Help Offset Education Costs with Tax Credits and Deductions

Help Offset Education Costs with Tax Credits and Deductions

IRS Summertime Tax Tip 2007-16 It is Back-to-School time and maybe time for a tax break, too. Whether you are paying for a college education or a teacher buying items for your classroom, education credits and deductions can help lower your tax bill. The Hope Credit, Lifetime Learning Credit or the Tuition and Fees Deduction may help offset the cost of higher education for you, your spouse and your dependents. The amount of these credits and deductions are based on the qualified education expenses, such as college or vocational school tuition and enrollment fees, that you paid during the year and may be limited by your modified adjusted gross income. Room and board, insurance or personal living expenses are not considered qualified education expenses. The Hope Credit, which is up to a $1,650 tax credit per student per year, is available for only the first two years of college or vocational school. The Lifetime Learning Credit, which is up to a $2,000 tax credit per tax return, applies to undergraduate, graduate and professional degree courses and there is no limit to the number of years you can take this credit. The Tuition and Fees Deduction, which is up to a $4,000 deduction from your income, applies to undergraduate, graduate and professional degree courses. This deduction may be beneficial as the modified adjusted gross income limits are higher than the thresholds for the Hope and Lifetime Learning Credits. Are you paying Student Loan interest? You may be able to deduct up to $2,500 from your income per tax return. Student Loan interest may be deducted even while your student is in school if you are paying the interest immediately rather than deferring the payments. You cannot claim the Hope Credit, Lifetime Learning Credit and the Tuition and Fees Deduction for the same student in the same year. You will want to choose the credit or deduction that provides the greatest benefit. However, you can claim the Student Interest Loan deduction and one of these other benefits simultaneously. Students and parents of students are not the only ones who can claim a Back-to-School tax benefit. As summer comes to an end, many teachers and other eligible educators are preparing for the start of the new school year. That preparation could include purchasing items for the classroom from personal funds. Be sure to keep your receipts. These out-of-pocket classroom expenses can be deductible. As an educator, you may be able to deduct up to $250 for expenses paid for the purchase of books, computer equipment and classroom supplies. If you and your spouse are filing a joint return and both are eligible educators, the maximum deduction is $500. To find out more about the deduction for educator expenses, including who qualifies for this deduction, check out the IRS Web site at IRS.gov. In the search field, type in the key words “educator expenses.” Additional information on the Hope and Lifetime Learning Credits, Tuition and Fees Deduction and Student Loan Interest Deduction is available in Publication 970, Tax Benefits for Education, found on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Links: Tax Topic 458, Educator Expense Deduction Publication 970, Tax Benefits for Education (PDF 1285.6K)

Tax Calendar for Small Businesses on IRS.gov

Tax Calendar for Small Businesses on IRS.gov

IRS Summertime Tax Tip 2007-15 Are you running a small business? Would you like a calendar packed with valuable business tax information? The IRS is offering a free calendar to help you keep track of tax deadlines and important dates throughout the year. You might be surprised to learn that the IRS publishes a calendar, but like our popular Web site, IRS.gov, the calendar is part of our many services to help owners and operators of small businesses. The Tax Calendar for Small Businesses and Self-Employed Individuals from the Internal Revenue Service is a 12-month calendar filled with deadline reminders, important information such as changes in deductible mileage rates and business tips such as how to organize business and travel expenses. This widely used special business tax calendar provides the small business owner with a ready resource for meeting his or her tax obligations. Each page of the calendar highlights different tax issues and tips such as business planning, accounting methods, tracking your records, and protecting your information that are especially relevant to small-business owners. The calendar has room each month to add notes, state tax dates or business appointments. Topics include information on general business taxes, IRS and Social Security Administration customer assistance, electronic filing and paying options, retirement plans, business publications and forms, common tax filing dates, federal holidays and much more. The 2007 Tax Calendar for Small Businesses, IRS Publication 1518, is now available in both English and Spanish versions. For an online version of the calendar, visit the Small Business Self-Employed pages on the IRS Web site at IRS.gov. Printed copies of the tax calendar can also be ordered online or by calling (800) 829-3676. Links: Small Business and Self-Employed One-Stop Resource Small Business Products Online Ordering

