Tax Tip of the Week
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09/07/2010

Six Facts about the American Opportunity Tax Credit

There is still time left to take advantage of the American Opportunity Tax Credit, a credit that will help many parents and college students offset the cost of college. This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2010. It can be claimed by eligible taxpayers for college expenses paid in 2009 and 2010.

Here are six important facts to know about the American Opportunity Tax Credit:

  1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course materials.
  2. The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
  3. The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
  4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
  5. The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
  6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

Complete details on the American Opportunity Tax Credit and other key tax provisions of the Recovery Act are available at IRS.gov/recovery.

09/03/2010

Eight Things to Know If You Receive an IRS Notice

Did you receive a notice from the IRS this year? Every year the IRS sends millions of letters and notices to taxpayers but that doesn’t mean you need to worry. Here are eight things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.

  1. Don’t panic. Many of these letters can be dealt with simply and painlessly.
  2. There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
  3. Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
  4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return. Before proceeding to the other steps, if we prepared your tax return, you need to send us a complete copy of the notice for our review. We will help resolve the issue for you.
  5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
  6. If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
  7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call, to help us respond to your inquiry.
  8. It’s important that you keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.govor by calling 800-TAX-FORM (800-829-3676). Of course, don't forget you can contact us for help with your notice.

09/02/2010

Ten Tips for Taxpayers Making Charitable Donations

Did you make a donation to a charity this year? If so, you may be able to take a deduction for it on your 2010 tax return.

Here are the top 10 things every taxpayer needs to know before deducting charitable donations.

  1. Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, Cumulative List of Organizations, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.
  2. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
  3. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats
  4. If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
  5. Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the name of the organization, or a payroll deduction record.
  6. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
  7. Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
  8. For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description and good faith estimate of value of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.
  9. To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
  10. An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.

For more information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

08/31/2010

Employee vs. Independent Contractor – Seven Tips for Business Owners

As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.

Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.

  1. The IRS uses three characteristics to determine the relationship between businesses and workers:
  2. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
  3. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
  4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
  5. Workers can avoid higher tax bills and lost benefits if they know their proper status.
  6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
  7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer's Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).

08/26/2010

Keeping Good Records Reduces Stress at Tax Time

You may not be thinking about your tax return right now, but summer is a great time to start planning for next year and to make sure your records are organized. Maintaining good records now can make filing your return a lot easier and it will help you remember transactions you made during the year.

Here are a few things you need to know about recordkeeping.

Keeping well-organized records also ensures you can answer questions if your return is selected for examination or prepare a response if you receive an IRS notice. In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, you should keep any and all documents that may have an impact on your federal tax return.

Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:

You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:

If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:

  • Barter ExchangeA barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves. Whether this activity operates out of a physical office or is internet based, a barter exchange is generally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, annually to their clients or members and to the IRS.
  • Barter Income Barter dollars or trade dollars are identical to real dollars for tax reporting. If you conduct any direct barter - barter for another’s products or services - you will have to report the fair market value of the products or services you received on your tax return.
  • Taxes Income from bartering is taxable in the year it is performed. You may be subject to liabilities for income tax, self-employment tax, employment tax, or excise tax. Your barter activities may result in ordinary business income, capital gains or capital losses, or you may have a nondeductible personal loss.
  • Reporting The rules for reporting barter transactions may vary depending on which form of bartering takes place. Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.

    • For more information type “Barter” in the search box on the IRS.gov homepage.

    3/30/09

    Ten Tips for Deducting Charitable Contributions

    When preparing to file your federal tax return, don’t forget your contributions to charitable organizations. Your donations could add up to a sizeable tax deduction if you itemize.

    Here are a few tips to ensure your contributions pay off on your tax return:

    1. Contributions must be made to qualified organizations to be deductible. You cannot deduct contributions made to specific individuals, political organizations and candidates.
    2. You cannot deduct the value of your time or services. Nor can you deduct the cost of raffles, bingo or other games of chance.
    3. If your contributions entitle you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
    4. Donations of stock or other property are usually valued at the fair market value of the property. Special rules apply to donation of vehicles. >/li>
    5. Clothing and household items donated must generally be in good used condition or better to be deductible.
    6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution.
    7. To claim a deduction for contributions of cash or property equaling $250 or more you must obtain a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document from the organization may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.
    8. If you claim a deduction of more than $500 for all contributed property, you must attach IRS Form 8283, Noncash Charitable Contributions, to your return.
    9. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which requires an appraisal by a qualified appraiser.
    10. Contributions made for relief efforts in a Midwest disaster area receive special benefits. For more information, see Publication 4492-B, Information for Affected Taxpayers in the Midwest Disaster Areas.

