Tax season can be stressful but the IRS is here to help! Below you'll find a number of helpful tax tips!
For more information visit the official IRS website at www.irs.gov.
Every year, millions of taxpayers donate money to charitable organizations. Here are six things you should know about the tax treatment of tax-exempt organizations.
1. Tax returns are made available to public. Exempt organizations generally must make their tax return available for public inspection. This also includes the organization’s application for exemption. These documents must be made available to any individual who requests them, and must be made available immediately when the request is made in person. If the request is made in writing, an organization has 30 days to provide a copy of the information.
2. Donor lists generally are not public information. The list of donors filed with Form 990 is specifically excluded from the information available for public inspection. There is an exception for donors to private foundations and political organizations, which must make their donor list available to the public.
3. How to find tax-exempt organizations. The easiest way to find out whether an organization is qualified to receive deductible contributions is to ask them, as most will be able to tell you. You can also search for organizations qualified to accept deductible contributions in IRS Publication 78, available online at IRS.gov.
4. Which organizations may accept charitable contributions. Not all exempt organizations are eligible to receive tax-deductible charitable contributions. Organizations that are eligible to receive deductible contributions include most charities described in section 501(c)(3) of the Internal Revenue Code and, in some circumstances, fraternal organizations described in section 501(c)(8) or section 501(c)(10), cemetery companies described in section 501(c)(13), volunteer fire departments described in section 501(c)(4), and veterans organizations described in section 501(c)(4) or 501(c)(19). For more general information on the rules for Charitable Contribution Deductions, you can go to the IRS Publication 78 Help page, Part II, which is linked from the Search for Charities page on IRS.gov.
5. Requirement for organizations not able to accept deductible contributions. If an exempt organization is ineligible to receive tax-deductible contributions, it must disclose that fact when soliciting contributions.
6. How to report inappropriate activities by a charity. If you believe that the activities or operations of a tax-exempt organization are inconsistent with its tax-exempt status, you may file a complaint with the Exempt Organizations Examination Division by completing Form 13909, Tax-Exempt Organization Complaint (Referral) Form. The complaint should contain all relevant facts concerning the alleged violation of tax law. Form 13909 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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.
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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 type “Preparing for a Disaster” in the search box on the IRS.gov homepage.
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:
• Barter Exchange A barter exchange functions primarily as the organizer of a marketplace where members buy and sell products and services among themselves. Whether this activity operates out of a physical office or is internet based, a barter exchange is generally required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, annually to their clients or members and to the IRS.
• Barter Income Barter dollars or trade dollars are identical to real dollars for tax reporting. If you conduct any direct barter - barter for another’s products or services - you will have to report the fair market value of the products or services you received on your tax return.
• Taxes Income from bartering is taxable in the year it is performed. You may be subject to liabilities for income tax, self-employment tax, employment tax, or excise tax. Your barter activities may result in ordinary business income, capital gains or capital losses, or you may have a nondeductible personal loss.
• Reporting The rules for reporting barter transactions may vary depending on which form of bartering takes place. Generally, you report this type of business income on Form 1040, Schedule C Profit or Loss from Business, or other business returns such as Form 1065 for Partnerships, Form 1120 for Corporations, or Form 1120-S for Small Business Corporations.
For more information type “Barter” in the search box on the IRS.gov homepage.
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 on IRS Form 1040, Schedule A.
Here are a few tips to ensure your contributions pay off on your tax return:
1. Contributions must be made to qualified organizations to be deductible. You cannot deduct contributions made to specific individuals, political organizations and candidates.
2. You cannot deduct the value of your time or services. Nor can you deduct the cost of raffles, bingo or other games of chance.
3. If your contributions entitle you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
4. Donations of stock or other property are usually valued at the fair market value of the property. Special rules apply to donation of vehicles.
5. Clothing and household items donated must generally be in good used condition or better to be deductible.
6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution.
7. To claim a deduction for contributions of cash or property equaling $250 or more you must obtain a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document from the organization may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.
8. If you claim a deduction of more than $500 for all contributed property, you must attach IRS Form 8283, Noncash Charitable Contributions, to your return.
9. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which requires an appraisal by a qualified appraiser.
