Saturday, December 31, 2016

Checking Out Simple Year-End Retirement Planning Opportunities


With the end of the year approaching, there is still time left to consider retirement planning opportunities.  Below are some simple, but potentially financially rewarding, retirement planning ideas to think about:
  • IRA Contributions: For 2016, the maximum IRA contribution is $5500 or $6500 if over the age of 50, and will remain the same for 2017. The deadline is April 15, 2017 for making 2016 IRA or Roth IRA contributions.  Contributions can be made in pre-tax, after-tax or Roth, if applicable.  When saving for retirement, it pays to be consistent because saving even a few dollars a day can lead to real retirement wealth in the future.  For example, if an individual started making IRA contributions of just $4 a day at the age of twenty-five and continued to the age of 70 and was able to earn a 6% annual rate of return (From January 1, 1900, through December 31, 2013 the average return of the S&P 500, which tracks the 500 largest stocks based on market capitalization, was 11.60 percent), the individual would have approximately $329,242.
  • Consider Going Solo: If you are self-employed or have a small business with no full-time employees, a solo 401(k) plan call allow an individual to defer up to $53,000 or $59,000 if over the age of 50. The maximum contributions amounts will increase in 2017 to $54,000 or $60,000.  There is also a loan feature that allows for a maximum tax-free loan of $50,000.  The Solo 401(k) plan must be adopted in 2016 to make contributions for 2016 and employee deferral contributions should be made to the plan by December 31, whereas, employer profit sharing contributions can be made up to the business’s tax return deadline.
  • IRA Charity Contributions: Individuals age 70½ and older are generally required to withdraw money from their traditional IRAs and pay income tax on each distribution. But retirees in the fortunate position of not needing the money they have stashed away in their IRA can avoid paying income tax on their required withdrawals by donating up to $100,000 of their distributions to charity. To qualify for the tax break, charitable distributions for 2016 must be paid directly from the IRA to a qualified charity by the end of the calendar year. The IRS has recently made the Qualified Charitable Distribution permanent.
  • Saver’s Credit: Low- and moderate-income people who save for retirement in a 401(k) or IRA are eligible to claim the saver's credit, which can be worth up to $2,000 for individuals and $4,000 for couples. People age 18 and older who are not full-time students or dependents on someone else's tax return can claim this tax credit until their income exceeds $62,000 for couples in 2016.
  • Trump Effect: We should generally expect that a Trump Presidency will usher in lower personal and business taxes for most Americans. What does that mean for retirement planning?  Lower tax rates could make the Roth IRA more attractive since the financial benefit of a tax deduction would generally have less financial impact.  Also, lower tax rates could make 2017 the year of the Roth IRA conversion as the conversion amount would be treated as taxable income to the recipient.
  • To do or not to do – Roth IRA Conversion: Converting a pre-tax IRA to Roth offers some attractive tax planning opportunities that must be weighed against the immediate impact of a tax. The following are some items to consider when contemplating a Roth IRA conversion:
    • Your age: the younger you are more tax free growth available
    • Type of investments to be made with Roth IRA funds (memories of Enron – pay tax on the conversion and end up with a worthless retirement account)
    • Tax-free income to supplement other sources of income
    • Estate planning opportunities – but what if President-elect Trump abolishes the estate tax?
    • Spouse can live off Roth IRA funds tax-free acquired from deceased spouse or can have the Roth IRA grow for children tax-free
    • Should I wait to 2017 when tax rates should be lower?
  • What if I am too late? If you are reading this article and 2016 has turned to 2017 or beyond, you still have some good retirement planning options:
    • 2016 IRA and Roth IRA contributions can be made up to April 15, 2017.
    • A SEP IRA, which is a retirement plan for the self-employed or small business owner can be made up to the tax return filing of the business. A SEP IRA can be established in 2017 in order to make 2016 contributions. For 2016, the maximum SEP IRA maximum contribution amount is $53,000 for 2016 and will increase to $54,000 in 2017. SEP IRA contributions can then be rolled tax-free into a solo 401(k) plan.  Unfortunately, a SIMPLE IRA must be established by 1 (without extensions) for the tax year in which your qualifying contribution(s) will apply.
  • Remember Required Minimum Distributions (“RMDs”). If you are age 70 1/2 and older, you must take a required minimum distribution from your traditional 401(k) plans and traditional IRAs by Dec. 31, 2016, and income tax is due on each withdrawal. The penalty for missing a required minimum distribution is 50 percent of the amount that should have been withdrawn, and that's in addition to the income tax due.
  • No RMDs For Roth IRA Distribution. Roth IRAs are not subject to RMDs, but a Roth 401(k) account is. However, for individuals with a Roth 401(k) account and are at the RMD age of 701/2, rolling all Roth 401(k) funds tax-free to a Roth IRA prior to December 31 so that the Roth 401(k) plan has a zero balance as of December 31 will allow the individual to escape RMD requirements on the Roth 401(k) assets.

Friday, December 30, 2016

For Trump Tax Cuts, Pay Legal & Other Bills In 2016


President Elect Trump has proposed big tax cuts. So defer income into next year if you can. Conversely, Trump's plans make paying expenses in 2016 especially attractive if you can deduct them. The deductions may be worth a lot less in 2017. One good example is legal fees. No one likes paying legal fees, but tax deductions can make them a lot less painful. If you pay a 40% tax rate, $10,000 in deductible legal fees costs you only $6,000. But not every legal bill is tax deductible.

For example, if your legal fees are to get divorced or because a family member sues you for slander, the legal fees are purely personal and non-deductible. Distinguish purely personal expenses from those for investment. The best kind of legal fees are business expenses. They are fully deductible by individuals, corporations, LLCs, and partnerships. Fully deductible means not subject to limitations or alternative minimum tax (AMT). For many individuals not regularly filing as proprietors, even business legal fees are generally treated as miscellaneous itemized deductions. That triggers limitations such as the AMT, a separate 28% tax. To avoid it, some people file a Schedule C, claiming to be a proprietor, but you must actually be in business.

Contingent lawyer fees can be tricky. Suppose you recover $1 million in a lawsuit and your contingent fee lawyer keeps 40%. You might assume you have $600,000 of income. Actually, you have $1 million of income, and must consider how to deduct the $400,000 of fees. Fortunately, if you hire a contingent fee lawyer in a personal physical injury case (say an auto accident), your entire recovery should be tax-free.

Still, there is great confusion about what is tax-free. Personal physical injury and physical sickness recoveries are tax-free, but punitive damages and interest are taxable. If you receive tax-free and taxable damages (punitive damages and interest are always taxable), you’ll need to apportion your attorney’s fees.

