If you are living and working abroad you may be entitled to the Foreign Earned Income Exclusion. Here are some important facts about the exclusion:
1. The Foreign Earned Income Exclusion: United States Citizens and resident aliens who live and work abroad may be able to exclude all or part of their foreign salary or wages from their income when filing their U.S. federal tax return. They may also qualify to exclude compensation for their personal services or certain foreign housing costs.
2. The General Rules: To qualify for the foreign earned income exclusion, a U.S. citizen or resident alien must have a tax home in a foreign country and income received for working in a foreign country, otherwise known as foreign earned income. The taxpayer must also meet one of two tests: the bona fide residence test or the physical presence test.
3. The Exclusion Amount: The foreign earned income exclusion is adjusted annually for inflation. For 2008, the maximum exclusion is up to $87,600 per qualifying person.
4. Claiming the Exclusion: The foreign earned income exclusion and the foreign housing exclusion or deduction are claimed using Form 2555, which should be attached to the taxpayer’s Form 1040. A shorter Form 2555-EZ is available to certain taxpayers claiming only the foreign income exclusion.
5. Taking Other Credits or Deductions: Once the foreign earned income exclusion is chosen, a foreign tax credit or deduction for taxes cannot be claimed on the excluded income. If a foreign tax credit or tax deduction is taken on any of the excluded income, the foreign earned income exclusion will be considered revoked.
For more information about the Foreign Earned Income Exclusion get Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and the instructions for Form 2555. Both are available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (PDF 348K)
Form 2555, Foreign Earned Income
Form 2555-EZ, Foreign Earned Income Exclusion
Showing posts with label effectur. Show all posts
Showing posts with label effectur. Show all posts
Friday, February 27, 2009
Friday, February 20, 2009
Gambling Winnings Are Always Taxable Income
Gambling winnings are fully taxable and must be reported on your tax return. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.
Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.
Here are some general guidelines on gambling income and losses:
Reporting winnings: The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 28, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.
It is important to keep an accurate diary or similar record of your gambling winnings and losses.
To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
For more information see IRS Publication 529, Miscellaneous Deductions, or Publication 525, Taxable and Nontaxable Income, both available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).
Form W-2G, Certain Gambling Winnings (PDF 134K)
Publication 529, Miscellaneous Deductions (PDF 169K)
Publication 525, Taxable and Nontaxable Income (PDF 266K)
Tax Topic 419, Gambling Income and Expenses
Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.
Here are some general guidelines on gambling income and losses:
Reporting winnings: The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. You may not use Form 1040A or 1040EZ. This rule applies regardless of the amount and regardless of whether you receive a Form W-2G or any other reporting form.
Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 28, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.
It is important to keep an accurate diary or similar record of your gambling winnings and losses.
To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.
For more information see IRS Publication 529, Miscellaneous Deductions, or Publication 525, Taxable and Nontaxable Income, both available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).
Form W-2G, Certain Gambling Winnings (PDF 134K)
Publication 529, Miscellaneous Deductions (PDF 169K)
Publication 525, Taxable and Nontaxable Income (PDF 266K)
Tax Topic 419, Gambling Income and Expenses
Thursday, February 19, 2009
Seven Facts to Help You Understand the Alternative Minimum Tax
1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. The Alternative Minimum Tax attempts to ensure that anyone who benefits from these tax advantages pays at least a minimum amount of tax.
2. Congress created the AMT in 1969, targeting a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax.
3. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
4. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
5. The AMT exemption amounts are set by law for each filing status.
6. For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:
$69,950 for a married couple filing a joint return and qualifying widows and widowers
$46,200 for singles and heads of household
$34,975 for a married person filing separately
7. Taxpayers may find more information about the Alternative Minimum Tax and how it impacts them by referring to IRS Form 6251, Alternative Minimum Tax —Individuals, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional Resources:
AMT Assistant
IRS Form 6251, Alternative Minimum Tax—Individuals
2. Congress created the AMT in 1969, targeting a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax.
3. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.
4. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.
5. The AMT exemption amounts are set by law for each filing status.
6. For tax-year 2008, Congress raised the alternative minimum tax exemption to the following levels:
$69,950 for a married couple filing a joint return and qualifying widows and widowers
$46,200 for singles and heads of household
$34,975 for a married person filing separately
7. Taxpayers may find more information about the Alternative Minimum Tax and how it impacts them by referring to IRS Form 6251, Alternative Minimum Tax —Individuals, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional Resources:
AMT Assistant
IRS Form 6251, Alternative Minimum Tax—Individuals
Are Your Social Security Benefits Taxable?