10. Contributions made for relief efforts in a Midwest disaster area receive special benefits. For more information, see Publication 4492-B, Information for Affected Taxpayers in the Midwest Disaster Areas.
For more information on charitable contributions, check out Publication 526, Charitable Contributions, which is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
If you are in the business of farming, here are some things you may want to know before filing your federal tax return.
1. Crop Insurance Proceeds You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.
2. Sales Caused by Weather-Related Condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to choose to postpone reporting the gain from selling the additional animals until the next year.
3. Farm Income Averaging You may be able to average all or some of your current year's farm income and refiguring your tax over the three prior years. This may give you a lower tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low.
4. Deductible Farm Expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses. An ordinary expense is an expense that is common and accepted in the business. A necessary expense is one that is appropriate for the business.
5. Employees You can deduct reasonable wages paid for labor hired to perform your farming operations.
6. Items Purchased for Resale You may be able to deduct the cost of livestock and other items purchased for resale in the year of sale. This cost includes freight charges for transporting the livestock to the farm.
7. Net Operating Losses If your deductible loss from operating your farm is more than your other income for the year, you may have a net operating loss. If you have a net operating loss this year, you can carry it to other years and deduct it. You may be able to get a refund of all or part of the income tax you paid for past years, or you may be able to reduce your tax in future years.
8. Repayment of loans You cannot deduct the repayment of a loan. However, if you use the proceeds of a loan for farm business expenses, you can deduct the interest you pay on the loan.
9. Fuel and Road Use You may be eligible to claim a credit or refund of excise taxes on fuel used on a farm for farming purposes.
10. Farmers Tax Guide More information about farm income and deductions can be found in IRS Publication 225, Farmer’s Tax Guide which can be obtained online at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676).
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 or by calling 800-TAX-FORM (800-829-3676).
If your mortgage debt is partly or entirely forgiven during tax years 2007 – 2012, you may be able to claim special tax relief and exclude the debt forgiveness income.
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.
Taxpayers may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.
However, 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, you claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attaching it to your federal income tax return for the year.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other tax relief provisions, (for example, insolvency), may be available. See Form 982 for details.
If your debt is reduced or eliminated you will receive a year-end statement, Form 1099-C, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
The IRS urges borrowers to 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 (Box 2) and the value listed for your home (Box 7).
For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit the IRS Web site at 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 from IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Five Important Tax Credits
Check it out! You might be eligible for a tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable. That means you might receive a refund rather than owe any taxes.
Here are five popular credits you should consider before filing your 2008 Federal Income Tax Return:
1. The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.
2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low- and moderate-income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
5. Health Coverage Tax Credit Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.
There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications, and additional information that is available on the IRS Web site at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).
Need help filing your tax return? If so, then you should look into the free, IRS-sponsored, volunteer tax return preparation programs.
Trained community volunteers can help eligible taxpayers with all special credits, such as the Child Tax Credit or the Credit for the Elderly. Also, many sites have language specialists to assist people with limited English skills.
Nearly 12,000 free tax preparation sites will be open nationwide this year as the Internal Revenue Service continues to expand its partnerships with nonprofit and community organizations performing vital tax preparation services for low-income and elderly taxpayers.
The IRS Volunteer Income Tax Assistance (VITA) Program offers free tax help to people who earn less than $42,000. The Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older.
As part of the IRS-sponsored TCE Program, AARP offers the Tax-Aide counseling program at nearly 7,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-moderate income with special attention to people age 60 and older. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 (888-AARPNOW) or visit AARP's internet site.
The military also partners with the IRS to provide free tax assistance to military personnel and their families. The Armed Forces Tax Council oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. The AFTC consists of the tax program coordinators for the Army, Air Force, Navy, Marine Corps and Coast Guard. Volunteers are trained and equipped to address military specific tax issues, such as combat zone tax benefits and the effect of the new EITC guidelines.
Locations and hours of operation are often available through city information hotlines and local community organizations. Local volunteer tax preparation site information is also available by calling the IRS toll-free number 1-800-906-9887.
The IRS provides free publications, forms and other tax material and information to help taxpayers meet their tax obligations. Free help is available on the IRS Web site, by phone, at local IRS offices and at many community locations.