Example: You’re seriously injured in your car and recover $500,000 in compensatory damages and $500,000 in punitive damages from the other driver. Your lawyer gets 40%. Since punitive damages are taxable, half your lawyer’s fees are income, and you can probably deduct them only as a miscellaneous itemized deduction.

In employment cases, a special rule allows you to deduct attorney’s fees “above-the-line” so there's no AMT. A settlement may be wages (subject to withholding) or non-wage income (on an IRS Form 1099). Some business and investment expenses must be capitalized. If you are trying to sell your business and spend $50,000 in legal fees, you must add them to your basis. Ditto if you pay legal fees to resolve a lot line dispute with your neighbor (add the legal fees to your basis in your home). Legal fees for tax advice--income, estate, gift, property, excise or sales and use tax--are deductible no matter what. The fees may involve tax planning or controversies. Even fees for purely personal tax advice qualify.

Paying deductible items before year-end means you can deduct them now. In 2016, we pay tax on ordinary income tax at graduated rates stretching from 10% to 39.6%. But under Obamacare, high-income taxpayers pay an additional 3.8% surtax on net investment income. That means the top federal rate for individuals is really 43.4%. Qualified dividends and long-term capital gains are taxed at 15% or 20%, depending on your income. Yet, that rate too gets hit with the additional 3.8% for Obamacare’s net investment income tax.

President Elect Trump proposed cutting the tax brackets to three: 12%, 25%, and 33%. He would eliminate Obamacare’s 3.8% net investment income tax, too. As a result, the top rate would be 33%, with the top rate on capital gains and dividends a firm 20%. There are some drawbacks, though. Trump’s tax plans call for slashing itemized deductions and eliminating personal exemptions. Itemized deductions would be capped at $200,000 for married couples.

Wednesday, December 28, 2016

Your Best Year-End Tax Planning Move: Donate Stocks Instead of Cash


For high-income earners, there is no year-end tax planning move more valuable than donating appreciated shares of stock or a fund. With the stock market continuing its ascent to new highs, philanthropic-minded investors have a great opportunity to put the tax code to work for them to boost both their charitable donations and their tax savings. If you are planning to make a year-end donation to a qualified charitable organization, you should consider the advantages of donating appreciated shares rather than a cash gift.

Integral to charitable contributions are the tax deductions allowed under the Internal Revenue Code (IRC). Contributions are an itemized deduction reported on Schedule A of your federal tax return. In any given year, you are allowed to deduct contributions worth up to 50% of your adjusted gross income (AGI). In certain cases, 20% and 30% limits apply. If you exceed the limit, your excess contributions can be carried over for up to five subsequent tax years.

Using Donated Shares to Boost Contributions and Tax Savings

When donating appreciated shares that you've held for more than one year, you not only benefit from the tax deduction for the charitable contribution; you also avoid the unrealized gains on the appreciated shares. For assets donated to a charity, the deduction is equal to the fair market value of the donated assets. That means you are able to deduct the full value of the asset even though it exceeds your cost basis. It also means you won't be taxed on the unrealized capital gain of the asset.

For example, if you would normally donate $10,000 to a charitable organization, you could instead donate $10,000 worth of shares. If your cost basis for the shares is $6,000, your unrealized gain would be $4,000. The charity receives the full value of the shares, and you receive a tax deduction for their full value. The unrealized capital gain is "forgiven."

If, instead, you sold the shares for $10,000 and donated the cash, you would owe capital gains taxes on the $4,000 gain in value. At the higher capital gains tax rate of 23.8%, you would owe $952. As a result of selling the shares to make the donation, it would actually cost you $10,952.

In either case, you would be able to deduct $10,000 as a charitable contribution. If you are in the 39.6% federal income tax bracket, you would realize $3,960 in tax savings. However, by donating the appreciated shares, you would realize an additional tax savings of $952 for a total tax benefit off $4,912 on donated assets that cost you just $6,000!

Not All Shares Are Treated Equally

It is important to keep in mind that this strategy does not work for shares you've held for less than a year. Shares held for a year or less are considered ordinary income property, which would limit your charitable deduction to the cost basis of the shares.

It also doesn't work as well with shares that have lost value. In that case, you would be better off selling the shares and donating the proceeds to the charity. You can still deduct the full contribution and you take a capital loss deduction.

The Donor-Advised Fund Alternative

As an alternative, you could transfer the shares to a donor-advised fund. That will give you the same tax benefits, but it will allow you more time to decide which charity will receive the donation. The donor-advised fund will sell the shares and give the cash to a qualified charitable organization of your choice. You can establish a donor-advised fund at a brokerage firm or community foundation with a $5,000 to $10,000 share transfer.

As a year-end tax-planning move, donating appreciated shares is an easy way to generate big tax savings, but it does require taking action before December 31. Some brokerage firms only require paperwork and are able to complete the process in two to four business days, while other firms take longer and require a letter of authorization to transfer the shares. Mutual fund companies typically have their own forms, which can sometimes take up to three weeks to process. If you're unable to transfer shares prior to the end of 2016, keep it in mind as a tax-planning tool for 2017.

Tuesday, December 27, 2016

Three end-of-the-year tax tips for retirees


Yes, it's that time of year again—time to get ready to save on your taxes! You may be pretty good at making the most of your deductions, but if you are retired or close to retirement, there are a few tips that could help you save even more:
Tip 1: Maximize all of your retirement plan programs. Why? Unless you're adding to a Roth IRA, you automatically get a deduction for making a contribution to a retirement plan, no matter what tax bracket you're in. If you're under 50, this year you can contribute $18,000 to your 401(k). If you're over 50, you can add $6,000 for a total of $24,000. With IRAs, you can contribute $5,500 if you're under 50, and $6,500 (total) if you're over 50. And did you know that your non-working spouse can deposit money into an IRA, too? Contribute if you can. You won't find a better deal anywhere.
Tip 2: Consider tax-bracket management. Where are you within your tax bracket right now? Could you have additional income this year and still stay in your current bracket? If that's the case — and if you will be in a higher bracket in the future — you should use that gap. If you're holding a stock that's been good to you but it's hit the wall, think about selling and taking a capital gain. Or move money from your IRA to a Roth IRA, which will be tax-free in the future.
Speaking of the future, remember that you'll have required minimum distributions from your IRAs at age 70½ — and the percentage you have to withdraw gets larger every year. If you think these withdrawals may push you into a higher tax bracket, take another look at your allocations. Consider reducing IRA balances now while you're in a lower bracket by making prudent withdrawals before you're forced to do so.
Tip #3: Time and bunch deductions. If you're about to retire, timing is everything. Since your income will probably drop next year, deduct whatever you can this year. Of course, if you think your income will go up next year, save whatever expenses you can until then. Bunching deductible expenses (e.g. medical costs) into one year may also help, as you can reach a threshold that gives you deductions you wouldn't have received otherwise.
I hope these tips help you to save big this year. Have a great end-of-the-year tax saving season (and enjoy the holidays, too)!

