Special thanks to http://adoptiontaxcredit.org/ for the Photo.  Check out their site for additional information on the Adoption Credit!

Adopting a child has many advantages for many families.  You are adding a new family member to love and cherish, all of you will get to experience the unconditional love and support of the new family unit, as well as making each and every day special for one another.  Many children today would be without loving and permanent families if it were not for the Adoption Credit and other forms of Adoption Asistance available today to help with the cost of adoption.  

At this time the Adoption Credit is unrefundable.  In a few earlier years the IRS had a temporary provision allowing for the refundability of the credit.  At that time, all unused adoption credits from prior years could be taken as a refundable credit in those years.  This led to very large refunds for many families across the country.  This was due, in large part, because the families eligible for the credit couldn't use the credit because their income was already low enough that they received NO benefit from the credit and had to keep carrying it forward year after year.  

The Credit and Exclusion Amount

For adotions finalized in 2015 the credit is up to $13,400 per child for eligible expenses.  A taxpayer can also exclude up to the same amount in Employer Provided Adoption benefits from income.  Keep in mind that the same expenses can't be used for both.  Limits do apply to the total spent over all years for each effort to adopt an eligible child.

An Unsuccessful Adoption

Any taxpayer who paid qualified expenses in an attempt to adopt a US child and the attempt was unsuccessful are to treat those expense in the same manner as expenses paid for adoption not final by the end of the year.  This means that if your adoption was unsuccessful in 2015 you treat those expenses as 2014 expenses.  An Amended Tax return may be needed to take the credit. In the case of a foreign child adoption, the credit or exclusion can't be taken unless the adoption becomes final.

Qualified Expenses

These are reasonable and necessary expenses principally for the legal adoption of an eligible child.  These can include: Adoption Fees, Attorney Fees, Court Costs, Travel Expenses while away from home, Re-adoption in State Court.

Nonqualified Expenses

Expenses to adopt a spouse's child, Expenses for surrogate parenting, paid for or reimbursed by an employer, government agency or other agency, Expenses that are allowed as a credit or deduction under another tax provision, and Expenses that violate state or federal law.

Eligible Child

Any child under 18 years of age or any person who is physically or mentally incapable of self care.  A US child is a child who is a US citizen or resident.

When to Claim the Credit and Exclusion

1. Expenses paid in any year before the year the adoption becomes final- Take the credit in the year after the year of payment.
2. Expenses paid in the year the adoption becomes final- Take the credit in the year the adoption become final.
3. Expenses paid in any year after the adoption becomes final- Take the credit in the year of payment.
4. Employer provided benefits under an adoption assistance program in any year- Take the exclusion in the year of payment

Children With Special Needs

If a taxpayer adopts a US child with special needs they may be eligible to exclude up to $13,400 and claim a credit for additional expenses up to the same amount.  The exclusion may be available even if you or your employer paid no expenses, provided your employer has a written adoption assistance program.

A US citizen or resident that is determined by a state to be unlikely to be adopted unless assistance is provided due to the child's age, ethnic background, medical condition, membership in a minority or sibling group, etc  is considered special needs.  If your adoption include this component, you may be able to take the credit even if you didn't pay any adoption expenses.

Credit Carryforward

Any unused credit is carried forward to the next 5 years or until used.  The sad reality is that many adoptive families lose this credit because their income falls below filing guidelines.  

As you can see, there are many provisions to the Adoption Credit and Exclusion.  Some we haven't even touched on.  

On top of the Adoption Credit and Exclusion you may be eligible for the Child Tax Credit, the Additional Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Expenses Credit, and the exemption for the child, if you qualify.

For these reasons we at Excel Tax and Consulting Services suggest contacting a Tax Professional, such as an Enrolled Agent, who has knowledge in adoptions so you receive all the tax advantages due to you.

As always, Call or Stop By 1324 1st. Ave. N. Denison, IA 51442  or Follow us on Facebook/exceliowa 

Guide Dog or Other Service Animal

You can include in medical expenses the costs of buying, training, and maintaining a guide dog or other service animal to assist a visually impaired or hearing disabled person, or a person with other physical disabilities. In general, this includes any costs, such as food, grooming, and veterinary care, incurred in maintaining the health and vitality of the service animal so that it may perform its duties.

