The Earned Income Tax Credit

Issue Number: TT-2008-22

The EITC is for people who work, but have lower incomes. If you qualify, it could be worth up to $4,700 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 2006, over 22.4million taxpayers received $43.7 billion dollars in EITC – making the credit a great investment in the lives of those who claim it? However, the IRS estimates 20 percent 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.

It’s easy to determine whether you qualify for the EITC. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions 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 2007, you may be eligible for the EITC based on these general requirements:

• You earned less than $12,590 ($14,590 if married filing jointly) and did not have an any qualifying children
• You earned less than $33,241 ($35,241 if married filing jointly) and have one qualifying child
• You earned less than $37,783 ($39,783 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 be a qualifying child 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.

Remember that for the genuine IRS Web site be sure to use www.irs.gov. Don't be confused by internet sites that end in (dot).com, .net, .org or other designations instead of .gov.

Links:
• EITC Assistant
• Earned Income Tax Credit
• Free File
• Tax Topic 601, Earned Income Credit
• AARP Tax-Aide

EITC Awareness Kicks Off Today; Free Tax Help Available

Issue Number: IR-2008-013

WASHINGTON — The Department of Treasury, the Internal Revenue Service and scores of community partners nationwide today kicked off EITC Awareness Day to promote the refundable tax credit for low-wage workers and options for free tax preparation.

January 31 – designated as EITC Awareness Day by the IRS - also marks the deadline for employers sending Forms W-2 to employees which enable them to file their tax returns. More than 60 percent of tax returns claiming the Earned Income Tax Credit are filed during the month of February.

More than 22.4 million taxpayers received more than $43.7 billion in EITC on their 2006 federal income tax returns. The IRS estimates that approximately one in four eligible taxpayers fails to claim EITC. Eligibility requirements for the credit can be complex. Also, people who have earned income but may not have a filing requirement, non-English speakers, non-traditional families, the homeless, childless workers and rural residents are among those who may not realize they qualify.

“Ensuring that more eligible families receive their EITC is important this year, as it is every year. I encourage people all across America to check to see if you are eligible for the Earned Income Tax Credit,” said Treasury Secretary Henry M. Paulson, Jr.

“Believe it or not, there are many taxpayers who are eligible to receive the Earned Income Tax Credit, but fail to claim it simply because they are not informed. That is why the many partners involved in today’s effort – from Congress, to state local and community leaders – are so critical,” said U.S. Treasurer Anna Escobedo Cabral.

“The IRS wants all eligible taxpayers to claim this important tax credit. We also want people to know that free help is available. There are volunteers staffing free tax-help sites nationwide. Free File at IRS.gov offers free software and e-filing. And, many professional tax preparers also donate their time and services to low-income taxpayers,” said Acting IRS Commissioner Linda Stiff.

Many organizations offering free tax help also are encouraging taxpayers to save a little money or open a bank account. The IRS has helped in this effort by creating a split-refund program that allows all taxpayers to divide their refunds among up to three financial accounts, such as checking, savings and retirement.

More than 150 coalitions and partners across the nation will mark EITC Awareness Day with a series of news conferences or news releases promoting this refundable tax credit for low-wage taxpayers. These organizations operate free tax preparation sites for low-income individuals, for seniors and for other eligible taxpayers.

EITC claimants are eligible for free tax preparation services provided at nearly 12,000 volunteer sites nationwide, they can also link to Free File through IRS.gov if they wish to prepare their own returns or many tax professionals also offer free service as part of their pro bono requirements.

The credit was created in 1975 in part to offset the burden of Social Security taxes and to serve as a work incentive. The amount of the credit varies but it is generally determined by income and family size. Some states also have a local version of EITC also can increase a taxpayer’s refund.

For the 2007 tax year, the maximum credit is $4,716 for a family with two or more children; $2,853 for a family with one child and $428 if the taxpayer does not reside with children.

The maximum amount of earned income allowed is higher for tax year 2007 than it was for 2006. Please see Fact Sheet 2008-11 for all eligibility requirements. Generally, a taxpayer may be able to take the credit for tax year 2007 if the taxpayer:

has more than one qualifying child and earns less than $37,783 ($39,783 if married filing jointly),
has one qualifying child and earns less than $33,241 ($35,241 if married filing jointly), or
does not have a qualifying child and earns less than $12,590 ($14,590 if married filing jointly).
The maximum amount of investment income also increased to $2,900 for tax year 2007. For families, there also are certain requirements for child residency that must be met.

Nearly 70 percent of all EITC returns are prepared by a third party or tax professional. The IRS reminds tax professionals that they must perform due diligence when preparing an EITC tax return. To help, the IRS created an EITC Tax Preparer Electronic Toolkit which is available at www.eitcfortaxpreparers.com.

Taxpayers should seek out reputable tax preparers. People should be wary of tax preparers who offer larger refunds based on ETIC fraud or make other enticements based on EITC. False EITC returns have serious consequences and deliberate inaccuracies can result in a lengthy ban on eligibility.

This year, the IRS also will keep 70 Taxpayer Assistance Centers open the first three Saturdays during February to help prepare EITC returns. These will be located in areas underserved by volunteer tax preparation sites.

Tax preparers and taxpayers can find a wealth of information at IRS.gov. Both can use the EITC Assistant at www.irs.gov/eitc which is an easy-to-use interactive tool to help determine if the taxpayer is qualified for EITC. This step-by-step online program helps answer questions about eligibility, filing status, qualifying children and credit amount. The EITC Assistant also is available in Spanish.

In addition to on-line tools, the IRS also produces Publication 596, Earned Income Credit, which explains all the eligibility rules and also includes a worksheet to determine eligibility. The publication is available in English and Spanish.

