Not sure whether to file federal income tax return? You probably should
The April 15 tax deadline will be here faster than many of us can finish off that last box of Girl Scout cookies.
So we’re going to tackle some questions that tax preparers say are top of mind this season.
Question: Why do I owe so much in taxes?
Answer: Erin Nielsen, an accounting senior at Walsh College, volunteers to prepare taxes at the Accounting Aid Society. She has heard complaints from some upset filers who owe taxes, even though their income is low enough to qualify for free tax help. They don’t understand why they’re not getting refunds.
Some people receive a nasty surprise because they may be claiming too many dependents and not having enough money for taxes withheld from their paychecks, said Nielsen, 33.
Consumers who are in a tight spot could want to resubmit a W-4 form for 2015 and turn that form into one’s employer to change how much tax is withheld from each paycheck. Redoing the W-4 now might avoid tax headaches next tax season.
Q: Why am I getting strange letters from the Internal Revenue Service?
A: Some taxpayers are concerned that they’ve received a strange letter from the IRS called a 5071C Letter that asks taxpayers to verify that they filed their tax returns.
Dan Hoops, associate professor of accounting and taxation at Walsh College and faculty liaison between Walsh and the Accounting Aid Society, said the 5071C letter is sent because the filed return contains various inconsistencies with their tax returns in previous years.
The 5071C letter is part of the IRS effort to crack down on tax scams.
“So receiving this letter is simply a heads-up and something you should be glad to receive,” Hoops said.
The letter indicates that the government spotted a possible fraudulent return that contains a real taxpayer’s name and/or Social Security number.
The IRS said taxpayers receive a 5071C via the Postal Service to make sure the taxpayer verifies his or her identity. The IRS is not requesting this information via email or by a telephone call. The taxpayers who receive a 5071C in the mail can call the toll-free number on the letter or verify identification at idverify.irs.gov. Only taxpayers who receive a letter should go to idverify.irs.gov.
Taxpayers will need to verify some information during this process, such as name, date of birth, Social Security Number and some key information from your 2014 tax return.
Q: Do I even need to file a return? I don’t make all that much money.
A: TurboTax says this is one of the more popular questions, and offered some guidelines.
The filing requirement states that you don’t have to file a federal return if your income is below $10,150 for individuals or $20,300 for married filing jointly younger than 65.
But it could be very important for some to file a return even if they made less money than those levels. You’d want to file a federal return to get a refund on any withheld federal income tax and if you’re eligible for refundable tax credits such as the earned income tax credit.
The Internal Revenue Service website has an interactive questionnaire to help you figure out whether you should file, even if you don’t need to file a return. A person has to go through a series of yes or no questions, and it could be time consuming. But it’s better to know the correct answer than losing out on a refund that could amount to a few hundred dollars.
The new tax rules relating to the Affordable Care Act make it necessary for some to file, too.
Someone who might not have to file otherwise may have received an advanced premium tax credit for health coverage. But anyone who received the advance premium credit last year has to file a 2014 tax return to reconcile his or her estimated income for the credit with the actual income and family situation for 2014.
Q: Do I have to pay taxes on gambling winnings?
A: Yes, gambling winnings are taxable and reported as “other income” on Form 1040. Gambling losses are deductible only to the extent of winning and would also be included in miscellaneous itemized deductions for amateur gamblers, said Barbara Weltman, author of “J.K. Lasser’s 1,001 Deductions and Tax Breaks 2015.”
Gambling winnings are to be reported whether the money was won in Detroit or Canada or elsewhere.
Q: Can I deduct moving expenses for a new job?
A: Maybe. It’s a tax break that’s definitely worth looking into, especially if you’re a recent college graduate with a new job many miles away from home. Several thresholds must be met, but it is possible to deduct moving expenses on Line 26 of the 1040, even if one does not itemize other deductions.
“Of course, any amounts paid by an employer and excluded from income cannot be used for a deduction,” said Marshall Hunt, certified public accountant and director of tax policy for the Accounting Aid Society’s tax assistance program.
If you had no previous job, your new job must be at least 50 miles from your old home. Other rules apply: If you are an employee, you must work full-time for at least 39 weeks during the first 12 months immediately following your move to the general area of your new job. You can consider moving expenses incurred within one year from the date you first reported to work at the new location. See Internal Revenue Service Publication 521.