    For more information on charitable contributions, check out Publication 526, Charitable Contributions, which is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

    3/27/09

    Seven Things you Should Know When Selling Your Home

    People who sell their home may be able to exclude the gain from their income. Here are seven things every homeowner should know if they sold, or plan to sell their house.

    1. Amount of exclusion. When you have gain from the sale of your home, you may be able to exclude up to $250,000 of the gain from your income. For most taxpayers filing a joint return, the exclusion amount is $500,000.
    2. Ownership test. To claim the exclusion you must have owned the home for at least two years during the five year period ending on the date of the sale.
    3. Use test. You also must have lived in the house and used it as your main home for at least two years during the five year period ending on the date of the sale.
    4. When not to report. If you are able to exclude all of the gain from the sale of your home, you do not need to report the sale on your federal income tax return.
    5. Reporting taxable gain. If you have gain which cannot be excluded, it is taxable and must be reported on your tax return using Schedule D. <
    6. Deducting a loss. You cannot deduct a loss from the sale of your home.
    7. Rules for multiple homes. If you have more than one home, you may only exclude gain from the sale of your main home and must pay tax on the gain resulting from the sale of any other home. Your main home is generally the one you live in most of the time.

    For more information see IRS Publication 523, Selling Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

    3/25/09

    Seven Important Points about Penalties

    Taxpayers who do not file their return and pay their tax by the due date may have to pay a penalty. Here are seven things you should know about failure-to-file and failure-to-pay penalties.

    1. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
    2. The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.
    3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
    4. You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
    5. You will have to pay a failure-to-pay penalty of ? of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
    6. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
    7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

    3/23/09

    Standard or Itemized Deductions

    Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.

    The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2008, they are:

    These forms and instructions may be downloaded from the IRS.gov Web site or ordered by calling 800-TAX-FORM (800-829-3676).

    3/20/09

    Top Ten Facts About the Child and Dependent Care Credit

    If you paid someone to care for a child, spouse, or dependent, you may be able to reduce your tax by claiming the Child and Dependent Care Credit on your federal income tax return. Below are the top ten things you need to know about claiming a credit for child and dependent care expenses.

    1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child under age 13. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
    2. The care must have been provided so you – and your spouse if you are married – could work or look for work.
    3. You – and your spouse if you are married – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.
    4. The payments for care cannot be paid to your spouse, to someone you can claim as your dependent on your return, or to your child who is under age 19, even if he or she is not your dependent. You must identify the care provider on your tax return.
    5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
    6. The qualifying person must have lived with you for more than half of 2008.
    7. The credit can be up to 35 percent of your qualifying expenses, depending upon your income.
    8. For 2008, you may use up to $3,000 of the expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals.
    9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income.
    10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For information, see Publication 926, Household Employer's Tax Guide.

    For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses. You may download these free publications from IRS.gov or order them by calling 800-TAX-FORM (800-829-3676).

    3/18/09

    Can You Claim the Child Tax Credit?

    With the Child Tax Credit, you may be able to reduce the federal income tax you owe by up to $1,000 for each qualifying child under the age of 17.

    A qualifying child for this credit is someone who meets the following criteria:

    The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status:

    In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.

    If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim some or all of the difference as an “Additional” Child Tax Credit. The Additional Child Tax Credit may give you a refund even if you do not owe any tax. The total amount of the Child Tax Credit and any Additional Child Tax Credit cannot exceed the maximum of $1,000 for each qualifying child.

    For more information see IRS Publication 972, Child Tax Credit, available from the IRS Web site at IRS.gov.

    3/13/09

    IRS Has $1.3 Billion for People Who Have Not Filed a 2005 Tax Return

    WASHINGTON — Unclaimed refunds totaling approximately $1.3 billion are awaiting over a million people who did not file a federal income tax return for 2005, the Internal Revenue Service announced today. However, to collect the money, a return for 2005 must be filed with the IRS no later than Tuesday, April 15, 2009.

    Especially in these tough economic times, people should not lose out on money that is rightfully theirs," said IRS Commissioner Doug Shulman. “People should check their records, especially if they had taxes withheld from their paychecks but were not required to file a tax return. They may be leaving money on the table, including valuable tax credits that can mean even more money in their pockets."

    The IRS estimates that half of those who could claim refunds for tax year 2005 would receive more than $581. Some individuals may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury. For 2005 returns, the window closes on April 15, 2009. The law requires that the return be properly addressed, postmarked and mailed by that date. There is no penalty assessed by the IRS for filing a late return qualifying for a refund.

    The IRS reminds taxpayers seeking a 2005 refund that their checks will be held if they have not filed tax returns for 2006 or 2007. In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.