There also is an electronic press kit for the media available at www.irs-eitc.info. This kit provides state-by-state EITC statistics; lists the states that provide local EITC benefits and provides other information of interest.

Related Items:

EITC Awareness Day Partner Activity Highlights
IR-2008-12, IRS Partners Host Free Tax Help for Low-Income, Elderly Taxpayers
Fact Sheet 2008-11, Eligibility Rules Outlined for EITC

Issue Number: TT-2008-22
Inside This Issue

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THE EARNED INCOME TAX CREDIT

The EITC is for people who work, but have lower incomes. If you qualify, it could be worth up to $4,700 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 2006, over 22.4million taxpayers received $43.7 billion dollars in EITC – making the credit a great investment in the lives of those who claim it? However, the IRS estimates 20 percent 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.

It’s easy to determine whether you qualify for the EITC. The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions 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 2007, you may be eligible for the EITC based on these general requirements:

You earned less than $12,590 ($14,590 if married filing jointly) and did not have an any qualifying children
You earned less than $33,241 ($35,241 if married filing jointly) and have one qualifying child
You earned less than $37,783 ($39,783 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 be a qualifying child 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.

Remember that for the genuine IRS Web site be sure to use www.irs.gov. Don't be confused by internet sites that end in (dot).com, .net, .org or other designations instead of .gov.

Links:

EITC Assistant
Earned Income Tax Credit
Free File
Tax Topic 601, Earned Income Credit
AARP Tax-Aide

Check Out Free File

Issue Number: TT-2008-21

If you have access to a computer and the Internet you may be eligible to prepare and file your 2007 federal tax return electronically—for free. Free File is an easy way to file your taxes and get your refund in half the time.

The IRS and the Free File Alliance, a private-sector consortium of tax software companies, continue their partnership to help taxpayers earning $54,000 or less electronically prepare and file their federal tax returns for free. Free File made its debut during the 2003 filing season as a way to provide free services to moderate and low-income taxpayers. For the 2007 filing season 97 million taxpayers will be eligible for these free tax services.

Taxpayers access Free File through the IRS Web site at IRS.gov. Each company sets its own criteria for free usage. The criteria are usually based on income, state residency and age.

Filing electronically is fast, accurate and secure. Last year almost 60% of all taxpayers filed their tax returns electronically including 3.8 million who used Free File through the IRS website. The benefits of using Free File, like those of e-file, include:

• Reduced tax return preparation time
• Faster refunds
• Accuracy of return
• Acknowledgement that the return is received

For more information on Free File, check out the IRS Web site at IRS.gov.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Link:

Free File

IRS Warns of New E-Mail and Telephone Scams Using the IRS Name; Advance Payment Scams Starting

Issue Number: IR-2008-011

WASHINGTON — The Internal Revenue Service today warned taxpayers to beware of several current e-mail and telephone scams that use the IRS name as a lure. The IRS expects such scams to continue through the end of tax return filing season and beyond.

The IRS cautioned taxpayers to be on the lookout for scams involving proposed advance payment checks. Although the government has not yet enacted an economic stimulus package in which the IRS would provide advance payments, known informally as rebates to many Americans, a scam which uses the proposed rebates as bait has already cropped up.

The goal of the scams is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft.

Typically, identity thieves use a victim’s personal and financial data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes. Most of these fraudulent activities can be committed electronically from a remote location, including overseas. Committing these activities in cyberspace allows scamsters to act quickly and cover their tracks before the victim becomes aware of the theft.

People whose identities have been stolen can spend months or years — and their hard-earned money — cleaning up the mess thieves have made of their reputations and credit records. In the meantime, victims may lose job opportunities, may be refused loans, education, housing or cars, or even get arrested for crimes they didn't commit.

The most recent scams brought to IRS attention are described below.

Rebate Phone Call

At least one scheme using the word “rebate” as part of the lure has been identified. In that scam, consumers receive a phone call from someone identifying himself as an IRS employee. The caller tells the targeted victim that he is eligible for a sizable rebate for filing his taxes early. The caller then states that he needs the target’s bank account information for the direct deposit of the rebate. If the target refuses, he is told that he cannot receive the rebate.

This phone call is a scam. No legislation has yet been enacted that would allow the IRS to provide advance payments to taxpayers or that determines the details of those payments. Moreover, the IRS does not force taxpayers to use direct deposit. Those who opt for direct deposit do so by completing the appropriate section of their tax return, with bank routing and account information, when they file; the IRS does not gather the information by telephone.

Refund e-Mail

The IRS has seen several variations of a refund-related bogus e-mail which falsely claims to come from the IRS, tells the recipient that he or she is eligible for a tax refund for a specific amount, and instructs the recipient to click on a link in the e-mail to access a refund claim form. The form asks the recipient to enter personal information that the scamsters can then use to access the e-mail recipient’s bank or credit card account.

In a new wrinkle, the current version of the refund scam includes two paragraphs that appear to be directed toward tax-exempt organizations that distribute funds to other organizations or individuals. The e-mail contains the name and supposed signature of the Director of the IRS’s Exempt Organizations business division.

This e-mail is a phony. The IRS does not send unsolicited e-mail about tax account matters to individual, business, tax-exempt or other taxpayers.

Filing a tax return is the only way to apply for a tax refund; there is no separate application form. Taxpayers who wish to find out if they are due a refund from their last annual tax return filing may use the “Where’s My Refund?” interactive application on the IRS Web site at IRS.gov. The only official IRS Web site is located at www.irs.gov.

Audit e-Mail

Another new scam brought to IRS attention contains features not seen before by the IRS. Using a technique calculated to get almost anyone’s attention, the e-mail notifies the recipient that his or her tax return will be audited. This is the first scam of which the IRS is aware that uses this to get the victim to respond.

