The Earned Income Tax Credit is for people who work, but have lower incomes. Here are some things you may not know about the EITC.
1. A quarter of all taxpayers that qualify don’t claim the credit. The Earned Income Tax Credit is money you can use to make a difference in your life. Just because you didn’t qualify last year, doesn’t mean you won’t this year. As your financial situation changes from year-to-year you should review the EITC eligibility rules to determine if you qualify.
2. If you qualify, it could be worth up to $4,800 this year. If you qualify, you could pay less federal tax or even get a refund. The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household.
3. Your filing status cannot be Married Filing Separately. Your filing status must be married filing jointly, head of household, qualifying widow or single.
4. You must have a valid Social Security Number. You, your spouse (if filing a joint return) and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
5. You must have earned income. This credit is called the “earned income” tax credit because you must work and have earned income to qualify. You have earned income if you work for someone who pays you wages or you are self-employed.
6. Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
7. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make the election, the combat pay remains nontaxable, but you must include in earned income all nontaxable combat pay you received.
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).
EITC Assistant
Earned Income Tax Credit
Publication 596, Earned Income Credit (EIC) (PDF 373K)
Free File
Tax Topic 601, Earned Income Credit
AARP Tax-Aide
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Friday, January 30, 2009
Direct Deposit Puts Your Money In Your Pocket...Faster
Don’t wait around for a paper check. Have your federal tax refund deposited directly into your bank account. Choosing Direct Deposit is a secure and convenient way to get your money in your pocket faster.
Here are the main reasons 66 million taxpayers chose Direct Deposit in 2008:
1. Direct Deposit is secure. There is no chance for a check to get lost in the mail. Thousands of checks are returned to the IRS by the US Post Office every year as undeliverable mail. Direct Deposit eliminates the possibility you won’t receive your check and prevents your refund from being stolen.
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).
E-file
Publication 17, Your Federal Income Tax (PDF 2,085K)
1040 Central
Form 8888
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).
E-file
Publication 17, Your Federal Income Tax (PDF 2,085K)
1040 Central
Form 8888
Tips for Recently Married or Divorced Taxpayers
If you were married or divorced recently, there are a couple of things you’ll want to do to ensure the name on your tax return matches the name registered with the Social Security Administration.
If a taxpayer takes their spouse’s last name or if both spouses hyphenate their last names, they may run into complications if they don’t notify the SSA. If the newlyweds file a tax return using their new last names, IRS computers would not be able to match the new name with their Social Security Number.
After a divorce, taxpayers who change back to their previous last name also need to notify the SSA of the change.
Informing the SSA of a name change is quite simple. File a Form SS-5 at your local SSA office.
The form is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.
Taxpayers who adopt their spouse’s child after getting married will want to make sure the children have an SSN. Taxpayers must provide SSNs for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return. The W-7A is available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).
Social Security Administration
Form SS-5, Application for a Social Security Card (PDF)
Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions (PDF 42K)
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).
Social Security Administration
Form SS-5, Application for a Social Security Card (PDF)
Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions (PDF 42K)
Recovery Rebate Credit Errors
Most taxpayers who received the economic stimulus payment last year will not be able to claim the Recovery Rebate Credit on their 2008 federal income tax returns. A small number of taxpayers who did not receive the full economic stimulus payment last year may be eligible to claim the Recovery Rebate Credit on their 2008 federal income tax return. Figuring the Recovery Rebate Credit incorrectly or entering inaccurate information will delay the processing of your tax return and any refund due.
Below are the four things every taxpayer should know about this one-time credit, which is related to last year’s Economic Stimulus Payment:
1. You do not have to pay back your Stimulus Payment and the payment is not taxable.
2. Less than an estimated 3 percent of taxpayers are eligible. The vast majority of taxpayers are not eligible to receive the Recovery Rebate Credit.
3. Did you have a major life change? If so, you may be eligible to claim the Recovery Rebate Credit. Some of the major factors that could qualify you for the Recovery Rebate Credit include:
Your financial situation changed dramatically from 2007 to 2008.
You did not file a 2007 tax return.
Your family gained an additional qualifying child in 2008.
You were claimed as a dependent on someone else’s return in 2007, but cannot be claimed as dependent by someone else in 2008.
4. Any Recovery Rebate Credit amount will be included in your refund. The IRS will figure the credit for you and include it in your refund or put it toward any taxes owed.
Recovery Rebate Information Center
Below are the four things every taxpayer should know about this one-time credit, which is related to last year’s Economic Stimulus Payment:
1. You do not have to pay back your Stimulus Payment and the payment is not taxable.
2. Less than an estimated 3 percent of taxpayers are eligible. The vast majority of taxpayers are not eligible to receive the Recovery Rebate Credit.
3. Did you have a major life change? If so, you may be eligible to claim the Recovery Rebate Credit. Some of the major factors that could qualify you for the Recovery Rebate Credit include:
Your financial situation changed dramatically from 2007 to 2008.
You did not file a 2007 tax return.
Your family gained an additional qualifying child in 2008.
You were claimed as a dependent on someone else’s return in 2007, but cannot be claimed as dependent by someone else in 2008.
4. Any Recovery Rebate Credit amount will be included in your refund. The IRS will figure the credit for you and include it in your refund or put it toward any taxes owed.
Recovery Rebate Information Center
Thursday, January 22, 2009
Should You Do Your Own Taxes?
Do you need help preparing your tax return, or should you try to do it yourself?
MSN Money has a great little quiz to challenge your preparation abilities. Take a few minutes and take the following quiz to help give you an idea of how well you understand tax concepts and current tax laws.
There are 25 questions, and each question is worth four points. Trust me, they'll give you a score and you might just be more than surprised.
Here's the link, give it a try: http://moneycentral.msn.com/quiz/tax-iq-quiz/home.aspx
Monday, January 19, 2009
Ten Reasons to Visit IRS.gov
1. Get answers 24 hours a day 7 days a week. Whether you need a form or have tax questions, IRS.gov has a wealth of information. IRS.gov is accessible all day, every day for individuals, businesses and tax-exempt organizations.
2. Get tax forms and publications. You can view, download and order tax forms and publications any hour of the day or night.
3. Find out all about electronic filing. You can e-file from the comfort of your home 24 hours a day, 7 days a week. E-file is fast, easy and free for some taxpayers.
4. Request a payment agreement. Paying your taxes in full and on time avoids unnecessary penalties and interest. However, if you cannot pay your balance in full you can use the Online Payment Agreement Application to request an installment agreement.
5. Find out how to make payments electronically. You can authorize an electronic funds withdrawal, use a credit or debit card or enroll in the U.S. Treasury’s Electronic Federal Tax Payment System. Electronic payment options are convenient, safe and secure methods for paying taxes.
6. Check the status of your tax refund. Whether you opted for direct deposit or asked IRS to mail you a check, you can check the status of your refund through “Where’s my Refund?” on our secure Web site.
7. Calculate the right amount of withholding on your W-4. The IRS Withholding Calculator will help you ensure that you don’t have too much or too little income tax withheld from your pay.
8. Find out if you qualify for the Earned Income Tax Credit. EITC is a refundable tax credit for people who work but don’t earn much. Find out if you are eligible by answering some questions and providing basic income information using the EITC Assistant.
9. Search for charities. Search Publication 78, Cumulative List of Organizations, to find out if an organization is exempt from federal taxation and, if so, how much of your contributions to that organization are tax deductible.
10. Get information about careers at the IRS. No matter what your professional specialty, the IRS can offer you a variety of full-time career or seasonal job opportunities.
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 http://www.irs.gov/. Also, the IRS does not initiate communication with taxpayers about their tax account through e-mail. Before identity theft happens, safeguard your information. If you get a questionable e-mail claiming to come from the IRS, do not open it — forward it to phishing@irs.gov.
Additional IRS links:
Tuesday, January 13, 2009
Read This Before Choosing A Tax Preparer
If you will be paying someone to do your tax return, choose a tax preparer wisely. You are legally responsible for what’s on your tax returns even if they are prepared by someone else. So, it’s important to find a qualified tax professional.
The most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions, and other items. By doing so, they have your best interest in mind and are trying to help you avoid penalties, interest, or additional taxes that could result from later IRS contacts.
Most tax return preparers are professional, honest and provide excellent service to their clients; you can use the following tips to choose a preparer who will offer the best service for their tax preparation needs.
Find out what the service fees are before the return is prepared. Avoid preparers who base their fee on a percentage of the amount of your refund or who claim they can obtain larger refunds than other preparers.
Only use a tax professional that signs your tax return and provides you with a copy for your records.
Avoid tax preparers that ask you to sign a blank tax form.
Choose a tax preparer that will be around to answer questions after the return has been filed.
Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?
Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys. Find out if the preparer belongs to a professional organization that requires its members to pursue continuing education and also holds them accountable to a code of ethics.
Determine if the preparer’s credentials meet your needs. Does your state have licensing or registration requirements for paid preparers? Is he or she an Enrolled Agent, Certified Public Accountant, or Attorney? If so, the preparer can represent taxpayers before the IRS on all matters – including audits, collections, and appeals. Other return preparers can represent taxpayers only in audits regarding a return signed as a preparer.
Before you sign your tax return, review it and ask questions.
You can report suspected tax fraud and abusive tax preparers to the IRS on Form 3949-A, Information Referral or by sending a letter to Internal Revenue Service, Fresno, CA 93888. Download Form 3949-A from IRS.gov or order by mail at 800-829-3676.
Additional resources:
Form 3949-A Information Referral (PDF 94K)
Where Do You Report Suspected Fraud Activity?
The most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions, and other items. By doing so, they have your best interest in mind and are trying to help you avoid penalties, interest, or additional taxes that could result from later IRS contacts.
Most tax return preparers are professional, honest and provide excellent service to their clients; you can use the following tips to choose a preparer who will offer the best service for their tax preparation needs.
Find out what the service fees are before the return is prepared. Avoid preparers who base their fee on a percentage of the amount of your refund or who claim they can obtain larger refunds than other preparers.
Only use a tax professional that signs your tax return and provides you with a copy for your records.
Avoid tax preparers that ask you to sign a blank tax form.
Choose a tax preparer that will be around to answer questions after the return has been filed.
Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?
Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys. Find out if the preparer belongs to a professional organization that requires its members to pursue continuing education and also holds them accountable to a code of ethics.
Determine if the preparer’s credentials meet your needs. Does your state have licensing or registration requirements for paid preparers? Is he or she an Enrolled Agent, Certified Public Accountant, or Attorney? If so, the preparer can represent taxpayers before the IRS on all matters – including audits, collections, and appeals. Other return preparers can represent taxpayers only in audits regarding a return signed as a preparer.
Before you sign your tax return, review it and ask questions.
You can report suspected tax fraud and abusive tax preparers to the IRS on Form 3949-A, Information Referral or by sending a letter to Internal Revenue Service, Fresno, CA 93888. Download Form 3949-A from IRS.gov or order by mail at 800-829-3676.
Additional resources:
Form 3949-A Information Referral (PDF 94K)
Where Do You Report Suspected Fraud Activity?
Monday, January 12, 2009
Will the AMT Affect You?
The number of taxpayers affected by the Alternative Minimum Tax (AMT) is expected to exceed 30 million in 2010. Congress continues to apply temporary fixes by increasing AMT exemptions to take into account the AMT exemption is not adjusted for inflation.
What is the AMT?
In 1986, Congress created the AMT to ensure wealthy Americans did not avoid paying federal income tax by taking undue advantage of certain "preferential" tax benefits. Unfortunately, the AMT has not been adjusted for inflation over the years, so the AMT starts to affect middle-income tax filers unless Congress increases the AMT exemption. Congress has increased or extended the AMT exemption 4 times since 2001. The Alternative Minimum Tax Relief Act of 2008 provides a 1-year increase to the AMT exemptions for 2008.
Who will be affected?
