Preparing Your Tax Return for Mailing

Preparing Your Tax Return for Mailing

IRS TAX TIP 2007-64 If you are mailing a paper return to the IRS, take a few minutes to make certain that all information is complete and accurate before sealing the envelope. This simple precaution could help you avoid mistakes that can delay your refund or result in correspondence from the IRS. Here are just a few items to complete prior to mailing your tax return: Sign your return. Your federal tax return is not considered a valid return unless it is signed. If you are filing a joint return, your spouse also must sign. Provide a daytime phone number. This may help speed the processing of your return if the IRS has questions about items on your return. Assemble any schedules and forms behind your Form 1040/1040A in the order of the "Attachment Sequence No." shown in the upper right hand corner of the schedule or form. Arrange any supporting statements in the same order as the schedules or forms they support and attach them last. Attach all copies of Forms W-2, W-2G and 2439 to the front of Form 1040. Also attach Form 1099-R if federal tax was withheld. Use the coded envelope included with your tax package to mail your return. If you did not receive an envelope, check the section called "Where Do You File?" in the tax instruction booklet. Don’t forget the stamp! If you are due a refund, consider direct deposit to receive your refund in the quickest and safest manner. Then make sure that the financial institution routing and account numbers you have entered are accurate. Incorrect numbers can cause the refund to be delayed or misdirected. Do you owe tax? If so, enclose a check or money order made payable to the “United States Treasury” and Form 1040-V, Payment Voucher, if used. Or, you may choose to pay by credit card by contacting one of the credit card service providers. For more information, refer to your tax instruction booklet or visit the IRS Web site at IRS.gov. Links: Where Do You File? Form 1040-V, Payment Voucher (PDF 47K)

Avoid Common Errors

Avoid Common Errors

IRS TAX TIP 2007-63 The IRS recommends reviewing your entire tax return to be sure it is accurate and complete. Even a simple mistake can cause problems which might lead to delays in processing your return and receiving your refund. Here are some ways to avoid common tax return errors: File electronically. If you choose to e-file, many of the common errors are avoided or corrected by the computer software. If your income is under $52,000 you may be able to e-file for free using IRS Free File. Use the peel-off label if you choose to mail a paper return. You may line through and make necessary corrections right on the label. Be sure to fill in your Social Security number in the box provided on the return. If you do not have a peel-off label, fill in all requested information clearly, including the Social Security numbers. Check only one filing status on the tax return and check the appropriate exemption boxes. Enter the correct Social Security numbers for each of those exemptions. Use the correct Tax Table column for your filing status. Double check all figures on the return. Math errors are common mistakes. Make sure that the financial institution routing and account numbers you have entered on the return for a direct deposit of your refund are accurate. Incorrect numbers can cause the refund to be delayed or misdirected. Sign and date the return. If filing a joint return, both spouses must sign and date the return. Attach all Forms W-2, Wage and Tax Statement, and other forms that reflect tax withheld to the front of the return. Attach all other necessary forms and schedules. Remember to request the Telephone Tax Refund. Don’t short-change yourself, most households are eligible for a special one-time only Telephone Tax Refund, typically between $30-$60, that can be requested on the 2006 tax return. Do you owe tax? If so, enclose a check or money order made payable to the “United States Treasury” and Form 1040-V, Payment Voucher, if used. Or, you may choose to pay by credit card by contacting one of the credit card service providers. For a complete checklist and a listing of some of the most common errors, see Tax Topic 303, Checklist of Common Errors When Preparing Your Tax Return, at IRS.gov, or call our TeleTax number, 800-829-4477. For more information about e-file, Free File, and the Telephone Tax Refund visit the IRS Web site at IRS.gov. Links: Form 9465, Installment Agreement Request (PDF) Form 1040-V, Payment Voucher (PDF 31K) Tax Topic 303 — Checklist of Common Errors When Preparing Your Tax Return

