10 things your tax clients should know before April 18

Published March 28, 2017 2:25 PM

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Updated March 29, 2017 6:48 PM

1 Min Read

The IRS regularly shares tips about different credits and deductions that can reduce a tax bill – as well as scams your clients should look out for.

April 18 written on a calendar to remind you an important appointment.

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Introduction

The IRS regularly shares tips about different credits and deductions that can reduce a tax bill – and as well as scams your clients should look out for.

Here are 10 things the IRS is particularly reminding taxpayers and tax practitioners about in the run-up to the end of tax season on April 18 (and in one case, April 1), depending on their circumstances.

If the taxpayer is saving for retirement …

The IRS is reminding taxpayers and their advisors that contributions to a regular IRA are still deductible for 2016, as long as they’re made by April 18, 2017 – and low- and moderate-income taxpayers may also qualify for the saver’s credit.

The IRS says that eligible taxpayers can generally contribute up to $5,500 to an IRA, and those who turned 50 before the end of 2016 may be able to contribute even more, up to $6,500.

There are phase-outs by income level for those with workplace retirement plans, so it’s wise for a tax practitioner to be involved in deciding whether and how much to contribute.

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If they paid for care for a child, dependent or spouse …

Taxpayers with earned income who paid for care for a qualifying dependent (mostly children under 13 or adults who can’t care for themselves) so that the taxpayer could work or look for work may be eligible for the Child and Dependent Care Tax Credit.

The credit is worth between 20 and 35 percent of the allowable expenses, and depends on the taxpayer’s income level; it can be worth up to $3,000 for one qualifying dependent, or $6,000 if there are two or more.

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If they’re pursuing their education …

If a taxpayer is paying for higher education – whether it’s their own or that of a child or other dependent – they should look into the credits and deductions that are available, according to the IRS.

For 2016, the service noted that the American Opportunity Credit can be worth up to $2,500 per student, while the Lifetime Learning Credit can be worth up to $2,000 per tax return per year, no matter how many students qualify.

For those who don’t qualify for the AOC or LLC, they may be able to deduct up to $4,000 of tuition and fees on Form 8917, even if they don’t itemize on Schedule A.

The IRS noted, however, that starting in 2016, students had to have Form 1098-T, Tuition Statement, to be eligible for an education benefit.

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If they made a charitable donation …

For a donation to be deductible, it needs to clear a few hurdles. First off, it needs to have been made to a qualified charity – they can be checked against the IRS Select Check tool.

If the taxpayer got something in return for the donation – a magazine subscription, meals, or event tickets, for instance – the value of that can’t be deducted; only the excess value is deductible. And donations of property are limited to that property’s fair market value, and special rules may apply to cars, boats and some other types of property.

For donations valued at more than $250, whether in cash or property, taxpayers must produce a written statement from the charity. The record-keeping rules for charitable donations can be pretty complex; the IRS lays them out in Publication 526, Charitable Contributions.

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If they can’t pay what they owe …

The IRS really, really, really wants taxpayers to pay what they owe – they’ll take electronic transfers, credit or debit cards, and even cash with the PayNearMe option (though it’s fairly complicated, and only available in limited geographies, and for limited amounts) – but they also have a few programs for those who can’t pay in full.

To start, there are both short-term and long-term payment plans for those who owe $50,000 or less that can give taxpayers up to 72 months to pay a debt.

For those who are struggling even more, there are offers in compromise, which settle the debt for less than the full amount owed. Taxpayers and their advisors can check their eligibility using the IRS’s Offer in Compromise Pre-Qualifier.

If they already owe ...

While the IRS has some programs for taxpayers who can’t pay their taxes, if they have past-due tax debts and get a current refund, the agency is warning that the Treasury Offset Program allows it to grab all or part of that refund to pay the debt.

And it’s not just tax debts that can be taken out of a refund – the Treasury’s Bureau of Fiscal Service can also take money out for federal agency debts like delinquent student loans; state income tax obligations; unpaid child and spousal support; and more.

These “offsets” can be disputed by contacting the government agency that got the money; the IRS made a point of saying that taxpayers or their advisors should only contact them if the offset payment was for federal tax debt.

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If they’re senior citizens …

Fraudsters claiming to be IRS agents are ramping up their activities as filing season progresses, with senior citizens being a particular focus of their phone scams.

They can sound awfully convincing, altering their caller ID to make it look like the IRS is calling, and offering fake names and IRS badge numbers to scare victims into paying an entirely fictional tax debt by preloading a debit card or wiring money. Their aggressive and intimidating tactics can be very effective at bilking elderly people.

The IRS regularly reminds taxpayers and tax practitioners that they never initiate action through phone calls, and never ask for payment through debit cards, gift cards or money transfer.

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If they’re over 70-1/2 …

Taxpayers who turned 70-1/2 at any point during 2016 must start receiving any required minimum distributions from IRAs by Saturday, April 1.

The deadline applies to owners of SEP and traditional IRAs, as well a variety of workplace retirement plans, like 401(k)s and 403(b)s, but not to Roth IRAs.

While the April 1 deadline applies in the first year after a taxpayer turns 70-1/2; after that, RMDs must be taken by December 31. This can trip some people up in their first year: No matter how close to April 1, 2017, a taxpayer who turned 70-1/2 in 2016 takes their 2016 RMD, they need to take their second RMD by Dec. 31, 2017.

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If they’re in the military …

Members of the armed services in combat zones can be eligible for special extensions for tax filing, up to as much as 180 days after the end of their service in a combat zone.

Service members can also get free tax help through the IRS’s Volunteer Income Tax Assistance program, both on bases in the U.S. and overseas. The VITA program includes preparers who are specially trained on military tax issues.

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If they adopted or tried to adopt a child …

Those looking to expand their families through adoption may be eligible for a nonrefundable credit for some expenses, up to $13,460 per child. Any unused credit can be carried over for up to five years.

Qualifying expenses include adoption fees, court costs, attorney fees and travel, and the credit applies to both foreign and domestic adoptions. There are income limits, however, so it’s always worth consulting a tax expert.