Volunteer Tax Return Preparation

Volunteer Tax Return Preparation

IRS TAX TIP 2007-42 Are you puzzled by the tax law and which credits and deductions you can take? If so, then why not look into the free, IRS-sponsored, volunteer tax return preparation services? In addition to tax preparation, many also offer free electronic filing of tax returns. • Volunteer Income Tax Assistance offers free tax help to people whose incomes are $39,000 or less. Volunteers sponsored by various organizations receive training to prepare basic tax returns in communities across the country. VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping malls and other convenient locations. • Tax Counseling for the Elderly provides free tax help to people aged 60 and older. Trained volunteers from non-profit organizations provide free tax counseling and basic income tax return preparation for senior citizens. Volunteers who provide tax counseling are often retired individuals associated with non-profit organizations that receive grants from the IRS. • AARP Tax-Aide counseling, part of the IRS-Sponsored TCE Program, operates nearly 9,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors can help people of low-to-moderate income with special attention to those aged 60 and older. To locate the nearest AARP Tax-Aide site, call 888-227-7669 or visit AARP's Web site at www.aarp.org Filing your taxes can be easy and free. Take advantage of a volunteer assistance program in your area to receive free income tax preparation assistance. Locations and hours of operation are often available through city information hotlines and local community organizations. Local volunteer tax preparation site information is also available by calling the IRS volunteer site hotline at 800-906-9887. This hotline is available through April 30, 2007. Links: Volunteer assistance program Tax-Aide Program

Free Tax Services

Free Tax Services

IRS TAX TIP 2007-41 The IRS provides free publications, forms and other tax material and information to help taxpayers meet their tax obligations. Free help is available on the IRS website, by phone, at local IRS offices and at many community locations. • IRS.gov You can access free tax information at IRS.gov. At 1040 Central on the Individuals page, you can obtain forms, instructions and publications, learn about IRS e-file, determine your eligibility for the Earned Income Tax Credit, read about the latest tax changes and find answers to Frequently Asked Questions. Most taxpayers can use Free File, available only through the IRS.gov Web site, to electronically prepare and file their federal tax return – for free! You can also check the status of your refund at IRS.gov by clicking on Where’s My Refund, a service available 24 hours a day, seven days a week. • Telephone Call the IRS Tax Help Line for Individuals, 800-829-1040, to get answers to your federal tax questions. To order free forms, instructions and publications call 800-829-3676. To hear pre-recorded messages covering various tax topics or check on the status of your refund, call 800-829-4477. TTY/TDD users may call 800-829-4059 to ask tax questions or to order forms and publications. • Community Resources Free tax preparation is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs in many communities. Volunteer return preparation programs provided through IRS and its partners offer free help in preparing simple tax returns for low- to moderate-income taxpayers. Call 800-906-9887 to find the VITA or TCE site nearest you. This hotline is available through April 30, 2007.You may also call AARP — the largest TCE participant — at 888-227-7669 (888-AARPNOW) or access www.aarp.org to find the nearest Tax-Aide site. • Taxpayer Assistance Centers When you believe your tax issue cannot be handled online or by phone, and you want face-to-face assistance, you can find help at a local Taxpayer Assistance Center. Locations, business hours and an overview of services are at IRS.gov. For more information about services provided by the IRS, review Publication 910, IRS Guide to Free Tax Services available at IRS.gov or by calling 800-829-3676. Links: Free File AARP Tax-Aide Forms and Publications Frequently Asked Questions Small Business/Self-Employed Contact My Local Office Publication 910, Guide to Free Tax Services (PDF 21,524K)

Free Tax Help for the Military

Free Tax Help for the Military


IRS TAX TIP 2007-40

If you, or your spouse, are a member of the military, you may be eligible to receive free assistance with the preparation and filing of your federal tax return. The U.S. Armed Forces participate in the Volunteer Income Tax Assistance Program. The Armed Forces Tax Council oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. The AFTC consists of tax program coordinators for the Marine Corps, Air Force, Army, Navy and Coast Guard.