Monday, December 26, 2016

Is Estate Planning Dead?


Donald Trump's election has fueled speculation that estate planning will become an antiquated activity and profession. But while the President-elect has claimed that he will end the "death tax," what that means exactly remains unclear.

Keep in mind that estate planning is flourishing at the moment and benefiting the majority of us even though less than 1% of the families in the United States will ever have a taxable estate. Currently, the estate-tax exemption is $5.45 million per individual or nearly $11 million for a couple. That means only about 2 out of every 1,000 estates would be subject to the estate tax now. Thus while estate planning for the ultra-wealthy currently focuses in part on minimizing estate taxes, true estate planning for the rest of us is about much more.

The core value of estate planning is to help people ensure that the wealth they've created will impact their families and the world the way they want it to!

I have had numerous discussions with families that will never have a taxable estate yet they are passionate about wanting their lifetime of wealth building to accomplish what is important to them.

Even those few families who would be subject to the current estate tax may find that, if it is repealed, they might then face a potentially greater income tax given the potential elimination of the date of death valuation adjustment. Currently, it is estimated that 55% of all taxable estates are comprised of assets with unrealized capital gains, which could be taxed at capital gains rates as opposed to just estate taxes. While this is effectively a 50% reduction in tax rates, it will impact future generations and their tax planning as well.

Estate taxes aside, a well-drafted and thought-out estate plan should deal with multiple issues that can have a lifetime impact on future generations and their income taxes and philanthropy, as well as the development of their value systems and personal sense of accomplishment. Estate planning is essentially the implementation of a strategic family plan that continues after death.

The following are just a few of the issues that an estate plan should address and some of the benefits planning can accomplish:

Your Goals

The core starting point is figuring out what you want to accomplish with your wealth remaining at your death, whether that includes catering to your philanthropy, family or both.

How to Pass Wealth to Family

If you're leaving your wealth to family members, what is the smartest way to do so? Outright? Or would an asset protection trust or other mechanism or structure be more appropriate to protect assets from predators?

Your Beneficiary Requirements

What details or requirements would you like to lay out for your beneficiaries? For example, is there an age you feel is appropriate for giving away control? Would you want to direct the money be put toward specific uses or goals, such as education, business or health needs?

Income Tax Consequences

What are the income tax consequences and associated issues of bequests? This might include dealing with retirement plan assets and related future income taxation, low basis stock issues (especially if the date of death step-up in basis is eliminated) and unique assets such as partnership interest, business assets, real estate, hedge funds, oil and gas interests and more.


What are the family's philanthropic goals? How can you make the greatest impact to achieve such goals? What is the most income tax efficient way to fund your philanthropic goals? You might be inclined to consider structured gifts over outright giving or whether you'd like to set up a private foundation or donor-advised fund. Whatever your methods, incorporating philanthropy into your estate plan can help pass on a sense of altruism and social compassion, as well as financial resources, to the next generation.

Business Succession

A strategic estate plan also will deal with business continuity and succession planning. You should determine how to best pass on your business to heirs or plan for an orderly sale and transition to others. Your plan should ensure the maximization of wealth and cash flow after your business succession or sale.

These are just a few issues that need to be considered when doing strategic estate planning, and none of these have to directly do with estate taxes. Thus estate planning is not dead but rather may be taking a strategic turn away from focusing on estate taxes and more on achieving family goals and aspirations.

Saturday, December 24, 2016

Last-Minute Ways to Cut Your Tax Bill

The holidays are fast approaching, and your to-do list probably consists of shopping and preparations for holiday parties, along with the usual work and family commitments. Last-minute tax planning might seem like something you do in February, March or April — but it should jump to the top of your list in December.

By the time you’re filing, it’s too late to maximize your tax savings. Doing a tax checkup doesn’t need to take much time, and it could free up money for your holiday shopping budget.

Avoid penalties or interest

First, review your tax withholding or payments. This isn’t an issue if most of your income comes from W-2 wages, but it might be if you’re self-employed, have a part-time job or have dividend or interest income. If you don’t send Uncle Sam — and his buddy, the state — enough money throughout the year, you could be charged about 3% interest on the amount you should have paid. That might not seem like much, but it’s an expense you can avoid with a few minutes of planning.

The IRS won’t charge interest on tax you didn’t pay during the year if you:

Paid at least 90% of this year’s tax liability.
Paid 100% of last year’s tax liability (110% if you make more than $75,000 if you’re married and filing separately, or more than $150,000 if you use any other filing status).
Owe less than $1,000 on your 2016 return.
You’ll find last year’s tax liability on line 63 on your 2015 IRS Form 1040. If you haven’t paid at least that much this year through W-2 withholdings or estimated payments, submit an estimated payment for the fourth quarter by January 17, 2017. If you made less this year than you did last year, run a mock return to see if you’ve paid at least 90% of this year’s liability.

Use deferred savings vehicles

If you haven’t fully funded your company retirement plan — 401(k), 403(b), 457, etc. — this is your last chance. You can defer $18,000 in 2016 and make a catch-up contribution of up to $6,000 if you’re age 50 or older. Contributions are pre-tax, so every dollar you save lowers your taxable income.

Your contributions must come from payroll deductions, so to max them out, you might need to funnel as much of your last two paychecks as you can handle into the account. You can also fund these with a year-end bonus. Ask your human resources specialist about your options.

Fund a health savings account

Health savings accounts are a favorite tool of financial planners, as they’re the only true tax-free vehicles. You can deduct contributions, and any gains are tax free if you withdraw them to pay qualified medical expenses.

If you have a health plan that’s eligible for an HSA, you can contribute up to $3,350 in 2016 if you’re a single tax filer and up to $6,750 if you have a family. If you’re 50 and older, you can make a $1,000 catch-up contribution. And unlike a 401(k), you don’t need to fund an HSA through a payroll deduction — you can write a check.

HSA balances carry over indefinitely. If you’re a few years from retirement, use your HSA contributions to lower your taxes and build up a healthy nest egg you can use to pay medical bills in years to come.