Unusual for a scam e-mail, it may contain a salutation in the body addressed to the specific recipient by name. Most scam e-mails seen by the IRS are sent using the same technique used by spammers, in which hundreds of thousands of messages are sent to potential victims based on Internet address. Because of the volume, the typical scam e-mail is not personalized.

This e-mail instructs the recipient to click on links to complete forms with personal and account information, which the scammers will use to commit identity theft.

This e-mail is a phony. The IRS does not send unsolicited, tax-account related e-mails to taxpayers.

Changes to Tax Law e-Mail

This bogus e-mail is addressed to businesses, accountants and “Treasury” managers. It instructs them to download information on tax law changes by clicking on a series of links to publications on businesses, estate taxes, excise taxes, exempt organizations and IRAs and other retirement plans. The IRS believes that clicking on a link downloads malware onto the recipient’s computer. Malware is malicious code that can take over the victim’s computer hard drive, giving someone remote access to the computer, or it could look for passwords and other information and send them to the scamster. There are other types of malware, as well.

The urls contained in the link are not legitimate IRS Web addresses. All IRS.gov Web page addresses begin with http://www.irs.gov/.

Paper Check Phone Call

In a current telephone scam, a caller claims to be an IRS employee who is calling because the IRS sent a check to the individual being called. The caller states that because the check has not been cashed, the IRS wants to verify the individual’s bank account number. The caller may have a foreign accent.

In reality, the IRS leaves it entirely up to the individual to choose to cash or not cash a paper check. The IRS has no business need to know, and does not ask for, bank account or similar information, except when taxpayers indicate on their tax return that they are opting for the direct electronic deposit of their refund. In that case, however, it is the individual’s responsibility to provide the IRS with the correct bank routing and account numbers on the tax return; the IRS does not contact taxpayers to verify the information.

What to Do

Anyone wishing to access the IRS Web site should initiate contact by typing the IRS.gov address into their Internet address window, rather than clicking on a link in an e-mail or opening an attachment.

Those who have received a questionable e-mail claiming to come from the IRS may forward it to a mailbox the IRS has established to receive such e-mails, phishing@irs.gov, using instructions contained in an article on IRS.gov titled “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.” Following the instructions will help the IRS track the suspicious e-mail to its origins and shut down the scam. Find the article by visiting IRS.gov and entering the words “suspicious e-mails” into the search box in the upper right corner of the front page.

Those who have received a questionable telephone call that claims to come from the IRS may also use the phishing@irs.gov mailbox to notify the IRS of the scam.

The IRS has issued previous warnings on scams that use the IRS to lure victims into believing the scam is legitimate. More information on identity theft, phishing and telephone scams using the IRS name, logo or spoofed (copied) Web site is available on the IRS Web site at IRS.gov. Enter the terms “phishing,” “identity theft” or “e-mail scams” into the search box in the upper right corner of the front page.

Related Items:

FS-2008-9, Identity Theft E-Mails Scams a Growing Problem
IR-2007-109, IRS Warns Taxpayers of New E-mail Scams
Suspicious e-Mails and Identity Theft

e-file – A SMART WAY TO DO YOUR TAXES

Every year, more taxpayers discover the benefits of filing their tax return electronically. Whether you use a professional tax preparer authorized by the IRS or do it yourself from a home computer, there are many reasons to consider e-filing your tax return this year.

• Fast. No more last minute trips to the Post Office – with e-file, just hit Send!
• Accurate. e-file checks for errors and necessary information, increasing the accuracy of your return and reducing the need for correspondence with the IRS to clarify errors or omissions.
• Easy. e-file leads you step-by-step. You can usually file a state tax return at the same time you electronically file your federal return.
• Quicker Refunds. Generally, when you use e-file, your refund will be issued in about half the time it would take if you filed a paper return. Those who choose Direct Deposit will get their refund in even less time.
• Peace of mind. With e-file, once the return is accepted for processing, the taxpayer is notified electronically, acknowledging the IRS received the return.
• Payment options. With e-file, you can file your return early but wait to pay any balance due by the April deadline. You can also pay electronically, using a credit card, electronic funds withdrawal or, in some cases, the Electronic Federal Tax Payment System.

The IRS is again offering eligible taxpayers the opportunity to electronically prepare and file their tax returns for free through Free File, a program offered in partnership between the IRS and private-sector software companies. For information on taxpayer eligibility, access the Free File Web page at IRS.gov.

For more information on e-file, check the IRS Web site at www.irs.gov/efile. You will also find a withholding calculator and worksheet, along with Form W-4, Employee’s Withholding Allowance Certificate, on the Web site. You may also get Form W-4 from your employer or by calling the IRS at 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.
Links:

• E-file
• Free File
• Form W-4, Employee's Withholding Allowance Certificate (PDF 31K)
• Withholding calculator
• Electronic Federal Tax Payment System

Receive Your Refund Faster with Direct Deposit

Want your refund faster? Have it deposited directly into your bank account.

More taxpayers are choosing direct deposit as the way to receive their federal tax refunds. More than 61 million people had their tax refunds deposited directly into their bank accounts in 2007. It’s a secure and convenient way to get your money in your pocket faster.

• Security. The payment is secure — there is no check to get lost. Each year thousands of refund checks are returned by the US Post Office to the IRS as undeliverable mail. Direct deposit eliminates undeliverable mail and is also the best way to guard against having a tax refund stolen.
• Convenience. There’s no special trip to the bank to deposit a check!

To request direct deposit, follow the instructions for “Refund” on your tax return.

Want an even faster refund? Try e-file! Taxpayers who file electronically get their refunds in about half the time as those who file paper returns. You can also electronically direct your refund to multiple accounts. With the new “split refund” option, taxpayers can divide their refunds among as many as three checking or savings accounts and three different U.S. financial institutions. The split refund option, using Form 8888, is also available for paper returns.