Military-based VITA sites provide free tax advice, tax preparation, return filing and other tax assistance to military members and their families. The volunteer assistors are trained to address military-specific tax issues, such as combat zone tax benefits.

Military commanders support the program by detailing members of the military to prepare returns and by providing space and equipment for tax centers. The IRS supports these efforts by providing tax software and training.

To receive this free assistance, you should bring the following records to your military VITA site:
• Valid photo identification
• Social Security cards for you, your spouse and dependents or a social security number verification letter issued by the Social Security Administration
• Birth dates for you, your spouse and dependents
• Current year’s tax package, if you received one
• Wage and earning statement(s) -- Form W-2, W-2G, 1099-R
• Interest and dividend statements (Forms 1099)
• A copy of last year’s federal and state tax returns, if available
• Bank routing numbers and account numbers for direct deposit
• Total amount paid for day care
• Day care provider’s identifying number
• Other relevant information about income and expenses

If your filing status is Married Filing Jointly and you wish to file your tax return electronically, both you and your spouse should be present to sign the required forms. If it isn’t possible for both to be present, a valid power of attorney that allows tax preparation can be used to sign and file the return.

For more information, review IRS Publication 3, Armed Forces’ Tax Guide, available on the IRS Web site at IRS.gov or order a free copy by calling 800-TAX-FORM (800-829-3676).

Gift Taxes

Gift Taxes

IRS Tax Tip 2007-39 If you gave any one person gifts in 2006 that valued at more than $12,000, you must report the total gifts to the Internal Revenue Service and may have to pay tax on the gifts. The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value. Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something at 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 do not count against the annual limit: Tuition or Medical Expenses that you pay directly to an educational or medical institution for someone's benefit Gifts to your Spouse Gifts to a Political Organization for its use Gifts to Charities If you are married, both you and your spouse can give separate gifts of up to the annual limit to the same person without making a taxable gift. For more information, get the IRS Publication 950, Introduction to Estate and Gift Taxes, IRS Form 709, United States Gift Tax Return, and Instructions for Form 709. They are available at the IRS Web site at IRS.gov in the Forms and Publications section or by calling 800-TAX-FORM (800-829-3676). Links: Publication 950, Introduction to Estate and Gift Taxes (PDF 44K) Form 709, United States Gift (And Generation-Skipping Transfer) Tax Return (PDF 300K) Form 709, Instructions (PDF 79K)

IRS Toll-Free Help

IRS Toll-Free Help

IRS Tax Tip 2007-38 Free tax help from the IRS is just a phone call away. The IRS provides various services through its toll-free telephone numbers. Some of these services are available 24 hours a day. Ask questions about your tax return. You can call the IRS Tax Help Line for Individuals at 800-829-1040, to get answers to your federal tax questions. Order forms and publications. Call 800-TAX-FORM (800-829-3676). Copies of forms, publications and other helpful information are also available around-the-clock at the IRS Web site at www.irs.gov. Check the status of your refund. Call the Refund Hotline at 800-829-1954. You will need to know your social security number, filing status and the exact whole-dollar amount of your expected refund. TeleTax, the automated refund line, at 800-829-4477 is available around the clock and will also let you check the status of your income tax refund. Automated refund information is generally available four to five weeks after you have filed your tax return. You can also check the status of your refund at IRS.gov by clicking on Where’s My Refund? This service is available 24 hours a day, seven days a week. Recorded tax information: The TeleTax line at 800-829-4477 has recorded messages covering more than 100 tax topics. Topics include items such as Who Must File?, Highlights of Tax Changes, Education Credits, Individual Retirement Accounts, Earned Income Tax Credit, What to Do if You Can't Pay Your Tax and more. Hearing-impaired individuals with access to TTY/TDD equipment. Call 800-829-4059 to ask questions or to order forms and publications. This number is answered only by TTY/TDD equipment. The IRS Tax Help Line, Refund Hotline, and the TTY/TDD numbers are available from 7:00 a.m. to 10:00 p.m. (local time) on weekdays. Alaska and Hawaii will follow Pacific Time. The services offered on the IRS toll-free lines are also available 24 hours a day 7 days a week on the Internet at IRS.gov. Links: Tax Forms and Publications Tax Topics Publication 910, Guide to Free Tax Services (PDF 636K)