How much, if any, of your social security benefits are taxable depends on your total income and marital status. Generally, if social security benefits were your only income for 2008, your benefits are not taxable and you probably do not need to file a federal income tax return.
If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040A or Form 1040 Instruction booklet.
Before you go to the instruction book, do the following quick computation to determine whether some of your benefits may be taxable:
First, add one–half of the total social security you received to all your other income, including any tax exempt interest and other exclusions from income.
Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
The 2008 base amounts are:
$32,000 for married couples filing jointly
$25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year
$0 for married persons filing separately who lived together during the year
For additional information on the taxability of social security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Resources:
Publication 915, Social Security and Equivalent Railroad Retirement Benefits (PDF 994.0KB)
If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040A or Form 1040 Instruction booklet.
Before you go to the instruction book, do the following quick computation to determine whether some of your benefits may be taxable:
First, add one–half of the total social security you received to all your other income, including any tax exempt interest and other exclusions from income.
Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
The 2008 base amounts are:
$32,000 for married couples filing jointly
$25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year
$0 for married persons filing separately who lived together during the year
For additional information on the taxability of social security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Resources:
Publication 915, Social Security and Equivalent Railroad Retirement Benefits (PDF 994.0KB)
Thursday, February 12, 2009
Disabled Taxpayers Tax Benefits
There are several tax credits and benefits available to qualifying taxpayers with disabilities as well as to the parents of disabled children. Listed below are several tax credits and other benefits available if you or someone else listed on your federal tax return is disabled.
The Earned Income Tax Credit The EITC is available to disabled taxpayers as well as to the parents of a child with a disability. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability, who have no qualifying children, but are older than 25 and younger than 65 do, in fact, qualify for EITC.
Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
The Credit for the Elderly or Disabled This credit may be available to taxpayers who are age 65 or older, or who are younger than 65 and are retired on permanent and total disability.
Child or Dependent Care Credit Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.
Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace.
The expenses must be necessary for the taxpayer to work.
Impact on the Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income may be excluded from a taxpayer’s gross income.
For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities, or Publication 907, Tax Highlights for Persons with Disabilities, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Publication 3966, Living and Working with Disabilities
Publication 907, Tax Highlights for Persons with Disabilities
The Earned Income Tax Credit The EITC is available to disabled taxpayers as well as to the parents of a child with a disability. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability, who have no qualifying children, but are older than 25 and younger than 65 do, in fact, qualify for EITC.
Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
The Credit for the Elderly or Disabled This credit may be available to taxpayers who are age 65 or older, or who are younger than 65 and are retired on permanent and total disability.
Child or Dependent Care Credit Taxpayers who pay someone to come to their home and care for their dependent or spouse may be entitled to claim this credit. There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.
Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment, may be able to claim business expenses in connection with their workplace.
The expenses must be necessary for the taxpayer to work.
Impact on the Standard Deduction Taxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income may be excluded from a taxpayer’s gross income.
For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities, or Publication 907, Tax Highlights for Persons with Disabilities, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Publication 3966, Living and Working with Disabilities
Publication 907, Tax Highlights for Persons with Disabilities
To File or not To File
You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.
For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,900. However, self-employed individuals generally must file a tax return if their net income from self employment was at least $400.
Check the “Individuals” section of the IRS Web site at IRS.gov or consult the instructions for form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with IRS this year.
Even if you don’t have to file, here are six reasons why you may want to file:
1. Federal Income Tax Withheld. If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, if you made estimated tax payments, or had a prior year overpayment applied to this year's tax.
2. Recovery Rebate Credit. If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment, you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return.
3. Earned Income Tax Credit. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money. EITC is a refundable tax credit meaning you could qualify for a tax refund.
4. Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
5. First time Homebuyer Credit. If you bought a main home after April 8, 2008, and before July 1, 2009 and did not own a main home during the prior 3 years, you may be able to take this refundable credit.
6. Health Coverage Tax Credit. Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.
For more information about filing requirements and your eligibility to receive tax credits, visit the IRS Web site at IRS.gov.
