Tax Tip of the Week
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:
- 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.
- 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.
- 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.
- 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.
- The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
- 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.
- Don’t panic. Many of these letters can be dealt with simply and painlessly.
- 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.
- Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry.
- 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.
- If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
- 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.
- 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.
- 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.
- 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.
- Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
- 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
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- The IRS uses three characteristics to determine the relationship between businesses and workers:
- Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
- Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
- Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
- 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.
- 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.
- 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.
- Workers can avoid higher tax bills and lost benefits if they know their proper status.
- 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.
- 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:
- Bills
- Credit card and other receipts
- Invoices
- Mileage logs
- Canceled, imaged or substitute checks or any other proof of payment
- Any other records to support deductions or credits you claim on your return
You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:
- A home purchase or improvement
- Stocks and other investments
- Individual Retirement Arrangement transactions
- Rental property records
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:
- Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
- Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
- Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
- Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks
- Notify the Social Security Administration Report any name change to the Social Security Administration, so your name and Social Security Number will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at socialsecurity.com, by calling 800-772-1213 or at local offices.
- Notify the IRS If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).
- Notify the U.S.Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.
- Notify Your Employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
- Check Your Withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate, you can print out and give to your employer so they can withhold the correct amount from your pay.
- The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
- The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
- To qualify as “energy efficient” for purposes of this tax credit, products generally must meet higher standards than the standards for the credit that was available in 2007.
- Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers’ Website.
- Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
- The improvements must be made to the taxpayer’s principal residence located in the United States.
- To claim the credit, attach Form 5695, Residential Energy Credits to either the 2009 or 2010 tax return. Taxpayers must claim the credit on the tax return for the year that the improvements are made.
- The IRS does not initiate contact with a taxpayer by e-mail.
- If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.
- Identity thieves get your personal information by many different means, including:
- Stealing your wallet or purse
- Posing as someone who needs information about you through a phone call or e-mail
- Looking through your trash for personal information
- Accessing information you provide to an unsecured Internet site.
- If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov’, forward that link to the IRS at phishing@irs.gov.
- To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx
- If your Social Security number is stolen, another individual may use it to get a job. That person’s employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.
- Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know. If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.
- If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed Form 14039, Identity Theft Affidavit. As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. You should also follow FTC guidance for reporting identity theft at ftc.gov/idtheft.
- Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your Social Security number.
- For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching “Identity Theft” on the IRS.gov home page.
- The Taxpayer Advocate Service is your voice at the IRS.
- TAS service is free, confidential, and tailored to meet your needs.
- You may be eligible for TAS help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should.
- TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. This includes businesses as well as individuals.
- TAS employees know the IRS and how to navigate it. If you qualify for TAS help, your case will be assigned to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.
- There is at least one local taxpayer advocate office in every state, the District of Columbia, and Puerto Rico. You can call your local advocate, whose number is in your phone book, in Pub. 1546, Taxpayer Advocate Service -- Your Voice at the IRS, and on the website at IRS.gov/advocate. You can also call toll-free number at 1-877-777-4778 or TTY/TDD 1-800-829-4059
- You can learn about your rights and responsibilities as a taxpayer by visiting the TAS online tax toolkit at www.taxtoolkit.irs.gov. You can get updates on hot tax topics by visiting the TAS YouTube channel at www.youtube.com/tasnta www.youtube.com/tasntaand the TAS Facebook page facebook.com/YourVoiceAtIRS, or by following TAS tweets at Twitter.
- Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information in an electronic communication. Scams can take the form of e-mails, tweets or phony websites and they try to mislead consumers by telling them they are entitled to a tax refund from the IRS and they must reveal personal information to claim it. Regardless of how official this e-mail may look and sound, the IRS never initiates unsolicited e-mail contact with taxpayers about their tax issues. Phishers use the personal information obtained to steal the victim’s identity, access bank accounts, run up credit card charges or apply for loans in the victim’s name. If you receive an e-mail that you suspect is a phishing attempt or directs you to an imitation IRS website, please forward it to the IRS at phishing@irs.gov. You can also visit IRS.gov and enter the keyword phishing for additional information.
- Return Preparer Fraud Dishonest tax return preparers can cause trouble for taxpayers who fall victim to their ploys. Such preparers are skimming a portion of their clients’ refunds, charging inflated fees for tax preparation or are attracting new clients by promising refunds that are too good to be true. To increase confidence in the tax system, the IRS is requiring all paid return preparers to register with the IRS, pass competency tests and attend continuing education.
- Hiding Income Offshore Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts. IRS agents continue to develop their investigations of these offshore tax avoidance transactions using information gained from more than 14,700 voluntary disclosures received last year. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans.
- Abuse of Charitable Organizations and Deductions The IRS continues to observe the misuse of tax-exempt organizations. This includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets. The IRS also continues to investigate various schemes where donations are highly overvalued or the organization receiving the donation promises that the donor can purchase the items back at a later date at a price the donor sets.
- Frivolous Arguments Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. The IRS has a list of frivolous legal positions that taxpayers should avoid on IRS.gov. These arguments are false and have been thrown out of court.
- This credit – still available for 2010 – equals 6.2 percent of a taxpayer’s earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
- Eligible self-employed taxpayers can benefit from the credit by evaluating their expected income tax liability and, if they are eligible, by making the appropriate adjustments to the amounts of their estimated tax payments.
- Taxpayers who fall into any of the following groups during 2010 should review their tax withholding to ensure enough tax is being withheld. Those who should pay particular attention to their withholding include:
- Married couples with two incomes
- Individuals with multiple jobs
- Dependents
- Pensioners
- Workers without valid Social Security numbers
- The Making Work Pay tax credit is reduced or unavailable for higher-income taxpayers. The reduction in the credit begins at $75,000 of income for single taxpayers and $150,000 for couples filing a joint return.
- A quick withholding check using the IRS Withholding Calculator on IRS.gov may be helpful for anyone who believes their current withholding may not be right. Taxpayers can also check their withholding by using the worksheets in IRS Publication 919, How Do I Adjust My Tax Withholding?. Adjustments can be made by filing a revised Form W-4, Employee's Withholding Allowance Certificate. Pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.
- First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
- The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
- An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
- Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
- Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
- Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
- To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
- You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
- You can deduct amounts you spend for preparing and mailing copies of your résumé to prospective employers as long as you are looking for a new job in your present occupation.
- If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
- You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
- You cannot deduct job search expenses if you are looking for a job for the first time.
- Recordkeeping Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents by e-mail. This method is an outstanding way to secure financial records. Important tax records such as W-2s, tax returns and other paper documents can be scanned onto an electronic format. You can copy them onto a ‘key’ or ‘jump drive’ periodically and then keep the electronic records in a safe place.
- Document Valuables The IRS has disaster loss workbooks for individuals that can help you compile a room-by-room list of your belongings. One option is to photograph or videotape the contents of your home, especially items of greater value. You should store the photos in a safe place away from the geographic area at risk. This will help you recall and prove the market value of items for insurance and casualty loss claims.
- Update Emergency Plans Emergency plans should be reviewed annually. Individual taxpayers should make sure they are saving documents everybody should keep including such things as W-2s, home closing statements and insurance records. Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches.
- Count on the IRS In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed. If you have been impacted by a federally declared disaster, you may receive copies or transcripts of previously filed tax returns free of charge by submitting Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, clearly identified as a disaster related request.
- All employees fill out a W-4, Employee’s Withholding Allowance Certificate, when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs you will want to make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on IRS.gov.
- Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable income and is therefore subject to federal income tax.
- Many students do odd jobs over the summer to make extra cash. Earnings you received from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.
- If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
- Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
- Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
- You are in the business of delivering newspapers.
- All your pay for these services directly relates to sales rather than to the number of hours worked.
- You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
- The cost of day camp may count as an expense towards the child and dependent care credit.
- Expenses for overnight camps do not qualify.
- If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
- The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
- You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
- Go to IRS.gov, and click on "Where’s My Refund"
- Call 1-800-829-4477 24 hours a day, seven days a week for automated refund information
- Call 1-800-829-1954 during the hours shown in your tax form instructions
- Don’t panic. Many of these letters can be dealt with simply and painlessly. Make sure you contact us about any notice received.
- There are a number of reasons why the IRS might send you a notice. Notices may request payment of taxes, notify you of changes to your account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
- Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
- If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
- If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
- If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want 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.
- 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.
- It’s important that you keep copies of any correspondence with your records.
- If you need to amend your tax return, use Form 1040X, Amended U.S. Individual Income Tax Return.
- Use Form 1040X to correct previously filed Forms 1040, 1040A or 1040EZ. The 1040X can also be used to correct a return filed electronically. However, you can only paper file an amended return.
- You should file an amended return if you discover any of the following items were reported incorrectly: filing status, dependents, total income, deductions or credits.
- Generally, you do not need to file an amended return for math errors. The IRS will automatically make the correction.
- You usually do not need to file an amended return because you forgot to include tax forms such as W-2s or schedules. The IRS normally will send a request asking for those documents.
- Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
- If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the IRS campus for the area in which you live. The 1040X instructions list the addresses for the campuses.
- If the changes involve another schedule or form, you must attach it to the 1040X.
- If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
- If you owe additional tax for 2009, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, without regard to extensions.
- Normally, tax records should be kept for a minimum of three years.
- Some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept until at least three years after they show up on your tax return.
- 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.
- Records you should keep include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks, proofs of payment, and any other records to support deductions or credits you claim on your return.
- For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
- Installment Agreement: You can apply for an IRS installment agreement using the Web-based Online Payment Agreement application on IRS.gov. This Web-based application allows taxpayers who owe $25,000 or less in combined tax, penalties and interest to self-qualify, apply for, and receive immediate notification of approval. You can also request an installment agreement before your current tax liabilities are actually assessed by using OPA. The OPA option provides you with a simple and convenient way to establish an installment agreement and eliminates the need for personal interaction with IRS and reduces paper processing. You may also complete and submit a Form 9465, make your request in writing, or call 1-800-829-1040 to make your request. For balances over $25,000, you are required to complete a financial statement to determine the monthly payment amount for an installment plan. For more complete information see Tax Topic 202, Tax Payment Options on IRS.gov
- Pay by Credit Card or Debit Card: You can charge your taxes on your American Express, MasterCard, Visa or Discover credit cards. Additionally, you can pay by using your debit card. However, the debit card must be a Visa Consumer Debit Card, or a NYCE, Pulse or Star Debit Card. To pay by credit card or debit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee or flat fee. If you are paying by credit card, the service providers charge a convenience fee based on the amount you are paying. If you are paying by debit card, the service providers charge a flat fee of $3.89 to $3.95.Do not add the convenience fee or flat fee to your tax payment.
- Official Payments Corporation:
To pay by debit or credit card: 888-UPAY-TAX (888-872-9829),
officialpayments.com/fed - Link2Gov Corporation:
To pay by debit or credit card: 888-PAY-1040 (888-729-1040),
pay1040.com - RBS WorldPay, Inc.