Tax Rates for a Child's Investment Income

Tax Rates for a Child's Investment Income

IRS Tax Tip 2007-37 Part or all of a child's investment income may be taxed at the parent's rate rather than the child's rate. Because a parent's taxable income is usually higher than a child's income, the parent's top tax rate will often be higher as well. This special method of figuring the federal income tax only applies to children who are under the age of 18. For 2006, it applies if the child's total investment income for the year was more than $1,700. Investment income includes interest, dividends, capital gains, and other unearned income. To figure the child's tax using this method, fill out Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,700, and attach it to the child's federal income tax return. Alternatively, a parent can, in many cases, choose to report the child's investment income on the parent's own tax return. Generally speaking, this option is available if the child's income consists entirely of interest and dividends (including capital gain distributions) and the amount received is less than $8,500. However, choosing this option may reduce certain credits or deductions that parents may claim. These special tax rules do not apply to investment income received by children who are age 18 and over. In addition, wages and other earned income received by a child of any age are taxed at the child's normal rate. More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Form 8615 are available on the IRS Web site at IRS.gov in the Forms and Publications section. You may also order them by calling the IRS at 800-TAX-FORM (800-829-3676). Links: Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,600 (PDF 49K) Form 8615, Instructions (PDF 24K) Form 8814, Parent's Election to Report Child's Interest and Dividends (PDF 43K) Publication 929, Tax Rules for Children and Dependents (PDF 220K)

Income from Foreign Source

Income from Foreign Sources

IRS Tax Tip 2007-36 Many United States citizens earn money from foreign sources. These taxpayers must remember that they must report all such income on their tax return, unless it is exempt under federal law. U.S. citizens are taxed on their worldwide income. This applies whether a person lives inside or outside the United States. The foreign income rule also applies regardless of whether or not the person receives a Form W-2, Wage and Tax Statement, or a Form 1099 (information return). Foreign source income includes earned and unearned income, such as: Wages and tips Interest Dividends Capital Gains Pensions Rents Royalties. An important point to remember is that citizens living outside the U.S. may be able to exclude up to $82,400 of their 2006 foreign source income if they meet certain requirements. However, the exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S. For more information, check out IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. It’s available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (PDF 348K)

Taxes on Early Distributions from Retirement Plans

Taxes on Early Distributions from Retirement Plans

IRS Tax Tip 2007-35 Payments that you receive from your IRA or qualified retirement plan before you reach age 59½ are normally called ‘early’ or ‘premature’ distributions. These funds are subject to an additional 10 percent tax and must be reported to the IRS. There are a number of exceptions to the age 59½ rule if you make an early withdrawal. Some exceptions apply only to IRAs, some only to qualified retirement plans, and some to both. In addition to the 10 percent tax on early distributions, you generally must include the distribution in your income. If you received a distribution from an IRA, other than a Roth IRA, to which you made any nondeductible contributions, the portion of the distribution attributable to those contributions is not taxed. If you received a qualified distribution from a Roth IRA, none of the distribution is taxed. If you received a distribution from any other qualified retirement plan, the portion of the distribution attributable to your cost, not including pre-tax contributions, is not taxed. A ‘rollover” is a way to avoid paying tax on early distributions. Generally, a rollover is a tax-free transfer of cash or other assets from an IRA or qualified retirement plan to another eligible retirement plan. An eligible retirement plan is a traditional IRA, a qualified retirement plan, or a qualified annuity plan. You must complete the rollover within 60 days after the day you received the distribution. The amount you roll over is generally taxed when the new plan pays you or your beneficiary. For more information see IRS Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), Publication 575, Pension and Annuity Income, or Publication 590, Individual Retirement Arrangements (IRAs), available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Publication 575, Pensions and Annuities (PDF 227K) Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K) Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts (PDF 72K) Form 5329 Instructions (PDF 40K)