    By failing to file a return, individuals stand to lose more than refunds of taxes withheld or paid during 2005. Many low-income workers may not have claimed the Earned Income Tax Credit (EITC). Generally, unmarried individuals qualified for the EITC if in 2005 they earned less than $35,263 and had more than one qualifying child living with them, earned less than $31,030 with one qualifying child, or earned less than $11,750 and had no qualifying child. Limits are slightly higher for married individuals filing jointly.

    Current and prior year tax forms and instructions are available on the Forms and Publications web page of IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676). Information about the Earned Income Tax Credit and how to claim it is also available on IRS.gov. Taxpayers who need help also can call the toll-free IRS help line at 1-800-829-1040.

    Individuals Who Did Not File a 2005 Return with an Estimated Refund
    Individuals Median
    Estimated
    Refunds     		Total
    Estimated
    Refund*
    ($000)*
    Alabama 21,400 $585 $18,167
    Alaska 6,100 $665 $6,925
    Arizona 36,900 $487 $31,234
    Arkansas 11,400 $547 $9,756
    California 154,500 $537 $144,580
    Colorado 23,700 $532 $20,676
    Connecticut 16,000 $659 $18,234
    Delaware 5,400 $592 $5,117
    Dist of Columbia 5,300 $564 $5,518
    Florida 99,300 $609 $108,162
    Georgia 44,400 $538 $39,381
    Hawaii 9,400 $639 $11,108
    Idaho 5,300 $464 $4,113
    Illinois 50,400 $640 $53,166
    Indiana 26,600 $624 $24,041
    Iowa 11,800 $587 $9,367
    Kansas 12,900 $555 $10,804
    Kentucky 14,600 $588 $12,506
    Louisiana 24,900 $594 $24,388
    Maine 4,900 $532 $3,928
    Maryland 30,600 $584 $29,967
    Massachusetts 29,600 $638 $31,942
    Michigan 45,100 $609 $42,390
    Minnesota 19,700 $531 $17,085
    Mississippi 12,200 $533 $10,311
    Missouri 26,000 $550 $21,237
    Montana 3,700 $509 $3,125
    Nebraska 5,900 $548 $5,091
    Nevada 18,300 $551 $17,588
    New Hampshire 5,500 $667 $5,759
    New Jersey 41,100 $646 $43,761
    New Mexico 9,400 $532 $7,724
    New York 76,800 $639 $82,994
    North Carolina 37,300 $515 $29,645
    North Dakota 2,000 $553 $1,647
    Ohio 44,600 $571 $37,290
    Oklahoma 17,000 $546 $14,541
    Oregon 21,000 $467 $16,138
    Pennsylvania 47,800 $623 $43,958
    Rhode Island 4,500 $610 $4,332
    South Carolina 16,000 $506 $13,240
    South Dakota 2,400 $602 $2,046
    Tennessee 21,900 $586 $19,917
    Texas 103,000 $624 $105,241
    Utah 8,300 $496 $8,334
    Vermont 2,300 $550 $1,730
    Virginia 40,200 $576 $40,657
    Washington 35,600 $624 $39,414
    West Virginia 4,900 $627 $4,389
    Wisconsin 16,900 $535 $13,825
    Wyoming 2,800 $649 $2,785
    Armed Forces 5,500 $800 $4,540
    US Possessions/Territories 200 $754 $320
    Total 1,343,000 $581,284,133
    *Excluding the Earned Income Credit and other taxes.

    3/11/09

    Free Tax Assistance for Members of the Military

    If you or your spouse are a member of the military, you may be eligible to receive free tax return preparation assistance. The U.S. Armed Forces participates in the Volunteer Income Tax Assistance program and provides free tax advice, tax preparation, return filing and other tax assistance to military members and their families.

    The Armed Forces Tax Council oversees the operation of the military tax programs worldwide, conducting outreach with the IRS to military personnel and their families. The AFTC consists of tax program coordinators for the Marine Corps, Air Force, Army, Navy and Coast Guard.

    Volunteer assistors at Military-based VITA sites are trained to address military-specific tax issues, such as combat zone tax benefits and the new Earned Income Tax Credit guidelines.

    To receive this free assistance, you should bring the following records to your military VITA site:

    If your filing status is Married Filing Jointly and you wish to file your tax return electronically, both you and your spouse should be present to sign the required forms. If it isn’t possible for both to be present, a valid power of attorney that allows tax preparation can be used to sign and file the return.

    There is a special exception to using a power of attorney for spouses in combat zones that permits the filing spouse to e-file a joint return with only a written statement setting forth that the other spouse is in a combat zone and is unable to sign.