• IRS.gov You can access free tax information at IRS.gov. At 1040 Central on the Individuals page, you can obtain forms, instructions and publications, learn about IRS e-file, determine your eligibility for the Earned Income Tax Credit, read about the latest tax changes and find answers to Frequently Asked Questions. In the Online Services section, you can access numerous applications to help with your taxes, including Free File, the IRS Withholding Calculator, the Alternative Minimum Tax Assistant, the EITC Assistant and more. You can also check the status of your refund by clicking on Where’s My Refund?
• Telephone Call the IRS Tax Help Line for Individuals, 800-829-1040, to get answers to your federal tax questions. To order free forms, instructions and publications call 800-829-3676. To hear pre-recorded messages covering various tax topics or check on the status of your refund, call 800-829-4477. TTY/TDD users may call 800-829-4059 to ask tax questions or to order forms and publications.
• Taxpayer Assistance Centers When you believe your tax issue cannot be handled online or by phone, and you want face-to-face assistance, you can find help at a local Taxpayer Assistance Center. Locations, business hours and an overview of services are available at IRS.gov. Just go to the “individuals” tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.
• Community Resources Free tax preparation is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs in many communities. Volunteer return preparation programs provided through IRS and its partners offer free help in preparing simple tax returns for low- to moderate-income taxpayers. Call 800-906-9887 to find the VITA or TCE site nearest you. You may also call AARP — the largest TCE participant — at 888-227-7669 (888-AARPNOW) or access www.aarp.org to find the nearest Tax-Aide site.
For more information about services provided by the IRS, review Publication 910, IRS Guide to Free Tax Services available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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).
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, please wait until the next week before checking back.
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:
1. The child is younger than 18.
2. The child is 18 and has earned income that does not exceed one-half of their own support for the year.
3. 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).
If you are living and working abroad you may be entitled to the Foreign Earned Income Exclusion. Here are some important facts about the exclusion:
1. The Foreign Earned Income Exclusion: United States Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.
2. The General Rules: To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.
3. The Exclusion Amount: The foreign earned income exclusion is adjusted annually for inflation. For 2008, the maximum exclusion is up to $87,600 per qualifying person.
4. Claiming the Exclusion: The foreign earned income exclusion and the foreign housing exclusion or deduction are claimed using Form 2555, which should be attached to the taxpayer’s Form 1040. A shorter Form 2555-EZ is available to certain taxpayers claiming only the foreign income exclusion.
5. Taking Other Credits or Deductions: Once the foreign earned income exclusion is chosen, a foreign tax credit or deduction for taxes cannot be claimed on the excluded income. If a foreign tax credit or tax deduction is taken on any of the excluded income, the foreign earned income exclusion will be considered revoked.
For more information about the Foreign Earned Income Exclusion get Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and the instructions for Form 2555. Both are available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
If you took an early distribution from your retirement plan, here are some things you need to know:
1. Payments you receive from your Individual Retirement Arrangement before you reach age 59 ½ are generally considered early or premature distributions.
2. Early distributions are usually subject to an additional 10 percent tax.
3. Early distributions must also be reported to the IRS.
4. Distributions you rollover to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution.
5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.
7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.
8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
9. There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled. Other exceptions can be found in IRS Publication 590, Individual Retirement Arrangements (IRAs).
10. More information about early distributions from retirement plans and the additional 10 percent tax can be found in IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Do you have questions about reporting gains and losses on your tax return? Here are some facts from the IRS.
1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
2. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.
3. You must report all capital gains.
4. You may deduct capital losses only on investment property, not on property held for personal use.
5. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
6. Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.
7. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2008, the maximum capital gains rates are 0%, 15%, 25% or 28%.
8. If your capital losses exceed your capital gains, the excess can be deducted on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
9. If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
10. Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
For more information about reporting capital gains and losses, get Publication 17, Your Federal Income Tax, and Publication 550, Investment Income and Expenses, available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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).
Seven Facts to Help You Understand the Alternative Minimum Tax
1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. The Alternative Minimum Tax attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax.