Tax Facts About Capital Gains and Losses

Tax Facts About Capital Gains and Losses

IRS TAX TIP 2007-34 Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, the difference between the amounts you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only capital losses on investment property, not personal property. Here are a few tax facts about capital gains and losses: Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss. The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2006, the maximum capital gains rates are 5%, 15%, 25% or 28%. If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately). For more information about reporting capital gains and losses, get Publication 17, Your Federal Income Tax, and Publication 550, Investment Income and Expenses, available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Publication 17, Your Federal Income Tax (PDF 2015.9K) Publication 550, Investment Income and Expenses (PDF 516K) Publication 544, Sales and Other Dispositions of Assets (PDF 321K) Publication 505, Tax Withholding and Estimated Tax (PDF 367K) Publication 564, Mutual Fund Distributions (PDF 178K) Publication 547, Casualties, Disasters, and Thefts (PDF 133K) Publication 527, Residential Rental Property (Including Rental of Vacation Homes) (PDF 187K)

Gambling Income and Losses

Gambling Income and Losses

IRS TAX TIP 2007-33 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. Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 27, 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). Links: 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

Tips are Subject to Taxes

Tips are Subject to Taxes

IRS TAX TIP 2007-32 Do you work at a hair salon, barber shop, casino, golf course, hotel or restaurant or drive a taxicab? The tip income you receive as an employee from those and other services is taxable income. Here are some tips about tips: Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes, and may be subject to state income tax as well. The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to federal income tax. Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees. Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income. For a free copy of Publication 1244, call the IRS toll free at 800-TAX-FORM (800-829-3676). For more information, check out IRS Publication 531, Reporting Tip Income, or Publication 3148, Tips on Tips. They are available by calling 800-TAX-FORM (800-829-3676) or by going to the IRS Web site at IRS.gov. Links: Publication 1244, Employee's Daily Record of Tips and Report of Tips to Employer (PDF 38K) Publication 531, Reporting Tip Income (PDF 93K) Publication 3148, Tips on Tips for Employees (PDF 629K) Tax Topic 402, Tips

Paying or Receiving Alimony?

Paying or Receiving Alimony?

IRS TAX TIP 2007-31 If you were recently divorced and are paying or receiving alimony under a divorce decree or agreement, you need to consider the tax implication for your 2006 federal income tax return. Here are the general guidelines: Alimony payments received from your spouse or former spouse are taxable to you in the year you receive them. Because no taxes are withheld from alimony payments, you may need to make estimated tax payments or increase the amount withheld from your paycheck. Alimony payments you make under a divorce or separation instrument are deductible if certain requirements are met. Any payments not required by such a decree or agreement do not qualify as deductible alimony payments. Child support is never deductible. If your divorce decree or other written instrument or agreement calls for alimony and child support, and you pay less than the total required, the payments apply first to child support. Any remaining amount is then considered alimony. If you paid or received alimony you must use Form 1040. You cannot use Form 1040A or Form 1040EZ. If you received alimony, you must give the person who paid the alimony your social security number or you may have to pay a $50 penalty. For more information, including rules for divorces and separations before 1985, get Publication 504, Divorced or Separated Individuals, available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Publication 504, Divorced or Separated Individuals (PDF 171K) Tax Topic 406, Alimony Received Tax Topic 452, Alimony Paid

Are Your Social Security Benefits Taxable?

Are Your Social Security Benefits Taxable?

IRS TAX TIP 2007-30 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, 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. The 2006 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). Links: Form 1040 Instructions (PDF 557K) Form 1040A Instructions (PDF 428K) Form W-4V, Voluntary Withholding Request (PDF 31K) Publication 915, Social Security and Equivalent Railroad Retirement Benefits (PDF 167K) Social Security Administration

What Income is Taxable? Nontaxable?

