As the April 18 filing deadline approaches, more than 40 million taxpayers are rushing to complete their 2016 tax returns. In IR-2017-80
, the Service offered last-minute filing tips.
Refunds will be quicker and more accurate with electronic filing. Taxpayers may direct their refunds to as many as three different bank accounts. IRS Form 8888 explains how to allocate if you want to use more than one bank account to receive your electronic refund.
You should double check your bank routing number and account number. The IRS has been issuing most electronic refunds within 21 days. You may check "Where's My Refund" on www.IRS.gov
or the smart phone app IRS2GO.
If you use a paper tax return, you should attempt to avoid common errors. Fill in all Social Security numbers, including those of your dependents. Check your filing status and exemption boxes.
To calculate taxes due, check to see you have used the correct row and columns on the tax table. Be sure you sign and date the return (two signatures are required for joint returns).
Recheck all of your attachments. You may have W-2 forms from more than one employer. If you itemize, Schedule A must be included with your return.
Finally, mail the paper return to the correct address. If you mail on the evening of Tuesday April 18, check to see that the post office will postmark your return before midnight.
Some of the 40 million taxpayers will need to extend their filing date. You may extend for six months by filing IRS Form 4868, Application for Extension of Time to File U.S. Income Tax Return. You still must estimate and pay your 2016 tax by April 18. Failure to pay tax may trigger penalty and interest charges.
If you owe tax with your paper return, include a check or money order payable to "United States Treasury" and attach IRS Form 1040-V Payment Voucher. If you cannot pay your taxes, you may be able to setup an Online Payment Agreement on www.IRS.gov
The vast majority of taxpayers now use electronic filing. Their income tax software protects against most common errors that cause problems with paper returns.
Tax Reform Placed Behind Healthcare Reform
In a national media interview on April 12, President Donald Trump indicated healthcare reform was again the first White House priority. He stated, "I want to do it first to really do it right. And after that, we are going to start on tax reform and infrastructure."
In March, House Republicans were unable to pass the American Health Care Act (AHCA) and Speaker of the House Paul Ryan (R-WI) withdrew the bill. However, he has been in regular discussions with Rep. Mark Meadows (R-NC) of the Freedom Caucus to refine the bill.
If the 30 members of the Freedom Caucus agree with new AHCA provisions, Ryan may return the bill to the floor of the House for a vote. However, in order for AHCA to pass, the changes must be sufficient to gain support of the Freedom Caucus, but not so substantial that Ryan will lose the votes of Republican moderates.
Office of Management and Budget Director Nick Mulvaney confirmed the White House plan to try to pass healthcare reform first. On an April 12 media interview, Mulvaney commented, "Generally speaking, the plan is still to try and do healthcare first."
He continued by explaining that if the House passes a healthcare bill, it may also be passed in 2017 under Senate reconciliation rules. Since the fiscal 2018 year starts on October 1, it would then be possible to pass tax reform in the Senate using next year's reconciliation bill.
The hope for Mulvaney and the White House is to move both bills forward this year. With respect to tax reform, the bill may not be revenue neutral. Mulvaney continued, "Letting people keep more of their money is the most efficient way to actually allocate resources. I am really not interested in how tax reform handles the deficit."
During his media interview, Trump was asked if he supported the border adjustable tax (BAT). He responded, "I do not like the term border adjustment. When I hear border adjustment, adjustment means we lose. The funny thing is that nobody gets angry when you say reciprocal tax. When you say, 'I'm going to charge a 10% or 20% border tax,' everyone goes crazy because they like free trade."
The path to comprehensive tax reform continues to lengthen. To reduce individual and corporate rates in a bill that is reasonably close to revenue-neutral, the White House needs both healthcare reform and the border adjustable tax. This is now a challenging path. Comprehensive tax reform could easily slip to 2018.
IRS Advice to Citizens with Foreign Bank Accounts
In IR 2017-82
, the IRS reminded U.S. citizens and resident aliens with foreign bank accounts about their tax obligations.
On April 18, the Report of Foreign Bank and Financial Accounts (FBAR) is due. IRS Form 114, 2016 FBAR, is filed electronically with the Financial Crime and Enforcement Network (FinCEN). If you miss the filing deadline, FinCEN will automatically grant you an extension to October 16, 2017.
Filing is generally required if your aggregate foreign bank accounts total over $10,000 during any part of 2016.
Many citizens who live abroad will also need to file FBAR. Some may have little or no taxes due as a result of the Foreign Earned Income exemption or Foreign Tax Credit. You still must file FBAR if you have $10,000 in foreign accounts, even if you have little or no U.S. tax payable.
There are different tax deadlines for citizens living abroad. The tax payment is due on April 18, but your filing date is June 15, 2017.
Filing an income tax return may require attaching a Schedule B to IRS Form 1040. Worldwide income may also require some taxpayers to complete IRS Form 8938, Statement of Foreign Financial Assets. Form 8938 generally requires use of a December 31, 2016 exchange rate for determining income. Taxes are paid in U.S. dollars.
If your income is under $64,000, you may use Free File software on the IRS.gov
website. Taxpayers with any income level may use the Free File fillable forms.
Applicable Federal Rate of 2.6% for April -- Rev. Rul. 2017-8; 2017-14 IRB 1 (16 Mar 2017)
The IRS has announced the Applicable Federal Rate (AFR) for April of 2017. The AFR under Section 7520 for the month of April will be 2.6%. The rates for March of 2.4% or February of 2.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2017, pooled income funds in existence less than three tax years must use a 1.2% deemed rate of return. Federal rates are available by clicking here