Preparing Your Tax Return for Mailing

Issue Number: TT-2008-64

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. Make sure you include your correct name, address, the Social Security number that is listed first on the tax form, daytime telephone number, tax year and form number (i.e. Form 1040). 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.

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:

• Where Do You File?
• Form 1040-V, Payment Voucher (PDF 47K)

Avoid Common Errors

Issue Number: TT-2008-63

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 common errors are avoided or corrected by the computer software. If your income is under $54,000 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.
• 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 IRS e-file and Free File 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:

• 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 Tax Filers on Economic Stimulus Payments

Issue Number: IR-2008-051

WASHINGTON — The Internal Revenue Service today urged taxpayers eligible for the economic stimulus payment to file their tax return now in order to get their payment in a timely manner.

This IRS reminder applies to taxpayers yet to file their 2007 income tax returns as well as retirees, disabled veterans, low-wage workers and others who normally are not required to file a return but who must do so this year to receive an economic stimulus payment.

“The quickest way to receive your refund and your economic stimulus payment is to file early, file electronically and use direct deposit,” said IRS Commissioner Doug Shulman.

Starting in May, the IRS will begin sending economic stimulus payments of up to $600 ($1,200 for married couples) to people who earn less than $75,000 ($150,000 for married couples). There is also is an additional payment of $300 for each eligible child younger than 17.

People who have no tax filing requirement may still be eligible to receive a payment of $300 ($600 for married couples) if they have at least $3,000 in qualifying income. Qualifying income includes any combination of earned income, nontaxable combat pay and certain benefits from Social Security, Veterans Affairs and Railroad Retirement. Individuals in this category may also be eligible for the additional $300 payment for each qualifying child.

The IRS offers these tax tips for taxpayers:

File now: Don’t wait until the 11th hour on April 15 if you want your stimulus payment on time. Your tax return must be processed by April 15 for you to receive your payment according to the payment schedule. Filing a paper return?

Write ‘Stimulus Payment’ at the top of your form ONLY if you do not normally file a tax return and are filing just to receive a stimulus payment.

Use direct deposit: It’s the best way to receive your refund and your economic stimulus payment. Even if you owe taxes, complete the blanks for direct deposit and, if you are eligible, the IRS will transmit your stimulus payment electronically. The IRS will begin making stimulus payments into direct deposit accounts on May 2. The agency will mail paper checks starting May 16.

Avoid Scams: If you receive unsolicited email or telephone calls from anyone purporting to be from the IRS, it’s probably a scam. Don’t click on any links; don’t answer any questions. Forward the emails or report the calls to phishing@irs.gov.

This year, there are millions of people who are not required to file a tax return but who must file a 2007 income tax return to let the IRS know they are eligible for a stimulus payment. Those are people who have no tax liability but who have at least $3,000 in qualifying income.

The $3,000 in qualifying income, for those who have no tax liability, must come from one or a combination of these sources: earned income (wages, tips, salary) nontaxable combat pay and certain benefits from Social Security, Veterans Affairs and Railroad Retirement. Interest income, capital gains or Supplemental Security Income payments do not qualify as income.

For people in this category, there are a few extra tips:

Super Saturday: Approximately 320 IRS offices will be open Saturday, March 29 from 9 a.m. to 3 p.m. to help prepare returns for people who are filing only so they can receive their stimulus payment. There is a state by state list of sites on IRS.gov.

Package Form 1040A-3: This also includes tax tips, a sample Form 1040A and a blank Form 1040A that can be completed and mailed to the IRS. Filing a paper return? You must write “Stimulus Payment’ at the top of the Form 1040A.

Free help is available for low-income and older Americans. Volunteer tax preparation sites can be found by calling 1-800-906-9887.

Tips for Last-Minute Filers

Issue Number: TT-2008-62

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 and Dependent Care Credit or Earned Income Tax Credit. 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.

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 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

March 29 - A day of help for millions filing returns solely to obtain stimulus payments

Issue Number: TAX TIP 2008-special edition

Are you one of millions of Americans who need to file a tax return this year solely to obtain your economic stimulus payment? The IRS has set aside Saturday, March 29 as "Super Saturday," a day of help just for you!