2. Congress created the AMT in 1969, targeting a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax.
3. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
4. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
5. The AMT exemption amounts are set by law for each filing status.
6. For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:
• $69,950 for a married couple filing a joint return and qualifying widows and widowers
• $46,200 for singles and heads of household
• $34,975 for a married person filing separately
7. Taxpayers may find more information about the Alternative Minimum Tax and how it impacts them by referring to IRS Form 6251, Alternative Minimum Tax —Individuals, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
If you are looking for a new job or a career change, consider the IRS. No matter what your professional specialty, the IRS offers a variety of full-time careers or seasonal job opportunities in many U.S. cities.
Add it up. At the IRS you can excel with one of the world's largest financial institutions and be part of one of the most well trained professional workforces anywhere. A career at the IRS has its advantages: flexibility, job security, advancement opportunities and great benefits. It all adds up.
So, where do you get information about careers, benefits, training and life at the IRS? You’ll find what you’re looking for on IRS.gov in the “Careers” section.
When you’re ready, applying for an IRS position is easy. Instead of filling out piles of paper to send in the mail, you can apply on-line through USAJOBS. Search for current IRS job announcements and apply by following these four easy steps:
1. Go to www.usajobs.opm.gov.
2. Click “Search Jobs”. In the Keyword Search box, type: “Internal Revenue Service.” Scroll to the bottom of the page and click the “Search for Jobs” button. A list of currently available IRS Job Announcements will appear.
3. Click on the Job Announcement you’re interested in to learn about its duties, qualification requirements and available locations.
4. When you’re ready to apply, scroll to the bottom of the Job Announcement and click “Apply Online” to post your resume.
Remember, you never have to pay a fee to apply for an IRS job. From time to time you may see ads advising readers to call for an application and job information. The ads claim that they will send you the information you need to apply for an IRS position. The truth is, anyone seeking information regarding employment at the IRS can have it, free for the asking. All of our positions are posted at www.usajobs.opm.gov.
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).
Education tax credits can help offset the costs of higher education for yourself or a dependent. The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. Because they are credits rather than deductions, you may be able to subtract them in full, dollar for dollar, from your federal income tax.
The Hope Credit
• The credit applies for the first two years of post-secondary education, such as college or vocational school. It does not apply to the third, fourth, or higher years of undergraduate programs, to graduate programs, or to professional-level programs.
• It can be worth up to $1,800 ($3,600 if a student in a Midwestern disaster area) per eligible student, per year.
• You're allowed a credit of 100% of the first $1,200 ($2,400 if a student in a Midwestern disaster area) of qualified tuition and related fees paid during the tax year, plus 50% of the next $1,200 ($2,400 if a student in a Midwestern disaster area).
• Each student must be enrolled at least half-time for at least one academic period which began during the year.
• The student must be free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.
The Lifetime Learning Credit
• 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).
The IRS sent taxpayers nearly 119 million economic stimulus payments last year. When filing a 2008 federal tax return, taxpayers will need to know the amount of their stimulus payment to properly determine if they are eligible for a recovery rebate credit.
Here are six tips for finding how much you received and correctly claiming the credit on your return.
1. Get your notice. Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.
2. Visit IRS.gov to find the amount. If you don’t have your Notice 1378, go to the “How Much Was My 2008 Stimulus Payment?” tool that is available on the IRS Web site, IRS.gov. This tool can provide the correct amount in a matter of a few seconds.
3. Call the IRS at 1-866-234-2942. If you don’t have Internet access, call the IRS. After a brief recorded announcement, select option one to find out the amount of their economic stimulus payment. You will need to provide your 2007 filing status, Social Security Number and the number of exemptions claimed on the tax return.
4. Keep the amount handy. With the amount of last year’s economic stimulus payment in hand, you will be able to enter the figure on the recovery rebate credit worksheet or in the appropriate location when your tax preparation software requests it. This number will not appear on your actual tax return but is vital to ensure the accurate determination of the recovery rebate credit amount.
5. Don’t worry about doing the calculations. If you are using tax software, the amount of the rebate recovery credit will automatically be calculated and reported properly. If you are using the paper method to file your return, the rebate recovery credit, as determined through the worksheet, should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ. In order to avoid an error, be careful not to enter your stimulus payment amount on this line.