A word of caution — some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted. Also, make sure you have the correct nine-digit routing number and your account number when selecting direct deposit.

For more information about direct deposit of your tax refund and the split refund option, check the instructions for your tax form. This and other helpful tips are available in IRS Publication 17, Your Federal Income Tax. To get a copy, visit the Forms and Publications section of the IRS Web site, IRS.gov, or call 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• E-file
• Publication 17, Your Federal Income Tax (PDF 2,085K)
• 1040 Central

What To Do If You Haven't Filed Your 2006 Return

Issue Number: TT-2008-18

The failure to file a federal tax return can be costly — whether you end up owing more or missing out on a refund.

There are several reasons taxpayers don’t file their taxes. Perhaps you didn’t know you were required to file. Maybe, you just kept putting it off and simply forgot. Whatever the reason, it’s best to file your return as soon as possible. If you need help, even with a late return, the IRS is ready to assist you.

Here are some things to consider:

Failure to File penalty. If you owe taxes, a delay in filing may result in a "failure to file" penalty, also known as the “late filing” penalty, and interest charges. The longer you delay, the larger these charges grow.

Losing your Refund. There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether. The deadline for claiming refunds is three years after the return due date. For example, the last day for claiming a refund for your 2004 tax return will be April 15, 2008.

EITC. Individuals who are entitled to the Earned Income Tax Credit must file their return to claim the credit even if they are not otherwise required to file.
Whether or not you must file a tax return will depend upon a number of factors, including your filing status, age, and gross income.

If your income was $40,000 or less, your local Taxpayer Assistance Center may be able to assist you in preparing your prior year return. You can locate your nearest center at http://www/irs.gov/localcontacts/index.html. For more information on how to file a tax return for a prior year, visit the IRS Web site at IRS.gov or call the IRS Tax Help Line for Individuals at 800-829-1040.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

Earned Income Tax Credit
Previous Years' Forms

Tips for Recently Married or Divorced Taxpayers

Newlyweds and the recently divorced should ensure the name on their tax return matches the name registered with the Social Security Administration (SSA). A mismatch could unexpectedly delay a tax refund.

• For recently married taxpayers, the tax scenario begins when the bride says "I do." If she takes her husband's last name, but doesn't tell the SSA about the name change, a complication may result. If the couple files a joint tax return with her new name, the IRS computers will not be able to match the new name with the Social Security Number (SSN).

• After a divorce, a woman who had taken her husband’s name and made that change known to the SSA should contact the SSA if she reassumes a previous name.

It's easy to inform the SSA of a name change by filing Form SS-5 at a local SSA office. It usually takes two weeks to have the change verified. The form is available on the agency's Web site, www.socialsecurity.gov, by calling 800-772-1213 and at local offices. The SSA Web site provides the addresses of local offices.

Generally, taxpayers must provide SSNs for each dependent claimed on the tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number, or ATIN, by filing Form W-7A with the IRS. The ATIN is a temporary number used in place of the SSN on the tax return. The form is available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

Social Security Administration
Form SS-5, Application for a Social Security Card (PDF)
Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions (PDF 42K)

Moving Soon? Let the IRS Know

If you changed your home or business address, notify the IRS to ensure that you receive any refunds or correspondence. While the IRS uses the Postal Service’s change of address files to update taxpayer addresses, notifying the IRS directly is still a good idea.

There are several ways to do this.

On your tax return. You may correct the address legibly on the mailing label that comes with your tax package or write the new address in the appropriate boxes on your tax return when you file.

Form 8822. You may use Form 8822, Change of Address, to submit an address or name change at any time during the year.

Written Notification. To give written notification, write to the IRS center where you file your return and provide your new address. The addresses for the IRS centers are listed in the tax instructions. In order to process an address change, the IRS will need your full name, old and new addresses, and your social security number or employer identification number, and signatures. If you filed a joint return, you should provide the same information for both spouses. If you filed a joint return and have since established separate residences, you each should notify the IRS of your new addresses.

Verbal Notification. If an IRS employee contacts you about your account, you may be able to verbally provide a change of address.

It's a good idea to notify your employer of your new address so that you can get your W-2 forms on time.

If you change your address after filing your return, don't forget to notify the post office at your old address so your mail can be forwarded.

You should also notify the IRS if you make estimated tax payments and you change your address during the year. You should mail a completed Form 8822, Change of Address, or write the IRS center where you file your return. You can continue to use your old pre-printed payment vouchers until the IRS sends you new ones. However, do not correct the address on the old voucher.

You can download Form 8822, Change of Address at the IRS Web site, IRS.gov, or order by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

Form 8822, Change of Address (PDF 60K)
Tax Topic 157, Change of Address — How to Notify IRS

Claiming Your Parents

If you’re supporting an elderly parent, you may qualify for some tax relief – if you pass Uncle Sam’s tax test. Here’s what you should know.

If you’re supporting your elderly mother or father, to get a tax deduction, you’ll need to claim them as a dependent on your tax return. For the 2007 tax year, claiming an additional personal exemption would reduce your taxable income by $3,400.

But to get this tax break, you’ll need to pass two tests:

• Income test: To qualify as a dependent, your parent’s 2007 income must be less than $3,400. Their income from Social Security does not count towards that total (disability payments don’t count either). But if your parent receives more than $3,400 from other sources, such as pension benefits, interest and dividends from investments, or withdrawals from retirement savings plans, you can’t claim them as a dependent.

• Support test: In addition to the income test, you must provide more than half of your parent’s costs for housing, food, medical care, transportation and other necessities. Even if all your mother's or dad's income is from Social Security, you can’t claim them as a dependent unless you pay more than half your parent's living expenses.