Approximately 320 IRS offices will provide free help preparing a simple 1040A for people who are filing solely to receive their stimulus payment. In addition hundreds of IRS partners will be opening their doors on that day offering free help too.

Most individuals do not have to do anything special this year to receive their payment. However, many Social Security, Veterans' and Railroad Retirement benefits recipients, and low-income workers who don’t normally need to file a tax return will need to file one for 2007 to receive a stimulus payment.

Filers must have received at least $3,000 of qualifying income to receive a stimulus payment. Qualifying income includes Social Security benefits, certain Railroad Retirement benefits, certain veterans’ benefits and earned income, such as income from wages, salaries, tips and self-employment.

You can find the nearest IRS office or partner site providing free assistance on Super Saturday at www.irs.gov or by calling the IRS Volunteer Site Hotline 1-800-906-9887.

The best source of information about stimulus payments is at the IRS.gov Web site. The public may also call 1-866-234-2942 on March 29 between 9 a.m. and 3 p.m. for answers to questions on stimulus payments.

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

• Super Saturday Locations for March 29
• Economic Stimulus Payments Information Center

Fake Lottery Prize Letters Abound in Seniors Strike Back Project

Consumers can also find practical tips and information online at www.azag.gov.

Prize "checks" from foreign lotteries, investment opportunities that promise triple-digit returns, "Can’t Miss" work-at-home business opportunities and "Final Warnings" for vehicle warranties.

These were some of the many fraudulent or suspicious offers that showed up in thousands of pieces of mail collected by hundreds of volunteers from around Arizona as part of Seniors Strike Back, an anti-fraud project sponsored by the Attorney General’s Office. Over 10,000 pieces of mail were collected last year by seniors and sorted into categories at events around the state. The Attorney General’s Office has taken numerous actions based on the mail collected.

"Last April, our senior volunteers saved more than 10,000 pieces of junk mail," Attorney General Terry Goddard said at Friendship Village in Tempe. "My Office identified hundreds of pieces that we are following up with letters, notices, further investigation and, in a few cases, possible lawsuits. We are also using examples collected to make Arizona seniors more aware of scams that may appear in their mailboxes."

The leading category of fraudulent letters sent to seniors was lottery and sweepstakes prize notifications. More than 500 such letters were found in the mail collected. These letters typically tell the recipient he or she has won a valuable prize through a lottery and often require the payment of a fee to claim that prize. Some letters even contained "checks" for partial payment of the winnings, asking the recipient to deposit the check and return part of it to pay for fees and expenses. One such check for $5,500 was recently mailed to Gov. Janet Napolitano.

The Office forwarded many of the "Foreign Lottery" letters to the U.S. Postal Inspectors or to the Attorney General’s Office in the state where they originated. Several victims of these lottery scams contacted the Arizona Attorney General to file complaints.

Other examples of questionable solicitations were forwarded to Arizona regulatory agencies, such as the Department of Insurance and Department of Financial Institutions.

"The work done by our volunteers and senior advocacy groups on this project was invaluable," Goddard said. "Educating Arizonans, particularly seniors, who are often the target of mail scams, about the potential fraud that may await them in their mailboxes is essential to preventing economic harm to consumers."

Hundreds of charitable solicitations were collected during Senior Strike Back, including many sent by organizations that did not appear to be registered with the Arizona Secretary of State as required by Arizona law. The Attorney General's Office sent letters to those organizations reminding them of the requirements to register all charitable organizations the Secretary of State’s Office before beginning solicitation in Arizona.

March is Arizona Consumer Protection Month, and throughout the month Goddard is encouraging people to master the financial facts of life. Savvy consumers are likely to make smarter decisions about managing their money, using credit wisely and building a solid financial foundation.


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 available to help. Locations and hours are posted on the Attorney General’s Web site at www.azag.gov.

Please visit the Web site to sign up for scam alerts and weekly messages from Attorney General Goddard. If your church or community group would like a presentation on consumer scams, identity theft or other related topics, contact the Attorney General’s Community Services Program at 602.542.2123 or communityservices@azag.gov.

Home Office Deduction

Issue Number: TT-2008-53

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.
There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

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.

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).

