Tax Tips and Tidbits
January 8, 2017
By Steven R. Anderson E.A.
So, the ball has dropped, the calendar has turned, and the New Year’s celebrations are over. Soon those envelopes with “Important Tax Document Enclosed” will begin to arrive, and the readers of the Harlem Valley News will begin thinking about filing their tax returns. With the advent of the filing season I have returned with my weekly Tax Tips and Tidbits column. A big thank you to Harlem Valley News for having me back for another year!
This week’s column is about an event that took place near the end of 2015. That’s when Congress passed the “Protecting Americans from Tax Hikes Act of 2015” (the PATH act). This act can have some major effects on your 2016 tax return. Let’s look at the ones that affect individuals.
The American Opportunity Credit (AOC) – a partly refundable credit of up to $2,500 for eligible students who have qualified expenses has been made permanent. This prevents the credit to rolling back to a non-refundable maximum of $1,800. In addition the list of eligible expenses has been expanded to include computers and peripheral equipment. On the other hand, the IRS has stepped up its scrutiny of these credits. The tax form 1098-T alone is no longer enough proof to support the credit. Taxpayers who claim the AOC should be prepared to provide receipts for the expenses the credit is based on. This includes book and the aforementioned computer equipment.
The Child Tax Credit has been made permanent at $1,000 per child under the age of 17.
The Educators Deduction – an above the line deduction of $250 for classroom supplies has also been made permanent and indexed for inflation.
The optional deduction for State and Local sales tax has also been made permanent.
The PATH Act also requires that paid tax preparers exercise due diligence when preparing returns that claim the Earned Income Credit, Child Tax Credit, and American Opportunity Credit. This means that your accountant is required to ask questions to confirm your eligibility for any of these credits, and request documentation if necessary. You can bet that your tax pro’s are going to do this because they face a penalty of $510 for each credit if they don’t!
Finally, the IRS is required by the PATH Act law to hold the refund of every taxpayer who claims either the Earned Income Credit, Additional Child Tax Credit, or American Opportunity Credit, until February 15th! This is an effort to prevent refund fraud from fabricated wages and withholdings, and identity theft. There is nothing that you, your accountant, or the IRS can do to speed this up. It’s the law. If you claim these credits and are used to filing early and getting your refund by the end of January, you should plan ahead. It may be the end of February before it arrives.
Next week we will look at what documents you may need to file your return.
Steven Anderson is an Enrolled Agent, licensed to practice before the IRS. He is the owner of the Beacon and Pawling franchises of H&R Block where he holds a Master Tax Advisor certification and has 27+ years of experience. Steve is also a graduate of the National Tax Practice Institute and a member of the American Society of Tax Problem Solvers, with specialization in collection cases.