Tips for Last-Minute Filers

Tips for Last-Minute Filers

IRS TAX TIP 2007-62 With the tax filing deadline close at hand, the IRS offers some tips for those still working on their paper tax forms: Consider filing electronically instead of using paper tax forms Put all required Social Security numbers on the return Double-check your figures Sign your form Attach all required schedules Send your return or request an extension by the April filing deadline Choosing to e-file your tax return instead of preparing a paper tax form is the best step you can take to ensure that your return is accurate and complete. When you file a paper return, the numbers to check most carefully on the tax return are the identification numbers — usually Social Security numbers — for each person listed. This includes the taxpayer, spouse, dependents and persons listed in relation to claims for the Child Care or Earned Income Tax Credits. Missing, incorrect or illegible Social Security Numbers can delay or reduce a tax refund. Taxpayers filing paper returns should also double-check that they have correctly figured the refund or balance due and have used the right figure from the tax table. Taxpayers must sign and date their returns. Both spouses must sign a joint return, even if only one had income. Anyone paid to prepare a return must also sign it. People sending a payment should make the check out to “United States Treasury” and should enclose it with, but not attach it to, the tax return or the Form 1040-V, Payment Voucher, if used. The check should include the taxpayer’s Social Security number, daytime phone number, the tax year and the type of form filed. By the April due date, taxpayers should either file a return or request an extension of time to file. Remember, the extension of time to file is not an extension of time to pay. Forms and publications and helpful information on a variety of tax subjects are available around the clock on the IRS Web site at IRS.gov. Links: Form 9465, Installment Agreement Request (PDF 100K) Form 1040-V, Payment Voucher (PDF 47K) Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (PDF 50K) Official Payments Corporation Link2Gov

You Can Still Make a 2006 IRA Contribution

You Can Still Make a 2006 IRA Contribution

IRS TAX TIP 2007-61 If you haven’t contributed funds to an Individual Retirement Arrangement for tax year 2006, or if you’ve put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April due date for filing your tax return for 2006, not including extensions. Be sure to tell the IRA trustee that the contribution is for 2006. Otherwise, the trustee may report the contribution as being for 2007 when they get your funds. Generally, you can contribute up to $4,000 of your earnings for 2006 or up to $5,000 if you are age 50 or older in 2006. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts. Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you — or your spouse, if filing jointly — are covered by an employer’s pension plan. Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution. You can file your tax return claiming a traditional IRA contribution before the contribution is actually made. However, the contribution must be made by the due date of your return, not including extensions. If you report a contribution to a traditional IRA on your return, but fail to contribute by the deadline, you must file an amended tax return by using Form 1040X, Amended U.S. Individual Income Tax Return. You must add the amount you deducted to your income on the amended return and pay the additional tax accordingly. For more information get IRS publication 590, Individual Retirement Arrangements (IRAs), available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Taxpayers who need to have any IRS publication mailed to them should act soon to be sure they have the item in time to meet the April due date. Links: Publication 590, Individual Retirement Arrangements (PDF 449K) Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K) Form 1040X Instructions (PDF 45K)

How to Check on Your Tax Refund

How to Check on Your Tax Refund

IRS TAX TIP 2007-60 If you already filed your federal tax return and are due a refund, you have several options for checking on the status of your refund. One way is to use “Where’s My Refund?” an interactive tool on the IRS Web site at IRS.gov. Simple online instructions guide taxpayers through a process that checks the status of their refund after they provide identifying information shown on their tax return. Once the information is processed, you could get several responses, including: Acknowledgement that your return was received and is in processing. The mailing date or direct deposit date of your refund. Notice that the IRS could not deliver your refund due to an incorrect address. To ensure delivery, you can change or correct your address online. Where’s My Refund? is a very flexible tool. Whether you split your refund among several accounts, opt for direct deposit into one account, or ask IRS to mail you a check, Where’s My Refund? gives you online access to your refund information. You can even use Where’s My Refund? if you filed taxes only to claim a refund of the telephone excise tax. Where’s My Refund? also include links to customized information based on the taxpayer’s specific situation. The links guide taxpayers through the steps they need to take to resolve any issues that may be affecting their refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you can do a refund trace online. The “Where’s My Refund?” service meets stringent IRS security and privacy certifications. Taxpayers enter identifying information that includes their Social Security number, filing status and the exact amount of the refund shown on the return. This specific information verifies that the person is authorized to access that account and avoids an unsuccessful response. “Where’s My Refund?” is accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes. Another option for checking the status of your refund is by calling the IRS TeleTax System at 800-829-4477 or the IRS Refund Hotline at 800-829-1954. When calling, you must provide the first Social Security number shown on the return, your filing status and the amount of the refund. If the IRS processed your return, the system will tell you the date your refund will be sent. The TeleTax refund information is updated each weekend. If you do not get a date for your refund, please wait until the next week before calling back. Links: Where’s My Refund?

