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Taxes
Information to Help You Prepare and File Your 2016 Federal Income Tax Return
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The deadline to file your Federal taxes for the 2016 tax year is April 18th, 2017. Failure to file a tax return or request an extension for time to file your tax return may result in added penalties and interest, costing you more money. This article will help you understand basic information regarding filing your taxes and answer some of the most common questions taxpayers have.

Should I go to a Tax Preparer?

If your income was below $54,000 in 2016, you likely qualify for free tax preparation assistance. There are several programs in New Jersey that will provide free services from a tax professional. One of these programs is the Volunteer Income Tax Assistance (VITA) program. Tax assistance programs are discussed later this article.

If you do not qualify for free tax assistance and must pay someone to prepare your tax return, be careful. You are legally responsible for what is on your return, even if it wasn’t prepared by you.

Do I have to file?

Whether you are required to file a tax return depends on your age, filing status, and gross income. The amount of taxable income you can receive before you are required to file a tax return depends upon your age, filing status, and gross income. The amount of taxable income you can receive before you are required to file a tax return is called a filing threshold. Use the following table to see if you are required to file a federal tax return.


Table 1. 2016 Filing Requirements Chart for Most Taxpayers

IF your filing status is. . .

AND at the end of 2016 
you were*. . .

THEN file a return if your gross income was at least. . .**

Single

under 65

$10,350

65 or older

$11,900

Head of household

under 65

$13,350

65 or older

$14,900

Married filing jointly***

under 65 (both spouses)

$20,700

65 or older (one spouse)

$21,950

65 or older (both spouses)

$23,200

Married filing separately

any age

$ 4,050

Qualifying widow(er)
with dependent child

under 65

$16,650

65 or older

$17,900

* If you were born before January 2, 1952, you're considered to be 65 or older at the end of 2016. (If your spouse died in 2016, see Death of spouse (from IRS.gov), later. If you're preparing a return for someone who died in 2016, see Death of taxpayer (from IRS.gov), later.

 

** Gross income means all income you receive in the form of money, goods, property, and services that isn't exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Don't include any social security benefits unless (a) you're married filing a separate return and you lived with your spouse at any time during 2016 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). If (a) or (b) applies, see the Form 1040 instructions to figure the taxable part of social security benefits you must include in gross income. Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. But in figuring gross income, don't reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9.

 

*** If you didn't live with your spouse at the end of 2016 (or on the date your spouse died) and your gross income was at least $4,000, you must file a return regardless of your age.

 

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Consider Filing a Return Even if You Do Not Have To!

Even if you do not make enough money to have to file a tax return, you should consider still filing one. If you are working, but your income is low, you are probably eligible to get a refund of taxes that were withheld from your paycheck during the year. There are also other tax credits, for which you might be eligible. For example, the Earned Income Tax Credit (EITC). See Earned Income Tax Credit (EITC) for more information. A tax refund means that the IRS will be returning money to you. If you don’t file a return, you won’t get money back that you are entitled to.

When do I have to file?

The deadline for filing 2016 tax returns is April 18th, 2017.

What if I am unable to file my tax return on time?

If you are unable to file by April 18th, 2017, you may file for a six-month extension by  completing IRS Form 4868 (PDF). This form may be found on the I.R.S. website. Extension requests are automatically granted. Submitting this form gives you until October 16th, 2017 to file. It is important to note, however, that this is only an extension of time to file, NOT the time to pay. You should still estimate your tax liability for 2016 and pay any amount due. If you do not have the money to pay what you owe, you should still file the request for the extension. You will avoid a late-filing penalty, and may also reduce or eliminate interest and late-payment penalties.

What if I was supposed to file a return for previous years, but did not?

If you were required to file a tax return for past years but failed to do so, you should still file your tax return for 2016. Just because you have not filed a return in previous years, this does not mean you cannot still file for the current year.

How do I find out the status of my tax refund?

This IRS website tool allows you to instantly check the status of your refund. Visit Where’s My Refund?.

What does filing status mean?

Filing Status is a term used by the IRS to determine your tax filing obligations, standard deductions, and eligibility for certain credits and deductions. It is based mainly upon marital status and family situation. There are five types of filing status: Single, Married Filing Jointly, Married Filing Separately, Head of Household (HOH), and Qualifying Widow(er) with Dependent Child. Note that your marital status on the last day of the year determines your filing status for the entire year. You can choose Single filing status if you are divorced or legally separated according to state law. Head of Household generally applies to tax payers who are unmarried. To qualify for HOH status, you must have paid more than half the cost of maintaining your household for yourself and a qualifying person. For more information about filing status, see IRS Publication 501: Exemptions, Standard Deductions and Filing Information (PDF) (from IRS.gov).

What is the difference between an exemption and a deduction?

An exemption is a fixed amount of money that the IRS determines should be excluded from being taxed. Each person in the household is eligible for an exemption. The exemption reduces the amount of overall income on which you are taxed. The amount of the exemption for 2016 is $4,050. Let’s see how this works:

Example:
Drew is a single parent with one child. He earned $24,000 in 2016. Drew can take a personal exemption of $4,050 for himself and a dependent exemption of $4,050 for his child. Therefore, he can take a total of $8,100 in exemptions.

$24,000
 
Drew’s Adjusted Gross Income
- 8,100
 
Exemptions
$15,900
 
Drew's Adjusted Gross Income, less exemptions

As you can see by our example, Drew will only pay tax on $ 15,900. This amount will be further reduced by other deductions and tax credits.