    For more information, review IRS Publication 3, Armed Forces’ Tax Guide, available on the IRS Web site at IRS.gov or order a free copy by calling 800-TAX-FORM (800-829-3676).

    3/09/09

    Checking the Status of Your Federal Tax Refund is Easy

    If you already filed your federal tax return and are due a refund, you can check the status of your refund online, in English or Spanish.

    Where’s My Refund? and ¿Dónde está mi reembolso? are interactive tools on the IRS Web site at IRS.gov. Whether you split your refund among several accounts, opted for direct deposit into one account, or asked the IRS to mail you a check, Where’s My Refund? and ¿Dónde está mi reembolso? give you online access to your refund information nearly 24 hours a day, 7 days a week.

    If you e-file, you can get refund information 72 hours after IRS acknowledges receipt of your return. If you file a paper return, refund information will be available within three to four weeks. When checking the status of your refund, have your federal tax return handy. To get your personalized refund information you must enter:

    Once you enter your personal information, you could get several responses, including:

    Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you can start a refund trace online.

    Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.

    If you do not have internet access, you can check the status of your refund by calling the IRS TeleTax System at 800-829-4477 or the IRS Refund Hotline at 800-829-1954. When calling, you must provide your or your spouse’s Social Security number, your filing status and the exact refund amount shown on your return.

    Refunds are sent out weekly on Fridays. If you check the status of your refund and are not given the date it will be issued, wait until the next week before checking back.

    3/06/09

    What Every Parent Should Know about Child’s Investment Income

    Children with investment income may have part or all of this income taxed at their parent’s tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income

    This rule applies to children who have investment income of more than $1800 and meet one of three age requirements for 2008:

    To figure the child's tax using this method, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,800, and attach it to the child's federal income tax return.

    When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents' Election To Report Child's Interest and Dividends.

    More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available on the IRS Web site at IRS.gov in the Forms and Publications section. You may also order them by calling the IRS at 800-TAX-FORM (800-829-3676).

    3/04/09

    Top Ten Facts about Taking Early Distributions from Retirement Plans

    If you took an early distribution from your retirement plan, here are some things you need to know:

    1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
    2. Early distributions are usually subject to an additional 10 percent tax.
    3. Early distributions must also be reported to the IRS.
    4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
    5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
    6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.
    7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.
    8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
    9. There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled. Other exceptions can be found in IRS Publication 590, Individual Retirement Arrangements (IRAs).
    10. More information about early distributions from retirement plans and the additional 10 percent tax can be found in IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

    3/02/09

    Tax Facts About Capital Gains and Losses

    Do you have questions about reporting gains and losses on your tax return? Here are some facts from the IRS.

    1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
    2. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.
    3. You must report all capital gains.
    4. You may deduct capital losses only on investment property, not on property held for personal use.
    5. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
    6. Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.
    7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2008, the maximum capital gains rates are 0%, 15%, 25% or 28%.
    8. If your capital losses exceed your capital gains, the excess can be deducted on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
    9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
    10. Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.

    For more information about reporting capital gains and losses, get Publication 17, Your Federal Income Tax, and Publication 550, Investment Income and Expenses, available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

    2/27/09

    Gambling Winnings Are Always Taxable Income

    Gambling winnings are fully taxable and must be reported on your tax return. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.

    Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.

    Here are some general guidelines on gambling income and losses:

    For more information see IRS Publication 529, Miscellaneous Deductions, or Publication 525, Taxable and Nontaxable Income, both available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).

    2/25/09

    Seven Facts to Help You Understand the Alternative Minimum Tax

    1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. The Alternative Minimum Tax attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax.
    2. Congress created the AMT in 1969, targeting a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax.
    3. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
    4. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
    5. The AMT exemption amounts are set by law for each filing status.
    6. For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:
      • $69,950 for a married couple filing a joint return and qualifying widows and widowers
      • $46,200 for singles and heads of household
      • $34,975 for a married person filing separately
    7. Taxpayers may find more information about the Alternative Minimum Tax and how it impacts them by referring to IRS Form 6251, Alternative Minimum Tax —Individuals, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

    2/23/09

    Are Your Social Security Benefits Taxable?

    How much, if any, of your social security benefits are taxable depends on your total income and marital status. Generally, if social security benefits were your only income for 2008, your benefits are not taxable and you probably do not need to file a federal income tax return.

    If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040A or Form 1040 Instruction booklet.

    Before you go to the instruction book, do the following quick computation to determine whether some of your benefits may be taxable:

    The 2008 base amounts are:

    For additional information on the taxability of social security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

    2/20/09

    Offset Education Costs

    Education tax credits can help offset the costs of higher education for yourself or a dependent. The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. Because they are credits rather than deductions, you may be able to subtract them in full, dollar for dollar, from your federal income tax.