To pay by debit or credit card: 888-9PAY-TAX (888-972-9829),
payUSAtax.com - Never send cash!
- If you file electronically, you can file and pay in a single step by authorizing an electronic funds withdrawl via tax preparation software or a tax professional
- Whether you file a paper return or electronically, you can pay by phone or online using a credit or debit card.
- Electronic payment options provide an alternative to paying taxes or user fees by check or money order. YOu can make payments 24 hours a day, seven days a week. Visit IRS.gov and search e-pay, or refer to Publication 3611, e-File Electronic Payments for more details.
- If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction on Form 1040, Schedule A, Itemized Deductions. The deduction is subject to the 2 percent limit.
- Enclose your payment with your return but do not staple it to the form.
- If you pay be check or money order, make sure it is payable to the "United States Treasury."
- Always provide your correct name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number on the front of your check or money order.
- Complete and include Form 1040-V, Payment Voucher, when sending your payment to the IRS. This will help the IRS process your payment accurately and efficiently.
- For more informaiton, Call 800-829-4477 for TeleTax Topic 158, Ensuring Proper Credit of Payments. You can also find out more in Publication 17, Your Federal Income Tax and Form 1040-V, both available at IRS.gov.
- Residential Energy Property Credit: This tax credit is for homeowners who make qualified energy efficient improvements to their existing homes. This credit is 30 percent of the cost of all qualifying improvements. The maximum credit is $1,500 for improvements placed in service in 2009 and 2010 combined. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
- Residential Energy Efficient Property Credit: This tax credit willhelp individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines installed on or in connection with their home located in the United States and geothermal heat pumps installed on or in connection with their main home located in the United States. The credit, which runs through 2016, is 30 percent on the cost of qualified property. ARRA removes some of the previously imposed annual maximum dollar limits.
- Plug-in Electic Drive Vehicle Credit: ARRA modifies this credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. The minimum amount of the credit for qualified plug-in electric drive vehicles, which runs through 2014, is $2,500 and the credit tops out at $7,500, depending on the battery capacity. ARRA phases out the credit for each manufacturer after they sell 200,000 vehicles.
- Credit for Conversion Kits: This credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle that is placed in service after Feb. 17, 2009. The maximum credit, which runs through 2011, is $4,000.
- Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT: Starting in 2009, ARRA allows the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the new law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This means the credit could not be taken if a taxpayer owned AMT or was reduced for some taxpayers who did not own AMT.
- Refund Options: You have three options for receiving your individual federal income tax refund; a paper check, direct deposit or U.S. Savings Bonds. You can now use your refund to buy up to $5,000 in U.S. Series 1 savings bonds in multiples of $50.
- Separate Accounts: You may use Form 8888, Direct Deposit of Refund to More Than One Account, to request that your refund be allocated by direct deposit among up to three separate accounts, such as checking or savings or retirement accounts. You may also use this form to buy U.S. Savings Bonds.
- Paper Return Processing Time: If you file a complete and accurate paper tax return, y our refund will usually be issued within six weeks from the date it is received.
- Returns Filed Electronically: If you filed electronicall, your refund will normally be issued within three weeks after the acknowledgment date.
- Check the Status Online: The fastest and easiest way to find out about your current year refund is to go to IRS.gov and click the "Where's My Refund?" link at the IRS.gov home page. To check the status online you will need your Social Security number, filing status and the exact whole dollar amount of your refund shown on your return.
- Check the Status By Phone: You can check the status of your refund by calling the IRS Refund Hotline at 800-829-1954. When you call, you will need to provide your Social Security number, your filing status and the exact whole dollar amount of the refund shown on your return.
- Delayed Refund: There are several reasons for delayed refunds. For things that may delay the processing of your return, refer to Tax Topic 303 at IRS.gov, which includes a Checklist of Common Errors When Preparing YOur Tax Return.
- Larger than Expected Refund: If you receive a refund to which you are not entitled, or one for an amount that is more than you expected, do not cash the check until you receive a notice explaning the difference. Follow the instructions on the notice.
- Smaller than Expected Refund: If you receive a refund for a smaller amount than you expected, you may cash the check. If it is determined that you should have received more, you will later receive a check for the difference. If you did not receive a notice and you have questions about the amount of your refund, wait two weeks after receiving the refund, then call 800-829-1040.
- Missing Refund: The IRS will assist you in obtaining a replacement check for a refund check that is verified as lost or stolen. If the IRS was unable to deliver your refund because you moved, you can change your address online. Once your address has been changed, the IRS can reissue the undelivered check.
- You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
- Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2009 must be made by April 15, 2010. Additionally, ifyou make a contribution between Jan. 1 and April 15, you should designate the year targeted for that contribution.
- The funds in your IRA are generally not taxed until you receive distributions from that IRA.
- Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
- For 2009, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who are 50 or older or the amount of your taxable compensation for the year.
- Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
- You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contribution or if you deduct an IRA contibution.
- You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
- You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation, however, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.
- Refer to IRS Publication 590, for more information on contributing to your IRA account.
- Contributions must be made to qualified organiations to be deductible. You cannot deduct contributions made to specific individuals, political organizations and candidates.
- You cannot deduct the value of your time or services. Nor can you deduct the cost of raffles, bingo or other games of chance.
- 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.
- Donations of stock or other property are usually valued at the fair market value of the property. Sepcial rules apply to donation of vehicles.
- Clothing and household items donated must generally be in good used condition or better to be deductible.
- Regardless of the amount, to deduct a contibution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organzation containing the name of the organzation, the date of the contribution and amount of the contribution. For donations by text message, a telephone bill will meet the record-keeping requirement if it shows the name of the organization receiving your donation, the date of the contribution, and the amount given.
- To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organzation 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 may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.
- If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
- 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.
- To detuct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
- $5,700 for Single
- $11,400 for Married Filing Jointly
- $8,350 for Head of HOusehold
- $5,700 for Married Filing Separately
- $11,400 for Qualifying Widow(er)
- The additional deduction amount is equal to the amount of real estate taxes paid, or $500 for single filers or $1,000 for joint filers, whichever is less.
- The taxes must be imposed on you.
- You must have paid the taxes during your tax year.
- The taxes must be levied for general public welfare on the assessed value of the real property and charged uniformly on all property under the jurisdiction of the taxing authority. Many states and counties also impose local benefit taxes for improvements to property, such as assessments for streets, sidewalks and sewer lines. These taxes usually cannot be deducted.
- Real estate taxes paid on foreign or business property do not qualify for the increased standard deduction.
- You must file a Form 1040 or 1040A and attach Schedule L, Standard Deduction for Certain Filers, to claim the increased deduction. When claiming the higher standard deduction for real estate taxes, be sure to check the box on line 40b of Form 1040 or line 24b of Form 1040A.
- The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. 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.
- The care must have been provided so you - and your spouse if you are married filing jointly - could work or look for work.
- You - and your spouse if you are married filing jointly - must have earned income form wages, salaries, tips, other taxable employee compensation or net earnings from self-employement. 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.
- 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 will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
- Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
- The qualifying person must have lived with you for more than half of 2009. However, see Publication 503, Child and Dependent Care Expenses, regarding exceptions for the birth or death of a qualifying person, or child of divorced or separated parents.
- The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
- For 2009, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
- The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
- 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.
- Amount - With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
- Qualification - A qualifying child for this credit is someone who meets the qualifying criteria of six test: age, relationship, support, dependent, citizenship, and residence.
- Age Test - To qualify, a child must have been under age 17 - age 16 or younger - at the end of 2009.
- Relationship Test - To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sisiter, stepbrother, stepsister or a descendent of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
- Support Test - In order to claim a child for this credit, the child must not have provided more than half of their own support.
- Dependent Test - You must claim the child as a dependent on your federal tax return.
- Citizenship Test - To meet the citizenship test, the child must be a U.S. citzen, U.S. national, or U.S. resident alien.
- Residence Test - The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
- Limitations - 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. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. FOr all other taxpayers, the phase-out begins at $75,000. 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.
- Additional Child Tax Credit - IF the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Tax Credit.
- Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
- The limit is $1 million for a married person filing a separate return.
- You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a forclosure.
- To qualify, the debt must have been used to buy, build or substantially improve your principal residence also qualify for the exclusion.
- Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
- Proceeds of refinanced debt used for other purposes - for example, to pay off credit card debt - do not qualify for the exclusion.
- If you qualify, claim the special exclusion by filing out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
- Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions - such as insolvency - may be applicable. IRS Form 982 provides more details about these provisions.
- If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
- Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.
- Online Access to Refund Information: Where's My Refund? or ¿Dónde está mi reemboiso? are interactive tools on IRS.gov and the fastest, easiest way to get information about your federal income tax refund. Whether you split your refund among several accounts, opted for direct deposit into one account, used part of your refund to buy U.S. savings bonds or asked the IRS to mail you a check, Where's My Refund? and ¿Dónde está mi reemboiso? give you online access to your refund information nearly 24 hours a day, 7 days a week. It's quick, easy and secure.
- When to Check Refund Status: When you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. If you file a paper return, refund information will generally be available three to four weeks after mailing your return.
- What You Need to Check Refund Status: When checking the status of your refund, have your federal tax return handy. To get your personalized refund information you must enter:
- Your Social Security Number or Individual Taxpayer Identification Number.
- Your filing status which will be Single, Married Filing Joint Return, Married Filing Separate Return, Head of HOusehold, or Qualifying Widow(er).
- Exact whole dollar refund amount shown on your tax return.
- What the Online Tool Will Tell YOu: Once you enter your personal information, you could get several responses, including:
- Acknowledgement that your return was received and is in processing.
- The mailing date or direct deposit date of your refund.
- Notice that the IRS could not deliver your refund due to an incorrect address. In this instance, you may be able to change or correct your address online using Where's My Refund?
- Customized Information: 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 may be able to start a refund trace.
- Viually Impaired Taxpayers: Where's My Refund? is also accessible to visually impared taxpayers who use the JOb Access with Speech screen reader used with a Bralle display and is compatible with different JAWS modes.
- Toll-Free Number: If you do not have internet access, you can check the status of your refund in English or Spanish by calling the IRS Refund Hotline at 800-829-1954 or the IRS TeleTax System at 800-829-4477. When calling, you must provide your or your spouse's When calling, you must provide your or your spouse's Social Security number, filing status and the exact whole dollar refund amount shown on your return.
- The IRS does not send unsolicited e-mails about a person's tax account or ask for detailed personal and financial information via e-mail.
- The IRS never asks taxpayers for their PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.
- If you recieve an e-mail from someone claiming to be the IRS or directing you to an IRS site,
- Do not reply to the message.
- Do not open any attachments. Attachments may contain malicious code that will infect your computer.