What Income is Taxable? Nontaxable?

IRS Tax Tip 2007-29 Generally, most income you receive is taxable. But there are some situations when certain types of income are partially taxed or not taxed at all. A complete list is available in IRS Publication 525, Taxable and Nontaxable Income. 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 Tax Exempt Interest from municipal bonds and tax exempt bond mutual funds. Although this interest is not taxable it must be reported on line 8b of Form 1040 or 1040A. 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. These examples are not all-inclusive. For more information, visit the IRS Web site at IRS.gov to view or download Publication 525 from the Forms and Publications section or call 800-TAX-FORM (800-829-3676). Links: Publication 525, Taxable and Nontaxable Income (PDF 290K)

More Direct Deposit Options- Split Your Refund

More Direct Deposit Options- Split Your Refund

IRS Tax Tip 2007-28 Starting in 2007, taxpayers have more choices and flexibility for the direct deposit of 2006 federal income tax refunds. For the first time, taxpayers can split refunds among up to three accounts held by as many as three different U.S. financial institutions, such as banks, mutual funds, brokerage firms or credit unions. The split-refund option is available to taxpayers who choose direct deposit regardless of whether they filed the original returns on paper or in electronic format using Form 1040, 1040A, 1040EZ, 1040-PR, 1040NR, 1040NR-EZ or 1040-SS. However, taxpayers filing Form 1040-EZ-T, Request for Refund of Federal Telephone Excise Tax, or Form 8379, Injured Spouse Allocation, cannot opt to split their refund. To split direct-deposit refunds among two or three accounts or financial institutions, taxpayers should complete new Form 8888, Direct Deposit of Refund to More Than One Account. Taxpayers can continue, though, to use the direct deposit line on Form 1040 to electronically send their refunds to one account. The IRS will electronically deposit refunds to taxpayers’ accounts held by a U.S. financial institution, providing that an accurate account number and American Bankers Association (ABA) routing number is supplied and the financial institution accepts direct deposits for the type of accounts designated. Taxpayers should verify routing and account numbers with their financial institutions. IRS assumes no responsibility for taxpayer or preparer error. Note that taxpayers can do things much faster electronically than by paper. For those filing their taxes electronically, the refund is deposited in their account within two weeks. A paper check refund takes three weeks. Those filing taxes on paper, the process is longer. They get their direct deposit refund within four to six weeks or paper checks within six weeks. By using the IRS’ popular Where’s My Refund? Feature, taxpayers can track their refunds. Taxpayers can access Where’s My Refund? online at IRS.gov or by calling 800-829-1954. Links: Split Your Refund Among up to three accounts with Direct Deposit Where's My Refund?

Can You Use Schedule C-EZ?

Can You Use Schedule C-EZ?

IRS Tax Tip 2007-27 Your business may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business profit and loss on your 2006 Form 1040 federal income tax return. The maximum deductible business expense threshold for filing Schedule C-EZ is $5,000. Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship). Schedule C-EZ: • Has an instruction page and a one-page form with three short parts — General Information, Figure Your Net Profit, and Information on Your Vehicle. • Includes a simple worksheet for figuring the amount of deductible expenses. If that amount does not exceed $5,000, and if your business did not have a net loss, you should be able to use the C-EZ instead of Schedule C. Schedule C: • Is two pages long and is divided into five parts — Income, Expenses, Cost of Goods Sold, Information on Your Vehicle, and Other Expenses. • Requires more detailed information than the C-EZ. The instruction package is nine pages long. • Must be used when deductible business expenses exceed $5,000 and/or when a business has a net loss. Using Schedule C-EZ can save time and money and reduce paperwork burden for newly-eligible businesses. More information about Schedule C-EZ and reporting net profit for sole proprietorships can be found on the IRS Web site at IRS.gov. Publication 334, Tax Guide for Small Business (PDF 407K)