    The Hope Credit

  • The credit applies for the first two years of post-secondary education, such as college or vocational school. It does not apply to the third, fourth, or higher years of undergraduate programs, to graduate programs, or to professional-level programs.
  • It can be worth up to $1,800 ($3,600 if a student in a Midwestern disaster area) per eligible student, per year.
  • You're allowed a credit of 100% of the first $1,200 ($2,400 if a student in a Midwestern disaster area) of qualified tuition and related fees paid during the tax year, plus 50% of the next $1,200 ($2,400 if a student in a Midwestern disaster area).
  • Each student must be enrolled at least half-time for at least one academic period which began during the year.
  • The student must be free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

    • The Lifetime Learning Credit

    These credits are phased out for Modified Adjusted Gross Income over $48,000 ($96,000 for married filing jointly) and eliminated completely for Modified Adjusted Gross Income of $58,000 or more ($116,000 for married filing jointly). If the taxpayer is married, the credit may be claimed only on a joint return.

    For more information, see Publication 970, Tax Benefits for Education, which can be obtained online at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).

    2/18/09

    What to Do If You Are Missing a W-2

    Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:

    1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2, say, ten days to two weeks.
    2. Contact the IRS. If you still do not receive your W-2 by February 17th or after your two week request, whichever is later, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
      • Employer's name, address, city, and state, including zip code;
      • Your name, address, city and state, including zip code, and Social Security number; and
      • An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
    3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
    4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

    Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676). If you prefer, I can assist you with this process.

    2/16/09

    What Income is Taxable?

    While most income you receive is generally considered taxable, there are some situations when certain types of income are partially taxed or not taxed at all.

    Some common examples of items that are not included in your income are:

  • Adoption Expense Reimbursements for qualifying expenses
  • Child support payments
  • Gifts, bequests and inheritances
  • Workers' compensation benefits
  • Meals and Lodging for the convenience of your employer
  • Compensatory Damages awarded for physical injury or physical sickness
  • Welfare Benefits
  • Cash Rebates from a dealer or manufacturer
  • Economic Stimulus Payment received in 2008

    • Some income may be taxable under certain circumstance, but not taxable in other situations.

    Examples of items that may or may not be included in your income are:

    Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

    These examples are not all-inclusive. For more information, visit the IRS Web site at IRS.gov to view or download Publication 525, Taxable and Nontaxable Income from the Forms and Publications section.

    2/13/09

    Five Important Changes for Taxpayers

    Here are a few tax law changes you may want to note before filing your 2008 federal tax return:

    1. Expiring Tax Breaks Renewed
      The following popular tax breaks were renewed for tax-years 2008 and 2009:
      • Deduction for state and local sales taxes on Form 1040 Schedule A, Line 5
      • Educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
      • Tuition and fees deduction on Form 8917

      In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.
    2. Standard Deduction Increased for Most Taxpayers
      The 2008 basic standard deductions all increased. They are:
      • $10,900 for married couples filing a joint return and qualifying widows and widowers
      • $5,450 for singles and married individuals filing separate returns
        • $8,000 for heads of household

      Beginning this year, taxpayers can claim an additional standard deduction based on the state or local real-estate taxes paid in 2008. Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster.
    3. Contribution Limits Rise for IRAs and Other Retirement Plans
      This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $53,000 and $63,000. For married couples filing jointly, the income phase-out range is $85,000 to $105,000.
    4. Standard Mileage Rates Adjusted for 2008
      The standard mileage rates for business use of a vehicle:
      • 50.5 cents per mile from Jan. 1 to June 30, 2008
      • 58.5 cents per mile driven during the rest of 2008

      The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
      • 19 cents per mile Jan. 1 to June 30, 2008
      • 27 cents from July 1 to Dec. 31, 2008
      • The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile. Special rates apply to the Midwest disaster area.

    5. Kiddie Tax Revised
      The tax on a child's investment income previously only applied to children younger than age 18. It now applies if the child has investment income greater than $1,800 and is:
      • Younger than 18
      • 18 years of age and had earned income that was equal to or less than half of his or her total support in 2008
      • Older than 18 and younger than 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.

    2/11/09

    Special Charitable Contributions for Certain IRA Owners

    As an alternative method for donating to a charity, certain taxpayers may transfer funds from their IRA to an eligible charitable organization. Here are ten things taxpayers who are thinking about making such a donation will need to know.