New Rules May Impact Your Charitable Contributions

New Rules May Impact Your Charitable Contributions

IRS Summertime Tax Tip 2007-14 Did you make a cash contribution to your favorite charity? Have you recently spent a weekend cleaning stuff out of your garage or basement and then donated the items to a local charity? Charitable contributions can be tax deductible, but you must have the proper records to support your deduction. Due to the Pension Protection Act of 2006 the rules on recordkeeping for charitable contributions became a little more strict beginning in January 2007. To deduct a charitable cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution. Under the previous rules, records such as personal bank registers, diaries or notes made around the time of the donation could often be used as evidence of cash donations. Personal records like this are no longer sufficient. Here are some additional tips to help you deduct your charitable contributions on your 2007 federal tax return. Charitable contributions are deductible only if you itemize deductions using Form 1040. Contributions must be made to a qualified organization. Used clothing and household items such as furniture, linens and appliances must be in good condition. Vehicle donations are subject to special rules. To deduct charitable contributions of items valued at $250 or more you must have a written acknowledgment from the qualified organization. To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return. More information is available on the IRS Web site at IRS.gov. A good resource is IRS Publication 526, Charitable Contributions, found on the web site or by calling 800-TAX-FORM (800-829-3676). Links: Form 8283, Noncash Charitable Contributions Publication 526, Charitable Contributions

Business or Hobby? Answer Has Tax Implications

Business or Hobby? Answer Has Tax Implications

IRS Summertime Tax Tip 2007-13 Fishing, Gardening, Golf, Sewing, Woodworking, Horsemanship, Scrap Booking, Stamp and Coin Collecting, etc. The IRS isn’t trying to spoil your fun but if your favorite activity makes a profit every year or so, there may be tax implications that surprise you. What is a hobby? Hobbies, also called not-for-profit activities, are those activities that are not pursued for profit. What is a business? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit. If you are not sure whether you are running a business or simply enjoying a hobby, here are some of the factors you should consider: Do you run the activity in a businesslike manner? Does the time and effort you put into the activity indicate an intention to make a profit? Do you depend on income from the activity? If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business? Have you changed methods of operation to improve profitability? Do you or your advisors have the knowledge needed to carry on the activity as a successful business? Have you made a profit in similar activities in the past? Does the activity make a profit in some years? Can you expect to make a profit in the future from the appreciation of assets used in the activity? An activity is usually considered a business if it makes a profit during at least three of the last five tax years, including the current year. An exception is breeding, showing, training or racing horses. Such activity is presumed to be a business if it makes a profit during at least two of the last seven years. If you are conducting a trade or business you may deduct your ordinary and necessary expenses. An ordinary expense is an expense that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business. Losses from a not-for-profit activity (hobby) may not be used to offset other income. It is possible to claim some deductions for hobby activities as itemized deductions on your Form 1040 income tax return. However, there are special rules and limits to the deductions you can claim, and those deductions may not exceed the gross income from your hobby. Still confused? More information is available at IRS.gov. A good resource is Publication 535, Business Expenses, found on the web site or by calling 800-TAX-FORM (800-829-3676). Links: IRS Publication 535, Business Expenses