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 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)

Interest/Dividends/Other Types of Income: Gifts & Inheritances

Is the money received from the sale of inherited property considered taxable income?

To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of inherited property is generally one of the following:

(1) The fair market value (FMV) of the property on the date of the decedent's death.

(2) The FMV of the property on the alternate valuation date if the executor of the estate chooses to use alternate valuation. See the Form 706 Instructions, United States Estate (and Generation-Skipping Transfer) Tax Return.

If you or your spouse gave the property to the decedent within one year before the decedent's death, see Publication 551, Basis of Assets.

Report the sale on Form 1040, Schedule D (PDF), Capital Gain and Losses. If you sell the property for more than your basis, you have a taxable gain. For information on how to report the sale on Schedule D, please see Publication 550, Investment Income and Expenses.


References:

Publication 551, Basis of Assets
Tax Topic 703, Basis of Assets
Tax Topic 422, Nontaxable income

How to Avoid Tax Time Problems

Issue Number: TT-2008-50

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 2007, there were more than 214 million visits to IRS.gov and 1.35 billion page views. Anyone with Internet access can find tax law information and answers to frequently asked tax questions.

• File Your Return Electronically Nearly 80 million taxpayers filed their returns electronically in fiscal year 2007. 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. The 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 or debit card. There is no IRS fee for credit or debit card payments, but the processing companies charge a convenience fee. Electronic filers with a balance due can also file early and pay their taxes directly from their checking or savings account on the April due date with no service 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 15. However, this extension of time to file 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.

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

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)

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:

• Does the time and effort put into the activity indicate an intention to make a profit?
• Does the taxpayer depend on income from the activity?
• If there are losses, are they due to circumstances beyond the taxpayer’s control or did they occur in the start-up phase of the business?
• Has the taxpayer changed methods of operation to improve profitability?
• Does the taxpayer or his/her advisors have the knowledge needed to carry on the activity as a successful business?
• Has the taxpayer made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Can the taxpayer 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

Offset Education Costs

Issue Number: TT-2008-48

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 a credit of 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 certain related expenses 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 $47,000 ($94,000 for married filing jointly) and eliminated completely for Modified Adjusted Gross Income of $57,000 or more ($114,000 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 IRS.gov 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:

• Form 8863, Education Credits (PDF 82K)
• Publication 970, Tax Benefits for Higher Education (PDF 368K)
• Tax Topic 605

New Form for Employees Misclassified as Independent Contractors

Issue Number: TT-2008-47

In 2007 were you an employee whose employer paid you as an independent contractor? Employees usually receive a Form W-2 while independent contractors usually receive a Form 1099-MISC.

Generally, a worker who received a Form 1099 for services provided as an independent contractor must report the income on Schedule C and pay self-employment tax on the net profit using Schedule SE. However, if the worker was actually an employee, rather than an independent contractor, the worker is not required to pay the full self-employment tax, and expenses can only be deducted as an itemized deduction.

Beginning in 2007, Form 8919, Uncollected Social Security and Medicare Tax on Wages, may be used if you were an employee and your employer did not withhold your share these taxes and you meet certain criteria. These taxes will then be credited to you social security records.


To be eligible to use Form 8919 you must meet one of several criteria indicating that you were an employee while performing these services. The criteria include:

• You filed Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, and received a determination letter from the IRS stating that you are an employee of the firm.
• You have been designated as a “section 530 employee” by your employer or by the IRS prior to January 1, 1997.
• You have received other correspondence from the IRS that states you are an employee.
• You were previously treated as an employee by the firm and you are performing services in a similar capacity and under similar direction and control.
• Your co-workers are performing similar services under similar direction and control and are treated as employees.
• Your co-workers are performing similar services under similar direction and control and filed Form SS-8 for the firm and received a determination that they were employees.
• You have filed Form SS-8 with the IRS and have not yet received a reply.
  For more information see Form 8919, Uncollected Social Security and Medicare

Tax on Wages 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.