You can also claim deductions, which are amounts subtracted from your taxable income. Generally, deductions are eligible expenses that tax payers are allowed to report. You can choose whether to take a standard deduction or to itemize (list out) your deductions. You should choose the option that is best for you. A standard deduction is a set, flat amount determined each year by the IRS. Each household can take one standard deduction. When you itemize your deductions,  you specify item by item what was spent, such as mortgage interest, unreimbursed business expenses, medical expenses, state taxes and charitable deductions. The dollar amount of your standard deduction depends on your filing status. The standard deduction chart below lists the dollar amount of the standard deduction for the 2016 tax year.


Table 20.1 - Standard Deduction Chart for Most People*

If your filing status is...

Your standard deduction is:

Single or Married filing separately

$   6,300

Married filing jointly or Qualifying widow(er) with dependent child

$ 12,600

Head of household

$   9,300

*Do not use this chart if you were born before January 2, 1952, or are blind, or if someone else can claim you (or your spouse if filing jointly) as a dependent.Use Table 20-2 or 20-3 instead, which you may find at Standard Deduction (from IRS.gov)

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We will use our previous example to show how deductions work.

Remember, Drew’s taxable income went from $24,000 to $15,900 when we subtracted his exemptions. Now let’s adjust for deductions based upon the following facts:

Drew rents an apartment and does not have a lot of deductions, such as mortgage interest, property taxes, or unreimbursed business expenses, to itemize. He will take the standard deductions. Since he is a single parent who provides all the support for his daughter, his filing status is Head of Household. Based upon the table above, Drew can take a standard deduction of $9,300.

In our example:

$24,000
Drew’s Adjusted Gross Income
- 8,100
 
Exemptions
$15,900
 
 
- 9,300
 
Standard Deduction
$ 6,600
 
Drew's Taxable Income

What is a Tax Credit?

Unlike exemptions and deductions, which reduce the amount of income on which your tax is calculated, tax credits reduce the actual amount of your tax. There are several tax credits available for families, such as the Child Tax Credit, the Child and Dependent Care Credit, and the Earned Income Tax Credit.

The Earned Income Tax Credit (EITC)

This is one of the most valuable credits because it is fully refundable. This means that you will still get money back, even if you did not owe any tax. See the table below. The amount of the EITC depends upon income and family size. You must meet the following requirements in order to claim the EITC:

  • Your status cannot be Married Filing Separately
  • You must have a valid Social Security Number for you and your spouse (if filing a joint return) and any qualifying child
  • You must have earned income. Earned income means you are paid in wages, are self employed, have farming income or you receive disability income.

For more information and to see if you qualify, go to the EITC assistant (from IRS.gov).

2016 EITC

 
Maximum Income
Single/Head of Household
Maximum Income
Married Filing Jointly

 

Maximum
Credit

 

No qualifying children

$14,880

$20,430

$ 506

With one qualifying child

$39,296

$44,846

$3,373

With two qualifying children

$44,648

$50,198

$5,572

With three or more qualifying children

$47,955

$53,505

$6,269

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Where can I go to get help filing my tax return?

If you are a low-income taxpayer, there are a number of resources to help you file your taxes for free.

IRS Free File Program: This program makes commercial tax preparation software available to low-income taxpayers at no cost. If you had less than $64,000 in adjusted gross income in 2016, these programs will help you complete and return your tax return at no cost. Go to Free File (from IRS.gov). You will need to select the tax software that best suits your needs. Once you choose a preparer you will leave the IRS website and be taken to the commercial preparer’s site. Based upon your answers to income and family questions, a tax return will be prepared on your behalf and filed electronically. Note, this may not be an option for filing your state tax return, so you may want to consider one of the other in-person tax preparation options listed below.

Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE): The VITA program generally offers free tax preparation services to people with incomes below $54,000.00. In addition, the TCE program offers free tax help for all taxpayers, particularly those who are 60 years of age and older, specializing in questions about pensions and retirement related issues unique to seniors. VITA and TCE sites are staffed with volunteers trained to prepare returns and are located at libraries, senior centers, and other community centers. To find a VITA or TCE site near you, call 1-800-906-9887 or 211, or visit Free Tax Return Preparation for Qualifying Taxpayers (from IRS.gov).

These centers are now open in every county in New Jersey. You should contact the sites as soon as possible to find out how to make an appointment. As the April 18, 2017 deadline approaches, these sites become more busy and you might not be able to secure an appointment.

What are the tax penalties under the Affordable Care Act?

If you can afford it, but fail to purchase minimum coverage health insurance in 2016, you may have to pay a fine or penalty. This is called the “individual shared responsibility payment.” You will pay the fee when you file your federal tax return for the year that you didn’t have health insurance. The fine is due for any month that you, your spouse, or your tax dependents failed to have minimum coverage health insurance.

What if I didn’t purchase health insurance because I couldn’t afford it?

If you could not afford to buy health insurance, you likely qualify for an exemption from the requirement to have insurance. This means that you are excused from the requirement to have health insurance and will not have to pay a fine or penalty. See Health coverage exemptions, forms & how to apply (from HealthCare.gov) for more information and a list of the exemptions under the Affordable Care Act.

You have Rights!      

As a taxpayer, you have fundamental rights that you should be aware of when dealing with the IRS. These are called the Taxpayer Bill of Rights. These include:

  • The Right to Be Informed
  • The Right to Quality Service
  • The Right to Privacy
  • The Right to Retain Representation

For a complete list, see Taxpayer Bill of Rights (from IRS.gov).

If you need tax help and cannot afford an attorney, contact LSNJ’s Low Income Taxpayer Clinic at 1-888-LSNJ-LAW (1-888-576-5529).

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2/8/2017