Tax Help - "Oh Crap!...A CP-2000"

That's what most folks say when they receive Form CP-2000 in the mail and figure out what "little goof" triggered this notice from the IRS.

Most of the time it can be simple mathematical errors or it can be as large and "forgetting those stock trades". Regardless of the reason, they'll get you.

CP-2000 are sent to taxpayers to inform the of changes are being "proposed" to their tax return because information they reported on it doesn't match what was reported by their employers, banks and other payers.

The form will provide detailed information about those differences, the changes the IRS proposes and of course, what you can do if you agree or disagree with the proposal.

Every taxpayer can request a copy of their Wage & Income Transcript which will list every item of income which was reported to the IRS, and I strongly urge you to do so prior to responding to the notice. Just do so in a timely manner so that you meet the deadline for responding the the notice.

CP-2000 We Are Proposing Changes to Your Tax Return

Notice 609, Privacy Act Notice
Publication 5, Your Appeal Rights and How to Prepare a Protest if You Don't Agree
Publication 1, Your Rights as a Taxpayer
Publication 594, What You Should Know About The IRS Collection Process

Tax Help - "What The Preacher Man Joined Together, Let NO Man Separate!"

Remember those wonderful vows you took on your wedding day? Well, those same vows can sometimes either make or break you when it comes to calculating tax liability or the reduction thereof............

One of the more common questions that I am asked is "Would it be better if my spouse and I file separately". My response is always, no, because you are going to lose out on deductions and credits.

Unfortunately, in marriage and life, everything is not always "Happily Ever After". Even if one spouse has tax liability from a previous marriage, owes child support or student loans, filing jointly is always the best remedy. The one thing that most couples do not realize is that you can file jointly and reap the best benefits but yet file Form 8857 for Innocent Spouse relief.

Some couples, even when life is good, decide to file separately. Say perhaps, one spouse gets a CP-2000 for changes on their return due to loosing deductions and benefits resulting from the separate filing. Then they decide they want to amend their returns and file jointly.

Here's the best way to remember the rules for amending a return under these circumstances:

"WHAT THE PREACHER JOINED TOGETHER,

LET NO MAN (OR THE IRS) SEPARATE!"

Once you file jointly, you cannot amend to file separate.

But.......you can go from married filing separate to married filing joint!

Read more about the deductions and credits that you can lose by filing separately:

Publication 501, Exemptions, Standard Deduction and Filing Information
Publication 504, Divorced or Separated Individuals
Form 8332 (PDF), Release of Claim to Exemption for Child of Divorced or Separated Parents
Tax Topic 354, Dependents

Form 2120 (PDF), Multiple Support Declaration

Publication 970, Tax Benefits for Education
Tax Topic 605, Education Credits
Form 8863 (PDF), Education Credits (Hope and Lifetime Learning Credits)

Tax Topic 601, Earned Income Credit

Tax Help - Reasons for Not Receiving the Stimulus Package

I have been asked numerous questions lately regarding the Stimulus package and I wanted to provide some information that will probably open some eyes.

Your payment may be less than the maximum for one or more of the following reasons:

You are single and your net income tax liability is less than $600. If you file Form 1040 net income tax liability is the amount shown on Line 57, plus the amount on Line 52.

You are married and your net income tax liability is less than $1,200.

You are single and your adjusted gross income (AGI) is more than $75,000. On Form 1040, AGI is the amount on Line 37.

You are married filing a joint return and your AGI is more than $150,000.

You owe back taxes.

You have non-tax federal debts such as unpaid student loans or child-support obligations.

Stimulus Payment Schedule for Tax Returns Processed by April 15

Economic stimulus payments will be issued according to the last two-digits of the main filer's Social Security number. For joint filers, the payments will go out based on the person listed first on the return. Payments will be made by either direct deposit or paper check, consistent with how people filed their 2007 tax return.

People who use direct deposit also will be among the first to receive the payments starting April 28. Direct deposits will be made daily and completed by the date listed below:

DIRECT DEPOSIT
Last two SSN digits:
00 through 20 May 2
21 through 75 May 9
76 through 99 May 16

Paper checks will also go out based on Social Security number. For Social Security numbers ending in 00 through 09, the paper checks will be mailed starting May 9 and will continue through May 16. A similar process will be repeated in the following weeks.

PAPER CHECK
Last two SSN digits:
00 through 09 May 16
10 through 18 May 23
19 through 25 May 30
26 through 38 June 6
39 through 51 June 13
52 through 63 June 20
64 through 75 June 27
76 through 87 July 4
88 through 99 July 11

People who file a return after April 15 will receive their economic stimulus payment, but probably about two weeks later than the schedule shows. A return must be filed by October 15 in order to receive a stimulus payment this year. See the online calculator for an estimate of the amount you will receive.