Coverdell Education Savings Accounts

Coverdell Education Savings Accounts

IRS TAX TIP 2007-59 A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses. The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary. Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses. Here are some things to remember about distributions from Coverdell Accounts: Distributions are tax-free as long as they are used for qualified education expenses, such as tuition, books and fees There is no tax on distributions if they are for an eligible educational institution. This includes any public, private or religious school that provides elementary or secondary education as determined under state law, and any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits If the distribution exceeds education expenses, a portion will be taxable to the beneficiary and will be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship There are contribution limits for taxpayers based on the taxpayer’s Modified Adjusted Gross Income. Contributions to a Coverdell ESA may be made until the due date of the contributor’s return, without extensions. If there is a balance in the Coverdell ESA at the time the beneficiary reaches age 30, it must be distributed within 30 days. A portion representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell ESA for another family member. For more information, see IRS Publication 970, Tax Benefits for Higher Education, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Publication 970, Tax Benefits for Higher Education (PDF 368K) Tax Topic 310 — Coverdell Education Savings Accounts IRS Tax Tip 2007-48 — Offset Education Costs

Deducting Vehicle Donations

Deducting Vehicle Donations

IRS TAX TIP 2007-58 If you donated a car or other vehicle to a qualified charitable organization in 2006 and intend to claim a deduction you should review the special rules that apply to vehicle donations. You can deduct contributions to a charity only if you itemize deductions on Schedule A of Form 1040. Generally, the amount you may deduct for a vehicle contribution depends upon what the charity does with the vehicle. Charities typically sell donated vehicles. If the vehicle is sold by the charitable organization, the deduction claimed by the donor usually may not exceed the gross proceeds from the sale. If your deduction is $250 or more you must obtain written acknowledgement of the donation from the charity. If your deduction is more than $500, this written acknowledgment or Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, must be attached to your return. Among other things, the acknowledgment generally must include the gross proceeds of the sale, the vehicle identification number, and a statement certifying the vehicle was sold in an arm's length transaction between unrelated parties. If the organization intends to make significant intervening use of the vehicle or material improvements to the vehicle, the acknowledgment must include certain certifications. If the organization intends to sell the vehicle to a needy individual at a price significantly below fair market value, or gratuitously transfers the vehicle to a needy individual, the acknowledgment must also include certain certifications. In addition, for deductions greater than $500, Form 8283, Noncash Charitable Contributions, must be attached to the return. You can generally deduct the vehicle’s fair market value, if: The organization makes significant intervening use of or materially improves the vehicle The organization gives or sells the vehicle to a needy individual at a price significantly below fair market value in direct furtherance of its charitable purpose of relieving the poor and distressed or underprivileged who are in need of a means of transportation The claimed deduction is $500 or less The fair market value cannot exceed the private party sales price listed in a used vehicle pricing guide. For more information see Publication 526, Charitable Contributions, Publication 561, Determining the Value of Donated Property, and Publication 4303, A Donor’s Guide to Car Donations, available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Search for Exempt Organizations Publication 526, Charitable Contributions (PDF 177K) Publication 561, Determining The Value of Donated Property (PDF 101K) Publication 4303, A Donor’s Guide to Car Donations (PDF) Form 8283, Noncash Charitable Contributions (PDF) Instructions for Form 8283, Noncash Charitable Contributions (PDF)

Tips for Deducting Charitable Contributions

Tips for Deducting Charitable Contributions

IRS TAX TIP 2007-57 When preparing to file your federal tax return, don’t forget your contributions to charitable organizations. Your donations could add up to a sizeable tax deduction if you itemize on IRS Form 1040, Schedule A. Here are a few tips to ensure your contributions pay off on your tax return: You cannot deduct contributions made to specific individuals, political organizations and candidates. Nor can you deduct the value of your time or services and the cost of raffles, bingo or other games of chance. To be deductible, contributions must be made to qualified organizations. Only contributions actually made during the tax year are deductible. If your contributions entitle you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received. Donations of stock or other property are usually valued at the fair market value of the property. To be deductible, clothing and household items donated after August 17, 2006, generally must be in good used condition or better. Special rules apply to donations of vehicles. For a charitable contribution of $250 or more, you can claim a deduction only if you obtain a written acknowledgment from the qualified organization. If you claim a deduction on your return of more than $500 for all contributed property, you must attach IRS Form 8283, Noncash Charitable Contributions, to your return. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which requires an appraisal by a qualified appraiser. For more information, check out Publication 526, Charitable Contributions, which is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Search for Charities or download Publication 78, Cumulative List of Organizations Publication 526, Charitable Contributions (PDF 178K) Publication 561, Determining the Value of Donated Property (PDF 101K) Form 1040, U.S. Individual Income Tax Return (PDF 176K) Schedule A, Itemized Deductions (PDF 116K) Form 8283, Noncash Charitable Contributions (PDF) Instructions for Form 8283, Noncash Charitable Contributions (PDF)