You're subject to the AMT if the AMT exceeds your regular tax figured from tax tables and rate schedules. In other words, you pay whichever amount is more, your regular tax or the AMT.
Several factors influence if you're affected by the AMT, including these common scenarios:
You itemized deductions and claimed large deductions for taxes and/or miscellaneous deductions subject to the 2% adjusted gross income limit.
You took out a home mortgage or equity line of credit and used the money to do something other than buy, build or improve your home.
You exercised incentive stock options and did not dispose of the stock in 2008.
You claimed a large number of personal and dependent exemptions on your return.
AMT exemptions (the amount you can deduct from your AMT income) for this year:
Married Filing Jointly and Qualifying Widow(er): $69,950
Single and Head of Household: $46,200
Married Filing Separately: $34,975
Phase-out rules for the AMT exemption did not change. The phase-out range is based upon alternative minimum taxable income (AMTI). The AMTI phase-out ranges for 2008 are as follows:
Married Filing Jointly and Qualifying Widow(er): $150,000 to $429,800
Single and Head of Household: $112,500 to $297,300
Married Filing Separately: $75,000 to $214,900
To find out if you're affected, AMT Estimator.
Deductions and the AMTA report from Congress shows the AMT has a disproportionate impact on residents living in particular states. It also revealed that taxpayers itemizing deductions for state and local taxes and/or miscellaneous deductions, as well as those who have larger families, are at greater risk than those who don't. And married taxpayers across a wide income range will be affected, whether they itemize or not. Keep in mind that personal exemptions, itemized deductions for state and local taxes, and miscellaneous itemized deductions, all of which serve to reduce regular taxable income, are not deductible under the AMT. The only itemized deductions allowed under the AMT are mortgage interest used to buy, build or improve your home, charitable contributions, casualty losses, medical expenses in excess of 10% of AGI, and miscellaneous itemized deductions not subject to the 2% of AGI floor.
As a result, taxpayers in certain income ranges, those who itemize and those with larger families may be hit hardest by the AMT. New Jersey, New York, Connecticut, the District of Columbia and California have a higher percentage of taxpayers subject to the AMT. These states have many taxpayers with large incomes who pay their state's high state and local taxes. Although these taxes are deductible for regular income tax purposes, they aren't for AMT purposes, increasing the likelihood of paying AMT. However, taxpayers in states with relatively low tax rates or those that don't have a state income tax are less likely to pay AMT.
States with the smallest percentage of taxpayers subject to the AMT are Tennessee, South Dakota, Alaska, Alabama and Mississippi.
Also Read:
AMT Table
AMT Estimator
Deductions
Home Ownership
Related IRS Forms & Publications
Form 6251 - Alternative Minimum Tax, Individuals
Form 6251 Instructions
Form 4626 - Alternative Minimum Tax, Corporations
Form 4626 Instructions
Form 1040 - U.S. Individual Income Tax Return
Form 1040 Instructions
Form 1116 - Foreign Tax Credit (Individual, Estate or Trust)
Topic 556 - Alternative Minimum Tax
Use the IRS AMT Assistant
What is the AMT?
In 1986, Congress created the AMT to ensure wealthy Americans did not avoid paying federal income tax by taking undue advantage of certain "preferential" tax benefits. Unfortunately, the AMT has not been adjusted for inflation over the years, so the AMT starts to affect middle-income tax filers unless Congress increases the AMT exemption. Congress has increased or extended the AMT exemption 4 times since 2001. The Alternative Minimum Tax Relief Act of 2008 provides a 1-year increase to the AMT exemptions for 2008.
Who will be affected?
You're subject to the AMT if the AMT exceeds your regular tax figured from tax tables and rate schedules. In other words, you pay whichever amount is more, your regular tax or the AMT.
Several factors influence if you're affected by the AMT, including these common scenarios:
You itemized deductions and claimed large deductions for taxes and/or miscellaneous deductions subject to the 2% adjusted gross income limit.
You took out a home mortgage or equity line of credit and used the money to do something other than buy, build or improve your home.
You exercised incentive stock options and did not dispose of the stock in 2008.
You claimed a large number of personal and dependent exemptions on your return.
AMT exemptions (the amount you can deduct from your AMT income) for this year:
Married Filing Jointly and Qualifying Widow(er): $69,950
Single and Head of Household: $46,200
Married Filing Separately: $34,975
Phase-out rules for the AMT exemption did not change. The phase-out range is based upon alternative minimum taxable income (AMTI). The AMTI phase-out ranges for 2008 are as follows:
Married Filing Jointly and Qualifying Widow(er): $150,000 to $429,800
Single and Head of Household: $112,500 to $297,300
Married Filing Separately: $75,000 to $214,900
To find out if you're affected, AMT Estimator.
Deductions and the AMTA report from Congress shows the AMT has a disproportionate impact on residents living in particular states. It also revealed that taxpayers itemizing deductions for state and local taxes and/or miscellaneous deductions, as well as those who have larger families, are at greater risk than those who don't. And married taxpayers across a wide income range will be affected, whether they itemize or not. Keep in mind that personal exemptions, itemized deductions for state and local taxes, and miscellaneous itemized deductions, all of which serve to reduce regular taxable income, are not deductible under the AMT. The only itemized deductions allowed under the AMT are mortgage interest used to buy, build or improve your home, charitable contributions, casualty losses, medical expenses in excess of 10% of AGI, and miscellaneous itemized deductions not subject to the 2% of AGI floor.
As a result, taxpayers in certain income ranges, those who itemize and those with larger families may be hit hardest by the AMT. New Jersey, New York, Connecticut, the District of Columbia and California have a higher percentage of taxpayers subject to the AMT. These states have many taxpayers with large incomes who pay their state's high state and local taxes. Although these taxes are deductible for regular income tax purposes, they aren't for AMT purposes, increasing the likelihood of paying AMT. However, taxpayers in states with relatively low tax rates or those that don't have a state income tax are less likely to pay AMT.
States with the smallest percentage of taxpayers subject to the AMT are Tennessee, South Dakota, Alaska, Alabama and Mississippi.
Also Read:
AMT Table
AMT Estimator
Deductions
Home Ownership
Related IRS Forms & Publications
Form 6251 - Alternative Minimum Tax, Individuals
Form 6251 Instructions
Form 4626 - Alternative Minimum Tax, Corporations
Form 4626 Instructions
Form 1040 - U.S. Individual Income Tax Return
Form 1040 Instructions
Form 1116 - Foreign Tax Credit (Individual, Estate or Trust)
Topic 556 - Alternative Minimum Tax
Use the IRS AMT Assistant
Do You Depreciate?
Generally, you can't deduct in 1 year the entire cost of property you purchased, either for use in your trade or business or to produce income, if the property has a useful life substantially beyond the tax year. Instead, you can depreciate it. You can spread the cost over a number of years and deduct a part of the cost each year.
What to Depreciate
The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles and furniture. You can't claim depreciation on property held for personal purposes. If you use property, such as a car, for both business or investment and personal purposes, only the business or investment use portion may be depreciated. You may depreciate property that meets all 5 of the following tests.
It must be property you own.
It must be used in a business or other income-producing activity.
It must have a determinable useful life.
It must be expected to last more than one year.
It must not be excepted property (certain intangible property, certain term interests and property placed in service and disposed of in the same year). If you're depreciating property you placed in service before 1987, you must use the Accelerated Cost Recovery System (ACRS) or the same method you used in the past. For property placed in service after 1986, you generally must use the Modified Accelerated Cost Recovery System (MACRS).
Section 179
Under Section 179, there are limits on the amount you can deduct in a tax year. You can deduct up to $125,000 of the cost of eligible business property in 2007 (the limit is higher if you placed the property in service in a qualified enterprise zone, qualified renewal community property or GO Zone (certain parts of the area affected by Hurricane Katrina). This deduction is reduced if you purchase more than $500,000 (up to $600,000 in the GO Zone) of eligible property for the year. Real estate and property used mainly in connection with furnishing lodging are not eligible for this deduction. The eligible property must be acquired for business use and acquired by purchase.
Eligible property includes the following:
off-the-shelf software
machinery and equipment
property contained in or attached to a building, other than structural components
gasoline storage tanks and pumps at retail service stations
livestock
The Section 179 deduction can't exceed your taxable income from businesses (including wages) for the year.
Also Read:
Self-employment
Rental Income
Capital Gains and Losses
Form 1099
What to Depreciate
The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles and furniture. You can't claim depreciation on property held for personal purposes. If you use property, such as a car, for both business or investment and personal purposes, only the business or investment use portion may be depreciated. You may depreciate property that meets all 5 of the following tests.
It must be property you own.
It must be used in a business or other income-producing activity.
It must have a determinable useful life.
It must be expected to last more than one year.
It must not be excepted property (certain intangible property, certain term interests and property placed in service and disposed of in the same year). If you're depreciating property you placed in service before 1987, you must use the Accelerated Cost Recovery System (ACRS) or the same method you used in the past. For property placed in service after 1986, you generally must use the Modified Accelerated Cost Recovery System (MACRS).
Section 179
Under Section 179, there are limits on the amount you can deduct in a tax year. You can deduct up to $125,000 of the cost of eligible business property in 2007 (the limit is higher if you placed the property in service in a qualified enterprise zone, qualified renewal community property or GO Zone (certain parts of the area affected by Hurricane Katrina). This deduction is reduced if you purchase more than $500,000 (up to $600,000 in the GO Zone) of eligible property for the year. Real estate and property used mainly in connection with furnishing lodging are not eligible for this deduction. The eligible property must be acquired for business use and acquired by purchase.
Eligible property includes the following:
off-the-shelf software
machinery and equipment
property contained in or attached to a building, other than structural components
gasoline storage tanks and pumps at retail service stations
livestock
The Section 179 deduction can't exceed your taxable income from businesses (including wages) for the year.
Also Read:
Self-employment
Rental Income
Capital Gains and Losses
Form 1099
Saver's Credit
You may qualify for the Saver's Credit if you are 18 or older, not a full-time student, not claimed as a dependent on another return, and meet certain income requirements.
Your adjusted gross income (AGI) and filing status determine the amount of credit you can receive — 10%, 20% or 50% of your IRA or other eligible retirement plan contribution.
You can contribute to an IRA until April 15, 2009, and claim the Saver's Credit on your 2008 tax return.
The Retirement Savings Contribution Credit, known as the Saver's Credit, allows you to get a credit for up to half of what you contribute to your IRA or other qualified retirement plan. Up to $2,000 of your annual contribution is eligible for the credit. If you are Married Filing Jointly and you and your spouse make eligible contributions, both of you may claim the credit. Note: If you received a distribution from an IRA or other plan with contributions eligible for the credit, the distribution reduces the amount of your 2008 contributions that are eligible for the credit. For 2008, this applies to distributions you received during 2006, 2007 and 2008, and to distributions you will receive in 2009 before the due date of your 2008 return (including extensions).
Saver's Credit Requirements
You qualify for the Saver's Credit if you are:
18 or older
not a full-time student
not claimed as a dependent on someone else's return, and
have an AGI that does not exceed $53,000 if Married Filing Jointly, $39,750 if Head of Household and $26,500 if Single, Married Filing Separately or Qualifying Widow(er).
Your Maximum Saver's Credit Amount
The Saver's Credit is equal to a percentage of your eligible contributions. AGI and filing status determine the percentage — 10%, 20% or 50%. When calculating the Saver's Credit, AGI includes excluded foreign income. Here's how the income limitations break down according to filing status.
Married Filing Jointly
$0–$32,000, 50%
$32,001–$34,500, 20%
$34,501–$53,000, 10%
Head of Household
$0–$24,000, 50%
$24,001–$25,875, 20%
$25,876–$39,750, 10%
Single, Married Filing Separately or Qualifying Widow(er)
$0–$16,000, 50%
$16,001–$17,250, 20%
$17,251–$26,500, 10%
You have until April 15, 2009, to start or contribute to an IRA to claim the Saver's Credit on your 2008 tax return.