A small percentage of tax returns will require additional time to process and to compute a stimulus payment amount. For these returns, stimulus payments may not be issued in accordance with the schedule above, even if the tax return was processed by April 15.

Related Items:
IR-2008-66, Economic Stimulus Payments on the Way; Some People Will See Direct Deposit Payments Today
IR-2008-44, IRS Announces Economic Stimulus Payment Schedules, Provides Online Payment Calculator

Tax Help - Even Businesses Need Those Deductions

Business owners often pay more tax than needed. Why? Well, it’s basically the same principal as individual taxpayers, they miss deductions that they might have taken but was not aware of or didn’t figure applied to them.

Some common business deductions for which you might be eligible and maybe have never considered are listed below. As with any deduction, there can be restrictions that need to be considered before including them in your return.

Carrying Charges

Carrying charges are fees and interest on property. Some carrying charges may be deductible if they are not capitalized (counted as long-term expenditures).

Research and Experimental Costs

Costs of research and experimentation may be deductible if you choose not to list them as capital (long-term) expenses.

Circulation Costs

If you have a publishing business, you may be eligible to deduct costs for circulating a newspaper, magazine, or other periodical. This deduction does not apply to land or property.

Environmental Cleanup Costs

You may be eligible to deduct costs for cleanup of environmental spills or other incidents, up to January 1, 2008. These costs are considered as “Other Deductions.”

Business Startup and Organization Costs

You may be eligible to deduct some of your business startup costs up to $5,000 and organizational costs up to $5,000 (for expenses after October 22, 2004). If your startup or organizational costs exceeded $50,000, your deduction may be limited.

Disability Access Costs

If you make improvements or remodel your business facility to accommodate customers and employees, you may be eligible for a deduction for these expenses. The annual limit for these deductions is $15,000.

For more information, including any restrictions and details on these deductions, see IRS Publication 535.

Related Articles:

“The Cost of Doing Business”
Domestic Production Activities
Environmental Cleanup
Access for the Disabled - Tax Benefits for Businesses Accommodating Persons with Disabilities

Tax Help - "What's Next"

By now your 2007 tax return should be filed or you should have applied for an extension of time to file.

Now it's time to prepare for the 2008, and this can include several major situations to keep in mind as you go through the coming year.

First on the list is checking on the status of your refund. If your refund hasn't been deposited to your bank account or been mailed to you in the three to four weeks after you filed, you can check its status on the IRS Web site using the Where's My Refund application. You should allow at least 7 days from the time you file your return before checking with the IRS.

You will also want to find out how much of the stimulus rebate you might receive later this summer. The IRS has an Online Stimulus Payment Calculator. Simply type in some numbers from your completed tax return and you'll see how much of an additional rebate you'll be receiving. The IRS has also posted a schedule of when these payments will be sent out.

Now may be the time to adjusted your paycheck withholding, but be careful not to over do it and claim to many exemptions. By adjusting your withholding, you'll make sure that you have just enough money deducted from your paycheck to cover your taxes, but not too much to have a huge refund, nor too little to have a sizable balance due. You can calculate how many withholding allowances to claim using the IRS' withholding calculator, and then use those figures to fill out a new W-4 and submit it to your employer's payroll department.

You will also want to keep your finished tax returns in a safe place. You'll want to keep a copy of the return, plus any supporting documents, for at least three years. That's how long the IRS has to ask any additional questions or basically audit your return.

As I always say, "It's better to be proactive than reactive!"

Tax Help - Itemizing Can Reduce Your Tax Liability

Itemize Deductions

Part of sound financial planning is ensuring that you don't pay more taxes than necessary, which means you need to have at least a basic understanding of itemized deductions, even if an accountant prepares your taxes. It's especially important if you prepare your own taxes.

What Is Itemizing?

Each year when you file your income tax return, you have to choose between using the standard deduction (a flat amount) or claiming your actual allowed deductions, called itemizing. If your actual expenses exceed the standard deduction, you'll save money by itemizing.What's the Difference Between the Standard Deduction and Exemptions?

The standard deduction is a flat amount that you deduct from your taxable income if you don't itemize, and shouldn't be confused with exemptions, which you're entitled to whether you itemize or not (unless your income exceeds certain limits).

Either way, for 2007 you get a $3,400 personal exemption for yourself, $3,400 for your spouse, and up to $3,400 for each person you can claim as a dependent. Personal exemptions are phased out at certain income levels. See Publication 501 for details.

If you don't itemize, the standard deduction for tax year 2007 is as follows:

$5,350 if you file as single$7,850 if you file as Head of Household$10,700 if you're married filing jointly or are a qualifying widow(er)$5,350 if you're married filing separately

You're entitled to an additional deduction, depending on your filing status, if you're over age 65 or legally blind (see Form 1040). If you can be claimed as a dependent on someone else's return, your standard deduction may be limited.

