tax help

WHICH TAX FORM SHOULD I REALLY USE? 1040, 1040A, 1040EZ

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There are three main forms that US citazens can use to file their annual income tax return. They are the Form 1040EZForm 1040A and Form 1040. Below is a description of each along with all the links that you will need to file your taxes.

1. Form 1040EZ is the easiest and simplest form the IRS will let you use to file your taxes. 

You need to meet the following conditions in order to use this form:

  • Your filing status is single or married filing jointly

  • You claim no dependents
  • You, and your spouse if filing a joint return, were under age 65 at the end of the year
  • Your only income sources are wages, salaries, tips, taxable scholarship and fellowship grants, unemployment compensation, or Alaska Permanent Fund dividends, and your taxable interest was not over $1,500
  • Your taxable income is less than $100,000
  • Your earned tips, if any, are included in boxes 5 and 7 of your Form W-2
  • You do not owe any household employment taxes on wages you paid to a household employee
  • You are not a debtor in a Chapter 11 bankruptcy case filed after October 16, 2005
  • You do not claim any adjustments to income
  • You do not claim any credits other than the earned income credit
  • Advance payments of the premium tax credit were not made for you, your spouse, or any individual you enrolled in coverage for whom no one else is claiming the personal exemption
  • You are not itemizing deductions and claim any adjustments to income tax credits (other than the earned income credit)

If you meet these conditions then file your taxes using the 1040EZ form. It’s the easiest way to do it. Here are links to the forms. Here is the link to the 1040EZ instructions.

2. Form 1040A is the next simplest form allowed by the IRS.

So if you don’t qualify to use the 1040EZ you should check to see if you can use this form instead. The criteria for eligibility for 1040A is listed below.

  • Your income is only from wages, salaries, tips, taxable scholarships and fellowship grants, interest, ordinary dividends, capital gain distributions, pensions, annuities, IRAs, unemployment compensation, taxable Social Security or railroad retirement benefits, and Alaska Permanent Fund dividends
  • Your taxable income is less than $100,000
  • You do not itemize deductions
  • You did not have an alternative minimum tax adjustment on stock you acquired from the exercise of an incentive stock option
  • Your only adjustments to income are the IRA deduction, the student loan interest deduction, the educator expenses deduction, the tuition and fees deduction, and
  • The only credits you are claiming are the credit for child and dependent care expenses, the earned income credit, the credit for the elderly or the disabled, education credits, the child tax credit, the additional child tax credit, the net premium tax credit, or the retirement savings contribution credit

Here’s the link to the 1040A instructions - Form 1040A Instructions

3. 1040 is the most complicated tax form and is used by taxpayers who are unable to file using a 1040EZ or 1040A.

Here is the criteria for using this form.

  • Your taxable income is $100,000 or more
  • You have certain types of income such as unreported tips; dividends on insurance policies that exceed the total of all net premiums you paid for the contract; self-employment earnings; or income received as a partner, a shareholder in an S corporation, or a beneficiary of an estate or trust
  • You itemize deductions or claim certain tax credits or adjustments to income, or
  • You owe household employment taxes
     

Here is the link for the form 1040 instructions - Form 1040 Instructions.

The IRS provides a handy online tool for determining which form you should use when filing your taxes. You can try it out here What is the simplest form to use to file my taxes? 

Below is a list of the many of other often used forms. You can use these resources when preparing your own return.


Form 1040, Schedule A - Itemized Deductions

Form 1040A or 1040, Schedule B - Interest and Ordinary Dividends

Form 1040, Schedule C - Profit or Loss From Business (Sole Proprietorship)

Form 1040, Schedule C-EZ - Net Profit From Business

Form 1040, Schedule D - Capital Gains and Losses

Form 1040, Schedule E - Supplemental Income and Loss

Form 1040A or 1040, Schedule EIC - Earned Income Credit

Form 1040A or 1040, Schedule 8812 - Child Tax Credit

Form 1040A or 1040, Schedule R - Credit for the Elderly or the Disabled

Form 2441 - Child and Dependent Care Expenses

Form 8863 - Education Credits (American Opportunity and Lifetime Learning Credits)

Form 8888 - Allocation of Refund (Including Savings Bond Purchases)

Form 8949 - Sales and Other Dispositions of Capital Assets

If you need help determing which form you need to use feel free to reach out to PJF Tax or just let us handle it for you this tax season.

WHERE THE H*LL IS MY REFUND?

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It’s frustrating, I know. You want your money back from the IRS. After all the IRS demands their money on one specific date each year and if you don’t pay they charge you penalties and interest. If only you could do the same. Instead you have to sit back (try to relax) and wait. The good news is there are some easy ways to check on the status of your refund.

First go to Where’s My Refund?  This IRS web page has the most up to date information available about your refund. You can use it to get your personalized refund status. It’s updated once a day so no need to waste your time checking every hour. You should wait 24 hours after your or your tax preparer receives confirmation that your return was accepted by the IRS. If you paper filed, sorry, but you have to wait at least 4 weeks for your info to show up. Make sure to have your tax return information ready because you’ll need to input your social security number, filing status, and the exact whole dollar of your current year’s refund.