Tax Credit for Hybrid Vehicles

Tax Credit for Hybrid Vehicles

IRS TAX TIP 2007-56 If you bought a hybrid vehicle in 2006, you may be entitled to a tax credit on your 2006 return. The credit is worth as much as $3,150 for the most fuel-efficient models. The precise amount depends on the make and model of the vehicle and when the vehicle was purchased. The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit known as the Alternative Motor Vehicle Credit. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006. Hybrid vehicles have drive trains powered by both an internal combustion engine and a rechargeable battery. Many currently available hybrid vehicles may qualify for the credit. Taxpayers may claim the credit on their 2006 tax returns only if they placed a qualified hybrid vehicle in service in 2006. As of March 2007 more than 40 different models of hybrids were eligible for the credit. The credit is available only to the original purchaser of a new qualifying vehicle. If the qualifying vehicle is leased the credit is available only to the leasing company. If 60,000 vehicles of a particular model are sold, the tax credit is reduced. The full credit can be claimed up to the end of the third month after the quarter in which the manufacturer sells its 60,000th hybrid vehicle. The only producer for whom the credit has been limited is Toyota Motor Sales, USA, which includes certain Toyota and Lexus models. To find out whether your car qualifies for the hybrid tax credit and the maximum amount of that credit, you can go to the IRS.gov website and search for “qualified hybrid vehicles.” Links: Hybrid Cars and Alternative Motor Vehicles Summary of the Credit for Qualified Hybrid Vehicles Form 8910, Alternative Motor Vehicle Credit (PDF)

Deducting Costs of Refinancing Your Home

Deducting Costs of Refinancing Your Home

IRS TAX TIP 2007-55 Taxpayers who refinanced their homes may be eligible to deduct some costs associated with their loans. The term "points" is used to describe certain charges paid to obtain a home mortgage. Here are some things to remember when deducting points: Generally, for taxpayers who itemize, the points paid to obtain a home mortgage may be deductible as mortgage interest Depending on circumstances, points can be fully deductible in the year paid Points paid solely to refinance a home mortgage usually must be deducted over the life of the loan For a refinanced mortgage, the interest deduction for points is determined by dividing the points paid by the number of payments to be made over the life of the loan. This information is usually available from lenders. Taxpayers may deduct points only for those payments made in the tax year. However, if part of the refinanced mortgage money was used to finance improvements to the home and if the taxpayer meets certain other requirements, the points associated with the home improvements may be fully deductible in the year the points were paid. Also, if a homeowner is refinancing a mortgage for a second time, the balance of points paid for the first refinanced mortgage may be fully deductible at pay off. Other closing costs – such as appraisal fees and other non-interest fees – generally are not deductible. Additionally, the amount of Adjusted Gross Income can affect the amount of deductions that can be taken. For more information on deductions related to refinancing, visit IRS.gov for Tax Topics 504, Home Mortgage Points, and 505, Interest Expenses. You may also review IRS Publication 936, Home Mortgage Interest Deduction, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Tax Topic 504 — Home Mortgage Points Tax Topic 505 — Interest Expenses Publication 936, Home Mortgage Interest Deduction (PDF 130K) Publication 523, Selling Your Home (PDF 194K) Publication 527, Residential Rental Property (PDF 187K) Publication 530, Tax Information for First-Time Homeowners (PDF 120K)

Sale of Your Home

Sale of Your Home

IRS TAX TIP 2007-54 If you have a gain from the sale or exchange of your main home, you may be able to exclude from income all or part of the gain. This exclusion, up to $250,000 for individuals and $500,000 for married taxpayers filing joint returns, is allowed each time that you sell your main home, but generally no more frequently than once every two years. To qualify for this exclusion of gain, you must meet ownership and use tests. Ownership Test: During the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years. Use Test: During the 5-year period ending on the date of the sale, you must have lived in the home as your main home at least 2 years. If you and your spouse file a joint return for the year of the sale, you can exclude the gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount. If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home because of health reasons, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home. If you can exclude all the gain from the sale of your home, you do not report the gain on your federal tax return. If you cannot exclude all the gain from the sale of your home, use Schedule D, Capital Gains and Losses, of the Form 1040 to report it. For more details and information see IRS Publication 523, Selling your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Publication 523, Selling Your Home (PDF 194K) Schedule D, Capital Gains and Losses (PDF 136K) Tax Topic 701 — Sale of Your Home