Should I Itemize or Take the Standard Deduction?

To determine if you have enough deductions to itemize, use Schedule A (included with the long version of Form 1040) to list all of your allowable expenses, and compare the total to the standard deduction for your filing status. If your allowable expenses are more than the standard deduction, you can itemize.

Over the years, the number of allowable deductions has been shrinking, so it's increasingly difficult to itemize. Mortgage interest is the major allowable deduction for most people, and unless you have a very small mortgage, you probably paid enough interest to put you over the standard deduction and make it possible for you to itemize.

What Expenses Are Allowable Deductions If I Itemize?

Some of the most common allowable expenses include:

State and local income taxes;Real estate taxes (if your taxes include service fees for things like trash pickup, recycling, etc., only the portion related to the value of your property is deductible);State and local personal property taxes based on the value of personal property such as cars or boats;Mortgage interest;Charitable contributions;Medical expenses (but only if they exceed 7.5% of your Adjusted Gross Income

More Tax Related Resources:

Make Tax Filing Easier with These Record Keeping

Adjusting Your Paycheck Withholdings

Avoid Tax Refund Anticipation Loans

What's the Safest Way to Get a Tax Refund?

Tax Help - Retirees & Vets - It's Not to Late to File

Even though April 15 has passed, the Internal Revenue Service today reminded retirees, disabled veterans and others who normally do not file a tax return that there is still time to submit a 2007 form to receive an economic stimulus payment.

People who have no tax filing requirement but have at least $3,000 in qualifying income should file a simple Form 1040A. Qualifying income includes any combination of

earned income,

nontaxable combat pay,

certain payments from Social Security, Veterans Affairs and Railroad Retirement.

For taxpayers who are required to file an income tax return, the IRS will use the 2007 tax return to determine eligibility for economic stimulus payments of up to $600 ($1,200 for married couples). There also is a payment of $300 for each qualifying child younger than 17.

Those not required to file a return because their income is too low or nontaxable must file a tax return to obtain their economic stimulus payment. The Economic Stimulus Act of 2008 provides a minimum payment of $300 ($600 for married couples) plus the $300 payment per eligible child, if the person (or married couple) has at least $3,000 in qualifying income.

The types of Social Security benefits that are considered qualifying income include retirement, disability and survivor payments.

Supplemental Security Income (SSI) is not qualifying income. The types of Veterans Affairs benefits that are considered qualifying income include disability compensation, disability pension and survivor payments.

Qualifying Railroad Retirement payments include the social security equivalent portion of Tier 1 benefits.

People not otherwise required to file an income tax return must file a simple Form 1040A with basic information to ensure that they receive the economic stimulus payment. This information includes their name; address; dependents, if any; amount of their qualifying income (which must be $3,000 or more); direct deposit information and their signatures. Forms 1040A and instructions are available at http://www.irs.gov/.

Eligible people, including their qualifying children, must have Social Security numbers. Also, people cannot be claimed or be eligible to be claimed as a dependent on another’s tax return. People with Individual Taxpayer Identification Numbers are not eligible.

A select number of volunteer tax assistance sites in local communities may also remain open. People can call 1-800-906-9887 to find the volunteer tax assistance site closest to them.

Tax Help - Don't Over Exempt Yourself or You'll Pay In the End!"

How Many Exemptions Should I Claim on My Paycheck?

You may be wondering if you should change your paycheck withholding amount in order to make ends meet. You may be wondering if you need to change it since you started a new job, just got married or had your first child. There are many different reasons to change your paycheck withholdings. It is important to realize that the withholdings do help you to not pay taxes at the end of the year. And withholding too many can make a major impact on your tax liability at the end of the year.

Here are five times you may consider changing your withholdings.

1. Starting a New Job

If you are making significantly more money, you may not want to claim as many exemptions. This depends on your family size. Generally if you are single you should continue to claim one. This number ensures that they withhold enough so that you do not owe at the end of the year.

2. You Owed Taxes This YearYou should consider your tax withholdings if you owe taxes this year.

There is nothing as disappointing as having to fork out money to the IRS at the beginning of the year. You can adjust your withholdings so that the correct amount is withheld. You can even request that extra money be withheld each pay period.

3. You Received a Big Refund

If you received a large refund this year you should adjust your withholdings as well.

Many people mistakenly look at the refund as an easy way to save money. You are essentially loaning the government and not receiving any interest on it every year. You can exercise self-discipline or have the money automatically transferred to a savings account. Additionally if you qualify for the earned income tax credit you can have portion of that paid to you throughout the year. You will need to talk to your human resources department.

