1. Encryption, Encryption, Encryption – Tax time is prime time for scam artists to steal your personal information. Many tax payers will find that their tax information will be online. There is a temptation to get it, save it and then email it to yourself or your trusted tax preparer… don’t do it until you have encrypted it! Typically these documents are PDF (file extension) documents). The most popular PDF application, Adobe Reader does not have the capacity to encrypt these documents. In the first of what has become an annual tradition for MTQ, I recommended (and continue to recommend), PDF-XChange Viewer which is a free application that is easy to use and provides the ability to encrypt your PDF documents. Many are now doing some or all tax preparation on an iPad or tablet. I use FoxIt MobilePDF on my iPad to encrypt PDF documents that include personal information that I pull onto my iPad.
2. Check out the Free Online Offerings. For the first time ever, I was able to file my Federal Income tax using HR Block. I did pay HR Block $9.95 to file my State return because I thought the convenience of pulling my data over was well worth it. Unsurprisingly, HR Block Free version does tempt you with upgrading by warning you that if you need to retrieve a copy later on from the IRS it will cost you $50. I have no problem maintaining a copy on my own for my records. I strongly recommend that everyone keep a paper and electronic copy of their returns for ready reference. If you intend to keep your electronic return on a Cloud storage service go back to #1 and make sure that you encrypt it.
3. But don’t let the online offerings lull you into complacency. Software is good, but for Education Credits, you need to carefully understand and follow what money was spent by who for what as reflected in an earlier post. Specifically, I have found that most online software programs lead you down the path of blindly typing in whatever is printed on the 1098T issued by the college. This may not reflect what you paid for qualified education expenses in the year. For example, my daughter’s 1098T indicated that she received about $12,000 in aid, but only had about $6,000 in qualified education expenses. This was because the college billed in December 2014 (and reflected this amount in the 2014 1098T) for the Spring 2015 semester, but in January 2015 credited her account with her undergraduate aid & scholarships. In the fall of 2015, she returned as graduate student where she paid around $6,000 which was reflected as the qualified education expenses. The bottom line is that she spent $6,000 on qualified education expenses in 2015 and that amount was used in computing her taxes – she may be reimbursed at a later date by her employer and if this happens, the reimbursement will be treated as income in included in the year that she receives it.
4. One “gotcha” that got me in previous years is that as someone who itemized on my Federal return, I was always careful to report whatever was refunded on line 10 of the 1040 “Taxable, refunds, credits, or offsets of state and local income taxes”. (I believe this “gotcha” was because the previous online tax program that I used pulled in my line 10 amount based on the refund that was computed the previous year). It is worth it to double check with your state to see if there is a 1099-G to clarify what should be reported on this line. For New York state taxpayers, you would go here. This page reflects that for “most people, the amount on your 2015 Form 1099-G is the same as the 2014 New York State income tax refund that you actually received”. I don’t know if this is true or not, but I would guess that for many people it is not the same. If you received any type of credit from New York, definitely check to see what amount should be reported from the 1099-G as some tax credits may not count as part of the taxable refund. I was surprised to see that in the past I went with the assumption that it was the same and I see now that certain credits may make the reportable refunded amount less than anticipated.
2. Check out the Free Online Offerings. For the first time ever, I was able to file my Federal Income tax using HR Block. I did pay HR Block $9.95 to file my State return because I thought the convenience of pulling my data over was well worth it. Unsurprisingly, HR Block Free version does tempt you with upgrading by warning you that if you need to retrieve a copy later on from the IRS it will cost you $50. I have no problem maintaining a copy on my own for my records. I strongly recommend that everyone keep a paper and electronic copy of their returns for ready reference. If you intend to keep your electronic return on a Cloud storage service go back to #1 and make sure that you encrypt it.
3. But don’t let the online offerings lull you into complacency. Software is good, but for Education Credits, you need to carefully understand and follow what money was spent by who for what as reflected in an earlier post. Specifically, I have found that most online software programs lead you down the path of blindly typing in whatever is printed on the 1098T issued by the college. This may not reflect what you paid for qualified education expenses in the year. For example, my daughter’s 1098T indicated that she received about $12,000 in aid, but only had about $6,000 in qualified education expenses. This was because the college billed in December 2014 (and reflected this amount in the 2014 1098T) for the Spring 2015 semester, but in January 2015 credited her account with her undergraduate aid & scholarships. In the fall of 2015, she returned as graduate student where she paid around $6,000 which was reflected as the qualified education expenses. The bottom line is that she spent $6,000 on qualified education expenses in 2015 and that amount was used in computing her taxes – she may be reimbursed at a later date by her employer and if this happens, the reimbursement will be treated as income in included in the year that she receives it.
4. One “gotcha” that got me in previous years is that as someone who itemized on my Federal return, I was always careful to report whatever was refunded on line 10 of the 1040 “Taxable, refunds, credits, or offsets of state and local income taxes”. (I believe this “gotcha” was because the previous online tax program that I used pulled in my line 10 amount based on the refund that was computed the previous year). It is worth it to double check with your state to see if there is a 1099-G to clarify what should be reported on this line. For New York state taxpayers, you would go here. This page reflects that for “most people, the amount on your 2015 Form 1099-G is the same as the 2014 New York State income tax refund that you actually received”. I don’t know if this is true or not, but I would guess that for many people it is not the same. If you received any type of credit from New York, definitely check to see what amount should be reported from the 1099-G as some tax credits may not count as part of the taxable refund. I was surprised to see that in the past I went with the assumption that it was the same and I see now that certain credits may make the reportable refunded amount less than anticipated.
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