Home Office Deduction

Home Office Deduction

IRS TAX TIP 2007-53 If you use a portion of your home for business purposes, you may be able to take a home office deduction whether you are self-employed or an employee. Expenses that you may be able to deduct for business use of the home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs. You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively: As your principal place of business for any trade or business As a place to meet or deal with your patients, clients or customers in the normal course of your trade or business Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses. If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it. If you are self-employed, use Form 8829 to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040. There are special rules for qualified daycare providers and for persons storing business inventory or product samples. If you are an employee, you have additional requirements to meet. The regular and exclusive business use must be for the convenience of your employer. For more information see IRS Publication 587, Business Use of Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Publication 587, Business Use of Your Home (PDF 214K) Form 8829, Expenses for Business Use of Your Home (PDF 64K) Form 8829 Instructions (PDF 29K) Schedule C, Profit or Loss from Business (PDF 111K) Schedules A&B, Itemized Deductions and Interest & Dividend Income (PDF 116K) Publication 4035, Home-Based Business Tax Avoidance Schemes (PDF 1704K)

Deduction for Educator Expense

Deduction for Educator Expense

IRS TAX TIP 2007-52 If you are an eligible educator, you may be able to deduct up to $250 of expenses you paid for purchases of books and classroom supplies. These out-of-pocket expenses may lower your 2006 tax bill even if you don’t itemize your deductions. Eligible Educator: The deduction is available if you are an eligible educator in a public or private elementary or secondary school. To be eligible, you must work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide. Qualifying Expenses: You may subtract up to $250 of qualified expenses when figuring your adjusted gross income. Qualified expenses are unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services) and supplementary materials that you use in the classroom. For courses in health and physical education, expenses for supplies are qualified expenses only if they are related to athletics. To be deductible, the qualified expenses must be more than the interest on qualified U.S. savings bonds that you excluded from income because you paid qualified higher education expenses, any distribution from a qualified tuition program that you excluded from income, and any tax-free withdrawals from your Coverdell Education savings account. The deduction for educator expenses can only be claimed on Form 1040, line 23, “Archer MSA Deduction.” Enter “E” on the dotted line to the left of that line entry if claiming educator expenses only. Enter “B” if claiming both an Archer MSA deduction and the deduction for educator expenses on Form 1040. If entering “B,” taxpayers must attach a breakdown showing the amounts claimed for each deduction. For more information about this topic, visit the IRS Web site at IRS.gov. Links: Form 1040, U.S. Individual Income Tax Return (PDF 176K) Tax Topic 458, Educator Expense Deduction Special Steps Needed for Paper 1040 Filers to Claim Late Tax Changes

Itemizers Can Deduct Certain Taxes

Itemizers Can Deduct Certain Taxes

IRS TAX TIP 2007-51 Did you know that you may be able to deduct certain taxes on your federal income tax return? You can receive these deductions if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation. There are several types of deductible non-business taxes: State and local income taxes: You can choose to claim a state and local tax deduction for either income or sales taxes on your return. You can deduct any estimated taxes paid to state or local governments and any prior year's state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use the optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate. Real estate taxes: Deductible real estate taxes are usually any state, local or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information. Personal property taxes: Personal property taxes are deductible when they are based on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year. Foreign income taxes: Generally, you can take either a deduction or a tax credit for foreign income taxes, but not for taxes paid on income that is excluded from U.S. tax. For detailed information about the sales tax deduction, consult IRS Publication 600, State and Local General Sales Taxes, and the interactive State and Local Sales Tax Calculator found on IRS.gov. More information about each of these topics is available at IRS.gov. IRS forms and publications can be downloaded from the Web site or obtained by calling 800-TAX-FORM (800-829-3676). Links: Schedules A&B, Itemized Deductions and Interest & Dividend Income (PDF 116K) Publication 17, Your Federal Income Tax (PDF 2074K) IRS Publication 600, State and Local General Sales Taxes State and Local Sales Tax Calculator