6. Most taxpayers won’t enter anything. For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero. If there is any question at all as to the amount that should be reported for the recovery rebate credit, the taxpayer or preparer should enter a zero on the appropriate line above, and the IRS will determine whether a recovery rebate credit is due, and, if so, how much.
Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS. If you still do not receive your W-2 by February 17th, 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 and phone number.
• Your name, address, city and state, including zip code, Social Security number, phone number and
• An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2008. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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.
For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,900. However, self-employed individuals generally must file a tax return if their net income from self employment was at least $400.
Check the “Individuals” section of the IRS Web site at 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 IRS this year.
Even if you don’t have to file, here are six reasons why you may want to file:
1. 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, if you made estimated tax payments, or had a prior year overpayment applied to this year's tax.
2. Recovery Rebate Credit. If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment, you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return.
3. Earned Income Tax Credit. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money. EITC is a refundable tax credit meaning you could qualify for a tax refund.
4. 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.
5. First time Homebuyer Credit. If you bought a main home after April 8, 2008, and before July 1, 2009 and did not own a main home during the prior 3 years, you may be able to take this refundable credit.
6. Health Coverage Tax Credit. Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.
For more information about filing requirements and your eligibility to receive tax credits, visit the IRS Web site at IRS.gov.
There are several tax credits and benefits available to qualifying taxpayers with disabilities as well as to the parents of disabled children. Listed below are several tax credits and other benefits available if you or someone else listed on your federal tax return is disabled.
The Earned Income Tax Credit
The EITC is available to disabled taxpayers as well as to the parents of a child with a disability. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability, who have no qualifying children, but are older than 25 and younger than 65 do, in fact, qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
The Credit for the Elderly or Disabled
This credit is available to taxpayers who are younger than 65 and are retired on permanent and total disability.
Child or Dependent Care Credit
Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.
Impairment-Related Work Expenses
Employees who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
Impact on the Standard Deduction
Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
Gross Income
Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income may be excluded from a taxpayer’s gross income.
For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities, or Publication 907, Tax Highlights for Persons with Disabilities, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
While most income you receive is generally considered taxable, there are some situations when certain types of income are partially taxed or not taxed at all.
Some common examples of items that are not included in your income are:
• Adoption Expense Reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers' compensation benefits
• Meals and Lodging for the convenience of your employer
• Compensatory Damages awarded for physical injury or physical sickness
• Welfare Benefits
• Cash Rebates from a dealer or manufacturer
• Economic Stimulus Payment received in 2008
Some income may be taxable under certain circumstance, but not taxable in other situations. Examples of items that may or may not be included in your income are:
• 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 or call 800-TAX-FORM (800-829-3676).
Here are a few tax law changes you may want to note before filing your 2008 federal tax return:
1. Expiring Tax Breaks Renewed
The following popular tax breaks were renewed for tax-years 2008 and 2009:
• Deduction for state and local sales taxes on Form 1040 Schedule A, Line 5
• Educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
• Tuition and fees deduction on Form 8917
In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.
2. Standard Deduction Increased for Most Taxpayers
The 2008 basic standard deductions all increased. They are:
• $10,900 for married couples filing a joint return and qualifying widows and widowers
• $5,450 for singles and married individuals filing separate returns
• $8,000 for heads of household
Beginning this year, taxpayers can claim an additional standard deduction based on the state or local real-estate taxes paid in 2008. Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster.
3. Contribution Limits Rise for IRAs and Other Retirement Plans
This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $53,000 and $63,000. For married couples filing jointly, the income phase-out range is $85,000 to $105,000.
4. Standard Mileage Rates Adjusted for 2008
The standard mileage rates for business use of a vehicle:
• 50.5 cents per mile from Jan. 1 to June 30, 2008
• 58.5 cents per mile driven during the rest of 2008
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
• 19 cents per mile Jan. 1 to June 30, 2008
• 27 cents from July 1 to Dec. 31, 2008
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile. Special rates apply to the Midwest disaster area.
5. Kiddie Tax Revised
The tax on a child's investment income previously only applied to children younger than age 18. It now applies if the child has investment income greater than $1,800 and is:
• Younger than 18
• 18 years of age and had earned income that was equal to or less than half of his or her total support in 2008
• Older than 18 and younger than 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.