Forms and Publications
Recovery Rebate Credit Information Center
Earned Income Tax Credit
First-Time Homebuyer Credit Information Center
Health Coverage Tax Credit
1040 Central
For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,900. However, self-employed individuals generally must file a tax return if their net income from self employment was at least $400.
Check the “Individuals” section of the IRS Web site at IRS.gov or consult the instructions for form 1040, 1040A, or 1040EZ for specific details that may affect your need to file a tax return with IRS this year.
Even if you don’t have to file, here are six reasons why you may want to file:
1. Federal Income Tax Withheld. If you are not required to file, you should file to get money back if Federal Income Tax was withheld from your pay, if you made estimated tax payments, or had a prior year overpayment applied to this year's tax.
2. Recovery Rebate Credit. If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment, you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return.
3. Earned Income Tax Credit. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money. EITC is a refundable tax credit meaning you could qualify for a tax refund.
4. Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
5. First time Homebuyer Credit. If you bought a main home after April 8, 2008, and before July 1, 2009 and did not own a main home during the prior 3 years, you may be able to take this refundable credit.
6. Health Coverage Tax Credit. Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.
For more information about filing requirements and your eligibility to receive tax credits, visit the IRS Web site at IRS.gov.
Forms and Publications
Recovery Rebate Credit Information Center
Earned Income Tax Credit
First-Time Homebuyer Credit Information Center
Health Coverage Tax Credit
1040 Central
What to Do If You Are Missing a W-2
Did you get your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from each of your employers each year. Employers have until February 2, 2009 to provide or send you a 2008 W-2 earnings statement either electronically or in paper form. If you haven’t received your W-2, follow these steps:
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
Employer's name, address, city, and state, including zip code;
Your name, address, city and state, including zip code, and Social Security number; and
An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Form 4852, Substitute for Form W-2, Wage and Tax Statement (PDF 29K)
Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
Instructions for Form 1040X (PDF 43K)
1. Contact your employer. If you have not received your Form W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS. If you still do not receive your W-2 by February 17th, contact the IRS for assistance at 800-829-1040. When you call, have the following information:
Employer's name, address, city, and state, including zip code;
Your name, address, city and state, including zip code, and Social Security number; and
An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return. You still must file your tax return on time even if you do not receive your Form W-2. If you have not received your Form W-2 by February 17th, and have completed steps 1 and 2 above, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X. On occasion, you may receive your missing documents at a later date and some may have conflicting information. You may receive a Form W-2 or W-2C (corrected form) after you filed your return using Form 4852, and the information differs from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Form 4852, Substitute for Form W-2, Wage and Tax Statement (PDF 29K)
Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
Instructions for Form 1040X (PDF 43K)
How to Claim the Rebate Credit on Your Return
The IRS sent taxpayers nearly 119 million economic stimulus payments last year. When filing a 2008 federal tax return, taxpayers will need to know the amount of their stimulus payment to properly determine if they are eligible for a recovery rebate credit.
Here are six tips for finding how much you received and correctly claiming the credit on your return:
1. Get your notice. Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.
2. Visit IRS.gov to find the amount. If you don’t have your Notice 1378, go to the “How Much Was My 2008 Stimulus Payment?” tool that is available on the IRS Web site, IRS.gov. This tool can provide the correct amount in a matter of a few seconds.
3. Call the IRS at 1-866-234-2942. If you don’t have Internet access, call the IRS. After a brief recorded announcement, select option one to find out the amount of your economic stimulus payment. You will need to provide your 2007 filing status, Social Security Number and the number of exemptions claimed on the tax return.
4. Keep the amount handy. With the amount of last year’s economic stimulus payment in hand, you will be able to enter the figure on the recovery rebate credit worksheet or in the appropriate location when your tax preparation software requests it. This number will not appear on your actual tax return but is vital to ensure the accurate determination of the recovery rebate credit amount.
5. Trust the software or the worksheet to get it right. Tax preparation software will automatically and correctly calculate the amount of the rebate recovery credit for you. The software will also properly report the credit on your tax return. If you are filing a paper return, the worksheet will guide you in calculating the proper amount of the credit. The recovery rebate credit should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ. In order to avoid an error, use extra care when responding to the software questions or when completing the worksheet. Do not enter the stimulus payment directly on your return.