Take advantage of tax-loss harvesting

This sounds like a sophisticated strategy, but tax-loss harvesting just means selling losing financial positions — including stocks, bonds, mutual funds and exchange-traded funds — in order to qualify for a tax deduction. The IRS allows you to deduct $3,000 of capital losses every year.

Beware of triggering the wash sale rules. These stipulate that if you take a loss on the sale of a financial position, then invest in the same or a similar holding within 30 days, you’ll effectively forfeit the tax loss.

Maximize your charitable giving

This is an excellent time to give to a charity. And if you donate to your area’s community foundation — an entity that supports nonprofits in a given area — you might get an extra tax credit beyond the federal deduction.

Every state has these community foundations, and some offer taxpayers a 50% tax credit for their donations, which is a dollar-for-dollar reduction of your state taxes. That’s much better than a deduction. Others cap the credit at 25%.

Deduct your medical expenses

The IRS allows taxpayers to deduct medical expenses that exceed 10% of their adjusted gross income. Those expenses can include medical mileage — trips to doctors or to the pharmacy to fill prescriptions, etc. — and tolls and co-pays.

You can also surpass the threshold by grouping expenses into one year. For instance, if you had a larger than usual amount of medical expenses in 2016, consider scheduling a dental procedure before year-end to ensure you can deduct it.

Taking a few minutes to review your tax situation could save you hundreds, or even thousands, of dollars when you file your return.

Friday, December 23, 2016

How to Avoid the Social Security ‘Tax Bubble’

Tax rules are complicated enough, and Social Security benefits during retirement years add another layer of complexity. Not knowing how and when Social Security benefits are taxed can lead to an unpleasant surprise when Uncle Sam comes calling, so it’s a good idea to know what to look out for.

How does Social Security affect my overall tax rate?

Half of your Social Security benefits count toward your combined income, which includes your adjusted gross income plus nontaxable interest. If your combined income reaches a certain threshold — $25,000 for an individual and $32,000 for a married couple filing jointly — you’ll have to pay income tax on anywhere from 50% to 85% of your Social Security benefits. The Social Security website has more information on the percentage of benefits taxable.

Why are tax brackets crucial?

It’s important to pay attention to income tax brackets to avoid the Social Security “tax bubble.” This occurs when a retiree’s additional income, such as required minimum distributions from retirement accounts, pushes their overall income past the threshold at which Social Security benefits become taxable. This can result in the additional income being taxed at a marginal rate as high as 46.25%, even though the retiree may ordinarily belong in the 25% or 28% tax bracket.

This situation is called a “bubble” because the triggering of Social Security benefits taxation, and the outsized rise in taxable income that comes with it, is only in play up until the maximum amount of Social Security benefits are taxed, at which point the tax rate returns to normal.

To prevent taking this tax hit, you can delay Social Security or withdraw from retirement accounts before you’re required to, so you can mitigate the impact of withdrawals in future years.

What else should people be aware of when it comes to retirement and tax brackets?

People spend their working years trying to defer income as a way to limit taxes. Once you retire, though, you may want to add income to maximize the 15% federal tax bracket through Roth IRA conversions or capital gains.

Adding income in this way could potentially reduce your tax obligation in the future, since withdrawals from Roth IRAs are tax-free. Once you reach age 70½, the required minimum distributions from your retirement accounts could push you into the 25%, 28% or even 33% tax brackets, unless you take steps to lower your taxable income.

That’s why it’s important to do tax planning each year to determine what is optimal in your situation. You don’t want to be hit with a large tax bill when you can least afford it.

Anything else to keep in mind?

Social Security taxation, Roth IRA conversions and related strategies are complex and confusing, and poor tax planning could result in thousands of dollars in additional taxes. I highly recommend working with a professional to help you make smart financial decisions.

Thursday, December 22, 2016

Tis the Season for Taxes


To support year-end planning success, Fifth Third Private Bank (FITB) recently released digital guides with strategies for individuals and families to consider in preparation for tax season. Among the strategies, Fifth Third experts recommend reducing taxable income, maximizing investment opportunities and strategically planning for charitable giving.
1.    Reduce taxable income
In order to offset taxable income, the most important strategy for investors to consider is tax-loss selling and taking advantage of underwater securities.
"Selling stocks, bonds or mutual funds that have lost value should be a priority this time of year," said Jeff Korzenik, chief investment strategist for Fifth Third. "When done in conjunction with rebalancing a portfolio, investors can minimize the tax consequences and impact."
Additionally, Korzenik suggests taking interest rates into account throughout the planning process. Gradual interest rate increases are being monitored for next year, which are typically associated with the latter half of an economic expansion. With this in mind, investors should expect lower returns from the bonds portion of a portfolio and be more selective in their equity investments as they plan for next year.
2.    Maximize investment opportunities
To wrap up 2016, Melissa Register, senior wealth planner for Fifth Third Private Bank, recommends being selective in investment decisions. By working with a wealth management advisor, you can ensure that your allocation aligns with your goals and time horizon for both your taxable and tax-deferred accounts. From this checkpoint, you can identify necessary adjustments.
"Investors can plan ahead by rebalancing portfolios and diversifying their investments before the close of the year," said Register. "There are significant growth opportunities for 2017 in alternative investments and selective international exposure."
3.    Plan for charitable giving during the holidays
When it comes to charitable giving, Glen Johnson, managing director of Mirador Family Wealth Advisors, suggests engaging family members in the decision-making process.
"More than half of charitable giving is done in one month of the entire year: December," said Johnson. "Holiday gatherings are an opportune time for families to set joint year-end goals and develop a strategy for allocating philanthropic donations in 2017."
Johnson also suggests using assets that have appreciated in value as gifts for charitable donations to avoid capital gains. "People often don't think about real estate, collectibles or art as potential gifts, which could ultimately fund a new program or service for a charity," said Johnson.

Wednesday, December 21, 2016

2017 Income Tax Season: Delayed Refunds, Different Deadline and More

Taxpayers have an extra weekend to buckle down, compile and submit their tax returns in 2017, and new scrutiny of two tax credits means that refunds will be delayed until late February for taxpayers who claim the credits. Those are two big changes the Internal Revenue Service is alerting people to as it gets ready for the nation’s tax season, which will begin Monday, Jan. 23, 2017 .

Because of a holiday in the nation’s capital, the filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date.

The IRS will begin accepting electronic tax returns Jan. 23, with more than 153 million individual tax returns expected to be filed in 2017. Four out of five tax returns will be prepared electronically using tax return preparation software.

Many software companies and tax professionals will accept tax returns before Jan. 23 and then will submit the returns when IRS systems open. The IRS will begin processing paper tax returns at the same time. There is no advantage to filing tax returns on paper in early January instead of waiting for the agency to begin accepting e-filed returns.