How to Avoid Tax Time Problems

How to Avoid Tax Time Problems

IRS TAX TIP 2007-50 Are you looking for ways to avoid the last-minute rush for doing your taxes? Here are some stress-relieving ideas to help you. Don’t Procrastinate Resist the temptation to put off your taxes until the very last minute. Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error. Visit the IRS Online In fiscal year 2006, there were more than 193 million visits to IRS.gov and 1.3 billion page views. Anyone with Internet access can find tax law information and answers to frequently asked tax questions. File Your Return Electronically More than 70 million taxpayers filed their returns electronically in 2006. Aside from ease of filing, IRS e-file is the fastest and most accurate way to file a tax return. If you’re due a refund, the waiting time for e-filers is half that of paper filers. Don’t Panic if You Can’t Pay. If you can’t immediately pay the taxes you owe, consider some stress-reducing alternatives. You can apply for an IRS installment agreement, using our new Web-based Online Payment Agreement application on IRS.gov. This new Web-based application allows eligible taxpayers or their authorized representatives to self-qualify, apply for, and receive immediate notification of approval. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but the processing companies charge a convenience fee. Electronic filers with a balance due can file early and authorize the government’s financial agent to take the money directly from their checking or savings account on the April due date, with no fee. Request an Extension of Time to File – But Pay on Time If the clock runs out, you can get an automatic six month extension of time to file to October 16. The extension itself does not give you more time to pay any taxes due. You will owe interest on any amount not paid by the April deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date. See IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return for a variety of easy ways to apply for an extension. Form 4868 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Taxpayers needing Form 4868 should act soon to be sure they have the item in time to meet the April deadline. Links: Official Payments Corporation Link2Gov Corporation Electronic filing Free File Electronic payment options Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (PDF)

Credit for Retirement Savings Contributions

Credit for Retirement Savings Contributions

IRS Tax Tip 2007-49 If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit. The Retirement Savings Contributions Credit applies to: Individuals with incomes up to $25,000 ($37,500 for a head of household) Married couples, filing jointly, with incomes up to $50,000 Persons who are at least age 18, not a full-time student and cannot be claimed as a dependent on another person’s return You may be able to take the credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income. When figuring this credit, you must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies for distributions starting two years before the year the credit is claimed and ending with the filing deadline for that tax return. The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a 401(k) plan are not subject to income tax until withdrawn from the plan. For more information, review IRS Publication 590, Individual Retirement Arrangements and Form 8880, Credit for Qualified Retirement Savings Contributions which include the instructions. The publication and form can be downloaded on this web site or ordered by calling 800-TAX-FORM (800-829-3676). Links: Form 8880, Credit for Qualified Retirement Savings Contributions (PDF 46K) Form 1040, U.S. Individual Income Tax Return (PDF 176K) Form 1040A, U.S. Individual Income Tax Return (PDF 136K) Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K) Tax Topic 610

Offset Education Costs

Offset Education Costs

IRS Tax Tip 2007-48 Education tax credits can help offset the costs of higher education for yourself or a dependent. The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. Because they are credits, rather than deductions, you may be able to subtract them in full dollar for dollar from your federal income tax. The Hope Credit Applies for the first two years of post-secondary education, such as college or vocational school. It does not apply to the third, fourth, or higher years of undergraduate programs, to graduate programs, or to professional-level programs. It can be worth up to $1,650 per eligible student, per year. You're allowed 100% of the first $1,100 of qualified tuition and related fees paid during the tax year, plus 50% of the next $1,100. Each student must be enrolled at least half-time for at least one academic period which began during the year. The student must be free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year. The Lifetime Learning Credit Applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills, regardless of the number of years in the program. If you qualify, your credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 per tax return. You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year. To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit. These credits are phased out for Modified Adjusted Gross Income over $45,000 ($90,000 for married filing jointly) and eliminated completely for Modified Adjusted Gross Income of $55,000 or more ($110,000 for married filing jointly). If the taxpayer is married, the credit may be claimed only on a joint return. For more information, see Publication 970, Tax Benefits for Education, which can be obtained online at this web site or by calling the IRS at 800-TAX-FORM (800-829-3676). Links: Form 8863, Education Credits (PDF 82K) Publication 970, Tax Benefits for Higher Education (PDF 368K) Tax Topic 605