6. Most taxpayers won’t qualify for more. For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero because they have already received the money as a stimulus payment. If you complete the worksheet, and there is any question about the amount that should be reported for the recovery rebate credit, you or your preparer should enter a zero on the appropriate line above. For most people this will be the correct amount, and for the others the IRS will determine whether a recovery rebate credit is due and, if so, how much. If the IRS calculates a different credit amount than is reflected on your return, you will receive a notice that alerts you to the change.
IRS Offers Tips to Avoid Recovery Rebate Credit Confusion
Recovery Rebate Credit Information Center
Here are six tips for finding how much you received and correctly claiming the credit on your return:
1. Get your notice. Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.
2. Visit IRS.gov to find the amount. If you don’t have your Notice 1378, go to the “How Much Was My 2008 Stimulus Payment?” tool that is available on the IRS Web site, IRS.gov. This tool can provide the correct amount in a matter of a few seconds.
3. Call the IRS at 1-866-234-2942. If you don’t have Internet access, call the IRS. After a brief recorded announcement, select option one to find out the amount of your economic stimulus payment. You will need to provide your 2007 filing status, Social Security Number and the number of exemptions claimed on the tax return.
4. Keep the amount handy. With the amount of last year’s economic stimulus payment in hand, you will be able to enter the figure on the recovery rebate credit worksheet or in the appropriate location when your tax preparation software requests it. This number will not appear on your actual tax return but is vital to ensure the accurate determination of the recovery rebate credit amount.
5. Trust the software or the worksheet to get it right. Tax preparation software will automatically and correctly calculate the amount of the rebate recovery credit for you. The software will also properly report the credit on your tax return. If you are filing a paper return, the worksheet will guide you in calculating the proper amount of the credit. The recovery rebate credit should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ. In order to avoid an error, use extra care when responding to the software questions or when completing the worksheet. Do not enter the stimulus payment directly on your return.
6. Most taxpayers won’t qualify for more. For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero because they have already received the money as a stimulus payment. If you complete the worksheet, and there is any question about the amount that should be reported for the recovery rebate credit, you or your preparer should enter a zero on the appropriate line above. For most people this will be the correct amount, and for the others the IRS will determine whether a recovery rebate credit is due and, if so, how much. If the IRS calculates a different credit amount than is reflected on your return, you will receive a notice that alerts you to the change.
IRS Offers Tips to Avoid Recovery Rebate Credit Confusion
Recovery Rebate Credit Information Center
Friday, February 6, 2009
Five Important Changes for Taxpayers
Here are a few tax law changes you may want to note before filing your 2008 federal tax return:
1. Expiring Tax Breaks Renewed The following popular tax breaks were renewed for tax-years 2008 and 2009:
Deduction for state and local sales taxes on Form 1040 Schedule A, Line 5
Educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
Tuition and fees deduction on Form 8917
In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.
2. Standard Deduction Increased for Most Taxpayers The 2008 basic standard deductions all increased. They are:
$10,900 for married couples filing a joint return and qualifying widows and widowers
$5,450 for singles and married individuals filing separate returns
$8,000 for heads of household
Beginning this year, taxpayers can claim an additional standard deduction based on the state or local real-estate taxes paid in 2008. Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster.
3. Contribution Limits Rise for IRAs and Other Retirement Plans This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $53,000 and $63,000. For married couples filing jointly, the income phase-out range is $85,000 to $105,000.
4. Standard Mileage Rates Adjusted for 2008 The standard mileage rates for business use of a vehicle:
50.5 cents per mile from Jan. 1 to June 30, 2008
58.5 cents per mile driven during the rest of 2008
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
19 cents per mile Jan. 1 to June 30, 2008
27 cents from July 1 to Dec. 31, 2008
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile. Special rates apply to the Midwest disaster area.
5. Kiddie Tax Revised The tax on a child's investment income previously only applied to children younger than age 18. It now applies if the child has investment income greater than $1,800 and is:
Younger than 18
18 years of age and had earned income that was equal to or less than half of his or her total support in 2008
Older than 18 and younger than 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.
IRS FS 2009-1 Highlights of 2008 Tax Law Changes
Form 1040 instructions (PDF 941K)
Publication 526 Charitable Contributions
1. Expiring Tax Breaks Renewed The following popular tax breaks were renewed for tax-years 2008 and 2009:
Deduction for state and local sales taxes on Form 1040 Schedule A, Line 5
Educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16
Tuition and fees deduction on Form 8917
In addition, the residential energy-efficient property credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify.