- Do not click any links. If you clicked on links in a suspicious e-mail or phishing Web site and entered confidential information, visit IRS.gov and enter the search term 'identity theft' for more information and resources to help.
- 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. You can forward the message as received or provide the internet header of the e-mail. The internet header has additional information to help us locate the sender.
- Remember, the offical IRS web site is IRS.gov. Do not be confused or misled by sites claiming to be the IRS but end in .com, .net, .org, or other designations instead of .gov.
- Settlement Statement: Purchasers of conventional homes must attach a copy of Form HUD-1 or other properly executed Settlement Statement.
- Properly Executed Settle Statement: Generally, a properly executed settlement statement shows all parties' names and signatures, property address, sales prices adn date of purchase. However, settlement documents, including the Form HUD-1, can vary from one location to another and may not include the signatures of both the buyer and seller. I n areas where signatures are not required on the settlement document, the IRS encourages buyers to sign the settlement statement when they file their tax return - even in cases where the settlement form does not include a signature line.
- Retail Sales Contract: Purchasers of mobile homes who are unable to get a settlement statement must attach a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
- Certificate of Occupancy: For a newly constructed home, where a settlement statement is not available, attach a copy of the certificate of occupancy showing the owner's name, property address and date of the certificate.
- Long-Time Residents: If you are a long-time resident claiming the credit, the IRS recommends that you also attach documentations covering the five-consecutive-year period such as Form 1098, Mortgage Interest Statement or substitute mortgage interest statement, property tax records or homeowner's insurance records.
- Investment Income: Children with investment income may have part or all of this income taxed at their parents' tax rate rather than at the child's rate. Investment income includes interest, dividends, capital gains and other unearned income.
- Age Requirement: The child's tax must be figured using the parents' rates if the child has investment income of more than $1,900 and meet one of three age requirements for 2009:
- The child was born after January 1, 1992.
- The child was born after January 1, 1991, and before January 2, 1992, and has earned income that does not exceed one-half of their own support for the year.
- The child was born after January 1, 1986 and before January 2, 1991, and a full-time student with earned income that does not exceed one-half of the child's support for the year.
- Form 8615: To figure the child's tax using the parents' rate for the child's return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child's federal income tax return.
- Form 8814: 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.
- Income Limits: The Savers Credit, Formally known as the Retirement Savings Contributions Credit, applies to individuals with filing status and income of:
- Single, married filing separately, or qualifying widow(er), with income up to $27,750
- Head of Household, with income up to $41,625
- Married Filing Jointly, with income up to $55,500
- Eligibility requirements: To be eligible for the credit you must have been born before January 2, 1992, you cannot have been a full-time student during the calander year and cannot be claimed as a dependent on another person's return.
- Credit amount: If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
- Distributions: When figuring this credit, you generally must subract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date - including extensions - for filing the return for the credit year.
- Other Tax benefits: The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
- Forms to use: To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.
- Payments you receive from your Individual Retirement Arrangemnt before you reach age 59 1/2 are generally considered early or premature distributions.
- Early distributions are usually subject to an additional 10 percent tax.
- Early distributions must also be reported to the IRS.
- Distributions you roolover 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.
- The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
- If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
- If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions is not taxed.
- 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.
- There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled.
- For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions see IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Or you may contact us at ClergyTaxes@aol.com with any questions.
- 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 in 2009, 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 on a worksheet in the Form 1040A of Form 1040 Instruction booklet.
- You can do the following quick computation to determine whether some of your benefits may be taxable:
- First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
- Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
- The 2009 base amounts are:
- $32,000 for married couples filing jointly.
- $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at anytime during the year.
- $0 for married persons filing separately who lived together during the year.
- For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is abailable at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
- You must buy - Or enter into a binding contract to buy - a principal residence located in the United States on or before April 30, 2010. If you enter into a binding contract by April 30, 2010, you must close on the home on or before June 30, 2010.
- To be considered a first-time homebuyer, you and your spouse - if you are married - must not have jointly or separately owned anouther principal residence during the three years prior to the date of purchase.
- To be considered a long-time resident homebuyer you and your spouse - if you are married - must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased. Additionally, your settlement date must be after November 6, 2009.
- The maximum credit for a first-time homebuyer is $8,000. The maximum credit for a long-time resident homebuyer is $6,500.
- You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.
- New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of a the dated certificate of occumpancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
- If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consective-year period, including Form 1098, Mortgage Interest Statement or subsitute mortgage interest statements, property tax records or homeowner's insurance records.
- State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.
- Qualified motor vehicles generally include new cars, light trucks, motor home and motorcycles.
- To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. New motor homes are not subject to the weight limit.
- Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
- Purchases made in states without a sales tax -- such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon - may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle's sales price or as a per unit fee.
- This deduction can be taken regardless of whether the buyers itemize their deduction or choose the standard deduction, Taxpayers who do not itemize will add this additional amount to the standard deduction of their 2009 tax return.
- The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
- Taxpayers who do not itemize must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.
- Adoption Expense Reimbursement 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
- LIfe Insurance: If you surrender a life insureance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person's death, are not taxable unless the policy was turned over to you for a price.
- Scholarship or Fellowship Grant: If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
- Non-cash Income: Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange or property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 or both parties.
The American Recovery and Reinvestment Act
ARRA provides several tax provisions that affect tax year 2009 individual tax returns due April 15, 2010. The recovery law provides tax incentives for first-time homebuyers, people who purchased new cars, those that made their homes more energy efficient, parents and students paying for college, and people who recieved unemployment compensation.IRA Deduction Expanded
You may be able to take an IRA deduction if you were covered by a retirement plan and your 2009 modified adjusted gross income is less than $65,000 or $109,000 if you are married filing a joint return.Standard Deduction Increased for Most Taxpayers
The 2009 basic standard deductions all increased. They are:- $11,400 for married couples filing a joint return and qualifying widows and widowers
- $5,700 for singles and married individuals filing separate returns
- $8,350 for heads of household
2009 Standard Mileage Rates
The Standard mileage rates changed for 2009. The standard mileage rates for business use of a vehicle:- 55 cents per mile
- 24 cents per mile
- 14 cents per mile.
Kiddie Tax Change
The amount of taxable investment income a child can have without it being subject to tax at the parent's rate has increased to $1,900 for 2009.- Federal Income Tax Withheld: If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year's tax.
- Making Work Pay Credit: You may be able to take this credit if you have earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
- Government Retiree Credit: You may be eligible for this credit if you received a government pension or annuity payment in 2009. However, the amount of this credit reduces any making work pay credit you receive.
- Earned Income Tax Credit: You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund.
- Additional Child Tax Credit: This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
- Refundable American Opportunity Credit: This education tax credit is available for 2009 and 2010. The maximum credit per student is $2,500 adn the first four years of postsecondary education qualify.
- First-Time Homebuyer Credit: The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. The credit applies to homes bought anytime in 2009 and on or before April 30, 2010. However, you have until on or before June 30, 2010, if you entered into a written binding contract before May 1, 2010. If you bought a home after November 6, 2009, you may be able to qualify and claim the credit even if you already owned a home. in this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.
- Health Coverage Tax Credit: Certian individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2009 tax return.
- Contact your employer - If you have not received your 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 imcomplete address. After contacting the employer, allow a reasonable amount of time (say two weeks) for them to resend or to issue the W-2.
- Contact the IRS - If you do not receive your W-2 by February 16th (or within the two weeks mentioned
above, whichever is later), contact the IRS for assistance at 800-829-1040. When you call, you must provide
your name, adress, city and state, including zip code, Social Security number, phone number and have
the following information:
- Employer's name, address, city and state, including zip code and phone number.
- Dates of employment.
- An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2009. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
- File your return - You sitll must file your return or request an extension to file by April 15, even if you do not recieve your Form W-2. If you have not received your Form W-2 by April 15th, and have completed steps 1 and 2, 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.
- File a Form 1040X - On occasion, you may reveive your missing W-2 after you filed your return using Form 4852, and the information may be different 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.
- A new law allows you to claim donations for Haitian relief on your 2009 tax return, which you will be filing this year.
- The cntributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti.
- To be eligible for a deduction on the 2009 tax return, donations must be made after Jan. 11, 2010 and before March 1, 2010.
- In order to be deductible, contributions must be made to qualified charities and can not be designated for the benefit of specific individuals or families.
- The new law applies only to cas contributions.
- Cash contributions made by text message, check, credit card or debit card mayb e claimed on your federal tax return.
- You must itemize your deductions in order to claim these donations on your tax return.
- You have the option of deducting these contributions on either your 2009 or 2010 tax return, but not both.
- Contributions made to foreign organizations generally are not deductible. YOu can find out more about organizations helping Haitian earthquake victims from agencies such as the U.S. Agency for International Development (www.usaid.gov).
- Federal law requires that you keep a record of any deductible donations you make. For donations by text message, a telephone bill will meet the record-keeping requirement if it shows the name of the organization receiving your donation, the date of the contribution, and the amount given. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check or a receipt from the charity, Receipts should show the name of the charity, the date and amount of the contribution.
- In 2009 and 2010, the Making Work Pay provision provides a refundable tax credit of up to $400 for individuals and up to $800 for married taxypayers filing joint returns.
- For taxypayers who recieve a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes.
- Taypayers receiving less than the full amount of the allowable credit through reduced withholding will be entitled to claim any remaining credit when they file their tax return.
- The amount of the credit actually received during 2009 in the form of reduced withholding will be reported on your 2009 tax return. Taypayers who do not have taxes withheld by an employer during the year can claim the credit on their 2009 tax return filed in 2010.
- Taypayers who file Form 1040 or 1040A will use Schedule M, Making Work Pay and Government Retiree Credits to figure the Making Work Pay Tax Credit. Completeing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit.
- Taypayers who file Form 1040-EZ will use the worksheet for Line 8 on the back of the 1040ez to figure their Making Work Pay Tax Credit.
- In 2010, you may notice that your paychecks are slightly lower than in 2009. The slight decrease may be because of the Making Work Pay Credit. Most of the credit for wage earners is distributed through reduced withholding. The credit - whcih was spread out over nine months last y ear - is being spread over 12 months this year. A little less credit in each paycheck means slightly higher withholding. But don't worry, in the end it all adds up
- Certain taxpayers should review their tax withholding to ensure enough tax is beiing withheld in 2010.
Those who should pay particular attention to their withholding include: married couples with two incomes,
individuals with multiple jobs, dependents, pensioners, Social Security recpients who also work, and
workers without valid Social Security numbers.
Having too little tax withheld could result in potentially smaller refunds or - in limited instances - small balance due rather than an expected refund - To ensure your current withholding is appropriate for your individual situation, you can review Publication 919, How Do I Adjust My Tax Withholding? YOu can also perform a quick check of your withholding using the interactive IRS Withholding Calculator on www.IRS.gov
- If you find you need to adjust your withholding, submit a revised Form W-4, Employee's Withholding Allowance Certificate to your employer.