Changes to Tax Law for 2006

Changes to Tax Law for 2006

IRS Tax Tip 26 Taxpayers should be aware of important changes to the tax law before they complete their 2006 federal income tax forms. Here are some changes that may affect your return. New energy-saving tax credits. A residential energy credit may be taken for amounts paid for qualified energy saving items installed in connection with a taxpayer’s home. Alternative motor vehicles. Taxpayers may be able to take a credit if they place an alternative motor vehicle (including a qualified hybrid vehicle) or alternative fuel vehicle refueling property in service. Taxpayers can no longer take a deduction for clean-fuel vehicles or refueling property. IRA deduction expanded. A taxpayer may be able to take an IRA deduction if they were covered by a retirement plan and their modified AGI is less than $85,000 if married filing jointly or qualifying widow(er). o For purposes of taking an IRA deduction, earned income includes any nontaxablecombat pay received by a member of the U.S. Armed Forces. New rules on donations to charity. To be deductible, clothing and household items donated to charity after Aug. 17, 2006, must be in good used condition or better. However, this rule does not apply to a contribution of any single item for which a deduction of more than $500 is claimed and for which the taxpayer includes a qualified appraisal and Form 8283 with the taxpayer’s return. IRA distribution for charitable purposes. A distribution from an IRA that was made directly by the trustee to a qualified charitable organization may be nontaxable if the taxpayer was at least 70 ½ when the distribution was made. Tax on children’s income. Form 8615 must be used to figure the tax of children under 18 with investment income of more than $1,700. The election to report a child’s investment income on a parent’s return and the special rule for when a child must file Form 6251 now apply to children under age 18. Extenders Legislation. This new legislation affects a number of areas, most significantly state and local sales tax, higher education tuition and fees, and educator expenses. See IRS.gov for specific instructions on how to claim these deductions on paper tax returns (most electronic filing software packages will automatically take these late changes into account). Also new this year, two changes may affect the amount of your refund or the way in which you choose to receive your refund. Telephone Excise Tax Refund. Individual taxpayers will be able to request a refund if they paid the federal excise tax on long-distance or bundled service. New Split Refund Option. Taxpayers choosing direct deposit for their refunds may be able to split their refunds among up to three accounts. For more information, visit the IRS Web site at IRS.gov. Also, see Publication 553, Highlights of 2006 Tax Changes, and the instruction book for Form 1040. Links: Telephone Excise Tax Refund Form 1040 instructions (PDF 941K)

Guidelines for Roth IRA Contributions

Guidelines for Roth IRA Contributions

IRS Tax Tip 2007-25 Taxpayers confused about whether they can contribute to a Roth IRA should consider guidelines based on the following categories: Income Limits To contribute to a Roth IRA, you must have compensation (e.g., wages, salary, tips, professional fees, bonuses). These limits vary depending on your filing and marital statuses. Age There is no age limitation for Roth IRA contributions. Contribution Limits In general, if your only IRA is a Roth IRA, the maximum 2006 contribution limit is the lesser of your taxable compensation or $4,000 ($5,000 if 50 or older). The maximum contribution limit phases out depending on your modified adjusted gross income. Spousal Roth IRA You can make contributions to a Roth IRA for your spouse provided you meet the income requirements. Time Contributions to a Roth IRA can be made at any time during the year or by the due date of your return for that year (not including extensions). Roth IRA contributions are not tax deductible and are not reported on your tax return. On the other hand, you do not include in your gross income, and therefore are not taxed on, any qualified distributions or distributions that are a return of your regular Roth IRA contributions or that are rolled over into another Roth IRA. For complete information and definitions of terms, get Publication 590, Individual Retirement Arrangements. Visit the IRS Web site at IRS.gov, or call 800-TAX-FORM (800-829-3676) to request a free copy of the publication. Links: Publication 590, Individual Retirement Arrangements (PDF461K)

Missing a Form 1099?

Missing a Form 1099?