As an alternative method for donating to a charity, certain taxpayers may transfer funds from their IRA to an eligible charitable organization. Here are ten things taxpayers who are thinking about making such a donation will need to know.
1. The IRA owner must be age 70 ½ or older.
2. The donor must directly transfer the money tax-free to an eligible organization.
3. The maximum amount that an IRA owner may transfer annually tax-free is $100,000 to an eligible organization.
4. This option, created in 2006 and recently extended through 2009, is available to eligible IRA owners, regardless of whether they itemize their deductions.
5. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension plans – commonly referred to as SEP Plans – are not eligible.
6. To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity.
7. Amounts transferred are not taxable and no deduction is available for the amount given to the charity unless non-deductable contributions are transferred.
8. Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.
9. 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 non-deductable contributions are transferred to an eligible organization, a charitable contribution deduction may be allowed if itemizing deductions.
10. More information about qualified charitable distributions can be found in Publication 590, Individual Retirement Arrangements.
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.
If you’ve never filed your tax return electronically, you should definitely consider trying it in 2009. Join the millions of taxpayers who are saving time and money to file their tax returns without the many headaches often associated with filing a paper return.
Here are the top eight reasons close to 90 million people filed their tax returns electronically in 2008:
1. It’s easy. You can usually file a state tax return at the same time you electronically file your federal tax return.
2. It’s accurate. No more human errors because e-file checks for math errors and necessary information. This not only increases the accuracy of your return, but it also reduces the need for correspondence with the IRS to clarify errors or omissions.
3. No more second-guessing yourself. When you file electronically, the computer software or online program guides you through the process step-by-step.
4. You’ll get your refund faster. When you use e-file, you can get your refund in as little as ten days.
5. There are more payment options. With e-file, you can file your return early, but wait to pay any balance due by the April deadline. You can also pay electronically using a credit card, electronic funds withdrawal or in some cases the Electronic Federal Tax Payment System.
6. It’s fast. You don’t have to make a trip to the post office. In fact, you won’t even need to walk to the mailbox to send your return. Just click Send.
7. You’ll know the IRS received your return. The IRS will send you an electronic notification acknowledging receipt of your return.
8. You’ll have peace of mind. After clicking send and receiving your notification from the IRS that they received your return…kick back and relax – you’re done!
The Earned Income Tax Ccredit is for people who work, but have lower incomes. Here are some things you may not know about the EITC.
1. A quarter of all taxpayers that qualify don’t claim the credit. The Earned Income Tax Credit is money you can use to make a difference in your life. Just because you didn’t qualify last year, doesn’t mean you won’t this year. As your financial situation changes from year-to-year you should review the EITC eligibility rules to determine if you qualify.
2. If you qualify, it could be worth up to $4,800 this year. If you qualify, you could pay less federal tax or even get a refund. The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household.
3. Your filing status cannot be Married Filing Separately. Your filing status must be married filing jointly, head of household, qualifying widow or single.
4. You must have a valid Social Security Number. You, your spouse (if filing a joint return) and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
5. You must have earned income. This credit is called the “earned income” tax credit because you must work and have earned income to qualify. You have earned income if you work for someone who pays you wages or you are self-employed.
6. Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
7. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make the election, the combat pay remains nontaxable, but you must include in earned income all nontaxable combat pay you received.
8. You can visit the IRS Web site to estimate your credit online. It’s easy to determine whether you qualify for the EITC. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and to estimate the amount of your EITC. You will see the results of your responses right away.
9. E-file programs will figure the credit for you. If you are preparing your taxes electronically, the software program you use will figure the credit for you. If you qualify for the credit you may also be eligible for Free File. You can access Free File through the IRS Web site at IRS.gov.
10. Advanced Earned Income Tax Credit. You don’t have to wait until you file your tax return to receive your EITC. Advance EITC is a portion of the EITC that qualified workers may be able to receive in advance payments, added to their wages throughout the year. For more information, see Form W-5, Earned Income Credit Advance Payment Certificate.
For more information about the EITC and Advance EITC see IRS Publication 596, Earned Income Credit. This publication (available in both English and Spanish) and Form W-5 can be downloaded from IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).
