Oct. 13, 2017

WASHINGTON –– Victims of wildfires ravaging parts of California now have until Jan. 31, 2018, to file certain individual and business tax returns and make certain tax payments, the Internal Revenue Service announced today.

This includes an additional filing extension for taxpayers with valid extensions that run out this coming Monday, Oct. 16.

Currently, the IRS is providing relief to seven California counties: Butte, Lake, Mendocino, Napa, Nevada, Sonoma and Yuba. Individuals and businesses in these localities, as well as firefighters and relief workers who live elsewhere, qualify for the extension. The agency will continue to closely monitor this disaster and may provide other relief to these and other affected localities.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Oct. 8, 2017. As a result, affected individuals and businesses will have until Jan. 31, 2018, to file returns and pay any taxes originally due during this period.

This includes the Jan. 16, 2018 deadline for making quarterly estimated tax payments. For individual tax filers, it also includes 2016 income tax returns that received a tax-filing extension until Oct. 16, 2017. The IRS noted, however, that because tax payments related to these 2016 returns were originally due on April 18, 2017, those payments are not eligible for this relief.

A variety of business tax deadlines are also affected, including the Oct. 31 deadline for quarterly payroll and excise tax returns. Calendar-year tax-exempt organizations whose 2016 extensions run out on Nov. 15, 2017 also qualify for the extra time.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due after Oct. 8 and before Oct. 23, if the deposits are made by Oct. 23, 2017. Details on available relief can be found on the disaster relief pageon IRS.gov.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes firefighters and workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2017 return normally filed next year) or the return for the prior year (2016). See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by these wildfires and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

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Beware of Phishing Emails Directed at Tax Professionals

Tax professionals—

The IRS, state tax agencies, and the tax industry ask that you take care when opening emails; several of this summer’s phishing scams are directed at the tax professional community.
Scammers are posing as a legitimate tax education software provider in an attempt to gain access to sensitive taxpayer information.
Scammers are impersonating tax software providers in an attempt to steal your username and password.

Tax professionals—watch out for phony emails aimed at stealing your information

In a new scheme to steal tax professionals’ information, scammers are impersonating tax software providers in emails that ask professionals to validate their login credentials. When professionals select the links in these emails to confirm their information, they are taken to sites that mimic legitimate software providers’ login screens. Entering login information allows the scammers to steal tax professionals’ usernames and passwords and access their accounts, and, subsequently, their clients’ information.

These emails contain a subject line similar to “Software Support Update,” mimic the look and feel of legitimate software providers’ emails, and thank tax professionals for choosing the specific provider’s software. They also include language about an “Important Software System Upgrade.”

If you receive one of these emails, please forward a copy to the IRS and your tax software provider according to the IRS’ instructions (visit the IRS at Security Summit Alert: Tax Pros Warned of New Scam to Steal Their Passwords).

To learn more about these and other recent scams, visit the Tax Department’s website at Tax scams and consumer alerts.
Want more information about how to protect yourself?
Visit the IRS’ website at Protect Your Clients; Protect Yourself.
How do I know this email is really from the Department of Taxation and Finance?
If you’re unsure whether this email is legitimately from the New York State Department of Taxation and Finance, enter their web address, www.tax.ny.gov, into your browser and search the keyword scams directly on the website.

 

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Important Facts about Filing Late and Paying Penalties

Issue Number:    IRS Tax Tip 2017-51

Important Facts about Filing Late and Paying Penalties

April 18 was this year’s deadline for most people to file their federal tax return and pay any tax they owe. If taxpayers are due a refund, there is no penalty if they file a late tax return.

Taxpayers who owe tax, and failed to file and pay on time, will most likely owe interest and penalties on the tax they pay late. To keep interest and penalties to a minimum, taxpayers should file their tax return and pay any tax owed as soon as possible.

Here are some facts that taxpayers should know:

  1. Two penalties may apply. One penalty is for filing late and one is for paying late. They can add up fast. Interest accrues on top of penalties
  2. Penalty for late filing. If taxpayers file their 2016 tax return more than 60 days after the due date or extended due date, the minimum penalty is $205 or, if they owe less than $205, 100 percent of the unpaid tax. Otherwise, the penalty can be as much as 5 percent of their unpaid taxes each month up to a maximum of 25 percent.
  3. Penalty for late payment. The penalty is generally 0.5 percent of taxpayers’ unpaid taxes per month. It can build up to as much as 25 percent of their unpaid taxes.
  4. Combined penalty per month. If both the late filing and late payment penalties apply, the maximum amount charged for the two penalties is 5 percent per month.
  5. Taxpayers should file even if they can’t pay. Filing  and paying as soon as possible will keep interest and penalties to a minimum. IRS e-file and Free File programs are available for  returns filed after the deadline. If a taxpayer can’t pay in full, getting a loan or paying by debit or credit card may be less expensive than owing the IRS.
  6. Payment options. Taxpayers should explore their payment options at IRS.gov/payments. For individuals, IRS Direct Pay is a fast and free way to pay directly from a checking or savings account. The IRS will work with taxpayers to help them resolve their tax debt. Most people can set up a payment plan using the Online Payment Agreement tool on IRS.gov.
  7. Late payment penalty may not apply. If taxpayers requested an extension of time to file their income tax return by the tax due date and paid at least 90 percent of the taxes they owe, they may not face a failure-to-pay penalty. However, they must pay the remaining balance by the extended due date. Taxpayers will owe interest on any taxes they pay after the April 18 due date.
  8. No penalty if reasonable cause.  Taxpayers will not have to pay a failure-to-file or failure-to-pay penalty if they can show reasonable cause for not filing or paying on time.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