Your adjusted gross income (AGI) and filing status determine the amount of credit you can receive — 10%, 20% or 50% of your IRA or other eligible retirement plan contribution.
You can contribute to an IRA until April 15, 2009, and claim the Saver's Credit on your 2008 tax return.
The Retirement Savings Contribution Credit, known as the Saver's Credit, allows you to get a credit for up to half of what you contribute to your IRA or other qualified retirement plan. Up to $2,000 of your annual contribution is eligible for the credit. If you are Married Filing Jointly and you and your spouse make eligible contributions, both of you may claim the credit. Note: If you received a distribution from an IRA or other plan with contributions eligible for the credit, the distribution reduces the amount of your 2008 contributions that are eligible for the credit. For 2008, this applies to distributions you received during 2006, 2007 and 2008, and to distributions you will receive in 2009 before the due date of your 2008 return (including extensions).
Saver's Credit Requirements
You qualify for the Saver's Credit if you are:
18 or older
not a full-time student
not claimed as a dependent on someone else's return, and
have an AGI that does not exceed $53,000 if Married Filing Jointly, $39,750 if Head of Household and $26,500 if Single, Married Filing Separately or Qualifying Widow(er).
Your Maximum Saver's Credit Amount
The Saver's Credit is equal to a percentage of your eligible contributions. AGI and filing status determine the percentage — 10%, 20% or 50%. When calculating the Saver's Credit, AGI includes excluded foreign income. Here's how the income limitations break down according to filing status.
Married Filing Jointly
$0–$32,000, 50%
$32,001–$34,500, 20%
$34,501–$53,000, 10%
Head of Household
$0–$24,000, 50%
$24,001–$25,875, 20%
$25,876–$39,750, 10%
Single, Married Filing Separately or Qualifying Widow(er)
$0–$16,000, 50%
$16,001–$17,250, 20%
$17,251–$26,500, 10%
You have until April 15, 2009, to start or contribute to an IRA to claim the Saver's Credit on your 2008 tax return.
Gift and Estate Tax
Gifts that aren't taxable include tuition, medical expenses, gifts to your spouse, gifts to a political organization and charitable donations.
Estate tax may be applied to your taxable estate at your death.
You could pay lower taxes on appreciated securities by giving them to your child.
If you gave someone gifts valued more than $12,000 ($13,000 for 2009), you must report the total amount of gifts to the IRS and may have to pay tax on the gifts. If you or your spouse make a gift to a third party, the gift can be considered as made half by you and half by your spouse (known as gift splitting). Gift splitting can allow you to claim a larger exclusion. For example, if in 2008 you made a $20,000 gift to an individual, you can exclude only $12,000. But if you elect gift splitting, both you and your spouse can exclude $10,000, for a $20,000 total exclusion. The person who receives your gift doesn't have to report it to the IRS or pay gift or income tax on its value.
Taxable Gifts
Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something for less than its value or make an interest-free or reduced-interest loan, you may be making a gift. There are some exceptions to the tax rules on gifts. The following gifts don't count against the annual limit:
tuition or medical expenses you pay directly to an educational or medical institution for
someone's benefit
gifts to your spouse
gifts to a political organization
charitable donations
Estate Tax
The money and property you own when you die (your estate) may be subject to federal estate tax if the estate is worth more than the applicable exclusion amount. Most relatively simple estates (cash, publicly traded securities, small amounts of other, easily valued assets, and no special deductions or elections or jointly held property) with a total value less than $2 million and a date of death in 2008 ($3.5 million for decedents dying in 2009) do not require the filing of an estate tax return. Additionally, the person who receives your estate generally won't have to pay an estate tax or an income tax on the value of the inheritance.
Reduced Tax on Appreciated Securities
If you give your child appreciated securities (such as stock or mutual fund shares), the tax bill on the increase in value is passed on to the child along with the gift. For example, stock you bought for $2,500 is now worth $5,000. If you sold the stock, you'd owe tax on the $2,500 gain. The 15% rate on long-term capital gains means it would cost you $375. If you gave the shares to your child, the same $2,500 would be taxed, but at your child's rate. His or her income may be low enough to allow his or her long-term gains to be taxed at the 0% long-term capital gains rate in effect for 2008–2010. If that's the case, you eliminate the tax bill.
Also Read:
Charitable Donations
Saving for Education
Year-end Planning
Estate tax may be applied to your taxable estate at your death.
You could pay lower taxes on appreciated securities by giving them to your child.
If you gave someone gifts valued more than $12,000 ($13,000 for 2009), you must report the total amount of gifts to the IRS and may have to pay tax on the gifts. If you or your spouse make a gift to a third party, the gift can be considered as made half by you and half by your spouse (known as gift splitting). Gift splitting can allow you to claim a larger exclusion. For example, if in 2008 you made a $20,000 gift to an individual, you can exclude only $12,000. But if you elect gift splitting, both you and your spouse can exclude $10,000, for a $20,000 total exclusion. The person who receives your gift doesn't have to report it to the IRS or pay gift or income tax on its value.
Taxable Gifts
Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something for less than its value or make an interest-free or reduced-interest loan, you may be making a gift. There are some exceptions to the tax rules on gifts. The following gifts don't count against the annual limit:
tuition or medical expenses you pay directly to an educational or medical institution for
someone's benefit
gifts to your spouse
gifts to a political organization
charitable donations
Estate Tax
The money and property you own when you die (your estate) may be subject to federal estate tax if the estate is worth more than the applicable exclusion amount. Most relatively simple estates (cash, publicly traded securities, small amounts of other, easily valued assets, and no special deductions or elections or jointly held property) with a total value less than $2 million and a date of death in 2008 ($3.5 million for decedents dying in 2009) do not require the filing of an estate tax return. Additionally, the person who receives your estate generally won't have to pay an estate tax or an income tax on the value of the inheritance.
Reduced Tax on Appreciated Securities
If you give your child appreciated securities (such as stock or mutual fund shares), the tax bill on the increase in value is passed on to the child along with the gift. For example, stock you bought for $2,500 is now worth $5,000. If you sold the stock, you'd owe tax on the $2,500 gain. The 15% rate on long-term capital gains means it would cost you $375. If you gave the shares to your child, the same $2,500 would be taxed, but at your child's rate. His or her income may be low enough to allow his or her long-term gains to be taxed at the 0% long-term capital gains rate in effect for 2008–2010. If that's the case, you eliminate the tax bill.
Also Read:
Charitable Donations
Saving for Education
Year-end Planning
Top Ten Tax Tips for Disaster Victims
Special tax law provisions may help taxpayers recover financially from the impact of a disaster, especially when the President declares a location to be a major disaster area. Both individuals and businesses in a federally declared disaster area can get a faster refund by claiming losses related to the disaster on the tax return for the previous year, usually by filing an amended return.
Here are the top 10 tips to help you get the proper benefits after a disaster:
Take photographs to document damage to your property or belongings. This will be helpful in calculating the amount of your loss. It may also prove beneficial to take photos showing the condition of the property after it is restored or replaced.
Keep your receipts. Certain expenses may be deductible or helpful in determining your loss. Receipts for contracting work can establish the extent of your loss and substantiate the use of insurance reimbursements (see item 5 below).
Food, medical supplies and other forms of assistance are not taxable, nor do these items reduce the amount you can claim as a loss unless they replace lost or destroyed items.
File your insurance claim in a timely manner. If your property is covered by insurance, it's important to file the claim as soon as possible because any reimbursement must be subtracted when calculating your loss.
Replace property with similar property to avoid paying taxes on any gain from insurance proceeds. However, replacement property does not have to match item-for-item. Because insurance proceeds for the home and its contents are considered a common pool of funds, you can use more of the money to replace the house than its contents, or vice versa. If you qualify, a gain related to a personal residence can be excluded using the sale-of-home exclusion rules.
Reimbursements for losses aren't taxable, unless you come out ahead by receiving more for the property than its basis (original cost plus the cost of improvements). Even if the reimbursement is more than the basis, you don't have to pay tax currently if you replace lost, damaged or destroyed items within 2 years after the loss occurs.
You may be able to claim a casualty loss on your tax return.
The loss amount is based on the lower of 2 numbers:
Either the price paid for the property plus any improvements (called the basis) prior to the casualty, or the property's decline in market value caused by the disaster, which, in some cases, can be determined by repair costs.
The deductible amount is reduced by insurance and most other nontaxable reimbursements.
If the property is not used for business, the deductible amount is reduced by 10% of the taxpayer's adjusted gross income and then reduced again by $100 ($500 for 2009). The 10% floor does not apply to net disaster losses sustained In 2008 or 2009.
A nonbusiness loss generally is claimed as an itemized deduction on Schedule A. But a net disaster loss sustained in 2008 and 2009 is added to your standard deduction. You don't have to itemize to claim these losses.
The cost of cleaning up or making repairs can't be considered part of your casualty loss. However, you can use the cost for repairs as a basis to determine the decrease in fair market value.
The IRS will waive fees and expedite requests for copies or transcripts of your federal tax return. If you need information from your tax return, use Form 4506-T, Request for Transcript of Tax Form, to request a transcript of your federal tax return. A transcript shows most of the line items from your return. You may also use Form 4506-T to request account information (payment of estimated taxes, etc.) and transcripts of W-2s and 1099s. If you need greater detail on prior returns than is provided by transcripts, you may request a photocopy of a prior return and any attachments by submitting Form 4506, Request for Copy of Tax Form. You may obtain these forms by calling the IRS toll-free disaster hotline at (866) 562-5227 or by going to www.irs.gov.
Special considerations for federally declared disaster areas:
You have up to 4 years after the close of the first year in which any gain was realized to replace your principal residence or pay tax on the gain.
You can choose to deduct a loss on the current-year return or amend the preceding year's return, whichever helps your current financial or tax situation the most.
You may have filing and payment deadlines postponed for a time specified by the IRS. Any interest that normally would apply to late payments is waived in this situation.
Also Read:
Disaster Relief
Amended Return
Address Changes
Here are the top 10 tips to help you get the proper benefits after a disaster:
Take photographs to document damage to your property or belongings. This will be helpful in calculating the amount of your loss. It may also prove beneficial to take photos showing the condition of the property after it is restored or replaced.
Keep your receipts. Certain expenses may be deductible or helpful in determining your loss. Receipts for contracting work can establish the extent of your loss and substantiate the use of insurance reimbursements (see item 5 below).
Food, medical supplies and other forms of assistance are not taxable, nor do these items reduce the amount you can claim as a loss unless they replace lost or destroyed items.
File your insurance claim in a timely manner. If your property is covered by insurance, it's important to file the claim as soon as possible because any reimbursement must be subtracted when calculating your loss.
Replace property with similar property to avoid paying taxes on any gain from insurance proceeds. However, replacement property does not have to match item-for-item. Because insurance proceeds for the home and its contents are considered a common pool of funds, you can use more of the money to replace the house than its contents, or vice versa. If you qualify, a gain related to a personal residence can be excluded using the sale-of-home exclusion rules.
Reimbursements for losses aren't taxable, unless you come out ahead by receiving more for the property than its basis (original cost plus the cost of improvements). Even if the reimbursement is more than the basis, you don't have to pay tax currently if you replace lost, damaged or destroyed items within 2 years after the loss occurs.
You may be able to claim a casualty loss on your tax return.
The loss amount is based on the lower of 2 numbers:
Either the price paid for the property plus any improvements (called the basis) prior to the casualty, or the property's decline in market value caused by the disaster, which, in some cases, can be determined by repair costs.
The deductible amount is reduced by insurance and most other nontaxable reimbursements.
If the property is not used for business, the deductible amount is reduced by 10% of the taxpayer's adjusted gross income and then reduced again by $100 ($500 for 2009). The 10% floor does not apply to net disaster losses sustained In 2008 or 2009.
