K. W. “Hutch” Hutchinson, CPA, CFP®

Providing solutions to your taxing problems

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Looking for Work May Impact Your Taxes

If you are looking for a job in the same line of work, you may be able to deduct some of your job search costs. Here are some key tax facts you should know about when searching for a new job:

Same Occupation. Your expenses must be for a job search in your current line of work. You can’t deduct expenses for a job search in a new occupation.
Résumé Costs. You can deduct the cost of preparing and mailing your résumé.
Travel Expenses. If you travel to look for a new job, you may be able to deduct the cost of the trip. To deduct the cost of the travel to and from the area, the trip must be mainly to look for a new job. You may still be able to deduct some costs if looking for a job is not the main purpose of the trip.
Placement Agency. You can deduct some job placement agency fees you pay to look for a job.
First Job. You can’t deduct job search expenses if you’re looking for a job for the first time.
Time Between Jobs. You can’t deduct job search expenses if there was a long break between the end of your last job and the time you began looking for a new one.
Reimbursed Costs. Reimbursed expenses are not deductible.
Schedule A. You normally deduct your job search expenses on Schedule A, Itemized Deductions. Claim them as a miscellaneous deduction. You can deduct the total miscellaneous deductions that are more than two percent of your adjusted gross income.
Premium Tax Credit. If you receive advance payments of the premium tax credit, it is important that you report changes in circumstances – such as changes in your income, a change in eligibility for other coverage, or a change of address – to your Health Insurance Marketplace. Advance payments are paid directly to your insurance company and lower the out-of-pocket cost for your health insurance premiums. Reporting changes will help you get the proper type and amount of financial assistance so you can avoid getting too much or too little in advance.

For more on job hunting refer to Publication 529, Miscellaneous Deductions. You can get IRS tax forms and publications on IRS.gov/forms at any time.

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California Tax Tips

Wondering if you’re being set up for a tax scam or how to get free help filing your state or federal income tax return? The Franchise Tax Board (FTB) has answers.

Beware of Tax Scams — FTB has received reports of scammers calling or emailing taxpayers claiming to represent the tax board. Typically, FTB contacts taxpayers by mail—several times, if necessary–so any unexpected call should raise suspicions. In addition, be wary of a caller who claims to represent FTB and:

● Asks for passwords for credit cards and bank accounts. FTB agents never ask for passwords and taxpayers should never disclose them.
● Threatens incarceration if a tax debt is not paid.
● Demands payment by third-party issued or prepaid debit cards. FTB does not accept these forms of payment.
● Claims that there is a problem with the taxpayer’s account. FTB urges taxpayers to use MyFTB to check their account or call FTB directly at 800.852.5711.

Volunteer Income Tax Assistance — Free tax help is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly Programs (VITA/TCE). Volunteers trained and certified by the Internal Revenue Service help file simple federal and state tax returns at more than 1,000 sites throughout California. The programs are designed to help low-income, senior, disabled, and non-English speaking taxpayers. Many military bases provide this service for members of the U.S. Armed Forces. For information on locations throughout California, go to ftb.ca.gov and click on the Free Tax Help link.

New Head of Household (HOH) Schedule — Beginning this year, to qualify for HOH status, taxpayers must complete and attach to their tax returns FTB Schedule 3532, Head of Household Filing Status Schedule. The new schedule helps taxpayers determine if they qualify for HOH filing status.

Check the status of a refund – Taxpayers can check on the progress of their refunds in Spanish or English at ftb.ca.gov or download the FTB Refund Mobile App available for iPhone. Generally, taxpayers who file electronically and set up direct deposit can expect the refund to be issued in seven to 10 business days. For those who file paper returns, the refund can take two to three months, depending on the time of year.

Verify your tax preparer’s qualifications — California sets strict standards for paid tax preparers. State law requires anyone who prepares tax returns for a fee to be an attorney, certified public accountant, CTEC-registered tax preparer, or enrolled agent.

Tips for filing a paper return — Use paper clips, not staples, to attach documents. Double-check calculations, social security numbers, and the tax amount from tax tables. Use the Tax Calculator to determine 2016 tax by entering filing status and taxable income amount.

Subscriptions — Stay on top of tax trends, new tax laws, and the latest news by enrolling in FTB’s free subscription service or follow FTB’s social media sites on Facebook and Twitter.

FTB administers two of California’s major tax programs: the Personal Income Tax and the Corporation Tax. FTB also administers other non-tax programs and debt collection functions, including delinquent vehicle registration on behalf of the Department of Motor Vehicles, and court–ordered debt. Annually, FTB’s tax programs collect more than 70 percent of the state’s General Fund. For more information on other taxes and fees in California, visit taxes.ca.gov.

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Moving Expenses Can Be Deductible

Did you move due to a change in your job or business location? If so, you may be able to deduct your moving expenses, except for meals. Here are the top tax tips for moving expenses.

In order to deduct moving expenses, your move must meet three requirements:

1. The move must closely relate to the start of work. Generally, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.

2. Your move must meet the distance test. Your new main job location must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was three miles from your old home, your new job must be at least 53 miles from your old home.

3. You must meet the time test. After the move, you must work full-time at your new job for at least 39 weeks in the first year. If you’re self-employed, you must meet this test and work full-time for a total of at least 78 weeks during the first two years at your new job site. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it.