- On The Internet: you can access forms and publications on the IRS Web site 24 hours a day, seven days a week, at www.IRS.gov.
- By Phone: You can call 1-800-TAX-FORM (800-829-3676) Monday through Friday 7a.m. to 10p.m. local time - except Alaska and Hawaii which are Pacific time - to order current year forms, instructions and publications as well as prior year forms and instructions. You should receive your order within 10 days.
- At Convenient Locations in Your Community: During the tax filing season, many libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly requested publications. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.
- By Mail Order: Your tax forms and publications from the IRS national Distribution Center at 1201 N. Mitsubishi Motorway, Bloomington, IL, 61705-6613. You should receive your products 10 days after receipt of your order.
- Taxpayer Assistance Centers (TAC): There are 401 TACs across the country where IRS offers face-to-face assistance to taxpayers, and where taxypayers can pick up many IRS forms and publications. Visit www.IRS.gov and go to Contact My Local Office on the Individuals page to find a list of TAC locations by state. On the Contact My Local Office page, you can also select TAC Site Search and enter your zip code to find the IRS walk-in office nearest you as well as a list of the services available at specific offices.
- There are two easy and convenient options for obtaining free copies of your federal tax return information -- tax return transcripts and tax account transcripts.
- The IRS does not charge a fee for transcripts, which are available for the current year as well as the past three years.
- A tax return transcript shows most line items from your tax return 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.
- 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.
- To request either transcript by phone, call 800-829-1040 and follow the prompts in the recorded message.
- To request a tax return transcript through mail, individual taxpayers should complete IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Form 4506T-EZ is only for individuals who filed a Form 1040 series return. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use the Form 4506T, Request for Transcript of Tax Return.
- You should receive your tax return transcript within 10 working days from the time the IRS receives your request . Allow 30 calendar days for delivery of a tax account 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 current year as well as teh past six years.
- Visit the IRS Web site,www.IRS.gov, to determine which form will meet your needs. Forms 4506, 4506T and 4560T-EZ can be found at IRS.gov or by calling IRS forms and publications order line at 800-TAX-FORM(800-829-3676).
- The credit can be claimed for tuition and certain fees paid for higher education in 2009 and 2010.
- The American Opportunity Credit can be claimed for expenses paid for any of the first four years of post-secondary education
- The credit is worth up to $2,500 and is based on a percentage of the cost of qualified tuition and related expenses paid during the taxable year for each eligible student. This is a $700 increase from the Hope Credit.
- The term "qualified tuition and relaxed expenses" has been expanded to included expenditures for required course materials. For this purpose, the term "course materials" means books, supplies and equipment required for a course of study.
- Taxpayers will receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year.
- 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.
- To be eligible for the full credit, your modified adjusted gross income must be $80,000 or less -- $160,000 or less for joint filers.
- The credit begins to decrease for individuals with incomes above $80,000 or $160,000 for joint filers and is not available for individuals who make more than $90,000 or $180,000 for joint filers.
- The credit is claimed using Form 8863, education Credits, (American Opportunity, Hope, and Lifetime Learning Credits), and is attached to Form 1040 or 1040A.
- You may use a portion of your refund to purchase up to $5,000 in U.S. Series l Savings BOnds.
- The total amount of savings bonds purchased must be a multiple of $50. Additional money over the specified amount must be deposited into another financial account - such as a checking or savings account.
- The bonds will be issued in your name. For married taxypayers filing a joint return, the bonds will be issued in the names of both spouses.
- You will receive the U.S. savings bonds in the mail.
- You normally select this option by filing Form 8888, Direct Deposit of Refund to More Than One Account.
- Form 8888 has step-by-step instructions on how to select this option and how to specify the amount of your refund you want to use to purchase savings bonds.
- Dependents: In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
- Child Tax Credit: You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is refundable credit and may give you a refund even if yo udo not owe any tax. For more information see IRS Publication 972, Child Tax Credit.
- Child and Dependent Care Credit: You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.
- Earned Income Tax: The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give yo ua refund. For more information see IRS Publication 596, Earned Income Credit.
- Adoption Credit: You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. FOr more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.
- Children with Earned Income: If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.
- Children with Investment Income: Under certain circumstances a child's investment income may be taxed at the parent's tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.
- Coverdell Education Savings Account: This savings account is used to pay qualified educational expenses at an eligible educational institution. Contributions are not deductible, however, qualified distributions generally are tax-free. For more informations see IRS Publication 970, Tax Benefits for Education.
- Higher Education Credits: Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces you taxable income. For more information see IRS Publication 970.
- Student Loan Interest: You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.
If someone elese claims you as a dependent, you may still be required 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 Tax Credit payments you received.Exemptions reduce your taxable income.
There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.If you are a dependent, you may not claim an exemption.
If someone else - such as your parent - claims you as a dependent, you may not claim your personal exemption on your own tax return.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.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. See IRS Publication 501, Standard Deduction, and Filing Information for additional test to determine who can be claimed as a dependent.- If you took your spouse's last name or if both spouses hyphenate their last names, you may run into complications if you don't notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can't match the new name with their Social Security Number.
- If you were recently divorced and changed back to your previous last name, you'll also need to notify the SSA of this name change
- Informing the SSA of a name change is a snap; you'll just need to file a Form SS-5, Application for a Social Security Card at your local SSA office.
- Form SS-5 is available on SSA's web site at www.socialsecurity.gov, or by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.
- If you adopted your spouse's children after getting married, you'll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Indentification Number - or ATIN- by filing Form W-7A, Application for Taxpayer Indentification 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 www.IRS.gov or by calling 800-TAX-FORM (800-829-3676),
- You must buy - or enter into a binding contract to buy a principal residence - on or before April 30, 2010.
- If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.
- For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.
- A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you've lived in the same principal residence for any five-consective year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009.
- The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.
- People with higher income can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross income up to $125,000, or $225,000 for joint filers.
- The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 - whether the credit is claimed for 2008 or for 2009 - and for all home purchases that are claimed on 2009 returns.
- No credit is available if the purchase price of the home exceeds $800,000.
- The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.
- A dependent is not eligible to claim the credit.
- The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 claimed for 2009 and 2010 combined.
- The credit applies to improvements such as adding insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.
- To qualify as "energy efficient" for purpose of this tax credit, products generally must meet higer standards than the standards for the credit that was available in 2007.
- Manufacturers must certify that their products meet new standards and they must provide a written statement to the taxpayer such as with the packaging of the product or in a printable format on the manufacturers' Website.
- Qualifying improvements must be placed into service after December 31, 2008, and before January 1, 2011.
- The improvements must be made to the taxpayer's principal residence located in the United States.
- To claim the credit, attach Form 5695, Residential Energy Credit to either the 2009 or 2010 tax return. Taxpayers must claim the credit on the tax return for the year the improvements are made.
- Bills
- Credit cards and other receipts
- Invoices
- Mileage logs
- Canceled, imaged or substitute checks or any other proof of payment
- Any other records to support deductions or credits you claim on your return
- A home purchase or improvement
- Stocks and other investments
- Individual Retirement Arrangement transactions
- Rental property records
- Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
- Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
- Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
- Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks
- Don't panic. Many of these letters can be dealt with simply an painlessly.
- 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 informaiton. The notice you receive normally covers a very specific issue about your account or tax return.
- Each letter and notice offers specific instructions on what you are asked to do to satisy the inquiry.
- If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
- If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
- If you don 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 withthe 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.
- 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 them respond to your inquiry.
- It's important that you keep copies of any correspondence with your records.
- 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, which lists most qualified organizations. IRS Publication is available at www.IRS.gov
- Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
- 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.
- If your contribution entitles you to receive merchandise, goods, or services in return - such as admission to a charity banquet or sproting event - you can deduct only the amount that exceeds the rair market value of the benefit received.
- Be sure to keep good records or 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 donor's name, or a payroll deduction record.
- 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.
- 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.
- For an contibution of $250 or more, you must have written acknoledgement fro the organization to substantiate your donation. This written proof must include the amount of cash and description of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.
- To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contibutions, and attached the form to your return.
- An appraisal generally must be obtained if you claim a deduction for a contibution of noncash property worth more than $5000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.
- Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type or Relationship.
- Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
- Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
- The type of Relationship factor relates to how the workers adn the business owner perceive their relationship.
- 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.
- If you can direct or control onlythe result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
- 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.
- Workers can avoid higher tax bills and lost benefits it they know their proper status.
- Both emloyers 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 Purpose of Federal Employment Taxes and Income Tax Withholding - with the IRS.
- You can learn more about the critical determination of a worker's status as an Independent Contractor or Employee at www.IRS.gov by selecting the small Business link. Additional resources include IRS Publication 15-A, Employer's Supplemental Tax Guide, Publicaiton 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 Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).
- Is the purpose of your activity to make a profit? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.
- Do you participate in your activity just for fun? Hobbies – also called not-for-profit activities – are those activities that are not pursued for profit.
- Do you depend on income from the activity? If so, your activity is likely considered a business.
- Have you changed methods of operation to improve profitability? If so, your hobby may actually be a business.
- Do you have the knowledge needed to carry on the activity as a successful business? People who carry out hobbies just for fun, often don’t have the business acumen to turn their not-for-profit activity into a profitable business venture.
- Have you made a profit in similar activities in the past? This may indicate your activity is a business rather than a not-for-profit hobby. An activity is presumed carried on for profit if it makes a profit in at least three of the last five tax years, including the current year – or at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses.
- Does the activity make a profit in some years? Even if your activity does not make a profit every year, it still may be considered a business.
- Do you expect to make a profit in the future from the appreciation of assets used in the activity? This indicates your activity may be a business rather than a hobby.
- You may not deduct casualty and theft losses covered by insurance unless you file a timely claim for reimbursement. You must reduce your loss by the amount of the reimbursement.
- A casualty does not include normal wear and tear or progressive deterioration from age or termite damage.
- The damage must be caused by a sudden, unexpected or unusual event like a car accident, fire, earthquake, flood or vandalism.
- If your property is not completely destroyed or if it is personal-use property, the amount of your casualty or theft loss is the lesser of the adjusted basis of your property, or the decrease in fair market value of your property as a result of the casualty or theft, reduced by any insurance or other reimbursement you receive or expect to receive.
- If business or income-producing property, such as rental property, is completely destroyed, the amount of your loss is your adjusted basis in the property minus any salvage value, and minus any insurance or other reimbursement you receive or expect to receive.
- To claim a casualty or theft loss, you must complete Form 4684, Casualties and Thefts, and attach it to your return. Generally, you may claim casualty or theft loss of personal use property only if you itemize deductions on Form 1040, Schedule A. However, you can deduct a 2008 or 2009 net disaster loss from a federally-declared disaster even if you do not itemize your deductions.