2. Standard Deduction Increased for Most Taxpayers The 2008 basic standard deductions all increased. They are:
$10,900 for married couples filing a joint return and qualifying widows and widowers
$5,450 for singles and married individuals filing separate returns
$8,000 for heads of household
Beginning this year, taxpayers can claim an additional standard deduction based on the state or local real-estate taxes paid in 2008. Also new for 2008, a taxpayer can increase his standard deduction by the net disaster losses suffered from a federally declared disaster.
3. Contribution Limits Rise for IRAs and Other Retirement Plans This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes between $53,000 and $63,000. For married couples filing jointly, the income phase-out range is $85,000 to $105,000.
4. Standard Mileage Rates Adjusted for 2008 The standard mileage rates for business use of a vehicle:
50.5 cents per mile from Jan. 1 to June 30, 2008
58.5 cents per mile driven during the rest of 2008
The standard mileage rates for the cost of operating a vehicle for medical reasons or a deductible move:
19 cents per mile Jan. 1 to June 30, 2008
27 cents from July 1 to Dec. 31, 2008
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile. Special rates apply to the Midwest disaster area.
5. Kiddie Tax Revised The tax on a child's investment income previously only applied to children younger than age 18. It now applies if the child has investment income greater than $1,800 and is:
Younger than 18
18 years of age and had earned income that was equal to or less than half of his or her total support in 2008
Older than 18 and younger than 24, a student and during 2008 had earned income that was equal to or less than half of his or her total support.
IRS FS 2009-1 Highlights of 2008 Tax Law Changes
Form 1040 instructions (PDF 941K)
Publication 526 Charitable Contributions
What Income Is Taxable?
While most income you receive is generally considered taxable, there are some situations when certain types of income are partially taxed or not taxed at all.
Some common examples of items that are not included in your income are:
Adoption Expense Reimbursements for qualifying expenses
Child support payments
Gifts, bequests and inheritances
Workers' compensation benefits
Meals and Lodging for the convenience of your employer
Compensatory Damages awarded for physical injury or physical sickness
Welfare Benefits
Cash Rebates from a dealer or manufacturer
Economic Stimulus Payment received in 2008
Some income may be taxable under certain circumstance, but not taxable in other situations.
Examples of items that may or may not be included in your income are:
Life Insurance.
If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
Scholarship or Fellowship Grant.
If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify. All other items—including income such as wages, salaries and tips—must be included in your income, unless it is specifically excluded by law. Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
These examples are not all-inclusive. For more information, visit the IRS Web site at IRS.gov to view or download Publication 525, Taxable and Nontaxable Income from the Forms and Publications section or call 800-TAX-FORM (800-829-3676).
Publication 525, Taxable and Nontaxable Income (PDF 1178.2KB)
Some common examples of items that are not included in your income are:
Adoption Expense Reimbursements for qualifying expenses
Child support payments
Gifts, bequests and inheritances
Workers' compensation benefits
Meals and Lodging for the convenience of your employer
Compensatory Damages awarded for physical injury or physical sickness
Welfare Benefits
Cash Rebates from a dealer or manufacturer
Economic Stimulus Payment received in 2008
Some income may be taxable under certain circumstance, but not taxable in other situations.
Examples of items that may or may not be included in your income are:
Life Insurance.
If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
Scholarship or Fellowship Grant.
If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify. All other items—including income such as wages, salaries and tips—must be included in your income, unless it is specifically excluded by law. Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
These examples are not all-inclusive. For more information, visit the IRS Web site at IRS.gov to view or download Publication 525, Taxable and Nontaxable Income from the Forms and Publications section or call 800-TAX-FORM (800-829-3676).
Publication 525, Taxable and Nontaxable Income (PDF 1178.2KB)
Thursday, February 5, 2009
Obama's Tax Recovery Plan
Congress is in the middle of considering the American Recovery and Reinvestment Act (HR 598), the first major tax bill of the year. Already HR 598 has passed the House Ways and Means Committee on January 22, 2009. Senators have their own version of the law to be discussed by the Senate Finances Committee on January 27. Update: the House passed the bill on January 28, 2009, by a vote of 244 in favor to 188 against, largely along party lines. The bill now goes to the Senate for consideration.