See Publication 521, Moving Expenses, for more information about these rules. It’s available on IRS.gov/forms anytime.

If you can claim this deduction, here are a few more tips from the IRS:

Travel. You can deduct transportation and lodging expenses for yourself and household members while moving from your old home to your new home. You cannot deduct your travel meal costs.

Household goods and utilities. You can deduct the cost of packing, crating and shipping your things. You may be able to include the cost of storing and insuring these items while in transit. You can deduct the cost of connecting or disconnecting utilities.

Nondeductible expenses. You cannot deduct as moving expenses any part of the purchase price of your new home, the cost of selling a home or the cost of entering into or breaking a lease. See Publication 521 for a complete list.

Reimbursed expenses. If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You report any taxable amount on your tax return in the year you get the payment.

Address Change. When you move, be sure to update your address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.

Premium Tax Credit – Changes in Circumstances.

If you or anyone in your family purchased health coverage through the Marketplace and had advance payments of the premium tax credit paid in advance to your insurance company to lower your monthly premiums, it is important to report life changes to the Marketplace when they happen. Moving to a new address is one change you should report. Other things to report include changes in your income, employment, family size, and gaining or losing eligibility for other coverage. Reporting life changes as they happen allows the Marketplace to adjust your advance credit payments. This will help you avoid a smaller refund or unexpectedly owing taxes when you file your tax return.

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Tax Tips for Starting a New Business

Understanding your tax obligation is one key to business success. When you start a business, you need to know about income taxes, payroll taxes and much more. Here are five IRS tax tips that can help you get your business off to a good start:

Business Structure. An early choice you need to make is to decide on the type of structure for your business. The most common types are sole proprietor, partnership and corporation. The type of business you choose will determine which tax forms you file.

Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax your business pays depends on the type of business structure you set up. You may need to make estimated tax payments. If you do, you can use IRS Direct Pay to make them. It’s the fast, easy and secure way to pay from your checking or savings account.

Employer Identification Number (EIN). You may need to get an EIN for federal tax purposes. Search “do you need an EIN” on IRS.gov to find out if you need this number. If you do need one, you can apply for it online.

Accounting Method. An accounting method is a set of rules that you use to determine when to report income and expenses. You must use a consistent method. The two that are most common are the cash and accrual methods. Under the cash method, you normally report income and deduct expenses in the year that you receive or pay them. Under the accrual method, you generally report income and deduct expenses in the year that you earn or incur them. This is true even if you get the income or pay the expense in a later year.

Employee Health Care. The Small Business Health Care Tax Credit helps small businesses and tax-exempt organizations pay for health care coverage they offer their employees. You’re eligible for the credit if you have fewer than 25 employees who work full-time, or a combination of full-time and part-time. The maximum credit is 50 percent of premiums paid for small business employers and 35 percent of premiums paid for small tax-exempt employers, such as charities. For more information on your health care responsibilities as an employer, see the Affordable Care Act for Employers page on IRS.gov.

Get all the basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center.

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How Identity Theft Can Affect Your Taxes

Tax-related identity theft normally occurs when someone uses your stolen Social Security number to file a tax return claiming a fraudulent refund. Many people first find out about it when they do their taxes.

The IRS is working hard to stop identity theft with a strategy of prevention, detection and victim assistance. Here are nine key points:

Taxes. Security. Together. The IRS, the states and the tax industry need your help. We can’t fight identity theft alone. The Taxes. Security. Together. awareness campaign is an effort to better inform you about the need to protect your personal, tax and financial data online and at home.

Protect your Records. Keep your Social Security card at home and not in your wallet or purse. Only provide your Social Security number if it’s absolutely necessary. Protect your personal information at home and protect your computers with anti-spam and anti-virus software. Routinely change passwords for internet accounts.

Don’t Fall for Scams. Criminals often try to impersonate your bank, your credit card company, even the IRS in order to steal your personal data. Learn to recognize and avoid those fake emails and texts. Also, the IRS will not call you threatening a lawsuit, arrest or to demand an immediate tax payment. Normal correspondence is a letter in the mail. Beware of threatening phone calls from someone claiming to be from the IRS.

Report Tax-Related ID Theft to the IRS. If you cannot e-file your return because a tax return already was filed using your SSN, consider the following steps: • File your taxes by paper and pay any taxes owed. • File an IRS Form 14039 Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. You may include it with your paper return. • File a report with the Federal Trade Commission using the FTC Complaint Assistant; • Contact one of the three credit bureaus so they can place a fraud alert or credit freeze on your account;

IRS Letters. If the IRS identifies a suspicious tax return with your SSN, it may send you a letter asking you to verify your identity by calling a special number or visiting a Taxpayer Assistance Center. This is to protect you from tax-related identity theft.

IP PIN. If you are a confirmed ID theft victim, the IRS may issue an IP PIN. The IP PIN is a unique six-digit number that you will use to e-file your tax return. Each year, you will receive an IRS letter with a new IP PIN.

Report Suspicious Activity. If you suspect or know of an individual or business that is committing tax fraud, you can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.

Combating ID Theft. In 2015, the IRS stopped 1.4 million confirmed ID theft returns and protected $8.7 billion. In the past couple of years, more than 2,000 people have been convicted of filing fraudulent ID theft returns.

Service Options. Information about tax-related identity theft is available online. We have a special section on IRS.gov devoted to identity theft and a phone number available for victims to obtain assistance.