4. You Started Your Own Business or Freelance

If you have just started your own business or you freelance on the side. You can often save yourself the hassle of paying your taxes quarterly by increasing the amount withheld from each of your regular paychecks. If you are primarily a freelancer or your freelance work brings in more than your normal job, you may consider beginning to file self-employment tax payments quarterly to avoid the penalty.

5. Any Major Life Event

Any time that you have a life-changing event you should adjust your withholdings. These events include getting married or divorced, having a child or the death of an immediate member of your family. You can change your withholdings at any time.

6. Use the IRS's Withholding Calculator

If you are unsure of what to withhold you should visit the withholding calculator at http://www.irs.gov/individuals/article/0,,id=96196,00.html. The calculator will have you enter your income, tax withholdings, and other information. The calculator will then tell you how much you need to have withheld. This tool can take the stress of estimating out. Additionally you can go back through the year to make sure you are still on track.

Tax Help - "Let's Educate the Self-Employed"

Most folks dread dealing with the IRS. But little do they know that the IRS can be a helpful tool to make any small business successful. They provide helpful educational tools that will help all types of taxpayers.


The Internal Revenue Service today launched a campaign to help educate new self-employed small business owners about federal tax responsibilities.

The campaign kick-off coincides with the Small Business Administration’s annual Small Business Week, April 21-25, which recognizes outstanding small business owners for their contributions to the nation's economy and their personal achievements.

“One of the biggest challenges faced by people starting out in business is understanding and meeting their tax filing requirements,” said Kathy Petronchak, commissioner of the IRS’s Small Business/Self-Employed operating division. “It’s a new, different and potentially overwhelming experience for them. We want new small business owners to know that the IRS has resources to help them learn about their federal tax responsibilities and avoid common pitfalls.”

The campaign will provide new Schedule C, Profit or Loss from Business, filers with improved and updated educational materials through a variety of channels, including IRS.gov, small business workshops and other outreach events.

Schedule C is filed by sole proprietors (one-owner businesses) as an attachment to their Form 1040 individual income tax return. Self-employed individuals with less complex situations – including business expenses of less than $5,000, no net losses and no employees – may be able to file Schedule C-EZ, Net Profit for Business.

About one in seven federal income tax returns includes a Schedule C or Schedule C-EZ. Taxpayers filed over 21 million Schedules C for tax year 2006, reporting overall net profits from sole proprietorships totaling more than $269 billion.

In this introductory phase of the campaign, IRS is offering some basic tips to avoid potential problems:

Classify workers properly as employees or independent contractors as determined by law, not the choice of the worker or business owner;

Deposit federal employment taxes, called trust fund taxes, according to the appropriate schedule;

Start making quarterly estimated-tax payments to cover your own income tax and social security self-employment tax liability;


Keep good records to protect your personal and financial investment and to make tax filing easier;

Consider a tax professional to help you with Schedule C;

File and pay your taxes electronically; it’s fast, easy, and secure;

Protect financial and tax records to ensure business continuity in the event of a disaster; and

Avoid abusive tax avoidance schemes such as the IRS’s 2008 “Dirty Dozen.

Tax Help - "Where's My Refund?"

Nearly 9.7 million taxpayers have checked the status of their 2007 federal income tax refunds online, up about 18 percent over the same time period last year.

To get to personalized refund information, taxpayers should be ready to enter their:Social Security Number (or 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 their tax returns.

Taxpayers can check on the status of their refund seven days after e-filing a return. For a paper return, check four to six weeks after mailing the return.

“Where’s My Refund?” also includes links to customized information based on a taxpayer’s specific situation. For example if “Where’s My Refund?” shows that the IRS was unable to deliver a refund, a taxpayer can change his or her address online. Taxpayers can avoid undelivered refund checks by having their refunds directly deposited into a personal checking or savings account.

If 28 days have passed after the IRS says it mailed a refund check, “Where’s My Refund?” enables taxpayers to initiate a trace.

New this year Spanish-speaking taxpayers can get information about the status of their federal refunds using Dónde Está mi Reembolso? available by entering the Spanish language area of the web site by clicking the Espanol link on IRS.gov. The refund trace and address change features are only available in English at this time.

Taxpayers without internet access can check the status of their refunds by calling the IRS TeleTax System at 800-829-4477 or the IRS Refund Hotline at 800-829-1954. The TeleTax refund information is updated each weekend. If you do not get a date for your refund, please wait until the next week before calling back.

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.

Some scam artists are sending phony emails, including those relating to “Where’s My Refund?”, to trick individuals into revealing personal financial information that can be used to access their financial accounts. People who want to access the genuine IRS Web site and the “Where’s My Refund?” feature should go directly to the IRS Web site by typing the address, http://www.irs.gov/, into the address` line of their Internet window. The only genuine IRS Web site is IRS.gov.