IRS Phone Forums Cover Small Business Tax Issues

IRS Phone Forums Cover Small Business Tax Issues

IRS Summertime Tax Tip 2007-12 Small businesses, payroll companies, and tax professionals can get helpful tax information from monthly phone forums (conference calls) sponsored by the Internal Revenue Service. These phone forums are free and convenient – you can call in from the comfort of your home or office. The monthly phone forums discuss topics of interest to businesses. Some of the previous issues covered are powers-of-attorney, energy credits, electronic IRS for businesses, Form 1099 and the telephone excise tax refund. A future topic will be identity theft prevention. The next phone forum will be held on August 15, 2007, and the topic will be “Payroll and Foreign Workers.” Registration for the phone forums is easy and early registration is encouraged. Phone lines are limited and slots are provided on a first-come, first-served basis. There is no registration or participation fee. Just follow the directions provided on the IRS Web site. Once you register, you will receive the call-in phone number and instructions needed to participate in the phone forum. Additional information on the upcoming phone forum and future forums can be found on the Business page of the IRS Web site at IRS.gov. In the Search field, type in key words “phone forums” and select the link titled “Small Business Tax Workshops and Phone Forums.” While you are visiting the Web site check out the numerous resources for small businesses that are also found at IRS.gov.

Do You Owe Money To The IRS?

Do You Owe Money To The IRS?

IRS Summertime Tax Tip 2007-11 The vast majority of Americans get a tax refund from the IRS each spring, but what do you do if you are one of those who have received a tax bill? What do you do if you owe money to the IRS and can’t pay? The IRS encourages you to pay the full amount of your tax liability on time. If you get a bill for late taxes you are expected to promptly pay the tax owed including any additional penalties and interest. It is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS. You can also pay the bill with your credit card. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code. You can pay the balance owed by credit card, electronic funds transfer, check, money order, cashier’s check, or cash. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also www.officialpayments.com) or Link2Gov at 888-729-1040 (also www.pay1040.com). To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System (EFTPS) by calling 800-555-4477 or 800-945-8400 (also www.eftps.gov). An installment agreement may be requested if you cannot pay the liability in full. This is an agreement between you and the IRS for the collection of the amount due in monthly installment payments. To be eligible for an installment agreement you must first file all returns that are required and be current with estimated tax payments. If you are an employer you must be current with your federal tax deposits. If you owe $25,000 or less in combined tax, penalties, and interest, you can request an installment agreement using the web-based application, Online Payment Agreement (OPA), found on the Internet at IRS.gov. Or, you can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS. The IRS will inform you within 30 days whether your request is approved, denied, or if additional information is needed. You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, may need to be completed. If an agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged. For more information about installment agreements and other payment options visit the IRS Web site at IRS.gov. IRS Publications 594 and 966 also provide additional information regarding your payment options. These publications and Form 9465 can be obtained on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676). Links: 2006 Form 433-F, Collection Information Statement IRS Publication 594, What You Should Know About The IRS Collection Process IRS Publication 966, Electronic Choices to Pay All Your Federal Taxes

Request Telephone Tax Refund By Amending Your Return

Request Telephone Tax Refund By Amending Your Return

IRS Summertime Tax Tip 2007-10 Maybe you filed your federal tax return, received a refund and even spent the last penny before realizing that you missed out on a one time opportunity to request the Telephone Excise Tax Refund! Luckily, some opportunities do call twice. You can still request the telephone tax refund even if you filed a 2006 return but missed this unique refund. Simply file an amended return using Form 1040X. The one-time refund of previously collected federal telephone excise taxes is owed to just about anyone who paid a phone bill in the last several years. You are eligible if you paid long-distance excise taxes on landline, cell phone, Voice over Internet Protocol (VoIP), or bundled service that was billed for the period after Feb 28, 2003 and before Aug 1, 2006. (Bundled service is local and long-distance under a plan that does not separately list the charges.) Eligible taxpayers have two options: requesting the actual amount of federal excise tax paid based upon your telephone bills for this period; or requesting the standard refund that ranges from $30-$60 based upon the number of exemptions you are entitled to claim on an individual income tax return. To amend your return, use the most recent version of IRS Form 1040X and enter the credit on line 15. If you have received an initial refund check you may cash it while waiting for any additional refund. Form 1040X must be filed on paper and can be printed from the IRS Web site IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676). The refund is also available for many individuals who did not have a regular 2006 income tax filing requirement through the Form 1040EZ-T. For more information on the Telephone Excise Tax Refund Form 1040EZ-T, and Form 1040X, check out IRS.gov. Links: 2006 Form 1040EZ-T 2007 Form 1040X (Rev. February 2007)