- If the property was held by you for personal use, you must further reduce your loss by $100. This $100 reduction for losses of personal-use property applies to each casualty or theft event that occurred during the year other than 2009. For 2009, individuals must reduce their casualty and theft losses for personal-use property by $500 instead of $100. This $500 reduction for losses of personal-use property applies to each casualty or theft event.
- The total of all your casualty and theft losses of personal-use property usually must be further reduced by 10 percent of your adjusted gross income. The 10 percent AGI limitation does not apply to net disaster losses resulting from federally declared disasters in 2008 and 2009.
- In figuring your loss, do not consider the loss of future profits or income due to the casualty.
- Casualty losses are normally deductible only in the year the casualty occurred. But if you have a deductible loss from a federally declared disaster you can choose to deduct that loss on your tax return for the previous year. If you have already filed your return for the preceding year, you can claim the loss on the previous year tax return by filing an amended return.
- Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:
- As your principal place of business, or
- As a place to meet or deal with patients, clients or customers in the normal course of your business, or
- In the case of a separate structure which is not attached to your home, it must be used in connection with your trade or business
- For certain storage use, rental use or daycare-facility use, you are required to use the property regularly but not exclusively.
- Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.
- There are special rules for qualified daycare providers and for persons storing business inventory or product samples.
- If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure your home office deduction. Report the deduction on line 30 of Schedule C, Form 1040.
- Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.
- Taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. To make sure your withholding is correct, visit the Withholding Calculator on IRS.gov.
- Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable income and is therefore subject to federal income tax.
- Many students do odd jobs over the summer to make extra cash. Earnings you received from self-employment are subject to income tax. These earnings include income from odd jobs like baby-sitting and lawn mowing.
- If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
- Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
- Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
- You are in the business of delivering newspapers.
- All your pay for these services directly relates to sales rather than to the number of hours worked.
- You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
- Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.
- Notify the Social Security Administration Report any name change to the Social Security Administration, so your name and SSN will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security card 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.
- Notify the IRS If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may contact me for the form or download Form 8822 from the IRS website IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).
- Notify the U.S. Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.
- Notify Your Employer Report any name and address changes to your employer(s) to ensure receipt of your Form W-2, Wage and Tax Statement after the end of the year.
- Check Your Withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee's Withholding Allowance Certificate you can print out and give it to your employer so they can withhold the correct amount from your pay.
- The cost of day camp can count as an expense towards the child and dependent care credit.
- Expenses for overnight camps do not qualify.
- If your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
- The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
- You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
- In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
- You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
- You can deduct amounts you spend for preparing and mailing copies of a r?sum? to prospective employers as long as you are looking for a new job in your present occupation.
- If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
- You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
- You cannot deduct job search expenses if you are looking for a job for the first time.
- State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
- Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.
- Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
- This is an above-the-line deduction and can be taken regardless of whether or not you itemize other deductions on your tax return.
- Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.
- The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
- The deduction may not be taken on 2008 tax returns.
Consumers who are considering buying a new car may find that this tax incentive means there has never have been a better time to buy. - Go to IRS.gov, and click on “Where’s My Refund.”
- Call 1-800-829-4477 24 hours a day, 7 days a week for automated refund information.
- Call 1-800-829-1954 during the hours shown in your form instructions.
- You did not report some income,
- You claimed deductions or credits you should not have claimed.
- You did not claim deductions or credits you could have claimed.
- You should have claimed a different filing status. Taxpayers who filed a joint return cannot choose to file separate returns for that year after the due date of the return. However, an executor may be able to make this change for a deceased spouse.
- Never send cash!
- If you file electronically, you can file and pay in a single step by authorizing an electronic funds withdrawal via tax preparation software or a tax professional.
- You can pay by phone or online using a credit or debit card whether you file a paper return or electronically.
- Electronic payment options provide an alternative to paying taxes or user fees by check or money order. You can make payments 24 hours a day, seven days a week. Visit IRS.gov and search e-pay, or refer to Publication 3611, e-File Electronic Payments for more details.
- If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction. The deduction is subject to the 2 percent limit on Form 1040, Schedule A, Itemized Deductions.
- Enclose your payment with your return, but do not staple it to the form.
- If you pay by check or money order, make sure it is payable to the “United States Treasury.”
- Always provide your correct name, address, Social Security number listed first on the tax form, daytime telephone number, tax year and form number on the front of your check or money order.
- Complete and include Form 1040-V, Payment Voucher, when sending your payment and tax return to the IRS. This will help the IRS process your payment accurately and efficiently.
- For more information, call 800-829-4477 for TeleTax Topic 158, "Ensuring Proper Credit of Payments.” You can also find out more in Publication 17, Your Federal Income Tax and Form 1040-V, both available at IRS.gov.
- The Taxpayer Advocate Service is your voice at the IRS.
- You may be eligible for TAS help if you’ve tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you think an IRS procedure just isn’t working as it should.
- TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation.
- TAS employees know the IRS and how to navigate it.
- TAS will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.
- TAS has at least one local taxpayer advocate in each state, the District of Columbia, and Puerto Rico.
- To contact TAS you can call your local advocate, whose number is in your phone book, or call the toll-free case intake line at 1-877-ASK-TAS1. You can also visit TAS online at www.IRS.gov/advocate.
- You may be able to deduct some or all of your contributions to your IRA and you also may be eligible for a tax credit equal to a percentage of your contribution.
- Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2008 must be made by April 15, 2009.
- The amount of funds in your IRA are generally not taxed until you receive distributions from that IRA.
- To figure your deduction for IRA contributions, use the worksheets in the instructions for the form you are filing.
- For 2008, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,000 or the amount of your taxable compensation for the year. Taxpayers who are 50 or older can contribute up to $6,000.
- Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit.
- You cannot deduct an IRA contribution or claim the Credit for Qualified Retirement Saving Contributions on Form 1040EZ; you must use either Form 1040A or Form 1040.
- To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year.
- You must have taxable compensation, such as wages, salaries, commissions and tips. If you file a joint return, only one of you needs to have compensation.
- Recordkeeping Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents by e-mail. This method is an outstanding way to secure financial records. Important tax records such as W-2s, tax returns and other paper documents can be scanned onto an electronic format. You can copy them onto a ‘key’ or ‘jump drive’ periodically and then keep the electronic records in a safe place.
- Document Valuables and Business Equipment The IRS has disaster loss workbooks for individuals and businesses that can help you compile a room-by-room list of your belongings or business equipment. This will help you recall and prove the market value of items for insurance and casualty loss claims.
- Check on Fiduciary Bonds Employers who use payroll service providers should ask the provider if they have a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.
- Continuity of Operations Planning for Businesses How quickly your company can get back to business after a disaster often depends on emergency planning done today. Start planning now to improve the likelihood that your company will survive and recover. Review your emergency plans annually. Just as your business changes over time, so do your preparedness needs. When you hire new employees or when there are changes in how your company functions, you should update your plans and inform your people.
- Update Emergency Plans Emergency plans should be reviewed annually. Individual taxpayers should make sure they are saving documents everybody should keep including such things as W-2s, home closing statements and insurance records. Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches.
- Count on the IRS In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed. If you have been impacted by a federally declared disaster, you may receive copies or transcripts of previously filed tax returns free of charge by submitting Form 4506, Request for Copy of Tax Form, or Form 4506-T, Request for Transcript of Tax Return, clearly identified as a disaster related request.
For more information about recordkeeping, check out IRS Publications 552, Recordkeeping for Individuals, 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
08/24/2010
Five Tax Tips for Recently Married Taxpayers
Are you getting married this summer? If you recently got married or are planning a wedding, the last thing on your mind is taxes. However, there are some important steps you need to take to avoid stress at tax time. Here are five tips for newlyweds to keep in mind.
08/19/2010
Seven Facts about the Nonbusiness Energy Property Credit
Thinking about making some energy saving improvements to your home this summer? Taking some energy saving steps now may lead to bigger tax savings next year. The Nonbusiness Energy Property Credit, a tax credit for making energy efficient improvements to homes was increased as part of the American Recovery and Reinvestment Act of 2009.
Here are seven things you need to know about the Nonbusiness Energy Property Credit:
Homeowners who have been considering some energy efficient home improvements may find these tax credits will get them bigger tax savings next year.
For more information on this and other key tax provisions of the Recovery Act, visit IRS.gov/recovery.
08/17/2010
Top 10 Things Every Taxpayer Should Know about Identity Theft
Taxpayers need to be careful to protect their personal information. Identity thieves use many methods to steal personal information and then they use the information to file a tax return and get a refund. Here are 10 things you wants to know about identity theft so you can avoid becoming the victim of an identity thief.
08/12/2010
Seven Things to know about the Taxpayer Advocate Service
The Taxpayer Advocate Service is an independent organization within the Internal Revenue Service. TAS helps taxpayers who are experiencing economic harm such as not being able to provide necessities like housing, transportation, or food, taxpayers who are seeking help in resolving problems with the IRS, and those who believe an IRS system or procedure is not working as it should. Here are seven things every taxpayer should know about TAS.
08/10/2010
Five Tax Scams to Avoid this Summer
The Internal Revenue Service issues a list of the top 12 tax scams each year – known as the Dirty Dozen. The scams are illegal and can lead to problems for taxpayers including significant penalties, interest and possible criminal prosecution. These scams don’t just happen during the tax filing season, they can happen anytime during the year. Here are five scams from the 2010 Dirty Dozen list every taxpayer should be aware of this summer.
For the full list of 2010 Dirty Dozen tax scams or to find out how to report suspected tax fraud, visit IRS.gov.
08/05/2010
Five Facts about the Making Work Pay Tax Credit
Having too little tax withheld could result in potentially smaller refunds or – in limited instances – small balance due rather than an expected refund.
For more information about this and other key tax provisions of the Recovery Act, visit IRS.gov/recovery.
08/03/2010
Six Tax Tips for New Business Owners
Are you opening a new business this summer? There are many resources available for individuals that are opening a new business. Here are six tax tips new business owners want to know.
IRS Publication 583, Starting a Business and Keeping Records, provides basic federal tax information for people who are starting a business. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.
07/29/2010
Six Tax Benefits for Job Seekers
Did you know that you may be able to deduct some of your job search expenses on your tax return?
Many taxpayers spend time during the summer months updating their résumé and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return. Here are six things you need to know about deducting costs related to your job search.
For more information about job search expenses, see IRS Publication 529, Miscellaneous Deductions. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
07/21/2010
Four Tips on Preparing for a Disaster
Planning what to do in case of a disaster is an important part of being prepared. The Internal Revenue Service encourages taxpayers to safeguard their records. Some simple steps can help taxpayers protect financial and tax records in case of disasters.
Listed below are tips for individuals on preparing for a disaster.
For more information type “Preparing for a Disaster” in the search box on the IRS.gov homepage.
07/12/2010
Six Tips for Students with a Summer Job
School’s out and many students now have a summer job. Some students may not realize they have to pay taxes on their summer income. Here are the six things everyone needs to know about income earned while working a summer job.
Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.
07/07/2010
Summertime Child Care Expenses May Qualify for a Tax Credit
Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year’s tax return.
Here are five facts you need to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.
For more information check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
05/04/2010
Here’s What Happens After You File
Most taxpayers have already filed their federal tax returns, but many may still have questions. Here’s what you want to know about refund status, recordkeeping, mistakes and what to do if you move.
Refund Information
You can go online to check the status of your 2009 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2009 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:
What Records Should I Keep?
Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.
You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.
Change of Address
If you move after you filed your return, you should send Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also file a change of address with the U.S. Postal Service.
What If I Made a Mistake?
Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return.
Visit IRS.gov for more information on refunds, recordkeeping, address changes and amended returns.
Contact us with any questions at ClergyTaxes@aol.com.
04/27/2010
Don’t Panic! Eight Things to Know If You Receive an IRS Notice
The Internal Revenue Service sends millions of letters and notices to taxpayers every year. Here are eight things taxpayers should know about IRS notices – just in case one shows up in your mailbox.
For more information about IRS notices and bills, see Publication 594, The IRS Collection Process. Information about penalties and interest is available in Publication 17, Your Federal Income Tax for Individuals. Both publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).Contact us with any questions at ClergyTaxes@aol.com.
04/20/2010
Ten Facts about Amended Returns
You can make a change or an adjustment to a tax return you’ve already filed by filing an amended return. Here are the top 10 things you want to know about amending your federal tax return.
More information available at IRS.gov Contact us with questions at ClergyTaxes@aol.com.
04/16/2010
Five Tips for Great Record-Keeping
There are many records you have that may help document items on your tax return. You’ll need this documentation should the IRS select your return for examination. Here are five tips from the IRS about keeping good records.
Contact us with questions at ClergyTaxes@aol.com.
04/09/2010
Two Ways to Pay Your Federal Income Tax
People who owe taxes but can’t pay the full amount owed by the April deadline should still file their return on time and pay as much as they can to avoid penalties and interest. If you can’t pay the full amount, you should contact the IRS to ask about alternative payment options. Here are some of the alternative payment options you may want to consider:
The processing companies are:
For more information about filing and paying your taxes, visit IRS.gov and choose 1040 Central or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. You can download forms and publications at IRS.gov or request a free copy by calling 800-TAX-FORM (800-829-3676). Contact us with any questions at ClergyTaxes@aol.com.
04/08/2010
Top Ten Things You Need to Know About Making Federal Tax Payments
Will you be making a payment with your federal tax return this year? If so, here are 10 important things they want you to know about making tax payments correctly.
Contact us with questions at ClergyTaxes@aol.com.
04/06/2010
Going Green May Reduce Your Taxes
When you invest in energy-efficient products, you may be saving money on both your energy bills and your tax return. You need to know about these six energy-related tax credits created or expanded by the American Recovery and Reinvestment Act of 2009.
If you have any further questions about Going Green Credits please go to IRS.gov or call 800-TAX-FORM (800-829-3676). You may also contact us with any questions at ClergyTaxes@aol.com.
04/05/2010
Ten Things You Need to Know About Tax Refunds
Are you expecting a refund from the IRS this year? Here are the top 10 things you should know about your refund.
For more information, visit IRS.gov or call 800-829-1040.
04/01/2010
Ten Tips for Taxpayers Contributing to an Individual Retirement Plan
If you haven't made all the contributions to your traditional Individual Retirement Arrangement that you want to make - don't worry, you may still have time. Here are the top 10 things you want to know about setting aside retirement money in an IRA.
Both Form 8880 and Publication 590 can be downloaded at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Contact us with any questions at ClergyTaxes@aol.com.
03/29/10
Ten Tips for Deducting Charitable Contributions
When preparing to file your federal tax return, don't forget your contributions to charitable organizations. If you made qualified donations last year, you may be able to take a tax deduction if you itemize on IRS Form 1040, Schedule A.
The IRS has put together the following 10 tips to help ensure your contributions pay off on your tax return.
For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining value, refer to Publication 561, Determining the Value of Donated Property. These forms and publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Contact us with any questions at ClergyTaxes@aol.com.
03/23/10
Standard or Itemized Deductions
Most taxpayers have a choice of taking a standard deduction or itemizing their deductions. If you have a choice, you can use the method that gives you the lowest tax.
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 your 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 2009, they are:
Some taxpayers have different standard deductions: The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether an exemption can be claimed for you by another taxpayer. If any of these apply, you must use the Standard Deduction WOrksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. The standard deduction amount also depends on whether you plan to claim the additional standard deduction for state and local real estate taxes or state or local excise tax on a new vehicle, and whether you have a net disaster loss from a federally declared disaster. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.
Limited itemized deductions: Your itemized deductions may be limited if your adjusted gross income is more than $166,800 or $83,400 if you are married filing separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses of personal use and income producing property, gambling losses and investment interest expenses.
Married Filing Separately: When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and should itemize their deductions.
Some taxpayers are not eligible for the standard deduction: They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.
Forms to use: The standard deduction can be taken on Forms 1040, 1040A or 1040EZ. If you qualify for the higher standard deduction for real estate taxes, new motor vehicle taxes, or a net disaster loss, you must attach Schedule L. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.
These Forms and instructions may be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676). Contact us with any questions at ClergyTaxes@aol.com.
03/19/10
Additional Standard Deduction for Real Estate Taxes
Those who pay state or local real estate taxes but don't qualify to itemize their tax deductions, need to know that they may qualify for an increased standard deduction. This is the last year that the higher standard deduction for real estate taxes is available.
Here are six things you need to know about the higher standard deduction for real estate taxes:
For more information, see Form 1040 or 1040A Instructions and Schedule L instructions. The forms and instructions can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676). Contact us with any questions at ClergyTaxes@aol.com.
03/18/10
Top Ten Facts About the Child and Dependent Care Credit
Did you pay someone to care for a child, spouse, or dependent last year? If so, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are the top 10 things the IRS wants you to know about claiming a credit for cild and dependent care expenses.
Beginning with 2009 tax returns, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers, has been eliminated, Form 1040A filers will now use Form 2441, Child and Dependent Care Expenses. For more information on the Child and Dependent Care Credit, see Publicaiton 503, Child and Dependent Care Expenses. You may download these free forms and publications from IRS.gov or order them by calling 800-TAX-FORM (800-829-3676). Contact us with questions at ClergyTaxes@aol.com.
03/17/10
Ten Facts about Claiming the Child Tax Credit
The Child Tax Credit is a valuable credit that can signigicantly reduce your tax liability. Here are 10 important facts about this credit and how it may benefit your family.
For more information, see IRS Publication 972, Child Tax Credit, avaliable at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Contact us with questions at ClergyTaxes@aol.com.
03/16/10
Ten Facts about Mortgage Debt Forgiveness
If your mortgage debt is partly or entirely forgiven during tax years 2007 through 2012, you may be able to claim special tax relief and exclude the debt forgiven from your income. Here are 10 facts you need to know about Mortgage Debt Forgiveness.
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading them from IRS.gov or by calling 800-TAX-FORM (800-829-3676). Contact us with any questions at ClergyTaxes@aol.com.
03/15/10
Seven Things You Should Know About CHecking the Status of YOur Refund
Are you expecting a tax refund from the Internal Revenue Service this year? If so, here are seven things you should know about checking the status of your refund once you have filed your federal tax return.
Refund checks are normally sent out weekly on Fridays. If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back. Contact us with any questions at ClergyTaxes@aol.com.
03/12/10
Five Facts You Need to Know about Suspicious E-mails
There are many e-mail scams circulating that fraudulently use the Internal Revenue Service name or logo as a lure. The goal of the scam - known as phishing - is to trick you into revealing personal and financial information. The scammers can then use your personal information - such as your Social Security number, bank account or credit card numbers - to commit identity theft and steal your money.
Here are five things the IRS wants you to know about phishing scams.
03/11/10
Five Tips About the First-Time Homebuyer Credit Documentation Requirements
Claiming the First-Time Homebuyer Tax Credit on your 2009 tax return might mean a larger refund but it can seem complex. Are you confused about the documentation requirements? The IRS recognizes that the settlement documents can vary from location to location, so here are five tips to clarify the documentation requirements.
For more information about the First-Time Homebuyer Tax Credit and documentation requirements visit IRS.gov. Or you may contact us at ClergyTaxes@aol.com with any questions.
03/09/10
Four Facts Every Parent Should Know about Their Child's Investment Income
Parents need to be aware of the tax rules that affect their children's investment income. The following four facts will help parents determine whether their child's investment income will be taxed at the parents' rate or the child's rate.
More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Or you may contact us at ClergyTaxes@aol.com with any questions.
03/05/10
Six Facts on How to Get Credit for Retirement Savings Contributions
If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be eligible for a tax credit. Here are six things you need to know about the Retirement Savings Contributions Credit:
For more information, review IRS Publication 590, Individual Retirement Arrangements (IRAs), Publication 4703, Retirement Savings Contributions Credit, and Form 8880. Publications and forms can be downloaded at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Or you may contact us at ClergyTaxes@aol.com with any questions.
03/04/10
Top Ten Facts about Taking Early Distributions from Retirement Plans
Some taxpayers may have needed to take an early distribution from their retirement plan last year. The IRS wants individuals who took an early distribution to know that there can be a tax impact to tapping your retirement fund. Here are ten facts about early distributions.
03/02/10
Seven Facts About Social Security Benefits
If you received Social Security benefits in 2009, you need to know whether or not these benefits are taxable. Here are seven facts you want to know about Social Security benefits so you can determine whether or not they are taxable to you.
03/01/10
Seven Important Facts About Claiming The First-Time Homebuyer Credit
If you purchased a home in 2009 or early 2010, you may be eligible to claim the First-Time Homebuyer Credit, whether you are a first-time homebuyer or a long-time resident purchasing a new home.
Here are seven things you need to know about claiming the credit:
For more information about these rules including details about documentation and other elgibility requirements visit IRS.gov/recovery. You may also contact me at ClergyTaxes@aol.com.
02/25/10
Eight Facts about the New Vehicle Sales and Excise Tax Deduction
If you bought a new vehicle in 2009, you may be entitled to a special tax deduction for the sales and excise taxes on your purchase.
Here are eight important facts you need to know about this deduction:
For more information about these rules and other eligibility requirements visit IRS.gov/recovery
02/23/10
Is This Income Taxable?
While most income you receive is generally considered taxable, there are some situations when certian types of income are partially taxed or not taxed at all.
To ensure you are familiar with the difference between taxable and non-taxable income, here are some common examples of items that are not included in your income:
Some income may be taxable under certain circumstances, but not taxable in other situations. Examples or items that may or may not be included in your income are:
All other items -- including income such as wages, salaries and tips -- must be included in your income unless it is specifically excluded by law.