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IRS Offers IRA Tax Tips for the 2016 Tax Year

IRS Offers IRA Tax Tips for the 2016 Tax Year

Taxpayers often have questions about Individual Retirement Arrangements, or IRAs. Common questions include: When can a person contribute, how does an IRA impact taxes, and what are other common rules.

The IRS offers the following tax tips on IRAs:

  • Age Rules. Taxpayers must be under age 70½ at the end of the tax year to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.
  • Compensation Rules. A taxpayer must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If a taxpayer is married and files a joint tax return, only one spouse needs to have compensation in most cases.
  • When to Contribute. Taxpayers may contribute to an IRA at any time during the year. To count for 2016, a person must contribute by the due date of their tax return. This does not include extensions. This means most people must contribute by April 18, 2017. Taxpayers who contribute between Jan. 1 and April 18 need to advise the plan sponsor of year they wish to apply the contribution (2016 or 2017).
  • Contribution Limits. Generally, the most a taxpayer can contribute to their IRA for 2016 is the smaller of either their taxable compensation for the year or $5,500. If the taxpayer is 50 or older at the end of 2016, the maximum amount they may contribute increases to $6,500. If a person contributes more than these limits, an additional tax will apply. The additional tax is six percent of the excess amount contributed that is in their account at the end of the year.
  • Taxability Rules. Normally taxpayers don’t pay income tax on funds in a traditional IRA until they start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.
  • Deductibility Rules. Taxpayers may be able to deduct some or all of their contributions to their traditional IRA. See IRS Publication 590-A.
  • Saver’s Credit. A taxpayer who contributes to an IRA may also qualify for the Saver’s Credit. It can reduce a person’s taxes up to $2,000 if they file a joint return. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. A taxpayer may file either Form 1040A or 1040 to claim the Saver’s Credit.
  • Rollovers of Retirement Plan and IRA Distributions. When taxpayers roll over a retirement plan distribution, they generally don’t pay tax on it until they withdraw it from the new plan. If they don’t roll over their distribution, it will be taxable (other than qualified Roth distributions and any amounts already taxed). The payment may also be subject to additional tax unless the taxpayer is eligible for one of the exceptions to the 10% additional tax on early distributions.
  • myRA. If a taxpayer’s employer does not offer a retirement plan, they may want to consider a myRA. This is a retirement savings plan offered by the U.S. Department of the Treasury. It’s safe and affordable. Taxpayer’s may also direct deposit their entire refund or a portion of it into an existing myRA.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Learn more about how to verify your identity and electronically sign your tax return at Validating Your Electronically Filed Tax Return.

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Medical and Dental Expenses May Impact Your Taxes

Issue Number:    IRS Tax Tip 2017-26

Medical and Dental Expenses May Impact Your Taxes 

Medical expenses can trim taxes. Keeping good records and knowing what to deduct make all the difference. Here are some tips to help taxpayers know what qualifies as medical and dental expenses:

  • Itemize. Taxpayers can only claim medical expenses that they paid for in 2016 if they itemize deductions on a federal tax return.
  • Qualifying Expenses. Taxpayers can include most medical and dental costs that they paid for themselves, their spouses and their dependents including:
    • The costs of diagnosing, treating, easing or preventing disease.
    • The costs paid for prescription drugs and insulin.
    • The costs paid for insurance premiums for policies that cover medical care.
    • Some long-term care insurance costs.

Exceptions and special rules apply. Costs reimbursed by insurance or other sources normally do not qualify for a deduction. More examples of what costs taxpayers can and can’t deduct are in IRS Publication 502, Medical and Dental Expenses.

  • Travel Costs Count. It is possible to deduct travel costs paid for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. For use of a car, deduct either the actual costs or the standard mileage rate for medical travel. The rate is 19 cents per mile for 2016.
  • No Double Benefit. Don’t claim a tax deduction for medical expenses paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from these plans are usually tax-free.
  • Use the Tool. Taxpayers can use the Interactive Tax Assistant tool on IRS.gov to see if they can deduct their medical expenses.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

 

Always consult your tax professional.  info@laebusiness.com

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