Claiming the Credit for the Elderly or the Disabled

Claiming the Credit for the Elderly or the Disabled

IRS Tax Tip 2007-47 You may be able to take the Credit for the Elderly or the Disabled if you were age 65 or older at the end of 2006, or if you are retired on permanent and total disability. Like any other tax credit, it’s a dollar-for-dollar reduction of your tax bill. Eligibility for the credit and the amount of the credit is subject to several maximum income limits. You may be eligible for the credit for the elderly or the disabled if: You are a Qualified Individual, Your Adjusted Gross Income is less than specific limits ranging from $12,500 to $25,000 depending on your filing status, and Your Nontaxable Income from Social Security or other nontaxable pension is less than specific limits ranging from $3,750 to $7,500 depending on your filing status. Generally, you will satisfy the “qualified individual” requirement for this credit if you are a U.S. citizen or resident at the end of the tax year and you are age 65 or older. Taxpayers younger than 65 may qualify if they are retired on permanent and total disability, received taxable disability income, and did not reach mandatory retirement age before the beginning of the tax year. Even if you do not retire formally, you are considered retired on disability when you have stopped working because of your disability. If you are under 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. You do not have to file this statement with your tax return, but you must keep it for your records. Use Schedule R, Form 1040, or Schedule 3, Form 1040A, to compute the credit. You cannot take the credit if you file Form 1040EZ. For more information, including limits on Adjusted Gross Income and Nontaxable Income, see IRS Publication 524, Credit for the Elderly or the Disabled, which you may obtain from this web site or by calling the IRS at 800-TAX-FORM (800-829-3676). Links: Publication 524, Credit for the Elderly or the Disabled (PDF 140K) Schedule R (Form 1040), Credit for the Elderly or the Disabled (PDF 54K) Schedule R Instructions (PDF 29K) Schedule 3, Credit for the Elderly or the Disabled for Form 1040A Filers (PDF 48K) Schedule 3 Instructions (PDF 27K) Tax Topic 603

Claiming the Child and Dependent Care Credit

Claiming the Child and Dependent Care Credit

IRS Tax Tip 2007-46 If you paid someone to care for a child under age 13 or a qualifying spouse or dependent so you could work or look for work, you may be able to reduce your tax by claiming the Child and Dependent Care Credit on your federal income tax return. To qualify, your spouse, children over the age of 13, and other dependents must be physically or mentally incapable of self-care. The credit is a percentage of the amount of work-related child and dependent care expenses you paid to a care provider. The credit can be up to 35 percent of your qualifying expenses, depending upon your income. For 2006, you may use up to $3,000 of the expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals. These dollar limits must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income. To claim the credit for child and dependent care expenses, you must meet the following conditions: Income You must have earned income from wages, salaries, tips or other taxable employee compensation, or net earnings from self-employment Payee The payments for care cannot be paid to someone you can claim as your dependent on your return or to your child who is under age 19, even if they are not your dependents Filing Status Your filing status must be single, married filing jointly, head of household, or qualifying widow(er) with a dependent child Care The care must have been provided for one or more qualifying persons Home The qualifying person must have lived with you for more than half of 2006 There are some limitations on the amount of credit you can claim. If you received dependent care benefits from your employer, other rules apply. For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses. You may download these free publications on this web site or order them by calling 800-TAX-FORM (800-829-3676). Links: Publication 503, Child and Dependent Care Expenses (PDF 167K) Form W-10, Dependent Care Provider’s Identification and Certification (PDF 31K) Form 2441, Child and Dependent Care Expenses (PDF) Form 2441 Instructions (PDF 32K) Publication 17, Your Federal Income Tax (PDF 2,075K) Tax Topic 602

Claiming the Child Tax Credit

Claiming the Child Tax Credit

IRS Tax Tip 2007-45 With the Child Tax Credit, you may be able to reduce the federal income tax you owe by up to $1,000 for each qualifying child under the age of 17. A qualifying child for this credit is someone who meets the following criteria: Age Was under age 17 at the end of 2006 Relationship Is your son, daughter, adopted child, stepchild or eligible foster child, sibling, or stepsibling or a descendant of any of these individuals Citizenship Is a U.S. citizen or resident alien Support Did not provide over half of his or her support and did live with you for more than half of 2006 (note that some exceptions to this criteria exist) The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status: Married Filing Jointly $110,000 Married Filing Separately $ 55,000 All others $ 75,000 In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe. If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim some or all of the difference as an “additional” Child Tax Credit. The additional Child Tax Credit may give you a refund even if you do not owe any tax. For 2006, the total amount of the Child Tax Credit and any additional Child Tax Credit cannot exceed the maximum of $1,000 for each qualifying child. You may claim the Child Tax Credit on Form 1040 or 1040A. Details on how to compute the credit can be found in the forms’ instructions and in Publication 972, Child Tax Credit. The forms and publications are available on this web or by calling 800-TAX-FORM (800-829-3676). Links: Form 8812, Additional Child Tax Credit (PDF 56K) Publication 972, Child Tax Credit (PDF 128K) Form 1040 (PDF 176K) Form 1040 Instructions (PDF 1,101K) Form 1040A, U.S. Individual Income Tax Return (PDF 136K) Form 1040A Instructions (PDF 428K) Tax Topic 606