These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676). You may also contact us at ClergyTaxes@aol.com.
02/18/10
Five Tax Changes for 2009
As you get ready to prepare your 2009 tax return, the Internal Revenue Service wants to make sure you have all the details about tax law changes that may impact y our tax return.
Here are the top five changes that may show up on your 2009 return.
For more information about these and other changes for tax year 2009, visit IRS.gov. Or contact us at ClergyTaxes@aol.com..
02/16/10
Do I have to File a Tax Return?
You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age, and the type of income you receive
Check the Individuals section of IRS.gov or consult the instructions for Form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with the IRS this year.
Even if you don't have to file, here are eight reasons why you may want to file:
For more information about filing requirements and your eligibility to receive tax credits, visit IRS.gov.
02/11/10
Four Steps to Follow If You Are Missing a W-2
Getting ready to file your tax return? Make sure you have all your documents before you start. You should receive a Form W-2, Wage and Tax Statement form each of your employers. Employers have until February 1, 2010 to send you a 2009 Form W-2 earnings statement. If you haven't received your W-2, follow these four steps:
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676). Contact us for help or futher information in this area at ClergyTaxes@aol.com..
02/09/10
Ten Facts About Claiming Donations Made to Haiti
If you are donating to charities providing earthquake relief in Haiti, you may be able to claim those donations on your 2009 tax return. Here are 10 important facts the Internal Revenue Service wants you to know about this special provision.
For more information see IRS Publication 526, Charitable Contributions and IRS Publication 3833, Disaster Relief: Providing Assistance through Charitable Organizations. To determine if an organization is a qualified charity visit IRS.gov, keyword "search for charities". Note that some organizations, such as churches or governments, may be qualified even though they are not listed on IRS.gov.
02/04/10
Ten Things You Should Know about the Making Work Pay Tax Credit
Many working taxpayers are eligible for the Making Work Pay Tax Credit, a provision created by the American Recovery and Reinvestment Act in early 2009.
Here are 10 things the IRS wants you to know about this tax credit to ensure you receive the entire amount for which you are eligible.
Visit www.IRS.gov for more information about the making Work Pay Tax Credit, Schedule M, Form W-4 or Publication 919. YOu can also call 800-TAX-FORM (800-829-3676) to order forms and publications.
Of course, we check each tax return we prepare to ensure you get the full benefit of tax law. Contact us with any questions at ClergyTaxes@aol.com.
02/02/10
Five Ways to Obtain IRS Forms and Publications
The Internal Revenue Service has free tax forms and publications on a wide variety of topics. If you need IRS forms, here are five easy methods for getting the information you need.
For more information about obtaining IRS Forms visit www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Of course, you may also contact me with any questions at ClergyTaxes@aol.com.
01/28/10
How to Obtain a Transcript of Your Past Tax Information
Taxpayers who need their past tax return information can obtain if from the IRS. Here are nine things to know if you need copies of your federal tax return information.
You may also contact me for help in filling out this form at ClergyTaxes@aol.com.
01/26/10
Tax Credit Helps Pay for Higher Education Expenses
The American Recovery and Reinvestment Act was passed in early 2009 and created the American Opportunity Credit. This educational tax credit - which expanded the existing Hope Credit - helps parents and students pay for college-related expenses.
Here are the top nine things you need to know about this valuable credit and how you can benefit from it when you file your 2009 taxes.
For more information about the American Opportunity Tax Credit visit www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Of course, you may also contact me with any questions at ClergyTaxes@aol.com.
01/21/10
A New Option for Your Federal Tax Refund: Savings Bonds
If you are receiving a federal tax refund from the Internal Revenue Service, you can choose to use that money to purchase U.S. savings bonds.
Here are the top six things you'll need to know about using your federal refund to purchase savings bonds.
For more information about the U.S. Savings Bond refund option, visit www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Of course, you may also contact me with any questions at ClergyTaxes@aol.com.
01/14/10
Ten Tax Topics for Taxpayers with Tots and Teens
Got Kids? They may have an impact on your tax situation. Listed below are the top 10 things you want to considere if you have children.
The forms and publications on these topics can be found at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Of course, you may also contact me with any questions at ClergyTaxes@aol.com.
01/12/10
Five Important Facts about Dependents and Exemptions
When you prepare tofile your tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here are five important facts that you need to know about dependents and exemptions before you file your 2009 tax return.
For more information on exemptions, dependents and wherther or not you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available at www.IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676). You may also contact me with questions at ClergyTaxes@aol.com.
01/05/10
Five Filing Facts for Recently Married or Divorced Taxpayers
If you were married 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.
Here are five facts for recently married or divorced taxpayers. Following these steps will help avoid problems when you file your tax return.
12/03/09
10 Important Facts about the Extended First-Time Homebuyer Credit
If you are in the market for a new home, you may still be able to claim the First-Time Homebuyer Credit. Congress recently passed The Worker. Homeownership and Business Assistance Act Of 2009, extending the First-Time Homebuyer Credit and expanding who qualifies.
Here are the top 10 things the IRS wants you to know abut the expanded credit and the qualifications you must meet in order to qualify for it.
For more information about the expanded First-Time Home buyer Credit, visit www.IRS.gov/recovery or contact me at ClergyTaxes@aol.com.
11/18/09
Seven Facts about the Nonbusiness Energy Property Credit
Taxpayers who take energy saving steps this year may get bigger tax savings next year. The Nonbusiness Energy Property Credit, a tax credit for making energy efficient improvements to homes has been increased as part of the American Recovery and Reinvestment Act of 2009.
Here are the seven things the IRS wants you to know about the Nonbusiness Energy Property Credit:
Homeowners who have been considering some energy efficient home improvements may find these tax credits will get them bigger tax savings next year.
For more information on this and other key tax provisions of the Recovery Act, visit the IRS Web site, www.IRS.gov or by calling 800-829-3676 (800-TAX-FORM).
9/17/09
Keeping Good Records Reduces Stress at Tax Time
Although most people won't be filing their tax returns for several months, the dog days of summer are actually a great time to start planning for the tax filing season by ensuring your records are organized. Whether you are an individual taxpayer or a business owner, you can avoid headaches at tax time with good records because they will help you remember transactions you made during the year.
Here are a few things the IRS wants you 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 are billed for additional tax. 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:
For more informaiton about recordkeeping, check out IRS Publications 552, Recordkeeping for Individuals, 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses. These publicaitons are available on the IRS Web site, www.IRS.gov or by calling 800-829-3676 (800-TAX-FORM).
9/10/09
Eight Things to Know If You Receive an IRS Notice
Every year, the IRS sends millions of letters and notices to taxpayers. Many taxpayers will receive this correspondence during the late summer and fall. Here are eight things every taxpayer should know about IRS notices - just in case one shows up in your mailbox.
For more informaiton 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 www.IRS.gov or by calling 800-829-3676 (800-TAX-FORM).
9/3/09
Ten Tips for Taxpayers Making Charitable Donations
Every year, millions of taxpayers itemize their deductions on their federal tax return. One of the most common itemized deductions is a donation made to a charitable organization.
Here are the top ten things the IRS wants every taxpayer to know before deducting charitable donations.
For more informaiton 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 on the IRS Web site, www.IRS.gov or by calling 800-829-3676 (800-TAX-FORM).
8/27/09
Employee vs. Independent Contractor - Ten Tips for Business Owners
If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount or taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them.
Here are the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employees.
8/20/09
Eight Important Questions for Hobbyists
Summer is a time many Americans take their fishing poles and gardening tools out of storage. Hobbies – such as woodworking, stamp collecting and scrapbooking – are often done for pleasure, but can result in a profit.
If your favorite activity does make a profit every year or so, there may be tax implications. You must report income to the IRS from almost all sources, including hobbies.
Here are eight questions that will help determine if your activity is a hobby or a business.
If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity. If you are conducting a trade or business you may deduct your ordinary and necessary expenses.
More information about not-for-profit activities is available in Publication 535, Business Expenses, available on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).
8/18/09
Top Ten Tips for Taxpayers Deducting Casualty and Theft Losses
Taxpayers who find themselves the victim of a natural disaster or theft this summer should know the rules for deducting their casualty losses next year when they file their federal tax return. Generally, you may deduct losses to your home, household items and vehicles on your federal income tax return.
For more information about casualty and theft losses and the special rules for net disaster losses see Publication 547, Casualties, Disasters and Thefts available on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).
8/14/09
Five Facts about the Home Office Deduction
With technology making it easier than ever for people to operate a business out of their house, many taxpayers may be able to take a home office deduction when filing their 2009 federal tax return next year.
Here are five important things the IRS wants you to know about claiming the home office deduction.
For more information see IRS Publication 587, Business Use of Your Home, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
7/28/09
Seven Tips for Students with a Summer Job
Many students get a summer job during their time off from school. Here are the top seven things the IRS wants everyone to know about income earned while working a summer job.
7/23/09
Tax Tips for Recently Married Taxpayers
If you have recently gotten married or plan to get married in the near future, the IRS has some tips to help you avoid stress at tax time.
7/22/09
Five Tax Facts about Summertime Child Care Expenses
Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation.
Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.
For more information, including rules for claiming this credit for your spouse or a dependent age 13 or over who is not able to care for himself or herself, check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
7/16/2009
Tax Benefits for Job Seekers
Many taxpayers spend time during the summer months polishing their r?sum? and attending career fairs. If you are searching for a job this summer, you may be able to deduct some of your expenses on your tax return.
Here are the top six things the IRS wants you to know about deducting costs related to your job search.
7/14/09
Check Withholding to Avoid a Tax Surprise
With 2009 half over, the Internal Revenue Service reminds individual taxpayers there is no better time to check their 2009 federal income tax withholding levels to make sure they do not face any surprises when returns are due next spring.
The Making Work Pay Credit lowered tax withholding rates this year for 120 million American households. However, particular taxpayers who fall into any of the following groups should review their tax withholding rates to ensure enough tax is withheld: multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers and pensioners.
Failure to adjust your withholding could result in potentially smaller refunds or may cause you to owe tax rather than receive a refund next year. So far in 2009, the average refund amount is $2,675 and 79 percent of all returns received a refund.
Because retirees typically have withholding from their pension payments, pension plan administrators or pension payors should be aware of the optional adjustment procedure for pension withholding announced in Notice 1036-P, Additional Withholding for Pensions for 2009.
Social security beneficiaries, supplemental security income recipients, disabled veterans and railroad retirees that receive this year’s one-time $250 economic recovery payment should be aware that the Making Work Pay credit will be reduced by the $250 payment amount. They may also want to review their withholding.
The IRS withholding calculator on IRS.gov can help a taxpayer compute the proper tax withholding. The worksheets in Publication 919, How Do I Adjust My Withholding?, can also be used to do the calculation. If the result suggests an adjustment is necessary, the taxpayer should submit a new Form W-4, Withholding Allowance Certificate, to his or her employer or adjust the amount of quarterly tax paid.