Keep in mind that your parent doesn’t have to live with you to qualify as a dependent, as long as they meet the income test and you provide more than half their financial support.

If a parent lives with you, you can include a percentage of your mortgage, utilities and other expenses in calculating how much you contribute to their support. IRS Publication 501 has a worksheet that can help you with this.

Shared support

If you share the financial responsibility for a parent with other siblings, you may be eligible for the IRS multiple-support declaration.

Here’s how it works. If one sibling is providing more than half the parent’s financial support, only that sibling can claim the parent.

But what if each sibling provides less than 50% support, but their combined assistance exceeds half the parent’s support? In that case, any sibling who provides more than 10% can claim the parent as a dependent. But only one sibling can claim the tax break in any given year. Siblings can rotate the tax break, with one claiming the parent one year and another the next. The sibling who claims the parent as a dependent will need to fill out IRS Form 2120 and file it with their tax return.

Medical deductions

If you can’t claim your parent as a dependent, you may still get a tax break for helping pay their medical costs. The IRS lets taxpayers deduct money spent on a parent’s health care and qualified long-term care services, even if the parent doesn’t qualify as a dependent.

To claim this deduction, you still must provide more than half your parent’s support, but your parent doesn’t have to meet the income test. And the deduction is limited to medical, dental and long-term care expenses that exceed 7.5% of your adjusted gross income. You can include your own medical expenses in calculating the total. See the IRS publication 502 "Medical and Dental Expenses," for details.

Gift Taxes

If you gave any one person gifts in 2007 that are 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 generally are not taxable and 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 of $12,000 to the same person without making a taxable gift.

Alternatively, with consent from your spouse, you can make a gift of up to $24,000 ($12,000 x 2) to the same person without making a taxable gift. This is commonly known as splitting gifts between spouses. Essentially, it means a gift by you or your spouse to a third person can be considered as made one-half by each of you provided there is consent by both spouses.

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).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

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)

Where's My Refund?

You filed your tax return and you're expecting a refund. You have just one question and you want the answer now - Where's My Refund?

Whether you split your refund among several accounts, opted for direct deposit to one account or asked IRS to mail you a check, you can track your refund through this secure Web site.

To get to your personal refund information, be ready to enter your:
• Social Security Number (or IRS Individual Taxpayer Identification Number)
• Filing status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er))
• Exact refund amount shown on your return

If you don’t receive your refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you can start a refund trace online.
If Where’s My Refund? shows that IRS was unable to deliver your refund, you can change your address online.
Where’s My Refund? will prompt you when these features are available for your situation.

Okay now, Where's My Refund? or ¿ Dónde está mi reembolso?

Arizona Refund Inquiry

On-Line Refund Inquiry is not available on the Arizona Department of Revenue Web site, but you can use the automated telephone inquiry system available anytime to check on your Income Tax return processing or refund status:

(602) 255-3381 (Phoenix)

or

1-800-352-4090 (Toll -free statewide, outside of Maricopa County)

Terry Goddard Warns of Medicare Phone Scam

Attorney General Terry Goddard today warned consumers of a phone solicitation scam targeting Arizona’s seniors.

The Attorney General’s Office has learned that Arizonans have received calls from scam artists claiming to be their Medicare representative. They are told that Medicare has come out with a new card that would allow them to pay a one-time fee of $389 rather than their monthly Part B premium.

The caller then asks for the person’s bank account number and Social Security number.

This is a scam! These phone calls are fraudulent and an attempt to steal personal identifying information and personal financial information. Medicare does not initiate calls or solicitations.

Goddard offered the following tips:

Be wary of callers who insist on getting your personal information. If you are being pressured, hang up.
Never give out personal information, such as your Social Security number, bank account numbers or credit card numbers, to anyone you do not know.
Report any suspicious calls to the Attorney General’s Office at 602-542-5763.
If you believe you have been a victim of fraud, please contact the Attorney General’s Office in Phoenix at 602.542.5763; in Tucson at 520.628.6504; or outside the Phoenix and Tucson metro areas at 1.800.352.8431. To file a complaint in person, the Attorney General’s Office has 36 satellite offices throughout Arizona with volunteers a vailable to help. Locations and hours are posted on the Attorney General’s Web site at www.azag.gov.

1040 Central--One Click Away

Don’t wait in line, go on-line. The IRS Web site is a great resource for answers to tax questions that arise during the filing season. Access 1040 Central at IRS.gov under the “Individuals” tab and discover user-friendly tools that will make completing your 2007 tax return quick and easy.

No matter which form you use, 1040 Central has the links you’ll need to file your tax year 2007 federal income tax return:

• Tax law changes. 1040 Central highlights changes in the tax law that directly affect taxpayers.
• Current News. Access the latest IRS News Releases, Tax Tips and customer alerts.
• Alternative Minimum Tax. Tax season will start on time for everyone except certain taxpayers affected by the Alternative Minimum Tax legislation, known as the AMT Patch, that was enacted late last year. 1040 Central has a link to check how AMT might affect your return.
• Answers to important questions. 1040 Central includes Frequently Asked Questions on a broad range of tax issues.
• Forms and Publications. 1040 Central also has links to all the tax forms, instructions and publications you may need.
• Filing Options. 1040 Central links you to information about IRS e-file and Free File. Join the millions of people who already file their tax returns electronically. IRS e-file is the most accurate way to file, the fastest way to get your refund and get your taxes where you want them – done!
• See the latest tax Fraud Alerts. Don't be taken in by scam artists. If it sounds too good to be true, it probably is. Learn how to recognize a “phishing” e-mail and what to do if you receive one.
• Check on your refund. Track your refund by clicking on the “Where’s My Refund?” link on 1040 Central.
• Details about important tax credits. Find information about special tax credits like the Earned Income Tax Credit and Saver’s Credit.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

1040 Central
Where’s My Refund?

IRS Has Free Publications

The IRS has free publications to answer just about any tax question you have. Publications on a variety of tax-related topics are available by phone or the Internet at IRS.gov. From students to seniors, first-time home buyers to landlords…everyone can find useful information in IRS forms and publications.