IRS TAX TIP 2007-24 If you receive certain types of income, you may get a Form 1099 for use with your federal tax return. Form 1099 is an information return provided by the payer of the income. You should receive your Form 1099-series information returns by January 31, 2007. The payer deadline to mail Form 1099-series is January 31, 2007. If you have not received an expected Form 1099 within a few days after that, contact the payer, to secure the missing information. If you still do not receive the form by February 15th, call the IRS for assistance at 800-829-1040. In some cases, you may obtain the information that would be on the Form 1099 from other sources. For example, your bank may put a summary of the interest paid during the year on the December or January statement for your savings or checking account. If you are able to get the accurate information needed to complete your tax return, you do not have to wait for the Form 1099 to arrive. Form 1099-series is not a required attachment to your return, except when you receive a Form 1099-R, or Form 1099-INT that shows federal income tax withheld. You will not usually attach a 1099-series form to your return, except when you receive a Form 1099-R that shows income tax withheld. You should keep a copy of all the 1099s that you receive with your tax records for the year. There are several different forms in this series, including: Form 1099–B, Proceeds From Broker and Barter Exchange Transactions Form 1099–DIV, Dividends and Distributions Form 1099–INT, Interest Income Form 1099–MISC, Miscellaneous Income Form 1099–OID, Original Issue Discount Form 1099–R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Form SSA–1099, Social Security Benefit Statement If you file your return and later receive a Form 1099 for income that you did not fully include on that return, you should report the income and take credit for any federal income tax withheld by filing Form 1040X, Amended U.S. Individual Income Tax Return. Form 1040X and instructions are available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K) Instructions for Form 1040X (PDF 43K) Forms and Publications

The Earned Income Tax Credit

The Earned Income Tax Credit

IRS TAX TIP 2007-23 The EITC is for people who work, but have lower incomes. If you qualify, it could be worth up to $4,500 this year. So you could pay less federal tax or even get a refund. That’s money you can use to make a difference in your life. Did you know that in Tax Year 2005, over 22 million taxpayers received $41.4 billion dollars in EITC – making the credit a great investment in the lives of those who claim it? However, the IRS estimates 20 to 25% percent of people who qualify for the credit do not claim it. At the same time, there are millions of Americans who have claimed the credit in error, many of whom simply don’t understand the criteria. This year, it’s even easier 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 about yourself, your children, your living situation and your income to find out if you qualify and to estimate the amount of your EITC. You will see the results of your responses right away. The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. If you have children, they must meet the relationship, age and residency requirements. Additionally, you must file a tax return to claim the credit. If you were employed for at least part of 2006, you may be eligible for the EITC based on these general requirements: You earned less than $12,120 ($14,120 if married filing jointly) and did not have an any qualifying children You earned less than $32,001 ($34,001 if married filing jointly) and have one qualifying child You earned less than $36,348 ($38,348 if married filing jointly) and have more than one qualifying child In addition you must meet a few basic rules: You must have a valid Social Security Number You must have earned income from employment or from self-employment. Your filing status cannot be married, filing separately. You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return. You cannot be a qualifying child of another person. If you do not have a qualifying child, you must: be age 25 but under 65 at the end of the year, live in the United States for more than half the year, and not qualify as a dependent of another person You cannot file Form 2555 or 2555-EZ (related to foreign earn income) Members of the military can elect to include their nontaxable combat pay in earned income for the earned income credit. If you make the election, you must include in earned income all nontaxable combat pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat pay, then each of you can make your own election. The amount of your nontaxable combat pay should be shown on your Form W-2 in box 12 with code Q. For more information about the EITC, go to IRS.gov or see Publication 596, Earned Income Credit, which contains eligibility criteria and instructions for claiming the tax credit. Copies of the publication are available in English and Spanish and can be found on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Free help and tax preparation is available at our Volunteer Income Tax Assistance sites or contact your tax preparer for more details. Links: 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 EITC Public Service Announcement (MP3)