Links:

• Form 1099-MISC, Miscellaneous Income

Claiming the Child and Dependent Care Credit

Issue Number: TT-2008-46

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 age 13 or older, 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 2007, 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 certain conditions including:

• Income - You must have earned income from wages, salaries, tips, other taxable employee compensation, or net earnings from self-employment (one spouse may be considered as having earned income if they were a full-time student or physically or mentally not able to care for himself or herself)
• 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 he or she is not your dependent
• 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 2007

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 from IRS.gov or order them 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 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

Issue Number: TT-2008-45

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 2007


• Relationship - Is your son, daughter, adopted child, stepchild or eligible foster child, brother, sister, stepbrother, stepsister, or a descendant of any of these individuals
  Citizenship - Is a U.S. citizen, U.S. national or resident of the U.S.


• Support - Did not provide over half of his or her own support, and


• Lived with you - Must have lived with you for more than half of 2007 (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 2007, 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 from 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 http://www.irs.gov/.

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

Issue Number: TT-2008-44

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:

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.

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 IRS.gov.

Links:

• The Truth about Frivolous Tax Arguments
• Tax fraud alerts
• Return preparer fraud — prosecutions

IRS Automates Installment Agreement User Fees

Issue Number: IR-2008-033

WASHINGTON —The Internal Revenue Service announced today that it has automated the user fee calculations for taxpayers entering into an installment agreement.

Previously, taxpayers were required to submit a paper Form 13844 to request a reduced user fee. Now, eligibility for reduced fees is determined automatically by the IRS.

An installment agreement allows taxpayers to pay their full tax debt in smaller, more manageable amounts, though penalties and interest continue to accrue on the unpaid portion of that debt. Taxpayers are charged a one-time fee to set up an installment agreement with the IRS. A reduced fee is available for qualifying taxpayers.

Generally, user fees are $105 for non-direct debit agreements, $52 for direct debit agreements and $45 for reinstatements. However, the fee is only $43 for taxpayers with income at or below certain U.S. Department of Health and Human Services poverty guidelines.

All taxpayers entering into an installment agreement will automatically be considered for the reduced user fee using information the IRS already has on hand from the taxpayer’s current tax return. Those who qualify will be charged the reduced $43 fee for all installment agreements established through any method. These include the Online Payment Agreement application on the IRS Website at IRS.gov, telephone, face-to-face or mail.

“This new process will improve service for and reduce the paperwork burden on taxpayers applying for an installment agreement,” said acting IRS Commissioner Linda E. Stiff. “Now, taxpayers who are eligible for the reduced fee will automatically receive it without extra work on their part.”

In some instances, taxpayers may receive an installment agreement acceptance notice from the IRS but not a reduced user fee even though they believe they still should qualify for one. In that situation, taxpayers can request a reduced fee by completing Form 13844, Application for Reduced User Fee for Installment Agreements, and submit it to the IRS within 30 days of receipt of the installment agreement acceptance notice. The IRS will evaluate the application and respond to the taxpayer. Form 13844 is available on the IRS Web site at IRS.gov or may be ordered by calling toll-free 1-800-TAX-FORM (1-800-829-3676).

The IRS reminds the public that the Online Payment Agreement application launched in 2006 provides an easy way to resolve tax liabilities and allows eligible taxpayers or their authorized representatives to self-qualify, apply for and receive immediate notification of approval.

Taxpayers must have filed all required tax returns to use the online application. Agreements can be established on existing outstanding balances or on pre-assessed amounts from current year Form 1040 liabilities.

Three payment options are available when applying online:

• Payment in full — Taxpayers pay within 10 days to avoid interest and penalties.
• Short-term extension — Taxpayers receive a short-term extension of up to 120 days. No fee is charged, but additional penalties and interest will accrue.
• Monthly payment plan — The appropriate user fee is added to the amount owed, and interest and penalty continues to accrue on the unpaid balance.

To access the online application, use the pull-down menu under “I need to...” on the front page of IRS.gov and select “Set Up a Payment Plan.” The application is available Monday through Friday from 6 a.m. to 12:30 a.m., Saturday from 6 a.m. to 10 p.m. and Sunday from 4 p.m. to midnight (all are Eastern Time).

Related Items:

• IRS Announces Installment Agreement User Fee Increases for Some Taxpayers
  Application Available for Reduced Installment Agreement User Fee
• Online Payment Agreement (OPA) Application
• Payment Plans, Installment Agreements