To find what you’re looking for, follow any one of these easy steps:

Access the IRS Web site. Click on the Forms and Publications resource page to find what you need. There’s a search feature you can use if you know the topic but not the number of the form or publication.

Read Publication 910. The Guide to Free Tax Services identifies the many IRS tax materials and services available. You’ll also find information about accessing tax materials, filing options, tax publications, tax education and assistance programs.

Call Toll-free. If you know the name or number of the form or publication you need, call the toll-free Forms and Publications telephone line at 800-TAX-FORM (800-829-3676) to place your order.

If you still can’t find the information you need, visit IRS.gov or call the IRS toll-free customer service line at 800-829-1040.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Link:

Forms and Publications

Top 5 Small Business Resolutions

TOP 5 SMALL BUSINESS RESOLUTIONS

I will look over financial statements each month and evaluate my progress.
I will join an organization that I can use to network at least twice each month.
I will give the right value to my work as well as to my family and personal life.
I will make sure I'm putting away enough for my future.
I will evaluate fiscal year 2007 so I know what I did right and what I did wrong.

Learn more...

A Year’s Worth of Intentions

Why making a resolutions list can be beneficial for all small businesses.

There’s a reason most New Year’s resolutions are forgotten by February 1. People are unrealistic when setting goals or choose ones that are out of reach—especially in the short term. But New Year’s resolutions are imperative for a small business owner, says Gene Fairbrother, Lead Small Business Consultant for the National Association for the Self-Employed, one of the largest non-profit organizations in the U.S. for the self-employed.

“Successful businesses are seldom made by one big home run. Not everyone is a Google,” he says. “It is the little steps made every week and every month that make for a successful business.”

And while Fairbrother says it’s very difficult to generalize—ten different businesses might have 20 different resolutions they should make—there are some things that every business owner benefits from. Here are Fairbrother’s top five.

“I will religiously look over financial statements each month, and evaluate my progress.”

It’s probably one of the biggest mistakes that small businesses make, says Fairbrother. “If you ask 100 people today, ‘How much did you make this month or this year,’ probably 90 percent will say, ‘Gee, I don’t know.’ Most people think this is OK, but if they asked a VP of a major company the same question and he said the same thing, they’d think he was very foolish.”

Make a date with your accounting program—or your accountant each month—and track both income and expenses. You can’t set other goals without knowing what’s coming in and going out.

“I will join an organization that I can use to network at least twice each month.”

The vast majority of businesses today involve personal services. And even those that don’t will find it hard to dispute the fact that more and more business is developed by personal relationships. “Networking is the strongest marketing effort that someone can make,” says Fairbrother. And it’s typically much cheaper than traditional marketing and advertising.

“I will establish a better work rapport with myself so I am giving the right value to my work as well as to my family and personal life.”

It’s an easy trap to fall into: if you’re self-employed you can make more money by putting more time in. So you do. But money doesn’t mean much if you have no quality of life. “Finding a balance isn’t always easy, but if you make a list of the things that are important to you and slot out time for those things—scheduling them just as you would an important business meeting—your business will benefit,” says Fairbrother, “since you’ll have more energy and drive when you’re at work.”

“I will look at what I’m taking out of my business and set up a retirement program if I don’t already have one. If I do, I will make sure I’m putting away enough for my future.”

One of the goals of owning a business—for many, at least—is cashing it out for millions at retirement time. But this dream isn’t always realistic, says Fairbrother. “You can’t take the chance on it; you shouldn’t take the chance on it,” he says. There are plenty of retirement plans out there, and there’s still time to take advantage of one for the 2007 tax year. Do some research and start socking money away today.

“I will evaluate fiscal year 2007 so I know what I did right, what I did wrong, and what I need to change or continue doing.”

This resolution is fairly simple to do. Sit down and look at your successes and failures. What do they have in common? Where are your strengths? Your weaknesses? Is there anything you regret? “Doing this will help you look ahead into the coming year,” says Fairbrother. “It’s going to show you the path you need to take.”

IRS Names Four New Frivolous Claims to Avoid

WASHINGTON — The Internal Revenue Service today issued a notice that lists four additional erroneous legal positions that taxpayers should refrain from using as an excuse to avoid paying their taxes.

An individual or group may not avoid paying their fair share of taxes by making “frivolous” legal arguments such as those listed in this notice. The IRS publicizes these frivolous claims to help taxpayers understand the law and avoid penalties.

Notice 2008-14 lists positions identified as frivolous for purposes of the penalty under section 6702 of the federal tax code for filing a frivolous tax return or submitting to the IRS a frivolous request for a collection due process hearing or application for an installment agreement, offer-in-compromise, or Taxpayer Assistance Order.

Taxpayers who file a tax return or make a submission based on a position listed in this notice are subject to a $5,000 penalty. This notice adds to the positions listed in Notice 2007-30, 2007-14 I.R.B. 883. The positions that have been added are found in paragraphs 9(g), 11, 14, and 25.

The four new frivolous claims pertain to the following:

Misinterpretation of the 9th Amendment to the U.S. Constitution regarding objections to military spending.
Erroneous claims that taxes are owed only by persons with a fiduciary relationship to the United States or the IRS.
A nonexistent “Mariner’s Tax Deduction” (or the like) related to invalid deductions for meals.
Certain instances of misuse or excessive use of the section 6421 fuels credit.
In 2006, Congress increased the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

Notice 2008-14 will be published in the Internal Revenue Bulletin 2008-4 dated Jan. 28.