The legislation proposes several tax breaks that were touted by President Obama during his campaign, such as the Making Work Pay Tax Credit and reworking of the Hope education tax credit into the American Opportunity Tax Credit. The legislation also proposes to expand the child tax credit and earned income credit, and would revise the first-time home buyer tax credit.
The legislation contains more than just tax cuts. It also contains about $550 billion in spending measures. To see where the spending is going, the Economix blog of the New York Times has compiled a nice little pie chart.
Here's a summary of the major tax provisions:
Marking Work Pay Tax Credit
A new tax credit of $500 per person to offset a worker's FICA taxes on the first 6.2% of earned income (wages or self-employment). The tax credit is phased out once a person's modified adjusted gross income exceeds $75,000 (or $150,000 for joint filers). The credit would be retroactive to January 1, 2009, and could be taken either through a reduction in withholding or as a credit on a person's tax return. This tax credit is not available to dependents who have a job, and the credit does not effect the employer's share of FICA taxes.
Modification of the First-Time Home Buyer Tax Credit
The first time home buyer tax credit provides a tax credit of up to $7,500 ($3,750 for separate filers). The tax credit must be repaid over 15 years in what is essentially a zero-interest loan from the Treasury. The credit is available for people who buy a home after April 9, 2008, and before July 1, 2009. HR 598 proposes to eliminate the repayment requirement for homes purchased after December 31, 2008.
American Opportunity Tax Credit
HR 598 proposes to expand the current Hope education tax credit. Currently worth a maximum credit of $1,800 for students in their first two years of college education, HR 598 would expand this maximum to $2,500. It would also expand the list of qualifying expenses to include text books (currently only tuition is a qualifying expense), and it would make 40% of the tax credit refundable, meaning this amount could be refunded to the taxpayer if their tax liability was reduced to zero by using various tax credits. In a novel twist, HR 598 would ask the Treasury Department to conduct a study to see if the government could require community service as a condition for being eligible for the tax breaks for higher education.
Refundable Child Tax Credit
HR 598 would make the child tax credit refundable for 2009 and 2010. Currently, the child tax credit is refundable based on the 15% of earned income in excess of $8,500. HR 598 would remove this threshold, and thus make the tax credit fully refundable. That means more taxpayers would be able to receive the child tax credit even if they have zero tax liability.
Expands Earned Income Credit
The legislation would expands the earned income credit to provide higher earned income credit for families with three or more children. Currently, the EIC maxes out at 40% of the first $12,570 of earned income for families with two or more children. The leglistation would add a new maximum of 45% of the first $12,570 of earned income for families with three or more children.
Extends Tax Breaks for Energy Efficiency
Increases the tax credit amount to 30% of the cost of qualifying energy-efficient products such as storm windows, doors, skylights, and insulation; and increases the maximum credit to $1,500 for years 2009 and 2010. The nonbusiness energy property credit is currently limited to 10% of expenses, and capped at $500. Also would remove the maximum limits on the residential energy efficient property credit for solar hot water, geothermal and wind energy equipment. The residential energy tax credits are not available for tax year 2008.
Enhanced Depreciation for Business Assets
Extends the 50% bonus depreciation for 2009 and 2010. Section 179 expenses limits of $250,000 would be extended an additional year to 2009.
Net Operating Loss Carrybacks for BusinessesBusinesses would be allowed to carryback a net operating loss five years instead of two years under current law, and would be available for losses booked in 2008 or 2009. By carrying back their losses, businesses can obtain a refund of taxes paid in a previous year.
Work Opportunity Tax Credit for New Hires
Businesses would be eligible for a tax credit based on hiring certain types of employees. HR 598 would add two new classes of employees for which businesses could claim a tax credit: unemployed veterans and disconnected youths.
The legislation proposes several tax breaks that were touted by President Obama during his campaign, such as the Making Work Pay Tax Credit and reworking of the Hope education tax credit into the American Opportunity Tax Credit. The legislation also proposes to expand the child tax credit and earned income credit, and would revise the first-time home buyer tax credit.
The legislation contains more than just tax cuts. It also contains about $550 billion in spending measures. To see where the spending is going, the Economix blog of the New York Times has compiled a nice little pie chart.