A new law requires the IRS to hold refunds claiming the Earned Income Tax Credit and the Additional Child Tax Credit until Feb. 15 in an effort to detect fraud, and it will take several days for these refunds to be released and processed through banks. Once you add in weekends and the Presidents Day holiday, the IRS says many affected taxpayers may not have access to their refunds until the week of Feb. 27.

“For this tax season, it’s more important than ever for taxpayers to plan ahead,” IRS Commissioner John Koskinen said in a news release. “People should make sure they have their year-end tax statements in hand, and we encourage people to file as they normally would, including those claiming the credits affected by the refund delay. Even with these significant changes, IRS employees and the entire tax community will be working hard to make this a smooth filing season for taxpayers.”

April 18 Filing Deadline

Because of a holiday in the nation’s capital, the filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date, which falls on a Saturday. The Internal Revenue Service says that normally would push the filing deadline to the following Monday, April 17, but Washington, D.C., will celebrate the legal holiday of Emancipation Day on Monday, April 17.

That, in turn, pushes the federal tax deadline to Tuesday, April 18, for the nation.

Warnings on Phishing Scams
IRS officials warn taxpayers to be alert to phone and email phishing scams that try to trick victims into divulging their personal information.

The IRS says it has been working with the tax industry and state revenue departments to continue strengthening processing systems to protect taxpayers from identity theft and refund fraud.

Scammers will call or email taxpayers to verify the last four digits of their Social Security number by clicking on a link provided in an email, which claims that recent data breaches across the nation may be involved.

Government offices do not send emails like this, authorities said.

Taxpayers should not reply to emails requesting confidential information, especially your Social Security number, birth date, salary information or home address. If you receive an email asking for a copy of your W-2 form, you should immediately contact your employer. You also may call 1-800-MD-TAXES or email

Refunds in 2017

Choosing e-file and direct deposit for refunds remains the fastest and safest way to file an accurate income tax return and receive a refund. The IRS anticipates issuing more than nine out of 10 refunds in less than 21 days, but there are some important factors to keep in mind.

As in past years, the IRS will begin accepting and processing tax returns once the filing season begins. All taxpayers should file as usual, and tax return preparers should also submit returns as they normally do – including returns claiming the Earned Income Tax Credit and the Additional Child Tax Credit.

Where's My Refund? ‎on and the IRS2Go phone app will be updated with projected deposit dates for early Earned Income Tax Credit and the Additional Child Tax Credit refund filers a few days after Feb. 15. Taxpayers will not see a refund date on Where's My Refund? ‎or through their software packages until then.

Before you file, the IRS has these tips to help you.

Gather your records. Make sure you have all your tax records. This includes receipts, canceled checks and other records that support income, deductions or tax credits that you claim. If you purchased health insurance through the Marketplace, you will need the information in Form 1095-A to file.
Report all your income. You will need to report your income from all of your Forms W-2, Wage and Tax Statements, Forms 1099 and any other income – even if you don’t receive a statement – when you file your tax return.
Try IRS Free File. Free File is available only on If you made $62,000 or less, you can use free tax software to file your federal return. If you earned more, you can use Free File Fillable Forms, an electronic version of IRS paper forms.
Try IRS e-file. Electronic filing is the best way to file a tax return. It’s accurate, safe and easy. If you owe taxes, you have the option to e-file early and pay by April 18 to avoid penalties and interest.
Use Direct Deposit. The fastest and safest way to get your refund is to combine e-file with direct deposit. The IRS issues more than nine out of 10 refunds in less than 21 days.
Review your return. Mistakes slow down your tax refund. If you file a paper return, be sure to check all Social Security numbers. That’s one of the most common errors.
Visit The website has forms and other info you need to file your tax return. Click on the "Filing" icon for links to filing tips, answers to frequently asked questions and IRS forms and publications. The IRS has many online tools on to help you file and answer your tax questions. The tool gives the same answers that an IRS representative would give over the phone.

Help for Taxpayers

Volunteer Income Tax Assistance and Tax Counseling for the Elderly offer free tax help to people who qualify. Go to and enter “free tax prep” in the search box to learn more and find a nearby VITA or TCE site, or download the IRS2Go smartphone app to find a free tax prep provider.

The IRS also reminds taxpayers that a trusted tax professional can provide helpful information and advice about the ever-changing tax code. Tips for choosing a return preparer and details about national tax professional groups are available on

The IRS also reminds taxpayers that they should keep copies of their prior-year tax returns for at least three years. Taxpayers who are changing tax software products this filing season will need their adjusted gross income from their 2015 tax return in order to file electronically. The Electronic Filing Pin is no longer an option. Taxpayers can visit IRS.Gov/GetReady for more tips on preparing to file their 2016 tax return.

Renewal Reminder for Individual Taxpayer Identification Numbers (ITINS)

ITINs are used by people who have tax-filing or payment obligations under U.S. law but are not eligible for a Social Security number. Under a recent change in law, any ITIN not used on a tax return at least once in the past three years will expire on Jan. 1, 2017. In addition, any ITIN with middle digits of either 78 or 79 (9NN-78-NNNN or 9NN-79-NNNN) will also expire next month.

This means that anyone with an expiring ITIN and a need to file a tax return in the upcoming filing season should file a renewal application in the next few weeks to avoid lengthy refund and processing delays. Failure to renew early could result in refund delays and denial of some tax benefits until the ITIN is renewed.

An ITIN renewal application filed now will be processed before one submitted at the height of tax season from mid-January to February. Currently, a complete and accurate renewal application can be processed in as little as seven weeks. But this timeframe is expected to expand to 11 weeks during tax season.

Several common errors are currently slowing down or holding up ITIN renewal applications. The mistakes generally center on missing information, and/or insufficient supporting documentation. ITIN renewal applicants should be sure to use the latest version of Form W-7, revised September 2016. The most current version of the form, along with its instructions, are posted on

Monday, December 19, 2016

Last Minute Tax Moves For Solopreneurs


Taxes can certainly be tedious – and a distraction – for solopreneurs. But with the year almost over, it makes sense to consider some strategies.

So what to do? Well, here are three ideas to consider:

#1 – “Bunching”

When doing your taxes, you have the choice of either taking the standard deduction (which is a fixed amount) or to itemize your deductions. Of course, you take the one that gets you the most tax savings.