If you really want to talk to an agent (I wouldn’t recommend this) you can call the refund hotline. The number is 1-800-829-1954. Again make sure you have your tax return information. Unless your Where’s My Refund tool tells you to call I wouldn’t as the agent probably won’t be able to give you any more info than what’s online.

If you filed an amended return there is a separate link. Where’s My Amended Return? Just follow the instructions and input the required information from your tax return.

Both of these tools will provide you will the progress of your tax return. These are:

  1. Return Received
  2. Refund Approved
  3. Refund Sent

Refund for e-filed returns generally process within 21 days of the acceptance date. Refunds from mailed returns take anywhere from 6-8 weeks to process from the date the IRS receives the return. Refunds for amended returns can take up to 16 weeks to process. These are just general rules so don’t worry if the 21 days are up and you haven’t received your return. Use the tool listed above to check the status. Sometimes the IRS gets bogged down during busy times of the year.

Minnesota Tax Return Refunds

If you are just waiting on your Minnesota state tax return you can also check the status of this. Go to the Minnesota State Tax Website to do this - https://www.mndor.state.mn.us/tp/refund/_/

You’ll need similar information just like the Federal Refund Checker. Using this tool you can check any return filed within the past 12 months. In general you should receive your refund within 90 days of filing a paper return and 15 business days for e-filed returns. Again, this is a general rule so don’t panic if you still haven’t received your refund. I have seen Minnesota state refunds take much longer to process

You can also call our automated tax service line at 651-296-4444 (Metro) or 1-800-657-3676 (Greater Minnesota). If you have not received your refund and:it has been over 15 days since your electronic return was accepted or more than 90 days since you mailed your paper return, AND neither the online system nor the automated line has any information on your return, then you can call our individual income tax help line at 651-296-3781 (Metro) or 1-800-652-9094 (Greater Minnesota), Monday through Thursday, 8:30 a.m. – 5:00 p.m. and Friday, 8:30 a.m. – 4:30 p.m.

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.

How Do I Avoid Paying Tax On My Vacation Rental?

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Vacation/Second Home Rental: How do I report it and how do I avoid paying tax?

So you’ve got this great idea of having someone else pay for your vacation/second home by renting it out. Well, it’s not a bad idea but make sure you understand the tax consequences and use this tip on how to avoid paying some of the tax generated from receiving income on your property.

In general if are receiving income from renting out a “dwelling unit” like a house or apartment you can deduct certain expenses? Some common expenses include:

  •          Mortgage interest,
  •          Real estate taxes,
  •          Utilities
  •          Casualty losses
  •          Maintenance
  •          Insurance, and
  •          Depreciation

All of these things reduce the amount of rental income that is subject to tax. Just like a profit and loss for any business your revenue less expenses equals your net income. You are essentially running a mini small business. You generally report the income and expenses on your form 1040 using Schedule E (Supplemental Income and Loss). If you are only trying to rent for a profit and do not use it as a personal residence at any point during the year and your rental expenses are more than your rental income you will show a loss on your tax return. This loss might be limited by what the IRS call’s “At-Rick” or “Passive Activity Loss Rules.” For more info on limits of your losses check here Publication 925, Passive Activities and At-Risk Rules.

If you use your rental property as a personal residence at some point during the year other limitations will apply to the amount of expenses that you can deduct. You are considered to use a property as a personal residence if during any tax year you use it for the greater of 14 days or 10% of the total days you rent it to others (at a fair rental price – discounted rents for friends and family don’t count.).

You might have two personal residences during any given tax year. For example if you live in your primary residence 8 months, this residence is considered a personal residence. Then if you live in a condo down south for the other 3 months of the year, your condo is also considered a personal residence. For tax purposes a day of personal use at any property is defined as any day that it is used by:

  •    You or any other person who has an ownership interest in it
  •    A member of your family or family of any other person with an ownership interest in    it, unless the family member uses it as his or her main home and pays a fair rental        price
  •    Anyone under an agreement that lets you use some other dwelling unit
  •    Anyone at less than fair rental price

If this is the case (used for both rental and personal purposes) you need to divide your total expense between the rental use and the personal use based on the number of days for each purpose. For example if you have $10,000 of expenses and you rent it out for half of the year you only get to deduct $5,000. You will not be able to deduct your rental expenses in excess of the gross rental income limitation which is your gross rental income less the rental portion of mortgage interest, real estate taxes, casualty losses, and rental expenses like realtor’s fees and advertising costs. However, you may be able to carry forward some of these rental expenses to the next year. (Subject to gross income limitation for that year). If you itemize your deductions on From 1040 Schedule A you might still be able to deduct your personal portion of your mortgage interest, real estate taxes, and casualty losses. However you cannot choose to add more to your schedule A then the percentage personal use would allow.

There is a special rule where you can avoid paying tax on your rental income if you rent it for fewer than 15 days. If this is the case you do not have to report any of the rental income on your tax return (but you also can’t deduct any expenses). Therefore, if you can find a short-term rental income you can effectively receive the rent tax free. That’s about as good as it gets when the IRS is involved.