Earned Income Credit – Some Documents You May Need


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Taxpayers who claim the Earned Income Credit (EIC) can now claim up to 3 children and get additional monies for these dependents.  This is a change starting in 2016; in prior years there was a limit of 2 dependent children to determine the credit amount.

A key item to claiming the children is the ‘Residency Test’ to prove the child lived with the taxpayer(s) for more than half of the year in the United States (children who live in US Territories such as Guam or Puerto Rico do not count).  A question that often comes up is ‘How Do I Prove My Child Lives With Me?’.

Since this test is a requirement of getting the EIC, you’ll need to bring documents to your tax preparer.  The IRS has recommended as many of the following as you can provide, if the backup document(s) include the child’s name and address:

  • Health Provider Statement
  • Medical Records, including records obtained when going to a doctor/dentist
  • School Records or Statements
  • Landlord or Property Management Statement
  • Employer Statement (taxpayers sometimes need to fill out insurance forms stating the names/ages of people living within the household)
  • Child Care Providers annual statements
  • Statements from a Place of Worship (listing family members and their annual donation amount)
  • Placement Agency Statement

Other documents have been used – I’ve personally seen the following:7K0A0079

  1. Collection of envelopes addressed to the children, especially Christmas, Birthday and/or Holiday cards
  2. Photographs of children in front of their home
  3. Bank statements
  4. Statements showing balances in Education Fund plans

Be sure to bring as many documents as you can as backup and remember this is for each child claimed!

Please feel free to leave your thoughts below:

Cheers!

Thomas C. Hodge
Founder

Hodge Group LLC
3943 N. Austin Avenue
Chicago, IL 60634

773.237.6369

Some 2016 Federal Tax Refunds Will Be Delayed


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If you are claiming the Earned Income Credit (EIC) or the Additional Child Tax Credit (ACTC), your refund will be delayed until after February 15, 2017.

Part of the Protecting Americans from Tax Hikes (PATH) Act of 2015 requires the IRS to allow more time to review returns with these credits and verify information, including but not limited to:

  • Income
  • Social Security Number(s)
  • Names (must match the Social Security Database)
  • Historical information (did taxpayer claim the same individuals in prior years)

Anyone claiming these credits should note the IRS has cautioned taxpayers not to expect their refunds until at least the week of February 27, 2017.  Also the delay applies to your entire refund, not only the portions associated with the EIC and/or the ACTC.

If you are expecting a refund including either or both of these credits, you should take the delay into account especially if you normally use your refund to pay bills, make a major purchase, etc.  You can check the status of your federal refund online here.

Some tax changes (including the delays mentioned above) can be seen below:

2016 Tax Highlights Video

Thoughts or questions?  Please let me know using the form below.

Cheers!

Thomas C. Hodge
Founder

Hodge Group LLC
3943 N. Austin Avenue
Chicago, IL 60634

773.237.6369

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Over Reporting Your Income? IRS May Find Out And There Could Be Consequences.


Just read an interesting Tax Court opinion (Cadet, TC Summ. OP. 2015-39) about over reported income.  The taxpayer, who was called ‘a low income filer with very little count_moneywage income’, claimed a profit from a side-business of $17k from selling items at a flea market.  The taxpayer would have been paid $2,100 in self-employment tax, but the extra income would have resulted in about $8,000 total from the child tax credit plus an increased earned income credit.

Normally a tax return is first reviewed by the IRS computer system and, if needed, by reviewers.  In this case, the computers noted the ‘excessive’ income based on the taxpayer’s history and the computers froze the return.  During a review, the taxpayer couldn’t substantiate most of the profit (not enough deposits into bank accounts I’m guessing) so the IRS only allowed what was substantiated and only gave $700 in tax credits.

What’s interesting to me is I’ve  heard of the IRS computers looking for under reported income, but not over reported income.

alimony-iStock_with gavelSomething that wasn’t mentioned is if the IRS charged the taxpayer a civil penalty (usually $5,000) for filing a frivolous tax return – in my mind, it would have been warranted!  That’s the main penalty for filing a false return.

Kudos to the IRS for catching this.  We normally hear about cases of the IRS not catching false tax returns so good to hear a positive case.

 

Cheers!

Thomas C. Hodge, CPA
President

Hodge Group LLC
3943 N Austin Avenue

Chicago, IL  60634

773.237.6369

www.thehodgegroup.com

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Earned Income Tax Credit Awareness Day


There is a federal tax credit (called the Earned Income Tax Credit or EITC) that may be available for individuals and families who earn below a certain dollar amount.  The calculation for the credit is a bit complex so the IRS is having an ‘Awareness Day’. This is one of the tax credits that can increase your refund (or lower taxes owed) and, unfortunately, is missed by about 20% of eligible taxpayers.  So, if you don’t have children and earn less than $13,980 or have children and earn less than $50,270, you may be eligible for the EITC.

You can find out information about eligibility, dollar limits and other information at this link.  There is also an automated assistant that can help walk you through the eligibility requirements.  If you think you might be eligible, check it out!

Tax season is up-and-running!  If you would like my assistance with your taxes, or just have questions, feel free to contact me.

Cheers!

Thomas C. Hodge, CPA
President

The Hodge Group
3040 N. Menard Avenue
Chicago, IL 60634

773.237.6369

http://www.thehodgegroup.com

Best Tax Preparers Website

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Key Tax Credit Expired In 2010 May Greatly Impact Your 2011 Personal Taxes


In 2009 & 2010, there was a tax credit used by millions of taxpayers that will not appear in 2011. The ‘Making Work Pay’ tax credit was a two year deal enacted by Congress to encourage people to work during the tough economic conditions, and eligible taxpayers received an additional $400 as part if their refund ($800 for married, filing jointly). The credit expired and is not available starting in 2011.

So, if over the last few years you got a big federal tax refund, it could have been ‘padded’ by this tax credit.

However, the government did change payroll tax rates to try to make up for losing the Making Work Pay credit – remember that your Social Security tax rate went down 2% starting in 2011 (from 6.2% to 4.2%)?  Your paychecks should have been a bit higher each week, and you would have made up the $400 per person if you earned at least $20,000 per year.  Over $20,000, you continue to pay the reduced rate of 4.2% and you would have made significantly more than $400 per person, but in small increments.

Thinking back a few years, the government changed our federal tax withholding tables so you should have been getting more each pay period (the so-called ‘Obama Tax Cut’ from 2009).  I remember processing people’s tax returns for 2009 (spring of 2010) and explaining to a lot of folks why their expected tax refund had gone down (despite the first year of the Making Work Pay credit).  No amount of explaining seemed to convince some clients that their refund wasn’t ‘lower’, but it had been given to them earlier in the year…

I’m expecting the same discussions this year – a large number of people will receive smaller tax refunds than in the past because of not getting the Making Work Pay tax credit, despite getting slightly larger paychecks during the year.

If you are expecting (or counting on) a big tax refund, be prepared in advance for it being lower than expected due to the expiration of the Making Work Pay tax credit.

If you have any thoughts, comments or questions, please don’t hesitate to contact me.  Please consider becoming a ‘friend’ of ours on Facebook by clicking on the icon below my name.

If you need help with your taxes, please let me know – happy to see if I can help.

Cheers!

Thomas C. Hodge

President

The Hodge Group