A nonbusiness loss generally is claimed as an itemized deduction on Schedule A. But a net disaster loss sustained in 2008 and 2009 is added to your standard deduction. You don't have to itemize to claim these losses.
The cost of cleaning up or making repairs can't be considered part of your casualty loss. However, you can use the cost for repairs as a basis to determine the decrease in fair market value.
The IRS will waive fees and expedite requests for copies or transcripts of your federal tax return. If you need information from your tax return, use Form 4506-T, Request for Transcript of Tax Form, to request a transcript of your federal tax return. A transcript shows most of the line items from your return. You may also use Form 4506-T to request account information (payment of estimated taxes, etc.) and transcripts of W-2s and 1099s. If you need greater detail on prior returns than is provided by transcripts, you may request a photocopy of a prior return and any attachments by submitting Form 4506, Request for Copy of Tax Form. You may obtain these forms by calling the IRS toll-free disaster hotline at (866) 562-5227 or by going to www.irs.gov.
Special considerations for federally declared disaster areas:
You have up to 4 years after the close of the first year in which any gain was realized to replace your principal residence or pay tax on the gain.
You can choose to deduct a loss on the current-year return or amend the preceding year's return, whichever helps your current financial or tax situation the most.
You may have filing and payment deadlines postponed for a time specified by the IRS. Any interest that normally would apply to late payments is waived in this situation.
Also Read:
Disaster Relief
Amended Return
Address Changes
Baby Tax Benefits
In most situations, you'll claim the exemption for a child because the child is your qualifying child. But in some situations, the child will be claimed as a qualifying relative. See Publication 501 for the rules relating to qualifying relatives.
You Can Claim a Dependent
In either situation, 3 conditions must be satisfied:
You can't claim an exemption for the child if you can be claimed as a dependent of another person.
You can't claim an exemption for the child if the child files a joint return unless the return is only a claim for refund and neither the child nor the child's spouse would have a tax liability if they file separate returns.
The child must be a U.S. citizen, resident, or national, or a resident of Canada or Mexico for part of the year. A child is your qualifying child if all the following conditions are satisfied:
The child is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of them.
The child is younger than age 19, a full-time student younger than 24 or a disabled child.
The child did not provide more than half of his or her own support.
The child must live with you more than half of the year. A newborn child is considered to have lived with you for the entire year. For the 2009 tax year, the following conditions must be met in addition to those listed above:
A qualified child must be younger than the person claiming the child's exemption.
A qualified child can't file a joint return unless the return is filed only as claim for refund.
If the parents of a child can claim the child as a qualifying child and neither does so, no other individual can claim the child as a qualifying child unless that individual's AGI is higher than the highest AGI of any parent of the child.
You Could Qualify for Several Credits
You may qualify for the Child Tax Credit, Earned Income Credit (EIC) and Child Care Credit.
Child Tax Credit — You may be able to get a credit of up to $1,000 per child. An eligible child must be younger than 17 and must be a U.S. citizen, U.S. national, or a resident alien. This credit is available regardless of your filing status. However, your credit is reduced if your modified adjusted gross income is:
$110,000 or more if Married Filing Jointly.
$75,000 if Single, Head of Household or Qualifying Widow(er).
$55,000 if Married Filing Separately.
If your credit is limited by your tax, you may be eligible for the additional Child Tax Credit even if your tax is zero. To qualify, your earned income must be more than $8,500. You also may be eligible if you have at least 3 qualifying children and the Social Security and Medicare tax you paid is more than your EIC. Beginning with the 2009 tax year, you can claim the Child Tax Credit only if the child is your dependent.
EIC — The EIC is a refundable credit available to low-income workers. The amount of the credit varies depending on your income level and the number of qualifying children you have. You may qualify if:
You have 1 qualifying child and your 2008 earned income and adjusted gross income are less than $33,995 ($36,995 if Married Filing Jointly).
You have more than 1 qualifying child and your 2008 earned income and AGI are less than $38,646 ($41,646 if Married Filing Jointly). Other conditions apply:
You can't claim the credit if you have more than $2,950 of investment income (for 2008).
You can't claim the credit if you are Married Filing Separately.
You can claim the credit only if you have a valid social security number.
You can't claim the credit if you are the qualifying child of another person.
If your child is a qualifying child of another person, either you or the other person may claim the credit based on that child. This rule does not apply after the 2008 tax year. But a special rule applies if that other person is your divorced or separated spouse. See the Form 1040 instructions.
Child Care Credit — You may be entitled to a credit for paying someone to look after your child while you worked or looked for work. Expenses must be paid for a child younger than 13. If the child reached age 13 during the year, only the expenses paid before the child reached age 13 qualify. The credit is equal to 20% to 35% of your qualifying expenses, depending on your adjusted gross income. You can include up to $3,000 of expenses if you have 1 qualifying child and up to $6,000 if you have more than 1 qualifying child). To be eligible, you (and your spouse, if married) must maintain a home that you live in with your child. Generally, you (and your spouse, if you are filing jointly) must have some type of earned income during the year, such as wages or self-employment income. Plus, if filing jointly, you may still qualify for the credit if one spouse is disabled or is a full-time student.
Your Filing Status
If you're married and live with your spouse, your filing status does not change if you're a parent. However, if you're not married (your marital status on the last day of the year determines your status for the entire year), you may be able to file as Head of Household and qualify for a higher standard deduction than when filing as Single. You'll also be eligible to use a more favorable tax table or rate schedule.
To file as Head of Household:
Your child must be a qualifying child (see "You Can Claim a Dependent," above) even if you can't claim an exemption for the child.
You must have paid more than half the cost of maintaining a home for yourself and your child.
Your child must have lived with you for more than half the year. A child born in 2008 is considered to have lived with you the entire year 2008.
Social Security Card for Newborn
Remember to apply for a social security card promptly after your child's birth. The social security number is necessary to get some of the tax breaks to which you are entitled. If nothing else, not having it may cause delays in the processing of your return. To apply for a social security number, file Form SS-5.
Gifts for Your Child
Generally, gifts to your child do not count as taxable income, and you won't have to file a tax return on his or her behalf if your child's income is $900 or less. However, any earnings returned on gifts/investments given to your child are usually taxable (although it may be at the child's rate, which is usually lower than yours). If your has more than $1,800 of investment income (for 2008), he or she is subject to the so-called "kiddie tax," which causes some of the earnings to be taxed at your (the parent's) tax rate, if any of the following apply:
the child was younger than 18 at the end of the year.
the child was 18 at the end of the year and didn't have earned income that was more than half of the child's support.
the child was at least 18 but younger than 24 at the end of the year, was a full-time student and didn't have earned income that was more than half the child's support.
Also Read:
Exemptions
Dependents
Child Tax Credit
Daycare Tax Benefits Estimator
Unemployment and Other Assistance
Related IRS Forms & Publications
Form W-10 - Dependent Care Provider's Identification and Certification
Schedule 2 (Form 1040A) - Child and Dependent Care Expenses for Form 1040A Filers
Schedule 2 (Form 1040A) - Instructions
Form 2441 - Child and Dependent Care Expenses
Form 2441 - Instructions
Form 8615 - Tax for Children Under Age 14 Who Have Investment Income of More Than $1,600
Form 8812 - Additional Child Tax Credit
Form 8814 - Parent's Election to Report Child's Interest and Dividends
Form 8882 - Credit for Employer-Provided Child Care Facilities and Services
Publication 503 - Child and Dependent Care Expenses
Publication 926 - Household Employers Tax Guide
Publication 929 - Tax Rules for Children and Dependents
Publication 972 - Child Tax Credit
You Can Claim a Dependent
In either situation, 3 conditions must be satisfied:
You can't claim an exemption for the child if you can be claimed as a dependent of another person.
You can't claim an exemption for the child if the child files a joint return unless the return is only a claim for refund and neither the child nor the child's spouse would have a tax liability if they file separate returns.
The child must be a U.S. citizen, resident, or national, or a resident of Canada or Mexico for part of the year. A child is your qualifying child if all the following conditions are satisfied:
The child is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of them.
The child is younger than age 19, a full-time student younger than 24 or a disabled child.
The child did not provide more than half of his or her own support.
The child must live with you more than half of the year. A newborn child is considered to have lived with you for the entire year. For the 2009 tax year, the following conditions must be met in addition to those listed above:
A qualified child must be younger than the person claiming the child's exemption.
A qualified child can't file a joint return unless the return is filed only as claim for refund.
If the parents of a child can claim the child as a qualifying child and neither does so, no other individual can claim the child as a qualifying child unless that individual's AGI is higher than the highest AGI of any parent of the child.
You Could Qualify for Several Credits
You may qualify for the Child Tax Credit, Earned Income Credit (EIC) and Child Care Credit.
Child Tax Credit — You may be able to get a credit of up to $1,000 per child. An eligible child must be younger than 17 and must be a U.S. citizen, U.S. national, or a resident alien. This credit is available regardless of your filing status. However, your credit is reduced if your modified adjusted gross income is:
$110,000 or more if Married Filing Jointly.
$75,000 if Single, Head of Household or Qualifying Widow(er).
$55,000 if Married Filing Separately.
If your credit is limited by your tax, you may be eligible for the additional Child Tax Credit even if your tax is zero. To qualify, your earned income must be more than $8,500. You also may be eligible if you have at least 3 qualifying children and the Social Security and Medicare tax you paid is more than your EIC. Beginning with the 2009 tax year, you can claim the Child Tax Credit only if the child is your dependent.
EIC — The EIC is a refundable credit available to low-income workers. The amount of the credit varies depending on your income level and the number of qualifying children you have. You may qualify if:
You have 1 qualifying child and your 2008 earned income and adjusted gross income are less than $33,995 ($36,995 if Married Filing Jointly).
You have more than 1 qualifying child and your 2008 earned income and AGI are less than $38,646 ($41,646 if Married Filing Jointly). Other conditions apply:
You can't claim the credit if you have more than $2,950 of investment income (for 2008).
You can't claim the credit if you are Married Filing Separately.
You can claim the credit only if you have a valid social security number.
You can't claim the credit if you are the qualifying child of another person.
If your child is a qualifying child of another person, either you or the other person may claim the credit based on that child. This rule does not apply after the 2008 tax year. But a special rule applies if that other person is your divorced or separated spouse. See the Form 1040 instructions.
Child Care Credit — You may be entitled to a credit for paying someone to look after your child while you worked or looked for work. Expenses must be paid for a child younger than 13. If the child reached age 13 during the year, only the expenses paid before the child reached age 13 qualify. The credit is equal to 20% to 35% of your qualifying expenses, depending on your adjusted gross income. You can include up to $3,000 of expenses if you have 1 qualifying child and up to $6,000 if you have more than 1 qualifying child). To be eligible, you (and your spouse, if married) must maintain a home that you live in with your child. Generally, you (and your spouse, if you are filing jointly) must have some type of earned income during the year, such as wages or self-employment income. Plus, if filing jointly, you may still qualify for the credit if one spouse is disabled or is a full-time student.
Your Filing Status
If you're married and live with your spouse, your filing status does not change if you're a parent. However, if you're not married (your marital status on the last day of the year determines your status for the entire year), you may be able to file as Head of Household and qualify for a higher standard deduction than when filing as Single. You'll also be eligible to use a more favorable tax table or rate schedule.
To file as Head of Household:
Your child must be a qualifying child (see "You Can Claim a Dependent," above) even if you can't claim an exemption for the child.
You must have paid more than half the cost of maintaining a home for yourself and your child.
Your child must have lived with you for more than half the year. A child born in 2008 is considered to have lived with you the entire year 2008.
Social Security Card for Newborn
Remember to apply for a social security card promptly after your child's birth. The social security number is necessary to get some of the tax breaks to which you are entitled. If nothing else, not having it may cause delays in the processing of your return. To apply for a social security number, file Form SS-5.
