Six Tips on Whether to File a 2015 Tax Return

Most people file a tax return because they have to, but even if you don’t, there are times when you should. You may be eligible for a tax refund and not know it. Here are six tips to help you find out if you should file a tax return:

1.      General Filing Rules. Whether you need to file a tax return depends on a few factors. In most cases, the amount of your income, your filing status and your age determine if you must file a tax return. For example, if you’re single and under age 65 you must file if your income was at least $10,300. Other rules may apply if you’re self-employed or if you’re a dependent of another person. There are also other cases when you must file. Go to IRS.gov/filing to find out if you need to file.

2.       Premium Tax Credit.  If you enrolled in health insurance through the Health Insurance Marketplace in 2015, you may be eligible for the premium tax credit. You will need to file a return to claim the credit. If you chose to have advance payments of the premium tax credit sent directly to your insurer during 2015 you must file a federal tax return. You will reconcile any advance payments with the allowable premium tax credit. You should receive Form 1095-A, Health Insurance Marketplace Statement, by early February. The form will have information that will help you file your tax return

3.       Tax Withheld or Paid. Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.

4.       Earned Income Tax Credit. Did you work and earn less than $53,267 last year? You could receive EITC as a tax refund, if you qualify, with or without a qualifying child. You may be eligible for up to $6,242. Use the 2015 EITC Assistant tool on IRS.gov to find out if you qualify. If you do, file a tax return to claim it.

5.       Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit.

6.       American Opportunity Tax Credit. The AOTC is available for four years of post secondary education and can be up to $2,500 per eligible student. You, your spouse or your dependent must have been a student enrolled at least half time for at least one academic period. Even if you don’t owe any taxes, you still may qualify. You must complete Form 8863, Education Credits, and file it with your return to claim the credit. Use the Interactive Tax Assistant tool on IRS.gov to see if you can claim the credit. Learn more by visiting the IRS’ Education Credits Web page.

The instructions for Forms 1040, 1040A or 1040EZ list income tax filing requirements. You can also use the Interactive Tax Assistant tool on IRS.gov. Look for “Do I need to file a return?” under general topics to see if you need to file. The tool is available 24/7 to answer many tax questions. Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

WHAT IS SELF DIRECTED 401 K / SOLO 401 K PLAN

A Self Directed 401k is a qualified retirement plan approved by the IRS.  It follows the same rules and requirements as any other 401k  plan – these rules being established in 1981.  In 2001 the EGTRRA law was passed.  This is commonly referred to as one of the two “Bush Tax Cuts”.  This act made significant changes to the IRS code lowering taxes for qualified plans such as a personal 401k plan.

The participants of the plan have complete flexibility to invest in anything they wish – as long as they are legal.They simply write a check and make their investments – they are not confined or stifled as most people are with their traditional brokerage retirement accounts.

401(k) Eligibility Requirements

In order to be eligible for opening and making contributions to self directed solo/individual 401(k) plans, you need to meet the following 401k eligibility requirements:

• If you’re a business owner, you need to be the sole proprietor and have no employees other than your spouse. If your business is a partnership, it should have no employees other than self-employed partners and their spouses.
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• You have received taxable compensation in the form of a salary or wages as an individual, during the current financial year. Whether your business is incorporated or incorporated, a sole proprietorship, partnership or corporation, the deadline for establishing a self directed 401(k) is the last day of the tax year.

In addition to the 401k eligibility requirements listed above, you should also note that the individual 401(k) should be the only arrangement maintained by your business if it’s not part of a controlled group under federal tax law.

Investments in Self Directed 401(k)

A Solo 401(k) can invest in almost anything. Examples are: Real Estate – residential or commercial – rentals, foreclosures raw land, Tax Liens, Precious Metals, Private Placements, Foreign Currency, Hard Money Lending etc

Prohibited Transactions

Under IRS rules, a Solo 401k is prohibited from certain types of investments or transactions. Some examples are:

Engaging in a Transaction with a Disqualified Person

– Plan participant buys a condo and lets daughter live there
– Plan participant buys part of business owned by his Father

Direct or Indirect Lending of Money

– Plan participant loans money to his wife or son
– Father signs a loan guarantee for the Solo 401k Plan

Receiving Direct or Indirect Benefits of the Plan

– Plan participant buys property and charges a management fee
– Plan participant “fixes” a property himself rather than paying a 3rd non-disqualified party.
– Plan participant receives a commission for selling a property to the Plan.

Corporate Stock

A Solo 401(k) can invest in shares of a C Corp but the rules of an S Corp prohibit a Solo 401(k) from the purchase of shares.

Pros and Cons of a Self Directed 401k

This is a valid question and one we are asked quite often.  The pros of course are the ability to have total checkbook control of your plan and take immediate action when an investment becomes available.  The con would simply be – the client is now the decision maker.  We are pro-active with our clients – encouraging them to contact us about all facets of their new plan.

Self Directed 401K Benefits

1. Any contributions made to these plans, as well as investment returns and earnings, are tax-deferred until withdrawal, and employers receive tax benefits too.
2. You can opt for voluntary elective contributions from your salary, and your employer can also make contributions on your behalf.
3. You are allowed to defer up to $18,000 or all of your earnings annually (whichever is less), with catch-up contribution limits of $6000 once you’re over the age of 50.
4. You retain greater control over investments, and can choose where your funds will be invested from any of the options offered by the plan.
5. These plans are highly portable and you can roll them over if you change jobs, rather than establishing a new plan for every employer.

Self Directed 401K Drawbacks

1. Any withdrawals made from the plan before the age of 59.5 may incur a 10% penalty, except for employees who retire within the calendar year when they turn 55.
2. The company can set eligibility requirements to some extent, and can restrict employees who’ve worked with them less than a year or work part-time, union members, etc.
3. If you don’t have a range of index funds available as part of your plan’s options, the long-term management of the investment portfolio can be problematic.
4. These plans can be expensive to establish and monitor, especially when it comes to administrative costs associated with loans taken against them, early withdrawals, etc.
5. You may not be able to access a very wide range of investment options for your 401(k) funds, and the ones available might be below average in terms of quality.