    1. The IRA owner must be age 70 ? or older.
    2. The donor must directly transfer the money tax-free to an eligible organization.
      3. The maximum amount that an IRA owner may transfer annually tax-free is $100,000 to an eligible organization.
    3. This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions.
    4. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension plans – commonly referred to as SEP Plans – are not eligible.
    5. To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity.
    6. Amounts transferred are not taxable and no deduction is available for the amount given to the charity unless nondeductible contributions are transferred.
    7. Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
    8. Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions. If nondeductible contributions are transferred to an eligible organization, a charitable contribution deduction may be allowed if itemizing deductions.
    9. More information about qualified charitable distributions can be found in Publication 590, Individual Retirement Arrangements.

    2/09/09

    IRS Answers the "What If" Tax Questions of an Economic Downturn

    What if I lose my job? Is my unemployment check taxable? Can I afford to take money out of my retirement account? These are just a few of the "What If" questions people are dealing with these days.

    The IRS recognizes that many people are going through difficult times financially. Often, there is a tax impact to events such as job loss, debt forgiveness or dipping into a retirement account. If your income has decreased, you may even be eligible for certain tax credits, such as the Earned Income Tax Credit, which can mean money in your pocket.

    Most importantly, if you believe you may have trouble paying your tax bill, contact the IRS immediately. There are steps the IRS can take to help. To avoid additional penalties, you should always file your tax return on time even if you are unable pay your tax bill.

    Here are some “What if” questions that are answered on the official IRS Web site. Simply go to IRS.gov and type the keywords "What If" in the “Search” box at the top of the page.

    Job Related
    What if I lose my job?
    What if my income declines?
    What if I withdraw money from my IRA?
    What if my 401(k) drops in value
    Debt Related
    What if I lose my home through foreclosure?
    What if I sell my home for a loss?
    What if my debt is forgiven?
    Tax Related
    What if I can’t pay my taxes?
    What if I can’t pay my installment agreement?
    What if I can’t resolve my tax problem with the IRS?
    What if I need legal representation to help with my tax problem but can’t afford it?

    Remember. to access the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

    2/06/09

    Things You May Not Know About the Earned Income Tax Credit

    The Earned Income Tax Credit is for people who work, but have lower incomes. Here are some things you may not know about the EITC.

    1. A quarter of all taxpayers that qualify don’t claim the credit. The Earned Income Tax Credit is money you can use to make a difference in your life. Just because you didn’t qualify last year, doesn’t mean you won’t this year. As your financial situation changes from year-to-year you should review the EITC eligibility rules to determine if you qualify.
    2. If you qualify, it could be worth up to $4,800 this year. If you qualify, you could pay less federal tax or even get a refund. The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household.
    3. Your filing status cannot be Married Filing Separately. Your filing status must be married filing jointly, head of household, qualifying widow or single.
    4. You must have a valid Social Security Number. You, your spouse (if filing a joint return) and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
    5. You must have earned income. This credit is called the “earned income” tax credit because you must work and have earned income to qualify. You have earned income if you work for someone who pays you wages or you are self-employed.
    6. Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
    7. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make the election, the combat pay remains nontaxable, but you must include in earned income all nontaxable combat pay you received.

    For more information about the EITC see IRS Publication 596, Earned Income Credit. This publication (available in both English and Spanish) can be downloaded from IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

    We automatically check all returns for the Earned Income Tax Credit.

    2/04/09

    Direct Deposit Puts Your Money In Your Pocket...Faster

    Don’t wait around for a paper check. Have your federal tax refund deposited directly into your bank account. Choosing Direct Deposit is a secure and convenient way to get your money in your pocket faster.

    Here are the main reasons 66 million taxpayers chose Direct Deposit in 2008:

    1. Direct Deposit is secure. There is no chance for a check to get lost in the mail. Thousands of checks are returned to the IRS by the US Post Office every year as undeliverable mail. Direct Deposit eliminates the possibility you won’t receive your check and prevents your refund from being stolen. Don't forget it is your responsibility to make sure the account number on your tax return is correct, not the tax preparer.
    2. Direct Deposit is convenient. The money goes directly into your bank account. You won’t have to make a special trip to the bank to deposit the money yourself.
    3. Direct Deposit is easy. When you’re preparing your return, simply follow the instructions for “refund” on your return. Just make sure you entered the correct bank account and bank routing numbers on your tax form and you’ll receive your refund quicker than ever.
    4. Direct Deposit offers options. You can also electronically direct your refund to multiple accounts. With the "split refund" option, taxpayers can divide their refunds among as many as three checking or savings accounts and three different U.S. financial institutions. A word of caution — some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted.

    This and other helpful tips are available in IRS Publication 17, Your Federal Income Tax. To get a copy, visit the Forms and Publications section of the IRS Web site, IRS.gov, or call 800-TAX-FORM (800-829-3676).