Gifts for Your Child
Generally, gifts to your child do not count as taxable income, and you won't have to file a tax return on his or her behalf if your child's income is $900 or less. However, any earnings returned on gifts/investments given to your child are usually taxable (although it may be at the child's rate, which is usually lower than yours). If your has more than $1,800 of investment income (for 2008), he or she is subject to the so-called "kiddie tax," which causes some of the earnings to be taxed at your (the parent's) tax rate, if any of the following apply:
the child was younger than 18 at the end of the year.
the child was 18 at the end of the year and didn't have earned income that was more than half of the child's support.
the child was at least 18 but younger than 24 at the end of the year, was a full-time student and didn't have earned income that was more than half the child's support.
Also Read:
Exemptions
Dependents
Child Tax Credit
Daycare Tax Benefits Estimator
Unemployment and Other Assistance
Related IRS Forms & Publications
Form W-10 - Dependent Care Provider's Identification and Certification
Schedule 2 (Form 1040A) - Child and Dependent Care Expenses for Form 1040A Filers
Schedule 2 (Form 1040A) - Instructions
Form 2441 - Child and Dependent Care Expenses
Form 2441 - Instructions
Form 8615 - Tax for Children Under Age 14 Who Have Investment Income of More Than $1,600
Form 8812 - Additional Child Tax Credit
Form 8814 - Parent's Election to Report Child's Interest and Dividends
Form 8882 - Credit for Employer-Provided Child Care Facilities and Services
Publication 503 - Child and Dependent Care Expenses
Publication 926 - Household Employers Tax Guide
Publication 929 - Tax Rules for Children and Dependents
Publication 972 - Child Tax Credit
Avoid Those Common Filing Errors
To avoid filing mistakes
Review your entire return.
Provide the correct mailing address if you choose to mail a paper return.
Choose an alternative tax preparation method, and avoid the most common errors.
Review your tax return for common errors that could delay the processing of your return and refund. Common mistakes include the following:
Incorrect filing status recorded
Social security number(s) incorrect, missing or don't match name(s)
Incorrect or missing forms and schedules
Return not signed
Claiming ineligible dependents
Failing to claim credits (Child Tax Credit, Earned Income Credit, etc.) or figuring credits incorrectly (because of not understanding credit eligibility or incorrect calculations)
Failure to report and pay domestic payroll taxes (if you are employing a housecleaner, in-home caregiver, nanny, etc.)
Forgetting to claim income that's not included on a Form W-2, Form 1099 or other return
Not filing a return when due a refund
Failing to figure whether or not you're liable for the Alternative Minimum Tax (AMT)
Entering the wrong amount of taxable Social Security benefits
Mailing your return to the wrong address
Math errors (according to the IRS, a math error is an incorrect number entered on the return — with or without a calculation — such as reporting wages of $29,472 as $24,972)
Standard deduction used when itemizing is more advantageous (the GAO estimates that more than 500,000 taxpayers could save by itemizing)
Related IRS Forms & Publications:
Form 1040X - Amended U.S. Individual Income Tax Return
Form 1040X Instructions
Form 2441 - Child and Dependent Care Expenses
Form 2441 Instructions
Form 5129 - Questionnaire-Filing Status, Exemptions and Standard Deduction
Form 8812 - Additional Child Tax Credit
Form 8862 - Information to Claim Earned Income Credit after Disallowance
Form 8882 - Credit for Employer-provided Child Care Facilities and Services
Schedule 2 (Form 1040A) - Child and Dependent Care Expenses for Form 1040A Filers
Schedule 2 (Form 1040A) Instructions
Schedule EIC (Form 1040) - Earned Income Credit
Schedule EIC (Form 1040) - Instructions
Form W-5 - Earned Income Credit Advance Payment Certificate
Form W-5 (SP) - Earned Income Credit Advance Payment Certificate (Spanish version)
Publication 501 - Exemptions, Standard Deduction and Filing Information
Publication 503 - Child and Dependent Care Expenses
Publication 596 - Earned Income Credit
Publication 926 - Household Employers Tax Guide
Publication 929- Tax Rules for Children and Dependents
Publication 972 - Child Tax Credit
Review your entire return.
Provide the correct mailing address if you choose to mail a paper return.
Choose an alternative tax preparation method, and avoid the most common errors.
Review your tax return for common errors that could delay the processing of your return and refund. Common mistakes include the following:
Incorrect filing status recorded
Social security number(s) incorrect, missing or don't match name(s)
Incorrect or missing forms and schedules
Return not signed
Claiming ineligible dependents
Failing to claim credits (Child Tax Credit, Earned Income Credit, etc.) or figuring credits incorrectly (because of not understanding credit eligibility or incorrect calculations)
Failure to report and pay domestic payroll taxes (if you are employing a housecleaner, in-home caregiver, nanny, etc.)
Forgetting to claim income that's not included on a Form W-2, Form 1099 or other return
Not filing a return when due a refund
Failing to figure whether or not you're liable for the Alternative Minimum Tax (AMT)
Entering the wrong amount of taxable Social Security benefits
Mailing your return to the wrong address
Math errors (according to the IRS, a math error is an incorrect number entered on the return — with or without a calculation — such as reporting wages of $29,472 as $24,972)
Standard deduction used when itemizing is more advantageous (the GAO estimates that more than 500,000 taxpayers could save by itemizing)
Related IRS Forms & Publications:
Form 1040X - Amended U.S. Individual Income Tax Return
Form 1040X Instructions
Form 2441 - Child and Dependent Care Expenses
Form 2441 Instructions
Form 5129 - Questionnaire-Filing Status, Exemptions and Standard Deduction
Form 8812 - Additional Child Tax Credit
Form 8862 - Information to Claim Earned Income Credit after Disallowance
Form 8882 - Credit for Employer-provided Child Care Facilities and Services
Schedule 2 (Form 1040A) - Child and Dependent Care Expenses for Form 1040A Filers
Schedule 2 (Form 1040A) Instructions
Schedule EIC (Form 1040) - Earned Income Credit
Schedule EIC (Form 1040) - Instructions
Form W-5 - Earned Income Credit Advance Payment Certificate
Form W-5 (SP) - Earned Income Credit Advance Payment Certificate (Spanish version)
Publication 501 - Exemptions, Standard Deduction and Filing Information
Publication 503 - Child and Dependent Care Expenses
Publication 596 - Earned Income Credit
Publication 926 - Household Employers Tax Guide
Publication 929- Tax Rules for Children and Dependents
Publication 972 - Child Tax Credit
Sunday, January 11, 2009
Prepare for the 2008 Filing Season: Don't Put Yourself In An Audit Situation
There are 3 kinds of IRS audits:
Returns claiming the Earned Income Credit are more likely to be audited by the IRS.
What is an audit?
An audit is an inspection of an individual's or entity's books and records by the IRS. If you're being audited, the IRS will send you a letter stating which type of tax audit applies to you. There are 3 types of tax audits:
Correspondence Audit — You don't need to physically see an IRS agent for this type of audit. The IRS will request documentation, and you can mail it to them instead of delivering it in person.
Field Audit — If the IRS needs to verify information about your home or business, they may come to see it. Field audits usually involve businesses.
Office Audit — You must be seen in an IRS office and provide requested documentation.
How to Prepare for an IRS Tax Audit
Always provide anything the IRS asks for within the requested amount of time. If you're asked to appear before the IRS, you should bring along your tax return and all of the supporting documentation for the tax year in question, along with anything else requested in your IRS letter. However, don't let the tax auditor keep any of your originals — always provide the auditor with a copy of everything requested.
Audit Terms to Know
Lien — This is a legal claim to your property (not seizure) as security for payment of tax debt. Essentially, the IRS is telling you your property is being used as a security for your debt and can be seized if you fail to pay it. If the IRS files a Notice of Federal Tax Lien, all your creditors are publicly notified. Liens may be issued when all of the following occur:
The IRS assesses your outstanding tax liability.
The IRS sends you a Notice and Demand for Payment (a bill that tells you how much you owe in taxes).
You neglect or refuse to pay the entire debt within 10 days after you are notified. If you pay the tax due or make arrangements for payment within the allotted 10 days, the IRS will send you a Release of the Notice of Federal Tax Lien within the next 30 days.
Levy — A levy is a legal seizure of your property to pay a tax debt. The IRS may seize and sell any type of real or personal property that you own or have interest in, including cars, boats, houses, wages, retirement accounts, dividends, bank accounts, rental income, cash value of life insurance or commissions. This won't happen unless you've first received and ignored a Final
Notice of Intent to Levy and Notice of Your Right to a Hearing. These documents are delivered in person, to your place of business or to your last known address by certified mail.
What to Keep In Case of an IRS Tax AuditYou should keep your tax returns and any supporting documentation for your tax returns for 7 years. Supporting documentation may include:
home mortgage statements
Forms W-2 and W-2G
Forms of the 1098 and 1099 series and Schedules K-1
receipts for employee business expenses
justification of fair market value (such as H&R Block's DeductionPro) for any items donated to charity
receipts for items donated to charity with value greater than $500
receipts for charitable contributions (including cash contributions made after 2006)
receipts for rental property income
brokerage statements
receipts for qualified education costs
401(k) statements
IRA contribution records
receipts for items sold at a gain
home-office-related receipts
pay stubs
copy of the front and back of the check you used to pay your tax balance due, if applicable.
Which tax returns are more likely to get audited?According to the IRS statistics, individual returns where taxpayers claimed the Earned Income Credit, returns with Schedule C, and returns with Schedule E or Form 2106 are more likely to be examined by the IRS.
IRS Contact Information
Amended Return
Self-employment
Earned Income Credit
- a correspondence audit, a field audit or an office audit.
Returns claiming the Earned Income Credit are more likely to be audited by the IRS.
What is an audit?
An audit is an inspection of an individual's or entity's books and records by the IRS. If you're being audited, the IRS will send you a letter stating which type of tax audit applies to you. There are 3 types of tax audits:
Correspondence Audit — You don't need to physically see an IRS agent for this type of audit. The IRS will request documentation, and you can mail it to them instead of delivering it in person.
Field Audit — If the IRS needs to verify information about your home or business, they may come to see it. Field audits usually involve businesses.
Office Audit — You must be seen in an IRS office and provide requested documentation.
How to Prepare for an IRS Tax Audit
Always provide anything the IRS asks for within the requested amount of time. If you're asked to appear before the IRS, you should bring along your tax return and all of the supporting documentation for the tax year in question, along with anything else requested in your IRS letter. However, don't let the tax auditor keep any of your originals — always provide the auditor with a copy of everything requested.
Audit Terms to Know
Lien — This is a legal claim to your property (not seizure) as security for payment of tax debt. Essentially, the IRS is telling you your property is being used as a security for your debt and can be seized if you fail to pay it. If the IRS files a Notice of Federal Tax Lien, all your creditors are publicly notified. Liens may be issued when all of the following occur:
The IRS assesses your outstanding tax liability.
The IRS sends you a Notice and Demand for Payment (a bill that tells you how much you owe in taxes).
You neglect or refuse to pay the entire debt within 10 days after you are notified. If you pay the tax due or make arrangements for payment within the allotted 10 days, the IRS will send you a Release of the Notice of Federal Tax Lien within the next 30 days.
Levy — A levy is a legal seizure of your property to pay a tax debt. The IRS may seize and sell any type of real or personal property that you own or have interest in, including cars, boats, houses, wages, retirement accounts, dividends, bank accounts, rental income, cash value of life insurance or commissions. This won't happen unless you've first received and ignored a Final
Notice of Intent to Levy and Notice of Your Right to a Hearing. These documents are delivered in person, to your place of business or to your last known address by certified mail.
