Don’t be surprised if you’re required to answer additional questions this year if you claim the Child Tax Credit (CTC), Additional Child Tax Credit (ACTC), or American Opportunity Tax Credit (AOTC). For the CTC and ACTC credits, you may be asked how long your children lived with you over the past year, or whether they lived with an ex-spouse, relatives or other guardian.
If you are eligible for the AOTC, which is a credit to defray as much as $2,500 in higher education costs for you or your children, you will need to provide Form 1098-T from the college or university. You will also need receipts for related expenses.
You may also be asked to double-check your forms for incorrect Social Security numbers and dates of birth for the dependents on your return, as these are two common sources of error.
These common errors have helped to make the EIC and the other credits a major source of what the IRS calls “improper payments.” The agency estimates that of the $66 billion in EIC funds paid in 2015, nearly a quarter were collected by filers who didn’t qualify to receive them. As a result, the IRS is requiring tax preparers to ask more questions. Starting this year, tax preparers who don’t document their compliance with these new requirements could face fines of up to $510 per return.
If you get more questions than usual or are asked for additional documents, be aware that it’s just a new requirement.
If you’re like many Americans, you might not start thinking about filing your tax return until close to this year’s April 18 deadline. You might even want to file for an extension so you don’t have to send your return to the IRS until October 16.
But there’s another date you should keep in mind: January 23. That’s the date the IRS will begin accepting 2016 returns, and filing as close to that date as possible could protect you from tax identity theft.
Why early filing helps
In an increasingly common scam, thieves use victims’ personal information to file fraudulent tax returns electronically and claim bogus refunds. This is usually done early in the tax filing season. When the real taxpayers file, they’re notified that they’re attempting to file duplicate returns.
A victim typically discovers the fraud after he or she files a tax return and is informed by the IRS that the return has been rejected because one with the same Social Security number has already been filed for the same tax year. The IRS then must determine who the legitimate taxpayer is.
Tax identity theft can cause major headaches to straighten out and significantly delay legitimate refunds. But if you file first, it will be the tax return filed by a potential thief that will be rejected — not yours.
Another important date
Of course, in order to file your tax return, you’ll need to have your W-2s and 1099s. So another key date to be aware of is January 31 — the deadline for employers to issue 2016 W-2s to employees and, generally, for businesses to issue 1099s to recipients of any 2016 interest, dividend or reportable miscellaneous income payments.
Delays for some refunds
The IRS reminded taxpayers claiming the earned income tax credit or the additional child tax credit to expect a longer wait for their refunds. A law passed in 2015 requires the IRS to hold refunds on tax returns claiming these credits until at least February 15.
An additional benefit
Let us know if you have questions about tax identity theft or would like help filing your 2016 return early. If you’ll be getting a refund, an added bonus of filing early is that you’ll be able to enjoy your refund sooner.