IRS QUICK TIP: WHAT ARE QUALIFIED TUITION PROGRAMS (QTPs)

Have you heard of a qualified tuition program or often called by IRS insiders a “QTP.” I bet you have! QTPs are better known as 529 plans. If you still haven’t heard of it or aren’t sure how they work then this quick tip is for you.

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A QTP is a program established by a state that allows you to either prepay a beneficiary’s qualified higher education expenses at an eligible educational institution or contribute to an account for paying those expenses. This account can then be invested in mutual funds so that money can grow over time. An eligible institution is generally any college, university, vocational school, or postsecondary educational institution. The contributions to qualified tuition programs cannot be more than the amount necessary to provide for the qualified higher education expenses of the beneficiary. Contributions to a QTP are not deductible however, the earnings can accumulate tax free while in the account. Generally the beneficiary does not have to include the earning from a QTP in income. So no tax is due as long as the money goes to pay qualified education expenses. Note: you can change the beneficiary if the first beneficiary doesn’t use all the money.

For additional information, refer to Chapter 8 of Publication 970, Tax Benefits for Education. You should also check out our article on Coverdell Education Savings Accounts for an alternative to a qualified tuition program. Or reach out if you need some help planning for college. 

 

I'VE MOVED - DO I NEED TO TELL THE IRS?

Yes you do. If you recall from our last blog post Tax To-Do List for Recently Married Couples, this is one of the things you should do if you move residences after you get married but it’s a good idea anytime you move. This article will tell you exactly how to do it.

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There are 4 different ways to let the IRS know that you’ve moved. It’s doesn’t matter how you do only that you do. You don’t want to miss out on importance IRS correspondence. Also, it’s always a good idea to use mail forwarding from the post office. It’s free and I believe can be set up for the next 6 months. Keep in mind that not all post offices forward government checks so while it will ensure your mail will be forwarded it might not forward your refund check. So be wary.

The easiest way to notify the IRS of a move is When Filing Your Tax Return. If you change your address right before you file your tax return just enter your new address on your return when you file and then magically (or administratively) when your return in processed the IRS will update their records. While this is by far the easiest, if you are not filing your return anytime soon you should update your address using one of the other means.

Another easy way is to simply fill out the IRS’ change of address form - 8822. You also have to fill out a form 8822-B, Change of Address or Responsible Party — Business, for your small business and send them to the address shown on the forms. Any entity with an employer identification number (EIN) must file Form 8822-B to report to the IRS the latest change to its responsible party.

With the new internet spreading like wildfire you can change your address using an Electronic Notification. However, this can only be done if your refund check was returned to the IRS. Use Where's My Refund? to complete your change of address online. You will need your Social Security number, filing status and the amount of your refund.

Finally you can notify the IRS the old-fashioned way, In Writing. To do this you need to write a letter that includes the following information:

  • Full name
  • Old and new addresses
  • Social Security number, individual taxpayer identification number or employer identification number, and
  • Signature

Mail your letter to the same address where you filed your tax return last year.

And finally you can notify the IRS of your address change verbally. This can be done at a local IRS office or on the phone. The IRS just needs to verify your identity and address. You should have the same information listed above ready for the IRS agent when you call. 

Important Note: If you are a joint filer (married filing jointly) you will need to provide the same information and signatures from both spouses. If you are separated, still file a joint return, and you and your spouse have different residences, you both need to notify the IRS of your new addresses.

IRS Quick Tip: Educator Expense Deduction

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Did you know that as an educator you can get an extra tax deduction that the standard non-educator people can’t? Well, you can. Maybe the IRS is just giving you a special thanks for the work do.  Either way you are special in the eyes of the IRS. If you are an eligible educator, you can deduct up to $250 or $500 if married filing jointly for expenses that you incur related to your job as long as they are not reimbursed. The expenses can be anything from books, classroom equipment, school supplies, computer equipment and software, and other materials that you use for your classroom and job. Specifically for courses in health and physical education the expenses can be related to athletics.

The expenses need to be incurred in the tax year that you are filing for. So for your 2015 tax return (due by April of 2016) the expenses have to be incurred this year in 2015. This deduction is claimed on line 23 of the 1040.

Eligible educators include teachers, instructors, counselors, principals, and aids. Also you need to work at least 900 hours a school year that provides secondary or elementary education (as determined by State Law).

These expenses are only deductible to the extent that they exceed the following amounts in the same tax year.