Low to middle income taxpayers who contribute to a retirement plan may be able to take the Retirement Savings Contributions Credit or Saver's Credit, for short.  This credit is taken on form 8880 and is worth 10%-50% of your eligible contributions to IRAs and other retirement plans up to a maximum credit of $1000 ($2000 on a Married Filing Joint Return).  This credit is based on the smaller of eligible contributions or $2000 per taxpayer.  The credit rates vary based on your Modified Adjusted Gross Income.

Ineligible Taxpayers:

Those under the age of 18, claimed as a dependent on another person return, or was a full time student during any part of 5 calendar months of the year.

Eligible Contributions:  

Contributions considered for the credit include: 1) Traditional and Roth IRA contributions, 2) Elective deferrals to a 401k, 403b, governmental 457, SEP, or SIMPLE plans. 3)Voluntary employee contributions to a qualified retirement plan defined in the IRC section 4974c which includes the Federal Thrift Savings Plan, 4) Contributions to a 501c18d plan.

The most common plans are the IRAs, both Traditional and Roth, 401K and 403B plans.  The items in box 12 of your W2 will show amounts to a qualified plan.  

Your contributions may need to be reduced by certain items such as distributions from any of the above plans.  This is an area where we advise you to see your tax professional so that the correct amounts are used on your return since there are some items that you do not need to reduce your contributions by.  Maximumizing your credit is what your knowledgeable tax professional can do!

Modified Adjusted Gross Income:

Modified Adjusted Gross Income is different for many tax credits.  In reference to the Saver's Credit this means your income from line 37 on form 1040 (2014) + excluded income from Puerto Rico+lines 45 or 50 from form 2555 (foreign income)+line 15 form 4563 (american Samoa residents).

https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit" target="_blank">http://https://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Savings-Contributions-Savers-Credit

The above link takes you to the IRS.GOV website with charts for the upcoming filing season pertaining to the Saver's Credit.

Excel Tax and Consulting Services suggest seeking tax advice from reputable, knowledgeable tax professionals such as Enrolled Agents and CPAs.  Our doors are always open for all clients new and returning.  Call or Stop by today!  Or visit us on FaceBook http://www.facebook.com/exceliowa 

Happy Thanksgiving from all of us at Excel Tax and Consulting Services!

When the IRS or a state finds that you either should have filed a return or the return that you filed was filed in error you may be hit with a penalty.  Which penalty and how much it will add to your balance due depends on what the taxing authority finds in error on your return.

Failure to File:

This penalty is for just what it says.  If you were required to file a tax return but did not file on the due date, including extension, you may be hit with the Failure to File penalty.

1. This is 5% of the unpaid balance per month with a maximum of 25%
2. If it is more than 60 days late the penalty is the smaller of $135 or 100% of the tax due on the return.
3. There is no Failure to File penalty if you are due a refund
4. This penalty is reduced by the Failure to Pay penalty if both apply to the return.

Failure to Pay:

This penalty is for any balance due that was not paid by the due date of the return.  

1. This is 0.5% of the unpaid balance per month to a maximum of 25%
2. 0.25% of unpaid balance per month during the terms of an installment agreement.

Fraudulent Failure to File:

If the IRS determines that your Failure to File was due to a fraudulent act they can access a penalty of 15% of the unpaid balance per month with a maximum of 75%

Underpayment of Estimated Tax (Individuals and Corporations):

This is accessed on any individual or corporation if they do not pay enough estimated taxes into the government.  The rates change for inflation.  For corporations the rate also changes due to the amount of the underpayment.

Accuracy Related Penalty:

This is a 20% of the underpayment due to:

1. Negligence
2. Substantial understatement of tax
3. Substantial valuation misstatement

Fraud:

If the IRS determines that you filed a fraudulent return there is a 75% of the understatement penalty due to the fraud.

Frivolous Tax Court Suits:

There is up to a $25,000 for the intentional delay, frivolous or groundless positions, and failure to pursue available administrative remedies to a tax issue.

Tax Evasion:

If you are hit with this, it is considered a willful attempt to evade tax and is a felony.  Maximum fine is $250,000 ($500,000 for corporations) and/or up to 5 years in prison.

Failure to Collect or Pay Over Tax:

Willful failure to collect, account for, and pay over tax is a felony with a maximum fine of $250,000 ($500,000 for corporations) and/or up to 5 years in prison.  These include payroll taxes for your employees that you have in a trust fund account.

Perjury and Fraud:

If you knowingly file or help file a false return or aid in the fraud, it is considered a felony.  This also carries a maximum fine of $250,000 ($500,000 for corporations).  The jail time can be added to include up to 3 years.