Don’t wait around for a paper check. Have your federal tax refund deposited directly into your bank account. Choosing Direct Deposit is a secure and convenient way to get your money in your pocket faster.
Here are the main reasons 66 million taxpayers chose Direct Deposit in 2008:
1. Direct Deposit is secure. There is no chance for a check to get lost in the mail. Thousands of checks are returned to the IRS by the US Post Office every year as undeliverable mail. Direct Deposit eliminates the possibility you won’t receive your check and prevents your refund from being stolen.
2. Direct Deposit is convenient. The money goes directly into your bank account. You won’t have to make a special trip to the bank to deposit the money yourself.
3. Direct Deposit is easy. When you’re preparing your return, simply follow the instructions for “refund” on your return. Just make sure you entered the correct bank account and bank routing numbers on your tax form and you’ll receive your refund quicker than ever.
4. Direct Deposit offers options. You can also electronically direct your refund to multiple accounts. With the "split refund" option, taxpayers can divide their refunds among as many as three checking or savings accounts and three different U.S. financial institutions. A word of caution — some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted.
For more information about direct deposit of your tax refund and the split refund option, check the instructions for your tax form. 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).
Are you facing a lot of different tax questions this year? IRS experts have pulled together an overview of common tax issues in one convenient place — Publication 17, Your Federal Income Tax. This publication, available on the IRS.gov, contains helpful information for individual taxpayers. This year for the first time, the IRS will issue a Spanish language version of this popular publication.
The on-line version of Publication 17 contains electronic links that make finding your answer simple. Both the downloadable PDF and on-line 2008 Publication 17 have over 900 hyperlinks. These hyperlinks allow users to immediately go to other parts of the publication, reducing searches to just a few clicks.
From stock sales to student loans, this nearly 300-page publication holds the answers to many of your questions:
• Need help with a Roth IRA? Try Chapter 17 for Individual Retirement Arrangements.
• Do you have a new child in the house? See Chapter 34 for the Child Tax Credit.
• Are you selling stock for the first time? Check Chapter 16 for reporting capital gains. If you’re unloading losers, reporting capital losses is there, too.
• Do you need to report the profit on your home sale? See Chapter 15 for some good news. Generally, if you qualify you only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return).
And the best part about Publication 17? It’s free. To get a copy, visit the IRS Web site at IRS.gov or call 800-TAX-FORM (800-829-3676).
If you were married or divorced recently, there are a couple 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).
If you have access to a computer and the Internet you may be eligible to prepare and file your 2008 federal tax return electronically — for free. Free File is an easy way to file your taxes and get your refund in half the time. Filing electronically is fast, accurate and secure.
Free File, a form of e-file, is a free federal tax preparation and electronic filing program for eligible taxpayers developed through a partnership between the IRS and the Free File Alliance. The Alliance is a group of private-sector tax software companies. Since Free File’s debut in 2003, a total of more than 24 million returns have been prepared and e-filed through the program.
Free File offers two options. The first, “full service” Free File includes 20 different software options that can assist taxpayers with an Adjusted Gross Income of $56,000 or less in 2008 to e-file their federal tax returns for free. That means 70 percent of all taxpayers can take advantage of tax software that will help them complete their returns through the Free File program. Three companies are offering their products in Spanish.
This year, the IRS and its partners are offering a new option, Free File Fillable Forms, which opens up Free File to virtually everyone, even those whose incomes exceed $56,000.
Free File Fillable Forms allow taxpayers to fill out and file their tax forms electronically, just as they would on paper. This option does not include an “interview” process like the other Free File offerings, but it does allow taxpayers to enter their tax data, perform basic math calculations, sign electronically, print their returns for recordkeeping and e-file their returns. This “self-service” option may be right for those who are comfortable with the tax law, know what forms they want to use or don’t need assistance to complete their returns.
Both the fillable-forms option and the previously available “full service” Free File offerings are available only through the IRS.gov Web site. Both new and returning taxpayers must access Free File through IRS.gov. Otherwise, the e-file provider may charge them a fee.
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.
1. 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
2. Be sure to also notify your employer of your new address so you get your W-2 forms on time.
3. If you change your address after you’ve filed your return, don’t forget to notify the post office at your old address so your mail can be forwarded.