What to Keep In Case of an IRS Tax AuditYou should keep your tax returns and any supporting documentation for your tax returns for 7 years. Supporting documentation may include:
home mortgage statements
Forms W-2 and W-2G
Forms of the 1098 and 1099 series and Schedules K-1
receipts for employee business expenses
justification of fair market value (such as H&R Block's DeductionPro) for any items donated to charity
receipts for items donated to charity with value greater than $500
receipts for charitable contributions (including cash contributions made after 2006)
receipts for rental property income
brokerage statements
receipts for qualified education costs
401(k) statements
IRA contribution records
receipts for items sold at a gain
home-office-related receipts
pay stubs
copy of the front and back of the check you used to pay your tax balance due, if applicable.
Which tax returns are more likely to get audited?According to the IRS statistics, individual returns where taxpayers claimed the Earned Income Credit, returns with Schedule C, and returns with Schedule E or Form 2106 are more likely to be examined by the IRS.
IRS Contact Information
Amended Return
Self-employment
Earned Income Credit
IRS Payment Plans
From direct debits to installment plans, there are a variety of ways to pay the IRS should you owe tax this year.
Credit CardAmerican Express®, MasterCard®, Visa® or Discover® can be used to charge tax due by calling either Link2Gov Inc. at 888-PAY1040SM (or using the Web at http://www.pay1040.com/) or Official Payments Inc. at 800-2PAY-TAX (or using the Web at http://www.officialpayments.com/). A convenience fee is applied at the time of payment.
Direct Debit
If you're e-filing your return, direct debit may be the solution. The IRS will debit a checking or savings account for your balance due. The plus side to direct debit is that you can specify the date of this debit, which means you can file early in February and still not pay until April 15.
Personal Check or Money Order
This is the traditional method of paying when mailing a paper return. Be sure to write 2008 Form 1040 and your social security number in the memo field and make your check payable to the United States Treasury.
Installment Agreement
This method of payment has to be approved by the IRS. To request an agreement, file Form 9465. Following approval, the IRS agrees to let you make monthly payments for your debt instead of payment in full. In return, you agree to make timely monthly payments and pay all future tax liabilities. This means you must plan to have adequate future withholding or estimated tax payments so that future tax liabilities are paid in full when you file your returns.
The IRS must let you use an installment agreement if you meet the following conditions:
The amount you owe does not exceed $10,000.
You've filed all required returns on time and haven't had an installment plan in the past 5 years.
The IRS determines you can't pay the tax in full when it's due and you furnish the IRS with all the information needed to make this determination.
You agree to pay the bill within 3 years and comply with the tax laws while the agreement is in effect. Interest, late payment penalties and a processing fee apply. The IRS processing fee is $105 for new agreements. But the fee is reduced to $52 if you make your payments by electronic funds withdrawal. If you have an income at or below established poverty levels, you may qualify to pay a reduced fee of $43 for new installment agreements.
Other requirements may also apply. See if you qualify for the reduced installment agreement user fee. To limit the amount of penalties and interest, pay as much of your tax bill as possible with your return. The IRS recommends considering other less costly alternatives, such as a bank loan, before considering an installment agreement.
Online Payment Agreement
The IRS has an Online Payment Agreement (OPA) application, allowing taxpayers to apply for installment agreements online. Now you can set up an agreement and arrange for payment without ever having to call or write the IRS. You must have already filed all required tax returns to use the OPA application. When you apply online, 3 payment options are available:
pay in full
short-term extension
monthly payment plan
Choosing a Payment Method
When considering which payment method best suits your situation, remember to carefully consider the interest rate on a credit card. Under an IRS installment agreement, you are charged interest at the current rate (adjusted quarterly) plus a late penalty of 0.5% (0.25% for taxpayers who filed returns on time). The rate for the first quarter of 2009 is 5%. Compare this to credit card rates of possibly 18% or higher. If you know you’ll have a balance due this year, it pays to know your options. It will save you money, worries and penalties.
Receiving Your Refund
Amended Return
Extension
Audit
Credit CardAmerican Express®, MasterCard®, Visa® or Discover® can be used to charge tax due by calling either Link2Gov Inc. at 888-PAY1040SM (or using the Web at http://www.pay1040.com/) or Official Payments Inc. at 800-2PAY-TAX (or using the Web at http://www.officialpayments.com/). A convenience fee is applied at the time of payment.
Direct Debit
If you're e-filing your return, direct debit may be the solution. The IRS will debit a checking or savings account for your balance due. The plus side to direct debit is that you can specify the date of this debit, which means you can file early in February and still not pay until April 15.
Personal Check or Money Order
This is the traditional method of paying when mailing a paper return. Be sure to write 2008 Form 1040 and your social security number in the memo field and make your check payable to the United States Treasury.
Installment Agreement
This method of payment has to be approved by the IRS. To request an agreement, file Form 9465. Following approval, the IRS agrees to let you make monthly payments for your debt instead of payment in full. In return, you agree to make timely monthly payments and pay all future tax liabilities. This means you must plan to have adequate future withholding or estimated tax payments so that future tax liabilities are paid in full when you file your returns.
The IRS must let you use an installment agreement if you meet the following conditions:
The amount you owe does not exceed $10,000.
You've filed all required returns on time and haven't had an installment plan in the past 5 years.
The IRS determines you can't pay the tax in full when it's due and you furnish the IRS with all the information needed to make this determination.
You agree to pay the bill within 3 years and comply with the tax laws while the agreement is in effect. Interest, late payment penalties and a processing fee apply. The IRS processing fee is $105 for new agreements. But the fee is reduced to $52 if you make your payments by electronic funds withdrawal. If you have an income at or below established poverty levels, you may qualify to pay a reduced fee of $43 for new installment agreements.
Other requirements may also apply. See if you qualify for the reduced installment agreement user fee. To limit the amount of penalties and interest, pay as much of your tax bill as possible with your return. The IRS recommends considering other less costly alternatives, such as a bank loan, before considering an installment agreement.
Online Payment Agreement
The IRS has an Online Payment Agreement (OPA) application, allowing taxpayers to apply for installment agreements online. Now you can set up an agreement and arrange for payment without ever having to call or write the IRS. You must have already filed all required tax returns to use the OPA application. When you apply online, 3 payment options are available:
pay in full
short-term extension
monthly payment plan
Choosing a Payment Method
When considering which payment method best suits your situation, remember to carefully consider the interest rate on a credit card. Under an IRS installment agreement, you are charged interest at the current rate (adjusted quarterly) plus a late penalty of 0.5% (0.25% for taxpayers who filed returns on time). The rate for the first quarter of 2009 is 5%. Compare this to credit card rates of possibly 18% or higher. If you know you’ll have a balance due this year, it pays to know your options. It will save you money, worries and penalties.
Receiving Your Refund
Amended Return
Extension
Audit
Combat Zone Tax Tips
If you're a member of the U.S. Armed Forces who serves in a combat zone, you can exclude certain pay from your income. You also have additional time to make a qualified contribution to an IRA. A combat zone is an area designated by the U.S. President by Executive Order as an area in which U.S. Armed Forces are engaging in or have engaged in combat.
Income
The following income received during service in a combat zone doesn’t have to be reported as gross income:
active duty pay earned in any month served in a combat zone
imminent danger/hostile fire pay during a month served in a combat zone
re-enlistment bonus if re-enlistment or voluntary extension occurs during a month served in a combat zone
Pay for accrued leave — the Department of Defense must determine the unused leave was earned during the month served in a combat zone
pay for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and
other non-appropriated fund activities earned during a month served in a combat zone
awards or achievement pay made for a suggestion or achievement made in a month served in a combat zone
student loan repayments to the extent service in the year of service required to earn the repayment was performed in a combat zone
(New for 2008) Bonus payments by a state or local government entity to a member or former member of the armed forces, if the payment is made solely because of service in a combat zone If you're a commissioned officer (other than a commissioned warrant officer), the combat pay exclusion for any month is limited to the highest rate on enlisted pay (plus hostile fire/imminent danger pay, if any).
You do not claim an exclusion for combat pay on your tax return. The excludable amount should not be included in your Box 1 wages on Form W-2. If an excludable amount is included in your Box 1 wages, you should get a corrected Form W-2. If you served in a combat zone for 1 or more days during a particular month, you’re allowed the above exclusions for that entire month.
Combat zone service includes any periods you are absent from duty due to illness, wounds or leave. A person is considered to be serving in a combat zone if he or she becomes a prisoner of war or is missing in action if that status is kept for military pay purposes.
You can also exclude military pay earned while hospitalized (you don’t have to be hospitalized in the combat zone). Your hospitalization must be due to having served in a combat zone. This is true even if you’re hospitalized after combat zone service.
Combat Zone Considerations
Military service outside the combat zone is, for tax purposes, considered to be inside a combat zone if the service is in direct support of combat zone military operations and the service qualifies you for special military pay for duty subject to hostile fire or imminent danger. But in these situations, you're not considered to be in a combat zone:
You're present in a combat zone during leave from a duty station located outside the combat zone.
You pass over or through a combat zone during a trip between 2 points that are outside a combat zone.
You’re in a combat zone only for your personal convenience.
H&R Block's Military Web Site
Military Income Inclusions
Military Income Exclusions
Military Moving Expenses
Military Extensions
Income
The following income received during service in a combat zone doesn’t have to be reported as gross income:
active duty pay earned in any month served in a combat zone
imminent danger/hostile fire pay during a month served in a combat zone
re-enlistment bonus if re-enlistment or voluntary extension occurs during a month served in a combat zone
Pay for accrued leave — the Department of Defense must determine the unused leave was earned during the month served in a combat zone
pay for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and
other non-appropriated fund activities earned during a month served in a combat zone
awards or achievement pay made for a suggestion or achievement made in a month served in a combat zone
student loan repayments to the extent service in the year of service required to earn the repayment was performed in a combat zone
(New for 2008) Bonus payments by a state or local government entity to a member or former member of the armed forces, if the payment is made solely because of service in a combat zone If you're a commissioned officer (other than a commissioned warrant officer), the combat pay exclusion for any month is limited to the highest rate on enlisted pay (plus hostile fire/imminent danger pay, if any).
You do not claim an exclusion for combat pay on your tax return. The excludable amount should not be included in your Box 1 wages on Form W-2. If an excludable amount is included in your Box 1 wages, you should get a corrected Form W-2. If you served in a combat zone for 1 or more days during a particular month, you’re allowed the above exclusions for that entire month.
Combat zone service includes any periods you are absent from duty due to illness, wounds or leave. A person is considered to be serving in a combat zone if he or she becomes a prisoner of war or is missing in action if that status is kept for military pay purposes.
You can also exclude military pay earned while hospitalized (you don’t have to be hospitalized in the combat zone). Your hospitalization must be due to having served in a combat zone. This is true even if you’re hospitalized after combat zone service.
Combat Zone Considerations
Military service outside the combat zone is, for tax purposes, considered to be inside a combat zone if the service is in direct support of combat zone military operations and the service qualifies you for special military pay for duty subject to hostile fire or imminent danger. But in these situations, you're not considered to be in a combat zone:
You're present in a combat zone during leave from a duty station located outside the combat zone.
You pass over or through a combat zone during a trip between 2 points that are outside a combat zone.
You’re in a combat zone only for your personal convenience.
H&R Block's Military Web Site
Military Income Inclusions
Military Income Exclusions
Military Moving Expenses
Military Extensions
Do You Know The Basis In Your Property?
Basis is the term used for the amount of your investment in a property. For tax purposes, use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale or exchange of the property.
Basis of Property
The basis of property you buy is usually its cost. The cost is the amount you pay for it in cash, borrowed money, and other property or services. Cost includes sales tax and other expenses connected with the purchase.
Basis of Securities
If you buy securities (stocks or bonds) your basis is the purchase price plus any additional costs such as commissions and recording or transfer fees. If you have securities that you did not purchase, the method for determining your basis depends on how you acquired the securities. For example, if you inherited the securities your basis is usually their fair market value on the date the decedent died.