Earned Income Credit Claimed When Not Eligible:

1. If the error is due to recklessor intentional disregard for the rules.  The taxpayer is not allowed to take the credit for 2 years even when they are eligible for the credit.
2. If the error is due to fraud.  The taxpayer is not allowed to take the credit for 10 years, even if eligible.

As you can see there are many ways to be hit with a penalty on your tax return.  All of the penalties and amounts listed above are at the Federal level.  Each state has their own rates and penalties to consider.  It is always better to excercise the laws when filing your tax return then to be hit with any penalties at a later date.  The IRS can levy your home and business as well as garnish your wages until the unpaid amounts are paid in full.  My advice is to do your research, hire a knowledgeable tax preparer, or know that laws BEFORE filing your own return.  Getting out of a tax mess is more expensive then staying out of a tax mess to begin with!

There is a way to mitigate the noncriminal penalties.  This is can be done with "Reasonable Cause".  Reasonable cause is based on the facts and circumstances in each case.  Any reason that establishes that a taxpayer exercised ordinary care and prudence but still failed to comply with the tax law may be considered for relief.  

For more information on penalties see the IRS website and publication 17

https://www.irs.gov/pub/irs-pdf/p17.pdf" target="_blank">http://https://www.irs.gov/pub/irs-pdf/p17.pdf

By now almost all taxpayers have become aware of the "Individual Shared Responsibility Provision" of the Affordable Care Act (ACA).  For many taxpayers this awareness came when they filed their 2014 tax return this year.  For others, this came a few years before when their tax professionals started stressing the penalities that could be involved if health insurance wasn't purchased and/or it didn't meet the requirements of the new law.  Today I would like to try and help everyone make since of the "Individual Shared Responsibility Provision".

This provision requires that you and all of your family members do one of 3 things:

1. Have minimum essential coverage, or
2. Qualify for a health care exemption, or
3. Make the "Shared Responsibility Payment" with your tax return.

You can determine if you are responsible for the payment by visting the IRS.gov website at

https://www.irs.gov/uac/Affordable-Care-Act-1" target="_blank">http://https://www.irs.gov/uac/Affordable-Care-Act-1

What is "Minimal Essential Coverage"?  

This includes most health coverage provided by employers, coverage purchased through the Health Insurance Marketplace, coverage provided via a government program such as Medicare, Medicaid, programs for Veterans, coverage purchased directly from an insurer, and other coverages recognized by the Department of Health and Human Services as having minimal essential coverage.  You can learn more about Minimal Essential Coverage from the IRS at

https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Minimum-Essential-Coverage" target="_blank">http://https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Minimum-Essential-Coverage

Who is Exempt?

You can claim an exemption to the "Shared Responsibility Payment" in a number of ways.  This include, but are not limited to:

1. A gap in coverage for less than 3 consecutive months
2. A hardship that prevented you from obtaining coverage
3. The minimum amount you were to pay for annual premiums is more than 8% of your household income
4. Your income is below the return filing threshold
5. Members of certain religious sects

You can see a list of all the exemptions at:

https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Exemptions" target="_blank">http://https://www.irs.gov/Affordable-Care-Act/Individuals-and-Families/ACA-Individual-Shared-Responsibility-Provision-Exemptions

Note that some exemptios can be claimed on your tax return, other granted by the marketplace.

The Payment

You will be required to make a payment for any month you or a dependent does not have "Minimum Essential Coverage" or qualify for an Exemption.  This payment is calculated when you file your tax return and can increase your balance due or decrease any refund you may be eligible for.

With the new laws on health care it is best to see a knowledgeable tax professional to help you navigate the ever changing forms, laws and regulations pertaining to your taxes.  Excel Tax and Consulting Services is ready for you for the upcoming season!  Call or Stop In for more information.

http://www.exceliowa.com

I am sure no one mentioned the IRS and back debt to you when you decided to get married.  One large surprise is that the IRS can now offset your refund to pay for your spouse's debt even if it was made before you tied the knot.  

Most taxpayers are not aware of this situation until they file their first return as a married couple and some or all of the refund is taken to pay a prior debt of their new spouse.  This is when they usually call their tax professional with many questions and concerns about their refund being used to cover their new spouse's back debt.  