Now, if you do not have enough to itemize, you might think about “bunching,” which requires some year-end planning.
“Generally, people who choose to itemize their deductions claim eligible expenses, like charitable contributions, mortgage interest, real estate taxes, and even medical expenses, to reduce their taxable income,” said Kurt Avarell, who is the CEO and founder of Canopy, which sells software for the tax industry. “So the goal of bunching is to pile two year’s worth of eligible expenses into one year. By doing this, you get a larger deduction this year and you can still claim the standard deduction next year.”

Take the example of charitable giving. If you bunch your 2017 contributions into 2016, you may be able to get the itemized deduction.

“You can also prepay your property taxes, medical expenses, and certain miscellaneous expenses,” said Kurt. "Although, consult a professional if you have specific questions about which expenses are eligible for bunching. For example, mortgage interest is one expense that cannot be bunched, so use this strategy only where it makes sense.”

#2 – Use TaxCaster

This is a pretty cool app from TurboTax. You input your tax information -- and then you can test different scenarios. For example, what if you contribute to an IRA? What if you sell some of your stocks?

Oh, and it can also help with the bunching strategy!

“After you finish the questionnaire, the calculator will give you an estimated refund or amount due,” said Kurt. “TaxCaster is a great tool for tax planning.”

#3 – Use An App To Get Organized

None of these strategies really mean much unless you have tracked your expenses for the year. The good news is that there are several apps that can help out.

And one to consider is Xero TaxTouch, which is fairly easy to use.  The app will first import your financial information. Then after this, you will do Tinder-like swipes to indicate whether an expense is personal or for business purposes.

“Once you are finished, you’ll be able to file your Schedule C or put together your quarterly estimated tax payments,” said Ryan Himmel, who heads up Xero’s Financial Partnerships in North America.

Or another option is Taxfyle. Like Xero, the app also imports your financial information but you also get access to a network of qualified tax experts.

Sunday, December 18, 2016

Tax Strategies For The Trump/Ryan Plan


The tax roulette wheel is spinning. You have to place your bets now, before the marbles land. By making educated guesses about what will happen to the Internal Revenue Code you can save big-league.

It is very likely that the new president and his Republican legislative majorities will push through a statute that cuts tax rates but shrinks deductions. It is somewhat likely that they will refashion wealth transfer taxes with a similar give-and-take.

Those changes would make a shambles of existing tax-planning strategies, while creating opportunities. Your objective is to arrange your affairs to capture probable benefits while ducking probable tax bombs. In many cases you have to make your moves before Congress makes its moves.

Both the Trump plan and the one from House Speaker Paul Ryan include a 33% top individual income tax bracket and a repeal of the 3.8% ObamaCare surtax on investment income. What are the odds that this will get through? Very high, says Andrew Friedman, a Washington, D.C., tax expert who handicaps law changes for business clients. He puts at 75% the probability that a tax law like this will be enacted next year and be retroactively effective to January 1. Uncertain, he says, is whether the 2017 rate schedule will go full bore (down to 33% at the top) or be a blend of that and the 2016 rates (max: 39.6%).

Strategy: Push income from 2016 into 2017 and be prepared, if the 33% kicks in only in 2018, to push income from 2017 into 2018. Push your deductions in the other direction. Trump would limit Schedule A deductions to $200,000 for a couple, making an incremental writeoff potentially worthless. Ryan would erase itemized deductions except for charity and mortgage interest.

Wealth taxes? The Trump plan calls for eliminating the estate tax but simultaneously eliminating a tax break called “step-up”–the tax basis of property held by a decedent is now stepped up, so that all appreciation before death escapes capital gains tax. The elimination of step-up would play havoc with just about any high-end wealth preservation scheme. It’s not too soon to anticipate the damage and plan accordingly.

The most drastic repeal of step-up would put us on the Canadian system, which treats death as a sale of assets not going to a spouse. That’s conceivable but unlikely; it would force survivors to liquidate family businesses, farms and homesteads in haste. Tears would be shed. More probable, says John Scroggin, a Roswell, Georgia, estate lawyer: a carryover system. Heirs would pick up Grandpa’s tax basis on the 4,000 acres in Iowa but owe capital gains tax only when they sell.

Without providing details, the Trump plan calls for retaining a step-up on assets roughly the amount of the current estate tax exemption ($10.9 million for a couple). If you leave behind more than that, could your executor pick and choose which assets enjoy step-up? Maybe not, Scroggin speculates; a prorated exemption is possible. Careful planning will let your heirs extract the most from the exemption.

Trump’s tax plan is expensive. Misgivings by fiscally conservative legislators might cause them to look for revenue enhancements (as well as spending cuts), imperiling some classic tax-minimization gimmicks listed in the box on the left.

Democrats don’t care for tax cuts benefiting high-incomers. Their 48 votes in the Senate will allow them to impede a Trump/Ryan bonanza, up to a point. But the Republicans can bypass a threatened filibuster by using a procedural shortcut (“budget reconciliation”) that is available if the new tax law sunsets in ten years. That’s how George Bush got his tax cuts in 2001 and 2003.

What the budget and the politics tell you: You should take advantage of a low rate or a tax trick available now, because it might not be around for long. But be skeptical of a tax ploy that banks on a low rate in the distant future. “When you defer tax you’re deferring into a black hole,” warns Robert Gordon, president of Twenty-First Securities, which specializes in tax strategies for wealthy investors. “You don’t know what the rate will be when you retire. It could be 70%. It could be 20%.” He proves the point with this chart:

With that in mind, we offer a series of defensive steps to take–some now, some in 2017 and the rest over the next three years. After that? Let’s just say that elections can deliver surprises.


Postpone income. Push business receipts, bonuses and other controllable income into the new year.

Accelerate deductions for state and local taxes. You could send in your January 15 estimated-tax payment a month early or prepay property taxes. Proviso: Don’t do this if it puts you within reach of the federal AMT (alternative minimum tax). Have your accountant run what-if scenarios on 2016 income taxes with different income and deduction numbers.

If you are likely to be doing a Roth conversion next year and if you’re clear of the AMT, consider overpaying your 2016 state income taxes now and applying the refund against your large 2017 state tax bill.

Accelerate charitable deductions. The big brokerage firms make this easy. You can transfer appreciated stocks into a charitable pool, get a deduction for their market value while escaping capital gains tax, then take your time disbursing the money to worthy causes. Typical annual fee: 0.6% plus expenses on mutual funds.

If you have a giant sum, open a foundation.

Undo, then redo a Roth conversion. If you converted pretax IRA money to aftertax Roth money earlier this year (that made total sense when Hillary Clinton was favored to win), you can reverse the transaction by “recharacterizing” the move. In 2017 reinstate the Roth conversion, using different IRA assets.