Adjusted Basis
Before figuring gain or loss on a sale, exchange, or other disposition of property, or figuring allowable depreciation, you must usually determine the adjusted basis of that property. Certain events that occur during your period of ownership may increase or decrease your basis. Increase your basis by items such as the cost of improvements that add to the value of the property and certain acquisition fees, and decrease it by items such as depreciation and insurance reimbursements for casualty and theft losses.
Additional resources:
Capital Gains and Losses
Interest Income
Dividends
Form 1099
Basis of Property
The basis of property you buy is usually its cost. The cost is the amount you pay for it in cash, borrowed money, and other property or services. Cost includes sales tax and other expenses connected with the purchase.
Basis of Securities
If you buy securities (stocks or bonds) your basis is the purchase price plus any additional costs such as commissions and recording or transfer fees. If you have securities that you did not purchase, the method for determining your basis depends on how you acquired the securities. For example, if you inherited the securities your basis is usually their fair market value on the date the decedent died.
Adjusted Basis
Before figuring gain or loss on a sale, exchange, or other disposition of property, or figuring allowable depreciation, you must usually determine the adjusted basis of that property. Certain events that occur during your period of ownership may increase or decrease your basis. Increase your basis by items such as the cost of improvements that add to the value of the property and certain acquisition fees, and decrease it by items such as depreciation and insurance reimbursements for casualty and theft losses.
Additional resources:
Capital Gains and Losses
Interest Income
Dividends
Form 1099
Don't Miss Out on Those Credits and Deductions
Earned Income Credit (EIC)
The EIC is designed to offset the burden of Social Security taxes for low-income workers. You can claim this tax credit even if you have no tax liability. You may qualify for the EIC if your earned income and adjusted gross income are less than:
$12,880 ($15,880 if Married Filing Jointly) with no qualifying children.
$33,995 ($36,995 if Married Filing Jointly) with 1 qualifying child.
$38,646 ($41,646 if Married Filing Jointly) with more than 1 qualifying child.
Child Tax Credit
You can claim $1,000 for each child. The 2008 Child Tax Credit begins to phase out when your AGI is more than these limits:
$75,000 if Single, Head of Household or Qualifying Widow(er)
$110,000 if Married Filing Jointly
$55,000 if Married Filing Separately
If your income tax is reduced to zero and your earned income is more than $8,500 (for 2008), you may be eligible to claim the additional Child Tax Credit.
Saver's Credit
If you qualify, you could get a tax credit for up to half of what you contribute to a qualified retirement plan or IRA. Claim the Saver's Credit if you meet all the qualifications:
You're age 18 or older.
You aren't a full-time student.
You aren't claimed as a dependent on someone else's return.
Your AGI doesn't exceed $26,500 ($53,000 if Married Filing Jointly, or $39,750 for Head of Household).
Education Tax Benefits
Even if you don't itemize your tax deductions, you could save money with these education credits and deductions.
Hope Credit — A tax credit equal to 100% of the first $1,200 and 50% of the next $1,200 per student for tuition and related fees, with a credit maximum of $1,800 per student. It's restricted to the first 2 years of college and can be claimed only twice per student.
Lifetime Learning Credit — A credit of 20% of your annual tuition and related fees, with a credit maximum of $2,000 per return. The tax credit may be claimed for an unlimited number of years.
Tuition and Fees Deduction — You can deduct up to $4,000 per student for tuition and fees.
Student Loan Interest Deduction — Deduct up to $2,500 per return for interest paid on student loans.
Exclusion for Savings Bond Interest — Some or all of the interest received from eligible bonds issued after 1989 may be excludable if qualified higher education expenses for the year are at least as much as the proceeds of the redeemed bonds. Note: You can't use the same expenses to claim more than 1 of the above benefits, and other restrictions apply.
Medical Expenses
If you spend more than 7.5% of your adjusted gross income on medical expenses, such as insurance (but not your pre-tax premiums), prescriptions, other out-of-pocket expenses, and mileage to and from medical facilities, then you may deduct the amount that exceeds that figure. Keep in mind, you must itemize income tax deductions to claim medical deductions.
Moving Expenses
Even if you don't itemize income tax deductions, you could deduct moving-related expenses. Your move must meet the following qualifications:
Your move must be job-related.
Your new job would have increased your commute by more than 50 miles if you hadn't moved.
You must be employed full time for at least 39 weeks during the 12 months after you move. If you're self-employed, the applicable figures are 78 weeks and 24 months, respectively, and at least 39 of the weeks must be in the first 12 months.
Your moving expenses can't be reimbursed by your employer.
State & Local Taxes
If you itemize income tax deductions, you have the option of claiming your state and local sales tax or state and local income tax for the year. Be sure to determine which amount will be larger, because you can't claim both. If you choose to deduct income tax, include your withholding and estimated tax payments for the current year as well as any balance due from a prior year. If you credited an overpayment from last year's tax return to his year's estimated tax payment, be sure to include that amount too. If you're subject to Alternative Minimum Tax (AMT) and have a state tax refund, it may be better for you to claim the sales tax deduction even if it's smaller than the income tax deduction. If you choose to deduct sales tax, you can deduct either the actual amount you paid or the amount from the table in the Schedule A instructions. You can add to the amount in the table the sales tax you pay on a car as well as other items specified in the instructions.
Charitable Donations
If you itemize income tax deductions, you may deduct your charitable donations. You'll want to keep good records or all your donations.
Money Donations — Receipts are required for all money donations.
Item Donations — Give new or used goods to charity and deduct their fair market value. Special rules apply to donations of vehicles and to donations of appreciated property (property that is worth more than you paid for it).
Volunteering — Deduct 14¢ per mile while driving for charity. You can also deduct other out-of-pocket expenses.
Out-of-pocket Job Expenses
Keep track of job expenses not reimbursed by your employer. You could deduct these costs:
Driving expenses (the non-commuting kind)
Travel expenses
Uniforms
Union dues
Continuing education expenses
Self-employment Tax Deductions
If you're self-employed, you could qualify for additional income tax deductions. If you work out of your home, there are even more opportunities to claim your expenses. Here are a few examples:
Deduct half of your self-employment tax.
The Section 179 Deduction generally allows you to write off up to $250,000 of business property other than real estate purchased in 2008. Higher limits may apply.
If you use a part of your home exclusively and regularly for business, you can deduct the business portion of rent, mortgage interest, real estate taxes, utilities, insurance and repairs.
You can establish a retirement plan that may allow you to make contributions that exceed the amount you can contribute to a traditional IRA or Roth IRA. This deduction is not allowed for self-employment tax purposes.
AMT Credit
If you were subject to the AMT in a prior year and you're not subject to the AMT this year, you may be eligible to claim the minimum tax credit. Up to 50% of the amount carried to 2008 from years before 2006 may be refundable.
Claiming Overpaid Taxes
If you're eligible for any of the above tax credits, the IRS allows you to reclaim your lost money by filing an amended tax return for prior years. However, you can file an amended return only for up to the past 3 years.
Additional Resources:
Tax Estimator
Education Credits & Deductions
Job Deductions
Saver's Credit
Deductions
Related IRS Forms & Publications
Schedule A (Form 1040) - Itemized Deductions
Schedule A (Form 1040) Instructions
Form 4952 - Investment Interest Expense Deduction
Form 5129 - Questionnaire - Filing Status, Exemptions and Standard Deduction
Form 8283 - Non-cash Charitable Contributions
Form 8283 Instructions
Publication 501- Exemptions, Standard Deduction and Filing Information
Publication 502- Medical and Dental Expenses
Publication 526- Charitable Contributions
Publication 529- Miscellaneous Deductions
Publication 936- Home Mortgage Interest Deduction
The EIC is designed to offset the burden of Social Security taxes for low-income workers. You can claim this tax credit even if you have no tax liability. You may qualify for the EIC if your earned income and adjusted gross income are less than:
$12,880 ($15,880 if Married Filing Jointly) with no qualifying children.
$33,995 ($36,995 if Married Filing Jointly) with 1 qualifying child.
$38,646 ($41,646 if Married Filing Jointly) with more than 1 qualifying child.
Child Tax Credit
You can claim $1,000 for each child. The 2008 Child Tax Credit begins to phase out when your AGI is more than these limits:
$75,000 if Single, Head of Household or Qualifying Widow(er)
$110,000 if Married Filing Jointly
$55,000 if Married Filing Separately
If your income tax is reduced to zero and your earned income is more than $8,500 (for 2008), you may be eligible to claim the additional Child Tax Credit.
Saver's Credit
If you qualify, you could get a tax credit for up to half of what you contribute to a qualified retirement plan or IRA. Claim the Saver's Credit if you meet all the qualifications:
You're age 18 or older.
You aren't a full-time student.
You aren't claimed as a dependent on someone else's return.
Your AGI doesn't exceed $26,500 ($53,000 if Married Filing Jointly, or $39,750 for Head of Household).
Education Tax Benefits
Even if you don't itemize your tax deductions, you could save money with these education credits and deductions.
Hope Credit — A tax credit equal to 100% of the first $1,200 and 50% of the next $1,200 per student for tuition and related fees, with a credit maximum of $1,800 per student. It's restricted to the first 2 years of college and can be claimed only twice per student.
Lifetime Learning Credit — A credit of 20% of your annual tuition and related fees, with a credit maximum of $2,000 per return. The tax credit may be claimed for an unlimited number of years.
Tuition and Fees Deduction — You can deduct up to $4,000 per student for tuition and fees.
Student Loan Interest Deduction — Deduct up to $2,500 per return for interest paid on student loans.
Exclusion for Savings Bond Interest — Some or all of the interest received from eligible bonds issued after 1989 may be excludable if qualified higher education expenses for the year are at least as much as the proceeds of the redeemed bonds. Note: You can't use the same expenses to claim more than 1 of the above benefits, and other restrictions apply.
Medical Expenses
If you spend more than 7.5% of your adjusted gross income on medical expenses, such as insurance (but not your pre-tax premiums), prescriptions, other out-of-pocket expenses, and mileage to and from medical facilities, then you may deduct the amount that exceeds that figure. Keep in mind, you must itemize income tax deductions to claim medical deductions.
Moving Expenses
Even if you don't itemize income tax deductions, you could deduct moving-related expenses. Your move must meet the following qualifications:
Your move must be job-related.
Your new job would have increased your commute by more than 50 miles if you hadn't moved.
You must be employed full time for at least 39 weeks during the 12 months after you move. If you're self-employed, the applicable figures are 78 weeks and 24 months, respectively, and at least 39 of the weeks must be in the first 12 months.
Your moving expenses can't be reimbursed by your employer.
State & Local Taxes
If you itemize income tax deductions, you have the option of claiming your state and local sales tax or state and local income tax for the year. Be sure to determine which amount will be larger, because you can't claim both. If you choose to deduct income tax, include your withholding and estimated tax payments for the current year as well as any balance due from a prior year. If you credited an overpayment from last year's tax return to his year's estimated tax payment, be sure to include that amount too. If you're subject to Alternative Minimum Tax (AMT) and have a state tax refund, it may be better for you to claim the sales tax deduction even if it's smaller than the income tax deduction. If you choose to deduct sales tax, you can deduct either the actual amount you paid or the amount from the table in the Schedule A instructions. You can add to the amount in the table the sales tax you pay on a car as well as other items specified in the instructions.
Charitable Donations
If you itemize income tax deductions, you may deduct your charitable donations. You'll want to keep good records or all your donations.
Money Donations — Receipts are required for all money donations.
Item Donations — Give new or used goods to charity and deduct their fair market value. Special rules apply to donations of vehicles and to donations of appreciated property (property that is worth more than you paid for it).
Volunteering — Deduct 14¢ per mile while driving for charity. You can also deduct other out-of-pocket expenses.