In most cases this is nothing to worry about.  You can either file a separate return from your spouse or file a joint return with a form 8379.  Filing a separate return can cause you to forgo many benefical credits and deductions while filing a joint return with a form 8379 can let you keep you credits and deductions will still receiving your portion of your tax refund.  The form 8379 can be filed after a return is filed and a refund offset but it does take longer to get your portion of the refund returned to you.  This is why it is always better to file your return with the form.  Your refund is held up for a while longer but you will still get any portion that was allocated to you in the form 8379.  

The injured spouse must NOT be legally liable for the debt, must show income or payments on the return.  If these requirements are not met then the entire refund can, and in most cases will, go to the back debt of the other spouse.

The types of debt a refund can be offset for include Federal Tax business or individual accounts, Child Support, Social Security, Student Loans, State Obligations.  

If you feel that your refund may be offset for one of these obligations it is best to contact your tax professional and ask about the injured spouse relief.  You tax professional will assist you in filing the form as well as giving you advice on if you qualify.  

The state of Iowa does not recognize injured spouse and in all likelihood your state refund will be kept for the past due obligation.

The IRS has a PDF that can help you understand some additional information.  

https://www.irs.gov/pub/irs-utl/29_-_refund_offset_and_injured_spouse.pdf

Call or stop by today for more information.  Excel Tax and Consulting Services.  

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Filing your return with the correct filing status is very important.  Certain filing statuses can cause you to receive credits and deductions you are not entitled to as well as take away some you may be entitled to.  

There are 5 Federal filing statuses and each has their own set of rules to be claimed on an accurate Federal Tax Return.  These statuses are: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow/Widower.  Knowing your correct filing status can help save an IRS review of your return as well as provide credits and deductions that can have a financial benefit.

Single:  You are unmarried, divorced, or widowed.  This is a pretty straight forward filing status and any credits and deductions you are entitled to are allowed.  These can include Earned Income Tax Credit, Education Credits, the Student Loan Interest Deduction, etc.

Married Filing Jointly:  You are legally married.  If your spouse passes away throughout the year you can still file a joint return for the year of death with your spouse.  This is also another filing status that allows you to take any credits and deductions you are entitled to.  This filing status does require BOTH spouses to sign the return which says they are both liable for any information pertaining to the return.  

Married Filing Separately:  You are legally married but do not wish to file a joint return with your spouse. This filing status does limit some credits and deductions you are allowed to take on your return.  When filing a separate return the Earned Income Tax Credit, Education Credits, Tuition and Fees Deduction, Student Loan Interest Deduction, Tax Free Exclusion of US Bond Interest, Tax Free Exclusion of Social Security Benefits, Credit for the Elderly and Disabled, and the Child and Dependent Care Credit are all disallowed.  Also, both spouses must use the Standard Deduction or Both must itemize their deductions.  This is true even if one spouse has nothing to itemize, this means that they will have a $0 deduction.  Another down fall to this status is the lower income phase-out for deductible IRA.    Also be aware that this filing status generally pays the most tax of all the filing statuses.

Head of Household:  You are unmarried or can be considered unmarried for tax purposes and provide more than 50% of the household support for you and a dependent.  This filing status does allow for any and all deductions and credits you are legally allowed.  Note, that to be considered unmarried for tax purposes you must have been separated from your spouse for the last 6 months of the year.  IRS ruling states that even 1 day in the last 6 months can cause this filing status to be disallowed and the Married Filing Jointly or the Married Filing Separately status must be used.  There are very few cases where there can be more than 1 Head of Household in a home.  This is not to say that this can't happen but there are many things to look at before this should be considered.  

Qualifying Widow/Widower:  In order to use this filing status you must have been able to file a joint return with your spouse in the year of death.  You didn't have to file a joint return just have been able to.  Then for 2 years after the year of death if you have qualifying children on your return you can use this status to give you a higher standard deduction.  Allo credits and deductions are allowed with this status as well.

Special Filing Status for Married Iowa Residents:  Married couples in Iowa can use a filing status called Married Filing Separate on a Joint Return.  This status is available if you file a Joint Federal return and in most cases increases your refund or lowers your balance due with the state of Iowa.  This is a common mistake for self filers who are not aware of this status and what it can do for their Iowa return.  If you feel that your Iowa return has been completed incorrectly see a tax professional for a free review at Excel Tax and Consulting Services!  

Correct Filing Status determination is a great start to an accurate tax return but won't get you all the way.  Check back for more details on filing accurate tax returns.  As always, Excel Tax and Consulting Services is at your service for all your tax needs!