Maximize retirement savings. If you don’t have the income to fully fund your 401(k), consider boosting your contribution this year (if your payroll department will tolerate a last-minute catch-up) and then slacking off next year, when the deduction will be worth less.

Take capital losses. A net $3,000 loss on your Form 1040 this year is potentially worth 44.6 cents on the dollar this year (depending on how it interacts with other income) but only 33 cents next year.


Exercise employee options. If you are itching to exercise “incentive stock options,” wait a month. These create AMT income equal to the bargain element in the option. (If you buy a share at $10 when it’s trading at $70, you have $60 of AMT income.) It would be very painful to pay AMT on $60 this year and then have the stock crash to $15 next year.

See where you are in December 2017. If the stock stays up, you can hang on to it, hoping for a low-taxed capital gain when you eventually sell. Alternatively, if the new tax law repeals the AMT (as Trump and Ryan propose), then you’re off the hook. If neither of these is true, you’d sell the shares. Existing law gives you an AMT dispensation if you liquidate the shares within the same year you exercise the option.

Rothify. Prepaying income tax on retirement assets is a good move when your tax bracket is destined to remain constant over time, because it enhances the tax-free compounding. It’s an especially good move if tax rates are likely to creep up over the next decade or two. (Recall that the 28% rate in Ronald Reagan’s 1986 tax reform has crept up to 39.6%.)

Roth conversions should be done in measured doses, says Green Bay, Wisconsin, tax expert Robert Keebler, with attention paid to when you are crossing the boundary into a higher bracket. Also keep an eye on Congress. If rates are to come down only in 2018, you could undo the 2017 Roth and then resume the converting later.

DO IT IN 2018-20

Liquidate clunkers. Certain bad investments create ordinary income on your way out. Don’t leave until that 33% rate is in place. Two in this category: tax-deferred annuities and energy partnerships.

You can get a boomerang tax bill for ordinary income when you sell a master limited partnership, even when you’re selling at a loss. MLPs, that is, are an exception to the usual rule that it pays to take capital losses sooner rather than later.

Shrink your estate. See what comes out of any death tax overhaul, which may or may not include a repeal of gift taxes and limits on step-up. You may want to reduce your assets with gifts during your retirement years. One trick is to park money in Section 529 college plans with grandchildren as beneficiaries and you as owner. You get the money out of your estate but retain some ability to retrieve it if you get in a financial bind.

Exploit new loopholes. Republican tenderheartedness to “small business” may create an opportunity to replace a salary with a mix of salary and low-taxed proprietorship income. Stay plugged in.

Saturday, December 17, 2016

Self-employed? Do this now to cut your taxes


The time for moves that can help lower the taxes you’ll owe for 2016 is ticking away.
Those moves include what you can do now in anticipation of Donald Trump’s proposed tax plans and how you could benefit from making extra donations to charity before year-end.
But the taxpayers who have the most flexibility to do things now to create big-time tax savings are those who report some or all their income from self-employment. That’s because you have more control over the timing of when you receive income (for instance, by delaying sending invoices until January), and you can pay additional expenses before year-end. 
Expenses to operate a sole proprietorship are deductible right on Schedule C, which reduces the income reported as net profit. That lowers income subject to federal and state income taxes, and it reduces income subject to the self-employment tax, which is an additional15.3 percent levy over your federal and state income tax. 
So if your federal marginal tax rate is 33 percent, your state tax rate is 7 percent and the self-employment tax is 15.3 percent, paying an additional $10,000 of expenses this year could result in a $5,530 lower tax bill.
Here are some tax planning moves to consider making now if you’ll be reporting income from self employment.
Rent: Most landlords require rent to be paid by the first of the month. Since that’s just two weeks away, consider sending the rent check for January now, so you can claim that as an additional deduction for this year.
Health insurance: Similarly, make your January premium payment now to increase this deduction for 2016. Also, if you have a high-deductible health plan, you’re allowed to contribute to a Health Savings Account. Such contributions are allowed as an above-the-line deduction on the front of your tax return. The contribution limit for 2016 is $3,350 for individuals and $6,750 for marrieds. If you’re 55 or older in 2016, add an additional $1,000 to these limits. Another bonus: Money taken from an HSA is tax-free when used to pay for qualifying medical expenses.
Retirement plan contributions: One of the best tax-saving moves for people reporting self-employment income is to contribute to a self-employed 401(k) account. The catch is that the account must be established before year-end, but you can wait until tax-filing time to actually make the contribution. With year-end approaching, get the application paperwork prepared and send it in to your broker, bank or investment firm now. During this hectic time expect processing delays.    
Office supplies: It’s time to stock up on paper, printer toner or other office essentials. Also buy additional postage for next year now.
Office equipment: If you’ve been thinking about upgrading your computer, buying a backup power supply or that new stand-up desk, now’s the time. There’s a special category allowing deductions for office equipment called Section 179, and the upper limit for items purchased that qualify for this deduction is an astonishing $500,000 per year.