Other relevant links:

IRS Debunks Frivolous Tax Arguments
The Truth About Frivolous Tax Arguments

Keeping Good Records

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good recordkeeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience.

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

In most cases, the IRS does not require you to keep records in any special manner.

Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return.

Good recordkeeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

Publication 552, Recordkeeping for Individuals ( PDF 61K )

Advice for Choosing a Tax Return Preparer

Taxpayers who pay someone to do their taxes should choose a preparer wisely. If you choose to use a paid tax preparer, it is important that you find a qualified tax professional. Taxpayers are ultimately responsible for everything on their return even when it’s prepared by someone else

The most reputable preparers will request to see your records and receipts and will ask you multiple questions to determine your total income and your qualifications for expenses, deductions, and other items. By doing so, they have your best interest in mind and are trying to help you avoid penalties, interest, or additional taxes that could result from later IRS contacts.

While most tax return preparers are professional and honest, taxpayers can use the following tips to choose a preparer who will offer the best service for their tax preparation needs.

• Ask about service fees. Avoid preparers who claim they can obtain larger refunds than other preparers, or those who guarantee a refund or base fees on a percentage of the amount of the refund.

• Plan Ahead. Choose a preparer you will be able to contact after the return is filed and one who will be responsive to your needs.

• Get References. Ask questions and get references from clients who have used the tax professional before. Were they satisfied with the service received?

• Research. Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys. Find out if the preparer belongs to a professional organization that requires its members to pursue continuing education and also holds them accountable to a code of ethics.

• Determine if the preparer’s credentials meet your needs. Does your state have licensing or registration requirements for paid preparers? Is he or she an Enrolled Agent, Certified Public Accountant, or Attorney? If so, the preparer can represent taxpayers before the IRS on all matters – including audits, collections, and appeals. Other return preparers can represent taxpayers only in audits regarding a return signed as a preparer.

You can report suspected tax fraud and abusive tax preparers to the IRS on Form 3949-A, Information Referral or by sending a letter to Internal Revenue Service, Fresno, CA 93888. Download Form 3949-A from IRS.gov or order by mail at 800-829-3676.

Links:

Form 3949-A Information Referral (PDF 94K)
Where Do You Report Suspected Fraud Activity?

Choose Your Correct Filing Status

Your federal tax filing status is based on your marital and family situation. It is an important factor in determining whether you must file a return, your standard deduction and your correct amount of tax.

Your marital status on the last day of the year determines your status for the entire year. If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.

There are five filing status options:

1. Single. Generally, if you are unmarried, divorced or legally separated according to your state law, your filing status is Single.
2. Married Filing Jointly. If you are married, you and your spouse may file a joint return. If your spouse died during the year and you did not remarry, you may still file a joint return with that spouse for the year of death.
3. Married Filing Separately. Married taxpayers may elect to file separate returns.
4. Head of Household. You generally must be unmarried and you must have paid more than half the cost of maintaining a home for you and a qualifying person.
5. Qualifying Widow(er) with Dependent Child. If your spouse died during 2005 or 2006, you have a qualifying child and meet certain other conditions; you may be able to choose this filing status.

For more information about filing status see publication 501, Exemptions, Standard Deduction, and Filing Information available on the IRS website at IRS.gov or by calling 800-TAXFORM (800-829-3676).Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Link:
• Publication 501, Exemptions, Standard Deduction, and Filing Information (PDF 196K)

SHOULD YOU ITEMIZE?

Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.

The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2007, they are:

Single $5,350
Married Filing Jointly $10,700
Head of Household $7,850
Married Filing Separately $5,350

• Some taxpayers have different standard deductions. The standard deduction is more for taxpayers age 65 or older and for those who are blind. It is generally less for those who can be claimed as a dependent on some other taxpayer’s return.
• Limited itemized deductions. Your itemized deductions may be limited if your adjusted gross income is more than $156,400 or $78,200 for Married Filing Separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest.
• Married Filing Separately. When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize and cannot claim the standard deduction.
• Some taxpayers are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months.
• Forms to use. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.
Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Publication 17, Your Federal Income Tax (PDF 2.3MB)
• Instructions for Schedule A, Itemized Deductions (PDF 77K)

CHOOSE THE SIMPLEST FEDERAL TAX FORM FOR YOUR NEEDS

The three forms used for filing individual federal income tax returns are Form 1040EZ, Form 1040A and Form 1040. If you are filing a federal income tax return on paper, use the simplest form you can. Using the simplest allowable form will reduce the chance of an error that may cost you money or delay the processing of your return.

1040EZ You may qualify to use Form 1040EZ, the simplest form, if:
• Your taxable income is below $100,000
• Your filing status is Single or Married Filing Jointly
• You (and spouse) are under age 65 and not blind
• You are not claiming any dependents
• Your interest income is $1,500 or less

1040A You may be able to use Form 1040A if:
• Your taxable income is below $100,000
• You have capital gain distributions
• You claim certain tax credits
• You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees

1040 If you cannot use either a 1040EZ or 1040A, you probably need to use Form 1040. You must file form 1040 if:
• Your taxable income is $100,000 or more
• You claim itemized deductions
• You are reporting self-employment income
• You are reporting income from sale of property

Choosing the correct tax form could mean money in your pocket. Check your tax instructions carefully. Publication 17, Your Federal Income Tax, is a helpful guide to preparing your federal tax forms. It is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov.

The address of the official IRS governmental Web site is www.irs.gov.

SHOULD YOU FILE A TAX RETURN?