    02/02/09

    Tips for Recently Married or Divorced Taxpayers

    If you were married or divorced recently, there are a couple of things you’ll want to do to ensure the name on your tax return matches the name registered with the Social Security Administration.

    If a taxpayer takes their spouse’s last name or if both spouses hyphenate their last names, they may run into complications if they don’t notify the SSA. If the newlyweds file a tax return using their new last names, IRS computers would not be able to match the new name with their Social Security Number.

    After a divorce, taxpayers who change back to their previous last name also need to notify the SSA of the change.

    Informing the SSA of a name change is quite simple. File a Form SS-5 at your local SSA office. The form is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.

    Taxpayers who adopt their spouse’s child after getting married will want to make sure the children have an SSN. Taxpayers must provide SSNs for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. The W-7A is available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).

    01/30/09

    Tips for Taxpayers Making a Move

    If you changed your home or business address, you’ll want to remember these six tips to ensure you receive any refunds or correspondence from the IRS.

    You can change your address on file with the IRS in several ways:

    1. Correct the address legibly on the mailing label that comes with you tax package.
      Write the new address in the appropriate boxes on your tax return;
      • Use Form 8822, Change of Address, to submit an address or name change any time during the year
      • Give the IRS written notification of your new address by writing to the IRS center where you file your return. Include your full name, old and new addresses, Social Security Number or Employer Identification Number and signature. If you filed a joint return, be sure to include the information for both taxpayers. If you filed a joint return and have since established separate residences, both taxpayers should notify the IRS of your new addresses
      • Should an IRS employee contact you about your account, you may be able to verbally provide a change of address
    2. Be sure to also notify your employer of your new address so you get your W-2 forms on time.
    3. If you change your address after you’ve filed your return, don’t forget to notify the post office at your old address so your mail can be forwarded.
    4. Taxpayers who make estimated payments throughout the year should mail a completed Form 8822, Change of Address, or write the IRS center where you file your return. You may continue to use your old pre-printed payment vouchers until the IRS sends you new ones with your new address. However, do not correct the address on the old voucher.
    5. The IRS does use the Postal Service’s change of address files to update taxpayer addresses, but it’s still a good idea to notify the IRS directly.
    6. Visit IRS.gov for more information about changing your address. You can find the address of the IRS center where you file your tax return or download Form 8822, Change of Address. The form is also available by calling 800-TAX-FORM (800-829-3676). I can help you with this process, if you would like.

    01/28/09

    Getting a Free Transcript of My Tax Return Information - Actual Copies $57 Each

    There are two easy and convenient options for obtaining free copies of your federal tax return information — tax return transcripts and tax account transcripts — by phone or by mail.

    A tax return transcript shows most line items from the tax return (Form 1040, 1040A or 1040EZ) as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions such as those offering mortgages and student loans. You should receive your tax return transcript within 10 working days from the time the IRS receives your request.

    A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income. The IRS does not charge a fee for transcripts, which are available for the current and past three years. Allow 30 calendar days for delivery of a tax account transcript.

    To request either transcript:

    If you still need an actual copy of a previously processed tax return, it will cost $57 per tax year and take much longer. Complete Form 4506, Request for Copy of Tax Form, and mail it to the IRS address listed on the form for your area. Please allow 60 days for actual copies of your return. Copies are generally available for the current and past six years.

    Forms 4506-T and 4506 can be found on the IRS Web site at or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676). Of course, if I prepared your tax return, I will be happy to provide you another copy for any year I still have archived at no charge.

    01/26/09

    Ten Things the IRS Wants You to Know About Identity Theft

    1. If you receive a letter or notice from the IRS which leads you to believe someone may have fraudulently used your Social Security Number, respond immediately to the name and address or phone number printed on the IRS notice.
    2. If you receive a letter from the IRS that indicates more than one tax return was filed for you, this may be a sign that your SSN was used fraudulently.
    3. Another sign that you may be the target of identity theft is an IRS letter indicating you received wages from an employer unknown to you.
    4. The IRS has a department which deals specifically with identity theft issues. The IRS Identity Protection Specialized Unit is available if you have been in contact with the IRS about an identity theft issue and have not achieved a resolution.
    5. You can contact the IRS Identity Protection Specialized Unit by calling the Identity Theft Hotline at 800-908-4490 Monday through Friday from 8:00 am to 8:00 pm local time (Alaska and Hawaii follow Pacific Standard Time).
    6. The IRS Identity Protection Specialized Unit is also available if you believe your identity may be at risk of being stolen due to a lost or stolen purse or wallet or due to questionable activity on your credit card or your credit report.
    7. The IRS never initiates communication with taxpayers about their tax account through emails. If you receive an e-mail or find a Web site you think is pretending to be the IRS, forward the e-mail or Web site URL to the IRS at phishing@irs.gov.
    8. The IRS has many more resources available to help inform taxpayers about identity theft on the IRS Web site at IRS.gov. On IRS.gov you can access information on how to report scams and bogus IRS Web sites. You can also visit the IRS Identity Theft Resource Page, which you can find by typing Identity Theft Resource Page in the search box on the IRS.gov home page.
    9. The Federal Trade Commission is also available to assist taxpayers with identity theft issues. You can reach them at 877-ID-THEFT (877-438-4338).
    10. Visit OnGuardOnline.gov for protection tips from the federal government and the technology industry.