Thursday, December 15, 2016

Nine End-of-Year Tax Tips for Procrastinators and Planners Alike

 It is the time of the year when procrastinators and planners both are looking for those last-minute,end-of-year tax tips that could save them money on their 2016 tax return. Here are nine tips taxpayers can use, whether they’re just getting started thinking about their 2016 tax return or they’re putting the final touches on their 2016 tax plan:
1. Don’t forget about use-it-or-lose-it money in flexible spending accounts.
Putting money in a flexible spending account (FSA) during the year saves taxpayers from paying taxes on that amount. Then, taxpayers can use this money tax-free on qualified medical expenses. But, whatever funds taxpayers don’t spend before the end of the year – or grace period, if their company’s plan provides one – is just money left on the table.
Instead, taxpayers should make sure to use this money for unreimbursed medical expenses like eyeglasses, prescription medications, medical equipment or copays. If they still have extra money in the flexible spending account to spend, they might want to schedule end-of-year appointments or buy prescription medicine they will need in 2017.
2. Sign up for health insurance.
Taxpayers without insurance could have to pay a penalty of $695 per uncovered adult and $347 per uncovered child (to a maximum of $2,085) or 2.5 percent of their household income over their filing threshold, whichever is greater. A family of four earning $60,000 could pay a penalty of more than $2,000 for 2016.
While it’s too late to avoid these penalties in 2016, to avoid them in 2017, taxpayers may enroll in a health insurance plan on the marketplace. Some taxpayers will also qualify for advance premium tax credits to help them pay their health insurance premiums.
3. Compare standard versus itemized deductions and plan to accelerate or delay payments.
Nearly every tax filer can claim a standard deduction, which reduces their taxable income, which in turn reduces their taxes owed. The standard deduction is $6,300 for single filers and $12,600 for married couples filing jointly.
There is a way for some taxpayers to increase their deduction beyond the standard amount – and it doesn’t involve walking down the aisle. Taxpayers can choose to itemize their deductions instead, which means they deduct specific qualifying expenses including mortgage interest paymentsstate and local income or sales tax and charitable donations. If their itemized deductions add up to more than their standard deduction, the taxpayers can get a bigger tax benefit by itemizing.
If a taxpayer has itemized deductions that total less than the standard deduction for their filing status, they should plan to claim the standard deduction. And if they know they’re claiming the standard deduction this year but expect to itemize next year, they may prefer to wait until January to pay some end of year expenses. Delaying those expenses until 2017 could boost their ability to itemize more in 2017.
For example, if they plan to buy a house or move to a state with higher income taxes next year, they might want to delay other deductible expenses to get the tax deduction. One way to do that would be to bunch end of year deductible expenses and pay them in January 2017, when they can use that expense as an itemized deduction, instead of December 2016 when they will claim the standard deduction.
Or, if they think they won’t have as many itemized deductions in 2017 as they do in 2016, they might be able to accelerate some payments and shift some deductions from next year to this year. For example, if they’re itemizing in 2016 and can pay real-estate tax in two installments, they might consider making the payment in 2016 that would normally be due in early 2017.
In all these cases, taxpayers should remember that tax planning occurs over a multi-year horizon and paying an extra amount this year could hurt some taxpayers in 2017.
4. Estimate income and determine if a tax benefit phaseout could affect the tax return. 
Most tax benefits generally phase out, usually as an individual’s income increases. At a certain point, the tax benefit may be eliminated altogether or it may be available only at a small amount. If taxpayers are close to a phaseout range of a tax benefit they’re otherwise eligible for, they could try to lower their adjusted gross income (AGI) so they can claim the tax benefit, for example by contributing as much as possible to a pre-tax retirement plan, such as a 401(k) or 403(b), or a deductible IRA.
5. Contribute to a retirement account to lower adjusted gross income and taxable income.
Lowering AGI and taxable income is always good, but especially if the taxpayer is getting phased out of a tax benefit. Contributing to a pre-tax retirement plan lowers both AGI and taxable income. These plans include 401(k)s, 403(b)s, deductible IRAs, SIMPLE IRAs and SEPs.
Taxpayers have until December 31 to make contributions to 401(k)s and 403(b)s for 2016. They have until April 16, 2017 to make contributions to IRAs and some other plans.
6. Donate to a charity to lower taxable income.
If a taxpayer itemizes, they can lower their taxable income by donating to charity. They must give to a qualified charity by December 31 and keep the necessary documentation, which will vary depend on the type and amount of the gift.
7. Consider a qualified charitable rollover to lower adjusted gross income and taxable income.
Taxpayers who are at least 70½ should consider a trustee-to-trustee transfer of some or all of their required minimum distributions to a qualified charity. Doing so lowers AGI which, in turn, lowers the amount of Social Security subject to tax.
8. Sell certain securities.
Taxpayers with a large net capital gain so far this year might want to sell some stock to generate a loss before year end. Doing so could reduce the amount of tax they pay this year. But in any case, taxpayers should not let possible tax savings cause them to make a decision contrary to their overall investment strategy or financial needs.
9. Investigate before buying mutual funds. 
Taxpayers who are planning to invest a large amount in a mutual fund should find out when the fund declares and pays its dividend. Confirm that the fund isn't declaring and paying a large amount of dividends before the end of the year. Buying shares before the dividend is declared could mean they’ll increase their income by the amount of the dividend. This is true even if they reinvest the dividend in new shares. They should look for this information at the fund company's website.
After taxpayers make their final tax moves for 2016, they can look forward to filing their return, and then start tax planning – or procrastinating – for 2017.

Wednesday, December 14, 2016

IRS Says 2017 Tax Season Starts January 23, 2017

The Internal Revenue Service said Friday that next tax season will begin on Monday, Jan. 23, 2017, while warning some taxpayers to expect longer waits for their tax refunds. The tax day deadline will be April 18.

The IRS said it would start accepting electronic tax returns on January 23 and it anticipates more than 153 million individual tax returns to be filed next year. The IRS believes more than four out of five tax returns will be prepared electronically using tax preparation software, as was the case last year.

However, even with the January 23 start date, the IRS also pointed out that many software companies and tax professionals will begin accepting tax returns before that date and then they’ll submit the returns when the IRS’s systems open. The IRS will also start processing paper tax returns on January 23. The IRS noted there is no advantage to filing tax returns on paper in early January instead of waiting until January 23 for the IRS to begin accepting e-filed returns.

The IRS also reminded taxpayers that a new law will require the agency to hold back tax refunds claiming the Earned Income Tax Credit and the Additional Child Tax Credit until February 15. The IRS wishes taxpayers to be aware it will take several days for these tax refunds to be released and processed through financial institutions. Factoring in weekends and the President’s Day holiday, the IRS is warning many affected taxpayers may not have actual access to their tax refunds until the week of February 27.

“For this tax season, it’s more important than ever for taxpayers to plan ahead,” IRS Commissioner John Koskinen said in a statement. “People should make sure they have their year-end tax statements in hand, and we encourage people to file as they normally would, including those claiming the credits affected by the refund delay. Even with these significant changes, IRS employees and the entire tax community will be working hard to make this a smooth filing season for taxpayers.”

The IRS also reminded taxpayers to hold onto copies of their prior-year tax returns for at least three years. Taxpayers who are changing the tax software products they use this filing season will need to get their adjusted gross income from their 2015 tax return in order to file electronically. The Electronic Filing Pin is no longer an option. Taxpayers can visit IRS.Gov/GetReady to get more advice on preparing to file their 2016 tax return.

The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, instead of the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday, April 17. However, Emancipation Day—a legal holiday in the District of Columbia—will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

“The opening of filing season reflects months and months of work by IRS employees,” Koskinen said. “This year, we had a number of important legislative changes to program into our systems, including the EITC refund date, as well as dealing with resource limitations. Our systems require extensive programming and testing beforehand to ensure we’re ready to accept and process more than 150 million returns.”

The IRS noted that it has been working in partnership with the tax industry and state revenue departments as part of its Security Summit initiative to strengthen tax processing systems to protect taxpayers from identity theft and tax refund fraud. Several new provisions are being added in 2017 to expand on the progress made this past year.