As the 2016 tax-filing deadline nears, taxpayers can be grateful they don’t have to struggle figuring out how new laws might or might not affect them.
No major tax law changes were enacted in 2015, although Congress did make some relatively small tax changes, and implementation of prior tax measures continues, according to Bankrate.com.
However, taxpayers should be on the lookout for new efforts by the Internal Revenue Service to stem tax identity theft, and pay attention to this April’s new tax deadlines — extra days!
In the year ahead, the uninsured will groan under skyrocketing Obamacare penalties. And students trying to get federal tax breaks to defray higher education costs will find the red tape a bit more tangled.
(Still haven’t filed your taxes? Check out 15 Most Overlooked Tax Deductions.)
Following are 10 tax topics Bankrate says taxpayers should stay on top of in 2016.
1. Targeting identity thieves
Last March, the IRS convened a security summit to brainstorm ways to stop identity thieves and related refund fraud. Seven months later, the agency, state tax officials and the private sector tax industry announced 20 new pieces of data that will be used to validate the authenticity of taxpayers and the entries on tax returns in their names in 2016.
IRS Commissioner John Koskinen says the added security measures are likely to slow the agency’s processing of returns, and that could mean some delays in issuing refunds.
2. New tax deadlines
The usual midmonth tax-filing deadline is a bit later in 2016, thanks to the way the days fall in April. This year, the Washington, D.C., holiday Emancipation Day is celebrated on April 15. Because federal law mandates that any holiday in the city also applies to offices there, the due date for annual 1040 filings will be Monday, April 18.
Better yet, taxpayers in Maine and Massachusetts will have until April 19 to file their federal returns because offices there will be closed on the 18th for Patriots’ Day, the holiday in those states commemorating the first battles in the Revolutionary War.
3. Obamacare tax penalties, credits
The price of not having health insurance, now required as a result of the Affordable Care Act, keeps going up, and those without it will have to cough up at tax-filing time. The individual responsibility payment penalty for not having minimal essential medical coverage is based each month on the number of uninsured members of a family and household income.
For an uninsured household of three or more during the 2015 tax year, the maximum penalty is $975. For the 2016 tax year, it will be $2,085.
On a slightly encouraging note, the U.S. Supreme Court ruled in June that the federal premium tax credit was available to eligible taxpayers, regardless of whether they bought their coverage on the federal exchange or through state marketplaces. This government subsidy is available to eligible insurance exchange policy buyers to help them pay for part of their required coverage.
4. State tax filing for same-sex couples
In June, the Supreme Court approved same-sex marriage, compelling states to recognize legal ceremonies performed elsewhere. Among other things, this means gay and lesbian married couples now can file joint tax returns on the state level, just as they already were required to do with their federal taxes.
Same-sex couples also should check with their state tax departments whether they can amend prior-year returns that the partners had to file as single state taxpayers before the court’s ruling.
5. Harder to hide money overseas
It’s getting harder and harder for international account owners to elude the IRS’s reach, and trying to do so could subject them to substantial penalties and possible criminal prosecution if caught. Seventy-nine countries, including the Holy See, have signed the Foreign Account Tax Compliance Act, which was enacted in 2010 following reports that foreign banks were encouraging U.S. taxpayers to hide assets abroad.
FATCA requires foreign financial firms to report account data for their U.S. account owners or face stiff penalties. In October, the IRS announced that it had started automatically exchanging digital financial account information with tax authorities abroad.
The IRS urges owners of international accounts to come clean through its offshore voluntary disclosure program under which they can pay what they owe on their overseas money. In turn, the agency will back off on some of the potential penalties.
6. Proving education tax break eligibility
It’s bad enough that higher education generally costs so much. Starting with the 2016 tax year, taxpayers seeking federal tax breaks to help pay for college or training will have to prove they are actually in class. A provision in trade legislation enacted in 2015 requires taxpayers to show Form 1098-T to claim any educational tax benefits.
Form 1098-T is sent by schools to students and copied to the IRS, verifying that the student paid “qualified educational expenses” in the preceding tax year, including tuition, any fees required for enrollment and required course materials. Without this official verification, the taxpayer cannot claim the American Opportunity or Lifetime Learning tax credits or the tuition and fees deduction.
The change will not affect any education claims made on 2015 returns filed in 2016, but will go into effect in 2017 for claims on the 2016 return.
7. Tax preparer regulation effort continues
Hand it to the IRS: It keeps trying to regulate tax preparers against legal and legislative challenges. After the courts disallowed the agency’s plans to require certain tax preparers to take classes and pass tests, the agency set up a voluntary continuing education program for tax professionals, which remains in place for 2016.
Koskinen wants more, and continues to lobby Congress for a law change that would authorize the IRS to establish the kind of oversight system it wants. Although a bipartisan bill to allow stricter regulation went nowhere, its drafting suggests Capitol Hill resistance may be easing.
But the agency is again facing legal challenges to its tax preparer regulatory efforts in the form of a lawsuit working its way through the federal court system. Filed by the American Institute for CPAs, it aims to end the voluntary program.
8. MyRAs and ABLE accounts open
Taxpayers who don’t earn much money can now open a retirement savings plan with minimal contributions — and no fees — thanks to two new tax-favored savings accounts introduced in 2015.
The Achieving a Better Life Experience account option, available Jan. 1, 2015, resembles state-run 529 college savings plans. It is designed to help people with disabilities and their families save and pay for disability-related expenses. Contributions to an ABLE account are not tax deductible, but withdrawals for qualified expenses are free from federal taxes.
9. Fantasy sports fallout
The burgeoning fantasy sports business is coming under increasing scrutiny by states that question its legality. New York and Nevada have gone so far as to declare fantasy sports firms to be gambling enterprises and have ordered them to cease operations within their borders.
Some members of Congress are questioning whether a loophole in the Unlawful Internet Gambling and Enforcement Act that sanctions fantasy sports as games of skill should be closed.
Fantasy sports players should watch how state tax departments and the federal government ultimately designate the game, as it will affect tax reporting. At present, the IRS considers the money made on fantasy sports a taxable hobby. That won’t change if at some point the games are deemed gambling, but it will change how players are able to deduct any of their costs and losses against their winnings.
10. Persistent tax scams
The IRS has enlisted taxpayers’ assistance in its effort to stem identity theft and related false refund claims by alerting them to scam artists’ machinations and reminding them to remain alert. “With the public’s help, this will greatly strengthen and improve the new tools being put into place by the IRS, states and industry,” Koskinen says.
The agency points out that tax crooks are always on the lookout for new ways to steal information they can then use to file for bogus refunds. Take a new law that requires the IRS to use private bill collectors to track down some tax debts. Scammers, the IRS says, could leverage this law to con conscientious taxpayers out of their cash.