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive.

For example, a married couple both under age 65 generally is not required to file until their joint income reaches $17,500. However self-employed individuals generally must file a tax return if their net income from self employment was at least $400.

Check the “individuals” section of the IRS Web site at IRS.gov or consult the instructions for form 1040, 1040A or 1040EZ for specific details that may affect your need to file a tax return with IRS this year.

Even if you do not have to file, you should file to get money back if Federal Income Tax was withheld from your pay, or you qualify for a refundable credit that may give you a refund even if you do not owe any tax. Refundable credits include:

Earned Income Tax Credit. The Earned Income Tax Credit is a federal income tax credit for eligible low-income workers. The credit reduces the amount of tax an individual owes, and may be returned in the form of a refund.

Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not use the full amount of your Child Tax Credit.

Health Coverage Tax Credit. Limited to certain individuals who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation.

For more information about filing requirements and your eligibility to receive tax credits, visit the IRS Web site at IRS.gov.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

Forms and Publications
Earned Income Tax Credit
Health Coverage Tax Credit.
1040 Central

WILL THE AMT DELAY YOUR REFUND?

This year, some early filers may have to wait a few extra weeks for their refunds. The delay is due to the Alternative Minimum Tax (AMT) legislation enacted in December.

Most tax filers will not be affected by the AMT legislation. The delays in processing and refunds will be experienced only by those who include any of the following five forms with their 2007 individual income tax return:

Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Schedule 2 (Form 1040A), Child and Dependent Care Expenses for Form 1040A Filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit
If you are filing using one of the five affected forms you won’t be able to send your return to the IRS for a few weeks until the IRS computers are reprogrammed for the late tax law change. The IRS expects to be ready for these returns by February 11.

Even if you are affected, you should remember that it is always a good idea to start working on your tax return sooner rather than later.

Filing electronically is the best option for everyone, including people impacted by the AMT changes. Whether or not your return claims an AMT related credit, filing electronically results in faster refunds and fewer errors. When you e-file combined with direct deposit you can expect your refund in as little as 10 days. Refunds from paper returns typically take four to six weeks.

For the latest information on the AMT, e-file, direct deposit and other tax matters visit the IRS website at IRS.gov.

Don't be confused by internet sites that end in “com”, “net”, “org” or any other designations. Remember, for the official IRS Web site be sure to use IRS.gov

Alternative Minimum Tax (AMT) – How It Affects Filing Season 2008

Updated Dec. 28, 2007

The upcoming tax season is expected to start on time for everyone except for certain taxpayers potentially affected by late enactment of the Alternative Minimum Tax “patch.” Following extensive work in recent weeks, the IRS expects to be able to begin processing returns for the vast majority of taxpayers in mid-January. However, as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax (AMT) legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law.

IRS has targeted Feb. 11, as the potential starting date for taxpayers to begin submitting the five-related returns affected by the legislation. The February date allows the IRS enough time to update and test its systems to accommodate the changes without major disruptions to other operations related to the tax season. See IRS News Release 2007-209 and these questions and answers for more information.

Returns that include the following forms cannot be filed until Feb. 11, 2008:

Form 8863, Education Credits
Form 5695, Residential Energy Credits
Schedule 2, Form 1040A, Child and Dependent Care Expenses for Form 1040A Filers
Form 8396, Mortgage Interest Credit
Form 8859, District of Columbia First-Time Homebuyer Credit
Check this page for further AMT-related updates.

Additional Information on the Alternative Minimum Tax

What is the AMT? The AMT came into being with the Tax Reform Act of 1969. Its purpose was to target a small number of high-income taxpayers who could claim so many deductions they owed little or no income tax. A growing number of middle-income taxpayers are discovering they are subject to the AMT.

Tax Topic 556 — Alternative Minimum Tax
Form 6251, Alternative Minimum Tax
1040 Central — Forms, publications, calculators and other information for the filing season

SEVEN WAYS TO GET A JUMP START ON YOUR TAXES

Earlier is better when it comes to working on your taxes. Taxpayers are encouraged to get a head start on tax preparation, especially since early filers avoid the last minute rush and get their refunds sooner. (Problems? Call Chuck Plake 480-517-9868)

Here are seven easy ways to get a good jump on your taxes long before the April deadline is here:

1. Gather your records in advance. Make sure you have all the records you need, including W-2s and 1099s. Don’t forget to save a copy for your files.

2. Get the right forms. They’re available around the clock on the IRS Web site, IRS.gov.

3. Take your time. Don’t forget to leave room for a coffee break when filling out your tax return as rushing can mean making a mistake.

4. Double-check your math and verify all Social Security numbers. These are among the most common errors found on tax returns. Taking care will reduce your chance of hearing from the IRS and speed up your refund.

5. E-filing is easy. E-filing catches math errors and provides confirmation your return has been received and gives you a faster refund.

6. Get the fastest refund. When you e-file file early, you receive your refund faster. When you choose direct deposit, you receive your refund sooner than waiting for a check.

7. Don’t panic. If you have a problem or a question, remember the IRS is there to help. Try the IRS Web site at IRS.gov or call the IRS customer service number at 800-829-1040.

Are you concerned that your efforts to get ready early may be affected by the Alternative Minimum Tax legislation passed by Congress in December? Most individuals will not be impacted, so it is still a good idea to get an early start on your preparations. Even if you are filing one of five forms affected by the recent legislation, the IRS expects to be ready for your return by February 11. You can review a list of the impacted forms and find out the latest news about when the IRS will be ready for your return at IRS.gov.

Links:
• Forms and Publications
• E-filing
• 1040 Central

DON'T FORGET. FOR QUESTIONS, CALL CHUCK PLAKE 480-517-9868.