Education Credits and Deductions

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It is that time of year when back to school is on all our minds. Where did the summer go? Just when you are finally in a summer routine, it is over and now it is time to think about buying school clothes and supplies, meeting teachers, arranging school schedules and all the other things that go into educating both our children and ourselves.

In this blog, I would like to touch on the education credits that are available for higher education as well as things that can be deducted at the grammar, Jr High, and High school levels.   Let’s start with higher education credits. These credits are for college. There are 2 credits that are still in effect.

  1. American Opportunity Credit. This credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.
  2. Lifetime Learning Credit. This is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate and professional degree courses–including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.

Both of these credits are for tuition, books, class fees and special equipment used in certain degrees that is not covered by a grant or scholarship. They do not include housing, food, or travel while away at school.

What about your children that are not yet in college? Public schools, charter schools and some private schools are considered Non-profit organizations. Often, parents are asked to donate money as well as supplies to these schools. If you donate money or buy supplies, such as paper, art supplies, etc., you can deduct them on the itemized portion of your tax return. Also, joining the PTA is deductible. Room mothers, who provide supplies and pay for parties, can deduct those expenses as well.

Next time you buy something that is school related, think about whether it could be considered a tax deduction. If you are not sure, keep the receipt and ask your tax preparer.

For any additional questions about these tax credits, contact us at Soulence.com.

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Receiving a Notice from the IRS

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Almost everyone at some time in their life will receive a notice by mail from the IRS. This is how the IRS communicates with people. It isn’t necessarily a bad thing to get a notice. Sometimes, it can even be good news. However, most people when they see a letter from the “Internal Revenue Service” in their mailbox immediately panic. We always suggest that when you get a notice from the IRS or even a State agency, that you send us a copy (via fax, email or USPS) so we can explain what you received and how to properly handle it. So, today, I would like to mention a few of the types of IRS notices that people typically receive and what you should know about them.

  1. Notice of missing information. The IRS compares what types of income has been reported to them to your Social Security number against what you have reported on your tax return. This usually takes a year or so for them to figure out. When they notice that something is missing such as a W-2 or 1099, they send a notice telling you so that you can compare it to your records and amend if necessary.
  2. Notice of change to your tax return. This notice comes when you don’t respond to the notice above or if the IRS feels you have figured something wrong on your tax return. They have to tell you what they changed and why. This gives you an opportunity to compare their figures to yours and agree or disagree.
  3. Notice that the IRS is working on your problem. When you write the IRS about any situation, it takes them time to go over it and respond. If it is taking an unusual amount of time for them to review it, they will send you a letter that essentially says they got your information and they are working on it.
  4. Notice of an audit. This comes when the IRS wants you to provide proof of your income and expenses. It can be anything from a request for you to mail proof of certain deductions to a full-blown “come to the IRS with all your records” audit. You should ALWAYS contact your tax preparer if you get an audit letter.

These are just some of the most common letters. Most of the time a letter from the IRS isn’t anything to worry about. The most important thing to remember is if you get a letter, open it. There are usually time limits for responding. IRS notices are usually for clarification, and you always have the opportunity to agree or disagree.

Always remember to consult your tax professional when you get a notice. I always tell my clients, “Don’t panic until I tell you to.”

Have you received a letter from the IRS? Tell us about your experience?

 

 

Taxpayer Bill of Rights Part 2

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In the last blog post, we started discussing the IRS Taxpayer’s Bill of Rights. I hope you are beginning to understand that you do have rights as a taxpayer. After all, as taxpayers, the IRS does work for us. Here are the last 5 rights you have as a taxpayer.

6. The Right to Finality.

“Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.”

What Does it Mean?

The IRS has imposed certain time limits for responding to their actions and correspondences even though they do not have the same restrictions. However, once an issue is settled, you have the right for it to be over. The IRS doesn’t have the right to reopen the issue unless there is new compelling information.

7. The Right to Privacy.

“Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.”

What Does it Mean?

An audit or even a letter from the IRS is intrusive on any level. However, the IRS is required to make it as painless as possible. This is where it is important to know your rights and not be afraid to complain to a supervisor if you feel you have not been treated respectfully and fairly.

8. The Right to Confidentiality.

Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.”

What Does it Mean?

The IRS has in recent years increased the rules and regulations for keeping a taxpayer’s information private. There are strict guidelines as to who they can provide information to and stiff penalties for tax preparers who give unauthorized information to a third party. You must give written consent for anyone (the IRS or a tax preparer) before they can give someone other than you, even a copy of your tax return. This can be frustrating at times, but it is for your protection.

9. The Right to Retain Representation. “Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.”

What Does it Mean?

You are not alone. The IRS does not expect you to deal with them by yourself. We always encourage people to call us first when they get any letter from the IRS so that we can assist them in understanding what the correspondence is about and make sure it is handled as easily and smoothly as possible.

10. The Right to a Fair and Just Tax System. “Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.”

What Does it Mean?

A fair and just tax system seems like an oxymoron. However, there are actually several options available if you get in a situation where you are not able to pay your tax bill. They include such things as a payment plan, an Offer in Compromise, and sometimes you can even be placed on an uncollectible status. If you have a tax problem, be sure and consult your tax advisor to determine your options.

We hope reviewing the Taxpayer Bill of Rights has been helpful. It is important to at least know that you have rights when dealing with the IRS. Your tax advisor can help you determine if your rights have been violated so be sure and keep them informed whenever you hear from the IRS or your local State Tax Department.

Tell us your experience with the IRS? Would knowing these rights have helped you? Add your comments below!

Taxpayer Bill of Rights Part 1

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In June 2014, the IRS introduced the “Taxpayer Bill of Rights”. Taxpayers have always had rights but the tax code is large and confusing. This is an attempt on the part of the IRS to summarize the rights of taxpayers that are scattered throughout the tax code.   There are 10 provisions contained in the new Bill of Rights. We will take the next two blog posts to review these provisions.

1. The Right to be informed.

“Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.”

What does it mean?

You have the right to clearly understand what the IRS is talking about in regards to your taxes. If the IRS makes changes to your tax returns, whether by letter or audit, you get to understand why they made the changes and how they determined the changes. You also have the right to understand what they want you to do to be compliant with tax laws or to fix an error.

2. The Right to quality service.

“Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.”

What does it mean? 

This provision has been the most frustrating for taxpayers. In the past IRS employees have been known to be intimidating and less than helpful. Even with this Bill of Rights in place, there are still very long wait times when you call or even visit the IRS. Still, if you feel you have been dealt with inappropriately, you do have the right to complain to the next level up.

3. The Right to pay no more than the correct amount of tax.

“Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.”

What does it mean? 

This provision can be tricky. There are so many different kinds of penalties and so many laws, that it is often difficult for a taxpayer to know if they are paying the correct amount or not. This is where your tax preparer can play a vital role to insure that you are paying only what is necessary and to get certain penalties and interest waived.

4. The Right to challenge the IRS’s position and be heard.

Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.”

What does it mean? 

Challenging the IRS’s decisions has always been a right of taxpayers that most people don’t understand. IRS employees are just people doing a job. You have the right to challenge their judgment and stand up for yourself.

5. The Right to appeal an IRS’s decision in an independent forum.

Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.”

What does it mean? 

There are many levels of appeals you can take advantage of if you feel the IRS’s decision is wrong. You should never be afraid to appeal your case. As a matter of fact, we have found that the appeals officers are much easier to deal with and we have had a lot of success working with them.

Next week we will review the final 5 provisions. Remember, You Have Rights as a taxpayer!

Don’t want to learn all the tax laws yourself? Let us do the work for you! Contact us at soulence.com