Beware of Tax Scams

Beware of Tax Scams

IRS Tax Tip 2007-44 Don’t fall victim to tax scams. These schemes take several shapes, ranging from promises of large tax refunds to illegal ways of “untaxing” yourself. The IRS suggests that you remember three important guidelines: • You are responsible and liable for the content of your tax return. • Anyone who promises you a bigger refund without knowing your tax situation could be misleading you, and • Never sign a tax return without looking it over to make sure it is accurate. Beware of these common schemes: Telephone Tax Refund Abuse: Encouraged by tax preparers, some individual taxpayers have requested large and apparently improper amounts for the special telephone tax refund. In some cases, taxpayers appear to be requesting a refund of the entire amount of their phone bills, rather than just the three-percent tax on long-distance and bundled service to which they are entitled. The IRS is investigating potential abuses in this area and will take prompt action against taxpayers who claim improper refund amounts and against the return preparers who help them. You may request a refund on your 2006 tax return if you paid long distance telephone excise taxes after February 28, 2003 and before August 1, 2006. For most taxpayers the telephone tax refund will be $30 to $60. Return Preparer Fraud: Dishonest tax return preparers can cause many headaches for taxpayers who fall victim to their ploys. Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares your tax return you are ultimately responsible for its accuracy and for any tax bill that may arise due to a questionable claim. Identity Theft: It pays to be choosy when it comes to disclosing personal information. Identity thieves have used stolen personal data to access financial accounts, run up charges on credit cards and apply for new loans. The IRS is aware of several identity theft scams involving taxes or scammers posing as the IRS itself. The IRS does not use e-mail to contact taxpayers about issues related to their accounts. If you have any doubt whether a contact from the IRS is authentic call 800-829-1040 to confirm it. Frivolous Arguments: Promoters have been known to make outlandish claims that the Sixteenth Amendment concerning congressional power to establish and collect income taxes was never ratified; that wages are not income; that filing a return and paying taxes are merely voluntary; and that being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. Such arguments are false and have been thrown out of court. Taxpayers have the right to contest their tax liabilities in court but no one has the right to disobey the law. For more information about these and other tax scams visit the IRS Web site at IRS.gov. Links: The Truth about Frivolous Tax Arguments Tax fraud alerts Return preparer fraud — prosecutions

Are You Eligible for a Tax Credit?

Are You Eligible for a Tax Credit?

IRS Tax Tip 2007-43 Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes. Taxpayers should consider their eligibility for the credits listed below: • Telephone Excise Tax Refund is a one-time refund for anyone who paid federal excise taxes for long-distance telephone service billed after Feb 28, 2003 and before Aug 1, 2006. A refund of previously collected telephone excise taxes may be requested on your 2006 federal income tax return. The refund request can be based on the actual tax paid or a standard refund amount ranging from $30 to $60. For more information, go to the IRS website at IRS.gov and link to Telephone Excise Tax Refund. • The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit. • The Child and Dependent Care Credit is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses. • The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit. • Adoption Credit: Adoptive parents may qualify for a tax credit of up to $10,960 for qualifying expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses. For more information, see the instructions for Form 8839, Qualified Adoption Expenses. • Credit for the Elderly or the Disabled: This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are U.S. citizens or residents. There are income limitations. For more information, see IRS Publication 524, Credit for the Elderly or the Disabled. There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check the instructions for Form 1040, the listed publications, and additional information that is available on the IRS Web site at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676). Links: 1040 Central Publication 596, Earned Income Credit (EIC) (PDF 281K) Publication 972, Child Tax Credit (PDF 128K) Publication 503, Child and Dependent Care Expenses (PDF 167K) Publication 524, Credit for the Elderly and Disabled (PDF 140K) Publication 970, Tax Benefits for Education (PDF 368K) Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K) Form 1040 Instructions (PDF 1,101K)