  1. Interest on US Savings Bonds that you excluded from income because you paid higher education expenses.
  2. Distributions from a qualified tuition program that you excluded from income
  3.  Tax Free Withdrawals from your Coverdell Education Savings Account
  4. Any reimbursed expenses not reported in box 1 of your W2.

If you’re an educator and you want to make sure you are taking all the deductions you can give us a call or send an email to info@pjftax.com.

What To Do If You Receive A Notice From The IRS

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First of all don’t panic. The IRS sends millions of notices to taxpayers each and every year. In our practice many of our clients receive letters from time to time. It’s normal, it’s the IRS’ way of asking for more information or clarification on something, usually related to your tax return.If you happen to receive one of these letters here is what you should do:

  • Let you’re us know or whomever prepared your taxes - We will probably be able to give you a better explanation of what the IRS is looking for. Remember it doesn’t mean your tax return is wrong (most times it’s not) but they are just looking for some additional information.
     
  • Don’t Ignore the Notice – Amazingly some people think that if they ignore it their problem will go away. This doesn’t happen. And the IRS does not just forget about you. It might take them a while to reach out again but they will. If you ignore a notice or letter you risk having to pay additional risk and penalties. Most letters are quick and easy to respond to. It’s important to take care of these things right away.
     
  • No need to Visit the IRS – Most notices can be handled very easily without the need to call or visit an IRS office. There will be a phone number on your letter (upper right corner) that you can call if necessary but if you haven’t ever called the IRS, I don’t recommend it. It’s time consuming and can be frustrating. Try to handle it by following the instructions in the letter. If you do need to call have your notice and a copy of your tax return handy.
     
  • Follow the Instructions – There are usually specific things that you need to do that are outlined in the letter. Make sure you understand what they are asking for so that you can comply. If you don’t understand just ask. There is usually a number you can call on the letter or reach out to a Professional Tax Preparer.
     
  • Focus on the Issue at Hand – Each IRS notice focuses on one specific issue about your tax return in question. Just focus on what they are asking for and provide them with only the information they are looking for. Do not send any additional documents, explanations, or other information, only what they are asking for. More is not better in this case.
     
  • Correction Notices – A correction notice is a specific letter that is also one of the most common. It states that the IRS corrected something on your tax return. Usually no action is needed if you agree with the changes. It could be something as simple as a math error. When you receive this type of notice review the change and compare it to your tax return to make sure it makes sense. If you agree with the change no action is needed (unless they require a payment because of the change). If you do not agree you need to respond to the IRS right away. Write a letter that explains why you don’t agree. Include information and/or documentation that supports your stance. Include the bottom part of the letter (it should tear off cleanly) when you mail to the address shown on the lower left side of the letter. Give the IRS at least 30 days to respond to you.
     
  • Premium Tax Credit Letter – Another common letter is one that asks you to verify your premium tax credit. Most of the time they are just asking for a 1095-A which is a health insurance marketplace statement. Again, follow the instructions on the letter as best you can to ensure you receive your refund/credit as soon as possible.
     
  • Keep the Letter/Notice – I always recommend you keep a copy of the letter for your tax records. If you write a letter keep a copy of the correspondence too. You probably won’t need it but it’s a good idea to have on hand just in case.
     
  • Scams! – Sadly, there are a lot of scams that either through phone, email, or letter that try to seem like official IRS notices. They are looking to steal your identity or money. Know that the IRS never initiates contact with taxpayers by email, text, or social media. When in doubt ask before sending personal information and especially when sending payment information.

IRS Quick Tip: Power of Attorney as it Relates to Taxes

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When it comes to taxes you always have the right to represent yourself before the IRS or you can give someone authorization to represent you. If you want to have someone else represent you, this person must be authorized by the IRS to do so. This need to be either a CPA, Attorney, or enrolled agent. You will also need to fill out, sign, and submit a power of attorney (POA) form to authorization the person to represent you. The documents is Form 2848 and can be found on the IRS website here. To determine where to file this form you should look here under the “Where to File” section  in this document. For those of you who live in Minnesota, like us, the address is 1973 N. Rulon White Blvd. MS 6737, Ogden, UT 84404.

When you sign this form it allows the individual(s) named to represent you before the IRS and receive tax information for either a specific tax matter or specific tax year specified in the form.

Joint filers must submit separate power of attorney forms. If you just want the person to receive your tax information but not have representation powers you can do that too. Refer to this IRS topic for more details. Topic 312