In addition, the IRS reminds unemployed workers that the first $2,400 of unemployment benefits they receive during 2009 are tax-free for federal income tax purposes. People who expect to receive more than that should consider having tax withheld from their benefit payments in excess of $2,400. Use Form W-4V, Voluntary Withholding Request, or the equivalent form provided by the payer to request withholding to begin or end.
Taxpayers should visit IRS.gov for more information about how to adjust federal income tax withholding. The Web site also has details on various tax incentives in the American Recovery and Reinvestment Act as well as downloadable forms and publications. Free tax forms and publications are also available by calling 1-800-TAX-FORM (1-800-829-3676). You may also contact me if you need help making this review.
4/20/09
Seven Facts about the New Sales Tax Deduction for Vehicle Purchases
Taxpayers who buy a new car or several other types of motor vehicles this year may be entitled to a special tax deduction when they file their 2009 federal tax returns next year. The tax break is part of the American Recovery and Reinvestment Act of 2009.
Here are seven things you should know about this new deduction:
For more information about the sales and excise tax deduction for motor vehicle purchases visit the official IRS web site at IRS.gov.
4/15/09
What Happens After I File?
Most taxpayers have already filed their federal tax returns but may still have questions. Here’s what you need to know about refund status, recordkeeping, mistakes and what to do if you move.
Refund Information
You can go online to check the status of your 2008 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2008 tax return available because you will need to know the filing status, the first SSN shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:
What Records Should I Keep?
Good record keeping allows you to prepare a complete and accurate income tax return. You should keep all receipts, canceled checks or other proof of payment, and any other records to support any deductions or credits you claim.
>p?Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending filed returns or preparing future ones.
Change of Address
If you move after you filed your return, you should send Form 8822, Change of Address to the Internal Revenue Service. If you are expecting a refund through the mail, you should also notify the post office serving your former address, which will ensure your check makes it to your new address.
What If I Made a Mistake?
Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return. Here are five reasons to file an amended return:
If you bought or are thinking of buying home, you may be able to file an amended return to claim the First Time Home Buyer Credit. Taxpayers who purchased a qualifying home can claim the Homebuyer Credit on the 2008 return without waiting until next year to claim it on their 2009 return.
Visit IRS.gov for more information and Frequently Asked Questions regarding refunds, record keeping, address changes and amended returns.
4/13/09
Top Ten Things You Need to Know About Making Federal Tax Payments
Will you be making a payment with your federal tax return this year? If so, here is what you need to know about making tax payments correctly.
4/08/09
Seven Things to Know About the Taxpayer Advocate Service
If you’re experiencing problems with the Internal Revenue Service, you may be able to get help from the Taxpayer Advocate Service. Here’s what every taxpayer should know about this independent organization within the IRS.
4/06>/09
Top Ten Tips about IRA Contributions
There is still time to make contributions to your traditional Individual Retirement Arrangement, better known as an IRA. Below are the top ten things you should know about money you put aside for retirement in an IRA.
Refer to IRS Publication 590, Individual Retirement Arrangements, for information on the amounts you will be eligible to contribute to your IRA account. Both Form 8880 and Publication 590 can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).
4/03>/09
IRS Tips on Preparing for a Disaster
Planning what to do in case of a disaster is an important part of being prepared. The Internal Revenue Service encourages taxpayers to safeguard their records. Some simple steps can help taxpayers and businesses protect financial and tax records in case of disasters.
Listed below are tips for individuals and businesses on preparing for a disaster.
4/01/09
Do You Barter?
Bartering is the trading of one product or service for another. Usually there is no exchange of cash. Barter may take place on an informal one-on-one basis between individuals and businesses, or it can take place on a third party basis through a modern barter exchange company.
Bartering is the most ancient form of commerce. While our ancestors may have exchanged eggs for corn, today you can barter computer services for auto repair.
Another example of a one-on-one, non-barter exchange transaction is a plumber doing repair work for a dentist in exchange for dental services. The fair market value of the goods and services exchanged must be reported as income by both parties.
Here are a few things you should know about bartering:
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:
- Contributions must be made to qualified organizations to be deductible. You cannot deduct contributions made to specific individuals, political organizations and candidates.
- You cannot deduct the value of your time or services. Nor can you deduct the cost of raffles, bingo or other games of chance.
- 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.
- 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>
- Clothing and household items donated must generally be in good used condition or better to be deductible.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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. <
- Deducting a loss. You cannot deduct a loss from the sale of your home.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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:
- Single $5,450
- Married Filing Jointly $10,900
- Head of Household $8,000
- Married Filing Separately $5,450
- Some taxpayers have different standard deductions. The standard deduction amount depends on your filing status, whether you are 65 or older or blind, whether an exemption can be claimed for you by another taxpayer, whether you plan to claim the additional standard deduction for state and local real estate taxes, and whether you have a net disaster loss from a federally declared disaster. If any of these apply, you must use the Standard Deduction Worksheet in the Form 1040EZ, 1040A or 1040 instructions.
- Limited itemized deductions. Your itemized deductions may be limited if your adjusted gross income is more than $159,950 ($79,975 if you are married filing separately). This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, investment interest and certain qualified cash contributions for relief efforts in a Midwestern disaster area. Married Filing Separately. When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and should itemize their deductions.
- Some taxpayers are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months.
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.
- 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.
- The care must have been provided so you – and your spouse if you are married – could work or look for work.
- 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.
- 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.
- Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
- The qualifying person must have lived with you for more than half of 2008.
- The credit can be up to 35 percent of your qualifying expenses, depending upon your income.
- 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.
- The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income.
- 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:
- Age - Was under age 17 at the end of 2008
- Relationship - Is your son, daughter, adopted child, stepchild or eligible foster child, brother, sister, stepbrother, stepsister, or a descendant of any of these individuals or other eligible person who lived with you all year as a member of your household
- Citizenship - Is a U.S. citizen, U.S. national or resident of the U.S.
- Support - Did not provide over half of his or her own support
- Lived with you - Must have lived with you for more than half of 2008 (note that some exceptions to this criteria exist)
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:
- Married Filing Jointly $110,000
- Married Filing Separately $ 55,000
- All others $ 75,000
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 | 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:
- Valid photo identification
- Social Security cards for you, your spouse and dependents or a social security number verification letter issued by the Social Security Administration
- Birth dates for you, your spouse and dependents
- Current year’s tax package, if you received one
- Wage and earning statement(s) -- Form W-2, W-2G, 1099-R
- Interest and dividend statements (Forms 1099)
- A copy of last year’s federal and state tax returns, if available
- Checkbook (to get routing number and account number for direct deposit)
- Total amount paid for day care and day care provider’s identifying number
- Other relevant information about income and expenses
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:
- Your Social Security Number (or Individual Taxpayer Identification Number).
- Filing status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)).
- Exact refund amount shown on your tax return.
Once you enter your personal information, you could get several responses, including:
- Acknowledgement that your return was received and is in processing.
- The mailing date or direct deposit date of your refund.
- Notice that the IRS could not deliver your refund due to an incorrect address. In this instance, you can change or correct your address online using Where’s My Refund?
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:
- The child is younger than 18.
- The child is 18 and has earned income that does not exceed one-half of their own support for the year.
- The child is older than 18 and younger than 24 and a full-time student with earned income that does not exceed one-half of the child’s support for the year.
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:
- Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
- Early distributions are usually subject to an additional 10 percent tax.
- Early distributions must also be reported to the IRS.
- 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.
- The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
- 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.
- If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.
- 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.
- 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).
- 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.
- Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
- 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.
- You must report all capital gains.
- You may deduct capital losses only on investment property, not on property held for personal use.
- 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.
- Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.
- 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%.
- 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).
- 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.
- 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:
- Reporting winnings: The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
- Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 28, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.
- It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings 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
- 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.
- 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.
- Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
- 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.
- The AMT exemption amounts are set by law for each filing status.
- 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
- 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:
- First, add one–half of the total social security you received to all your other income, including any tax exempt interest and other exclusions from income.
- Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
The 2008 base amounts are:
- $32,000 for married couples filing jointly
- $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year
- $0 for married persons filing separately who lived together during the year
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 Lifetime Learning Credit
- The credit applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills, regardless of the number of years in the program.
- If you qualify, your credit equals 20% (40% if a student in a Midwestern disaster area) of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 ($4,000 if a student in a Midwestern disaster area) per tax return.
- You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year. You also cannot claim either credit if you claim a tuition and fees deduction for the same student in the same year. To qualify for either credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the 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:
- 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.
- 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.
- 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.
- 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:
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:
- Life Insurance. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
- Scholarship or Fellowship Grant. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
- All other items—including income such as wages, salaries and tips—must be included in your income, unless it is specifically excluded by law.
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:
- 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. - 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
- 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. - 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.
- 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.
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.
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.
- The IRA owner must be age 70 ? or older.
- The donor must directly transfer the money tax-free to an eligible organization.
- This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions.
- Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension plans – commonly referred to as SEP Plans – are not eligible.
- To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity.
- Amounts transferred are not taxable and no deduction is available for the amount given to the charity unless nondeductible contributions are transferred.
- Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
- 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.
- 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.
- 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.
- 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.
- Your filing status cannot be Married Filing Separately. Your filing status must be married filing jointly, head of household, qualifying widow or single.
- 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.
- 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.
- 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.
- 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:
- 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.
- 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.
- 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.
- 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:
- 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
- Be sure to also notify your employer of your new address so you get your W-2 forms on time.
- 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.
- 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.
- 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.
- 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:
- Phone: Call 800-829-1040 and follow the prompts in the recorded message.
- Mail: Complete IRS Form 4506-T, Request for Transcript of Tax Return.
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
- 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.
- 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.
- 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.
- 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.
- 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).
- 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.
- 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.
- 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.
- 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).
- Visit OnGuardOnline.gov for protection tips from the federal government and the technology industry.
- Bills
- Credit card and other receipts
- Invoices
- Mileage logs
- Canceled, imaged or substitute checks or any other proof of payment
- Any other records to support deductions or credits you claim on your return
- Do not reply.
- Do not open any attachments. Attachments may contain malicious code that will infect your computer.
- Do not click on any links. If you clicked on links in a suspicious e-mail or phishing Web site and entered confidential information, visit the Identity Theft page on IRS.gov.
- 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.
- 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.
- 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.
- 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.
- 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.)
- 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.)
- Married Filing Separately. A married couple may elect to file their returns separately.
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. - 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.
- Applies to home purchases after April 8, 2008, and before July 1, 2009.
- Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
- Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
- The credit operates much like an interest-free loan because it must be repaid in equal installments over a 15-year period. Taxpayers will claim the credit on new IRS Form 5405, First-Time Homebuyer Credit.
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.
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:
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.