Here's a summary of the major tax provisions:
Marking Work Pay Tax Credit
A new tax credit of $500 per person to offset a worker's FICA taxes on the first 6.2% of earned income (wages or self-employment). The tax credit is phased out once a person's modified adjusted gross income exceeds $75,000 (or $150,000 for joint filers). The credit would be retroactive to January 1, 2009, and could be taken either through a reduction in withholding or as a credit on a person's tax return. This tax credit is not available to dependents who have a job, and the credit does not effect the employer's share of FICA taxes.
Modification of the First-Time Home Buyer Tax Credit
The first time home buyer tax credit provides a tax credit of up to $7,500 ($3,750 for separate filers). The tax credit must be repaid over 15 years in what is essentially a zero-interest loan from the Treasury. The credit is available for people who buy a home after April 9, 2008, and before July 1, 2009. HR 598 proposes to eliminate the repayment requirement for homes purchased after December 31, 2008.
American Opportunity Tax Credit
HR 598 proposes to expand the current Hope education tax credit. Currently worth a maximum credit of $1,800 for students in their first two years of college education, HR 598 would expand this maximum to $2,500. It would also expand the list of qualifying expenses to include text books (currently only tuition is a qualifying expense), and it would make 40% of the tax credit refundable, meaning this amount could be refunded to the taxpayer if their tax liability was reduced to zero by using various tax credits. In a novel twist, HR 598 would ask the Treasury Department to conduct a study to see if the government could require community service as a condition for being eligible for the tax breaks for higher education.
Refundable Child Tax Credit
HR 598 would make the child tax credit refundable for 2009 and 2010. Currently, the child tax credit is refundable based on the 15% of earned income in excess of $8,500. HR 598 would remove this threshold, and thus make the tax credit fully refundable. That means more taxpayers would be able to receive the child tax credit even if they have zero tax liability.
Expands Earned Income Credit
The legislation would expands the earned income credit to provide higher earned income credit for families with three or more children. Currently, the EIC maxes out at 40% of the first $12,570 of earned income for families with two or more children. The leglistation would add a new maximum of 45% of the first $12,570 of earned income for families with three or more children.
Extends Tax Breaks for Energy Efficiency
Increases the tax credit amount to 30% of the cost of qualifying energy-efficient products such as storm windows, doors, skylights, and insulation; and increases the maximum credit to $1,500 for years 2009 and 2010. The nonbusiness energy property credit is currently limited to 10% of expenses, and capped at $500. Also would remove the maximum limits on the residential energy efficient property credit for solar hot water, geothermal and wind energy equipment. The residential energy tax credits are not available for tax year 2008.
Enhanced Depreciation for Business Assets
Extends the 50% bonus depreciation for 2009 and 2010. Section 179 expenses limits of $250,000 would be extended an additional year to 2009.
Net Operating Loss Carrybacks for BusinessesBusinesses would be allowed to carryback a net operating loss five years instead of two years under current law, and would be available for losses booked in 2008 or 2009. By carrying back their losses, businesses can obtain a refund of taxes paid in a previous year.
Work Opportunity Tax Credit for New Hires
Businesses would be eligible for a tax credit based on hiring certain types of employees. HR 598 would add two new classes of employees for which businesses could claim a tax credit: unemployed veterans and disconnected youths.
Friday, January 30, 2009
Ten Things You May Not Know About the Earned Income Credit
The Earned Income Tax Credit is for people who work, but have lower incomes. Here are some things you may not know about the EITC.
1. A quarter of all taxpayers that qualify don’t claim the credit. The Earned Income Tax Credit is money you can use to make a difference in your life. Just because you didn’t qualify last year, doesn’t mean you won’t this year. As your financial situation changes from year-to-year you should review the EITC eligibility rules to determine if you qualify.
2. If you qualify, it could be worth up to $4,800 this year. If you qualify, you could pay less federal tax or even get a refund. The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household.
3. Your filing status cannot be Married Filing Separately. Your filing status must be married filing jointly, head of household, qualifying widow or single.
4. You must have a valid Social Security Number. You, your spouse (if filing a joint return) and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
5. You must have earned income. This credit is called the “earned income” tax credit because you must work and have earned income to qualify. You have earned income if you work for someone who pays you wages or you are self-employed.
6. Married couples and single people without kids may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
7. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make the election, the combat pay remains nontaxable, but you must include in earned income all nontaxable combat pay you received.
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
Back to Top
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
Back to Top
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:
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
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
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
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