4. Taxpayers who make estimated payments throughout the year should mail a completed Form 8822, Change of Address, or write the IRS center where you file your return. You may continue to use your old pre-printed payment vouchers until the IRS sends you new ones with your new address. However, do not correct the address on the old voucher.
5. The IRS does use the Postal Service’s change of address files to update taxpayer addresses, but it’s still a good idea to notify the IRS directly.
6. Visit IRS.gov for more information about changing your address. You can find the address of the IRS center where you file your tax return or download Form 8822, Change of Address. The form is also available by calling 800-TAX-FORM (800-829-3676).
The IRS has free tax forms and publications on a wide variety of topics. If you need IRS forms or information, try one of these easy options:
• Internet: You can access forms and publications on the IRS website 24 hours a day, 7 days a week, at IRS.gov.
• Phone: Call 1-800-TAX-FORM (800-829-3676) to order current year forms, instructions and publications and prior year forms and instructions. You should receive your order within 10 days.
• 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. Braille materials may also be available. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.
• Mail: Order your tax forms and publications from the National Distribution Center, P.O. Box 8903, Bloomington, IL, 61702-8903. You should receive your products 10 days after receipt of your order.
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 IRS.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
If you need federal tax information, the IRS provides free Spanish language products and services. Pages on the Internal Revenue Service’s Web site, pre-recorded tax topics, refund information, tax publications and toll-free telephone assistance are all available in the Spanish language.
• The Spanish language page (El IRS en Español) on the IRS Web site is located at IRS.gov/espanol. You will find links to tax related information like forms and publications, warnings about tax scams that victimize taxpayers, information on the Earned Income Tax Credit, Child Tax Credit, various other tax credits and more.
• TeleTax is a toll-free, automated telephone service available in English and Spanish. TeleTax provides helpful pre-recorded tax topic messages and refund information. You can find a list of over 150 TeleTax topics in the instructions for Form 1040, 1040A or 1040EZ. TeleTax can also help if at least four weeks have passed since you filed your tax return and you want to check on the status of your federal refund. Having a copy of the tax return handy will help you respond to the prompts on the automated system. TeleTax is available 24 hours a day, 7 days a week at 800-829-4477.
• Spanish Publications are available by calling 800-TAX-FORM (800-829-3676) or on the IRS Web site, IRS.gov.
• Toll-Free Telephone Assistance is available from Spanish-speaking IRS representatives by calling the IRS customer service line at 800-829-1040.
Remember that for 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.
1. If you receive a letter or notice from the IRS which leads you to believe someone may have fraudulently used your Social Security Number, respond immediately to the name and address or phone number printed on the IRS notice.
2. If you receive a letter from the IRS that indicates more than one tax return was filed for you, this may be a sign that your SSN was used fraudulently.
3. Another sign that you may be the target of identity theft is an IRS letter indicating you received wages from an employer unknown to you.
4. The IRS has a department which deals specifically with identity theft issues. The IRS Identity Protection Specialized Unit is available if you have been in contact with the IRS about an identity theft issue and have not achieved a resolution.
5. You can contact the IRS Identity Protection Specialized Unit by calling the Identity Theft Hotline at 800-908-4490 Monday through Friday from 8:00 am to 8:00 pm local time (Alaska and Hawaii follow Pacific Standard Time).
6. The IRS Identity Protection Specialized Unit is also available if you believe your identity may be at risk of being stolen due to a lost or stolen purse or wallet or due to questionable activity on your credit card or your credit report.
7. The IRS never initiates communication with taxpayers about their tax account through emails. If you receive an e-mail or find a Web site you think is pretending to be the IRS, forward the e-mail or Web site URL to the IRS at phishing@irs.gov.
8. The IRS has many more resources available to help inform taxpayers about identity theft on the IRS Web site at IRS.gov. On IRS.gov you can access information on how to report scams and bogus IRS Web sites. You can also visit the IRS Identity Theft Resource Page, which you can find by typing Identity Theft Resource Page in the search box on the IRS.gov home page.
9. The Federal Trade Commission is also available to assist taxpayers with identity theft issues. You can reach them at 877-ID-THEFT (877-438-4338).
10. Visit OnGuardOnline.gov for protection tips from the federal government and the technology industry.