      11. 01/19/09

      What Tax Records to Keep

      You probably already keep records in your daily routine. This includes keeping receipts for purchases and recording information in your checkbook. Keeping these and other records will help you avoid headaches at tax time. Good recordkeeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience.

      Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

      In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

      Good recordkeeping throughout the year saves you time and effort at tax time when organizing and completing your return.

      For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please feel free to contact me with any specific question you may have.

      01/16/09

      Be Aware of Suspicious E-Mails

      Be aware of e-mail scams that fraudulently use the IRS name or Logo as a lure. The goal of the scam is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft and steal your money.

      The IRS does not send unsolicited e-mails about a person’s tax account or ask for detailed personal and financial information. Additionally, the IRS never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

      If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site,

      You can help shut down these schemes and prevent others from being victimized. If you receive a suspicious e-mail that claims to come from the IRS, you can forward that e-mail to a special IRS mailbox, phishing@irs.gov The e-mail must be forwarded using special instructions at IRS.gov, or it loses the encoding needed to track it to its source. The IRS can use the information, URLs and links in the suspicious e-mails you forward to trace the hosting Web site and alert authorities to help shut down the fraudulent sites. After you forward the e-mail to the IRS, delete the message.

      Remember that all of the web page addresses for the official IRS website, IRS.gov, begin with http://www.irs.gov. Don' t be confused or misled by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

      01/14/09

      Top Five Facts about Dependents and Exemptions

        Dependents may be required to file their own tax return. Even though you are a dependent on someone else’s tax return, you may still have to file your own tax return. Whether or not you must file a return depends on several factors, including: the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Credit payments you received.
      1. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,500 on your 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.
      2. Dependents may not claim an exemption. If you claim someone as a dependent, such as your child, that dependent may not claim a personal exemption on their own tax return.
      3. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return and were not the dependent of another taxpayer.
      4. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

      For more information on dependents and exemptions, including whether or not you or your dependent needs to file a tax return, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information or contact me via e-mail.

      01/12/09

      The Five Filing Status Possibilities

      Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

      There are two things to consider when determining your filing status:

      First, your marital status on the last day of the year determines your filing status for the entire year. Secondly, if more than one filing status applies to you, choose the one that gives you the lowest tax obligation.

      Here are the five filing status options:

      1. Single. This will generally apply to anyone who is unmarried, divorced or legally separated according to your state law. (The Federal DOMA does not recognize any marriage between same gendered individuals for income tax filing purposes.)
      2. Married Filing Jointly. A married couple may file a joint return together. If your spouse died during the year, you may still file a joint return with that spouse for the year of death. (Assuming you have not remarried prior to the end of the year.)
      3. Married Filing Separately. A married couple may elect to file their returns separately.
      4. This generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
      5. Qualifying Widow(er) with Dependent Child. You may be able to choose this filing status if your spouse died during 2006 or 2007, you have a dependent child and you meet certain other conditions.

      There’s much more information about determining your filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on the IRS Web site at IRS.gov or you may contact me.

      01/09/09

      First-Time Homebuyer credit

      First-time homebuyers should begin planning now to take advantage of a new tax credit. Available for a limited time, the credit:

      Only the purchase of a main home located in the United States qualifies. Vacation homes and rental property are not eligible. For a home that you construct, the purchase date is the first date you occupy the home.

      Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.

      If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. If you make an eligible purchase in 2009, you can choose to claim the credit on either your original or amended 2008 return, or on your 2009 return.

      The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the maximum credit will be available for homes costing $75,000 or more. The credit normally must be repaid over a 15-year period starting the second year after the year the credit is claimed.

      The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income. In general, for a married couple filing a joint return the phase-out begins at $150,000 and is completely phased out at $170,000. For other taxpayers, the phase-out range is between $75,000 and $95,000.

      Not everyone will qualify for the credit. There are other rules that may impact your eligibility and decision to claim the First-Time Homebuyer Credit. Get all the information at IRS.gov or send me an e-mail with your question.