Out-of-pocket Job Expenses
Keep track of job expenses not reimbursed by your employer. You could deduct these costs:
Driving expenses (the non-commuting kind)
Travel expenses
Uniforms
Union dues
Continuing education expenses
Self-employment Tax Deductions
If you're self-employed, you could qualify for additional income tax deductions. If you work out of your home, there are even more opportunities to claim your expenses. Here are a few examples:
Deduct half of your self-employment tax.
The Section 179 Deduction generally allows you to write off up to $250,000 of business property other than real estate purchased in 2008. Higher limits may apply.
If you use a part of your home exclusively and regularly for business, you can deduct the business portion of rent, mortgage interest, real estate taxes, utilities, insurance and repairs.
You can establish a retirement plan that may allow you to make contributions that exceed the amount you can contribute to a traditional IRA or Roth IRA. This deduction is not allowed for self-employment tax purposes.
AMT Credit
If you were subject to the AMT in a prior year and you're not subject to the AMT this year, you may be eligible to claim the minimum tax credit. Up to 50% of the amount carried to 2008 from years before 2006 may be refundable.
Claiming Overpaid Taxes
If you're eligible for any of the above tax credits, the IRS allows you to reclaim your lost money by filing an amended tax return for prior years. However, you can file an amended return only for up to the past 3 years.
Additional Resources:
Tax Estimator
Education Credits & Deductions
Job Deductions
Saver's Credit
Deductions
Related IRS Forms & Publications
Schedule A (Form 1040) - Itemized Deductions
Schedule A (Form 1040) Instructions
Form 4952 - Investment Interest Expense Deduction
Form 5129 - Questionnaire - Filing Status, Exemptions and Standard Deduction
Form 8283 - Non-cash Charitable Contributions
Form 8283 Instructions
Publication 501- Exemptions, Standard Deduction and Filing Information
Publication 502- Medical and Dental Expenses
Publication 526- Charitable Contributions
Publication 529- Miscellaneous Deductions
Publication 936- Home Mortgage Interest Deduction
Saturday, January 10, 2009
Receive Your Refund Faster with Direct Deposit
It is tax time! Want your refund faster? Have it deposited directly into your bank account. More taxpayers are choosing direct deposit as the way to receive their federal tax refunds. More than 61 million people had their tax refunds deposited directly into their bank accounts last year. It's a secure and convenient way to get your money in your pocket faster.
Security. The payment is secure - there is no check to get lost. Each year thousands of refund checks are returned by the US Post Office to the IRS as undeliverable mail. Direct deposit eliminates undeliverable mail and is also the best way to guard against having a tax refund stolen.
Convenience. There's no special trip to the bank to deposit a check!
To request direct deposit, follow the instructions for 'Refund' on your tax return.
Want an even faster refund? Try e-file! Taxpayers who file electronically get their refunds in about half the time as those who file paper returns.
You can also electronically direct your refund to multiple accounts. With the new "split refund" option, taxpayers can divide their refunds among as many as three checking or savings accounts and three different U.S. financial institutions. The split refund option, using Form 8888, is also available for paper returns.
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. Also, make sure you have the correct nine-digit routing number and your account number when selecting direct deposit.
Deducting Vehicle Donations Tips
If you donated a car or other vehicle to a qualified charitable organization in 2008 and intend to claim a deduction you should review the special rules that apply to vehicle donations. You can deduct contributions to a charity only if you itemize deductions on Schedule A of Form 1040.
Generally, the amount you may deduct for a vehicle contribution depends upon what the charity does with the vehicle. Charities typically sell donated vehicles. If the vehicle is sold by the charitable organization, the deduction claimed by the donor usually may not exceed the gross proceeds from the sale.
If your deduction is $250 or more you must obtain written acknowledgment of the donation from the charity. If your deduction is more than $500, this written acknowledgment or Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, must be attached to your return. Among other things, the acknowledgment generally must include the gross proceeds of the sale, the vehicle identification number, and a statement certifying the vehicle was sold in an arm's length transaction between unrelated parties.
The taxpayer can generally deduct the vehicle's Fair Market Value (FMV), if:
The organization makes significant intervening use of or materially improves the vehicle
The organization gives or sells the vehicle to a needy individual at a price significantly below FMV in direct furtherance of its charitable purpose of relieving the poor and distressed or underprivileged who are in need of a means of transportation
The claimed deduction is $500 or less
The vehicle's Fair Market Value cannot exceed the private party sales price listed in a used vehicle pricing guide.
If the organization intends to make significant intervening use of the vehicle or material improvements to the vehicle, the acknowledgment must include certain certifications. If the organization intends to sell the vehicle to a needy individual at a price significantly below FMV, or gratuitously transfers the vehicle to a needy individual, the acknowledgment must also include certain certifications.
Tax Forms That Best Fit Your Needs
When you file your 2008 individual tax return, you will use one of three IRS tax forms. Be sure to use the simplest form you can, which will help you avoid costly errors or processing delays so you won’t have to wait to receive your refund. Each of these forms can be filed electronically, which speeds up the processing of your return.
Use the 1040EZ if:
Your taxable income is below $100,000
Your filing status is Single or Married Filing Jointly
You (and spouse) are under age 65 and not blind
You are not claiming any dependents
Your interest income is $1,500 or less
Your taxable income is below $100,000
Your filing status is Single or Married Filing Jointly
You (and spouse) are under age 65 and not blind
You are not claiming any dependents
Your interest income is $1,500 or less
Use the 1040A if:
Your taxable income is below $100,000
You have capital gain distributions
You claim certain tax credits
You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees
Your taxable income is below $100,000
You have capital gain distributions
You claim certain tax credits
You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees
If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. You must use the 1040 if:
Your taxable income is $100,000 or more
You claim itemized deductions
You are reporting self-employment income
You are reporting income from sale of property
Your taxable income is $100,000 or more
You claim itemized deductions
You are reporting self-employment income
You are reporting income from sale of property
When preparing your return, be sure to carefully check the instructions for the appropriate form.
All IRS forms and instructions can be found on our Web site, IRS.gov.
Form 1040EZ, Individual Income Tax Return (PDF 105K )
Form 1040A, Individual Income Tax Return (PDF 138K)
Form 1040, Individual Income Tax Return (PDF 181K)
Publication 17, Your Federal Income Tax
Publication 17, Your Federal Income Tax (PDF 2.3MB)
1040 Central
Form 1040A, Individual Income Tax Return (PDF 138K)
Form 1040, Individual Income Tax Return (PDF 181K)
Publication 17, Your Federal Income Tax
Publication 17, Your Federal Income Tax (PDF 2.3MB)
1040 Central
IRS Help for Financially Distressed Taxpayers
If you are facing financial difficulties and struggling to meet your tax obligations the IRS can help.
As the 2009 tax filing season begins, in addition to new credits, deductions and exclusions, the IRS is taking steps to help people who owe back taxes. Here are some areas where IRS can help:
Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals with existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this situation should contact the IRS.
Added Flexibility for Missed Payments: The IRS is allowing more flexibility for individuals with existing Installment Agreements who have difficulty making payments because of a job loss or other financial hardship. Depending on the situation, the IRS may allow a skipped payment or a reduced monthly payment amount. Taxpayers in this situation should contact the IRS.
Additional Review for Offers in Compromise on Home Values: An Offer in Compromise (OIC), an agreement between a taxpayer and the IRS that settles the taxpayer’s tax debt for less than full amount owed, may be a viable option for taxpayers experiencing economic difficulties. However, the equity taxpayers have in real property can be a barrier to an OIC being accepted. With the uncertainty in the housing market, the IRS recognizes that the real-estate valuations used to assess ability to pay are not necessarily accurate. So in instances where the accuracy of local real-estate valuations is in question or other unusual hardships exist, the IRS is creating a new, second review of the information to determine if accepting an offer is appropriate.
Prevention of Offer in Compromise Defaults – Taxpayers who are unable to meet the periodic payment terms of an accepted OIC will be able to contact the IRS office handling the offer for available options to help them avoid default.
Postponement of Collection Actions: IRS employees will have greater authority to suspend collection actions in hardship cases where taxpayers are unable to pay. If an individual has recently encountered a job loss or other financial problem, IRS assistors may be able to suspend collection in some situations without documentation to minimize burden on the taxpayer.
Expedited Levy Releases: The IRS will speed the delivery of levy releases by easing requirements on taxpayers who request expedited levy releases for hardship reasons.
Taxpayers seeking expedited releases of levies to an employer or bank should contact the IRS number shown on the notice of levy to discuss available options. When calling, taxpayers requesting a levy release due to hardship should be prepared to provide the IRS with the fax number of the bank or employer processing the levy.
If you are behind on tax payments there could be additional help available if you are facing an unusual hardship situation. For assistance with your back taxes contact the phone numbers listed on your IRS correspondence.
More information is available on the IRS web site at IRS.gov.
IR-2009-2, IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options
Top Five Facts about Dependents and Exemptions
1. Dependents may be required to file their own tax return. Even though you are a dependent on someone else’s tax return, you may still have to file your own tax return. Whether or not you must file a return depends on several factors, including: the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Credit payments you received.
2. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,500 on your 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.
3. Dependents may not claim an exemption. If you claim someone as a dependent, such as your child, that dependent may not claim a personal exemption on their own tax return.
4. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return and were not the dependent of another taxpayer.
5. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.
For more information on dependents and exemptions, including whether or not you or your dependent needs to file a tax return, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
Links:
IRS Publication 501, Exemptions, Standard Deduction, and Filing Information
IRS Publication 501, Exemptions, Standard Deduction, and Filing Information
Five Filing Status Possibilities
Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.
There are two things to consider when determining your filing status:
First, your marital status on the last day of the year determines your filing status for the entire year. Secondly, if more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
Here are the five filing status options:
1. Single. This will generally apply to anyone who is unmarried, divorced or legally separated according to your state law.
2. Married Filing Jointly. A married couple may file a joint return together. If your spouse died during the year, you may still file a joint return with that spouse for the year of death.
3. Married Filing Separately. A married couple may elect to file their returns separately.
4. Head of Household. This generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
5. Qualifying Widow(er) with Dependent Child. You may be able to choose this filing status if your spouse died during 2006 or 2007, you have a dependent child and you meet certain other conditions.
There’s much more information about determining your filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on the IRS
Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Link — Publication 501, Exemptions, Standard Deduction, and Filing Information (PDF 196K)
Top Ten Tax Time Tips
1. Gather your records…now! It’s never too early to start getting together any documents or forms you’ll need when filing your taxes: receipts, canceled checks, and other documents that support an item of income or a deduction you’re taking on your return. Also, be on the lookout for W-2s and 1099s, coming soon from your employer.
2. Find your forms. Whether you file a 1040 or 1040-EZ, you can download all IRS forms and publications on our Web site, IRS.gov.
3. Do a little research. Check out Publication 17 on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return. Review Pub 17 to ensure you’re taking all credits and deductions for which you’re eligible.
4. Think ahead to how you’ll file. Will you prepare your return yourself or go to a preparer? Do you qualify to file at no cost using Free File on IRS.gov? Are you eligible for free help at an IRS office or volunteer site? Will you purchase tax preparation software or file online? There are many things to consider. So, give yourself time to weigh them all and find the option that best suits your needs.
5. Take your time. Rushing to get your return filed increases the chance you will make a mistake and not catch it.
6. Double-check your return. Mistakes will slow down the processing of your return. In particular, make sure all the Social Security Numbers and math calculations are correct as these are the most common errors made by taxpayers.
7. Consider e-file. When you file electronically, the computer will handle the math calculations for you, and you will get your refund in about half the time it takes when you file a paper return.
8. Think about Direct Deposit. If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a check by mail.
9. Visit IRS.gov often. The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, FAQs and updates on tax law changes.
10. Relax. There’s no need to panic. If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.
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