IRS Tax Tips

Help Offset Education Costs with Tax Credits and Deductions

noreply@blogger.com (The Tax Guy) — Mon, 13 Aug 2007 14:24:00 +0000

Help Offset Education Costs with Tax Credits and Deductions

IRS Summertime Tax Tip 2007-16

It is Back-to-School time and maybe time for a tax break, too. Whether you are paying for a college education or a teacher buying items for your classroom, education credits and deductions can help lower your tax bill.

The Hope Credit, Lifetime Learning Credit or the Tuition and Fees Deduction may help offset the cost of higher education for you, your spouse and your dependents.

The amount of these credits and deductions are based on the qualified education expenses, such as college or vocational school tuition and enrollment fees, that you paid during the year and may be limited by your modified adjusted gross income. Room and board, insurance or personal living expenses are not considered qualified education expenses.

The Hope Credit, which is up to a $1,650 tax credit per student per year, is available for only the first two years of college or vocational school.

The Lifetime Learning Credit, which is up to a $2,000 tax credit per tax return, applies to undergraduate, graduate and professional degree courses and there is no limit to the number of years you can take this credit.

The Tuition and Fees Deduction, which is up to a $4,000 deduction from your income, applies to undergraduate, graduate and professional degree courses. This deduction may be beneficial as the modified adjusted gross income limits are higher than the thresholds for the Hope and Lifetime Learning Credits.

Are you paying Student Loan interest? You may be able to deduct up to $2,500 from your income per tax return. Student Loan interest may be deducted even while your student is in school if you are paying the interest immediately rather than deferring the payments.

You cannot claim the Hope Credit, Lifetime Learning Credit and the Tuition and Fees Deduction for the same student in the same year. You will want to choose the credit or deduction that provides the greatest benefit. However, you can claim the Student Interest Loan deduction and one of these other benefits simultaneously.

Students and parents of students are not the only ones who can claim a Back-to-School tax benefit.

As summer comes to an end, many teachers and other eligible educators are preparing for the start of the new school year. That preparation could include purchasing items for the classroom from personal funds. Be sure to keep your receipts. These out-of-pocket classroom expenses can be deductible.

As an educator, you may be able to deduct up to $250 for expenses paid for the purchase of books, computer equipment and classroom supplies. If you and your spouse are filing a joint return and both are eligible educators, the maximum deduction is $500.

To find out more about the deduction for educator expenses, including who qualifies for this deduction, check out the IRS Web site at IRS.gov. In the search field, type in the key words “educator expenses.”

Additional information on the Hope and Lifetime Learning Credits, Tuition and Fees Deduction and Student Loan Interest Deduction is available in Publication 970, Tax Benefits for Education, found on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Tax Topic 458, Educator Expense Deduction
Publication 970, Tax Benefits for Education (PDF 1285.6K)

Tax Calendar for Small Businesses on IRS.gov

noreply@blogger.com (The Tax Guy) — Fri, 10 Aug 2007 16:19:00 +0000

Tax Calendar for Small Businesses on IRS.gov

IRS Summertime Tax Tip 2007-15

Are you running a small business? Would you like a calendar packed with valuable business tax information? The IRS is offering a free calendar to help you keep track of tax deadlines and important dates throughout the year.

You might be surprised to learn that the IRS publishes a calendar, but like our popular Web site, IRS.gov, the calendar is part of our many services to help owners and operators of small businesses.

The Tax Calendar for Small Businesses and Self-Employed Individuals from the Internal Revenue Service is a 12-month calendar filled with deadline reminders, important information such as changes in deductible mileage rates and business tips such as how to organize business and travel expenses.

This widely used special business tax calendar provides the small business owner with a ready resource for meeting his or her tax obligations.

Each page of the calendar highlights different tax issues and tips such as business planning, accounting methods, tracking your records, and protecting your information that are especially relevant to small-business owners. The calendar has room each month to add notes, state tax dates or business appointments.

Topics include information on general business taxes, IRS and Social Security Administration customer assistance, electronic filing and paying options, retirement plans, business publications and forms, common tax filing dates, federal holidays and much more.

The 2007 Tax Calendar for Small Businesses, IRS Publication 1518, is now available in both English and Spanish versions. For an online version of the calendar, visit the Small Business Self-Employed pages on the IRS Web site at IRS.gov. Printed copies of the tax calendar can also be ordered online or by calling (800) 829-3676.

Links:

New Rules May Impact Your Charitable Contributions

noreply@blogger.com (The Tax Guy) — Wed, 08 Aug 2007 16:18:00 +0000

New Rules May Impact Your Charitable Contributions

IRS Summertime Tax Tip 2007-14

Did you make a cash contribution to your favorite charity? Have you recently spent a weekend cleaning stuff out of your garage or basement and then donated the items to a local charity?

Charitable contributions can be tax deductible, but you must have the proper records to support your deduction. Due to the Pension Protection Act of 2006 the rules on recordkeeping for charitable contributions became a little more strict beginning in January 2007.

To deduct a charitable cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution.

Under the previous rules, records such as personal bank registers, diaries or notes made around the time of the donation could often be used as evidence of cash donations. Personal records like this are no longer sufficient.

Here are some additional tips to help you deduct your charitable contributions on your 2007 federal tax return.

Charitable contributions are deductible only if you itemize deductions using Form 1040.
Contributions must be made to a qualified organization.
Used clothing and household items such as furniture, linens and appliances must be in good condition.
Vehicle donations are subject to special rules.
To deduct charitable contributions of items valued at $250 or more you must have a written acknowledgment from the qualified organization.
To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return.

More information is available on the IRS Web site at IRS.gov. A good resource is IRS Publication 526, Charitable Contributions, found on the web site or by calling 800-TAX-FORM (800-829-3676).

Links:

Business or Hobby? Answer Has Tax Implications

noreply@blogger.com (The Tax Guy) — Mon, 06 Aug 2007 16:18:00 +0000

Business or Hobby? Answer Has Tax Implications

IRS Summertime Tax Tip 2007-13

Fishing, Gardening, Golf, Sewing, Woodworking, Horsemanship, Scrap Booking, Stamp and Coin Collecting, etc.

The IRS isn’t trying to spoil your fun but if your favorite activity makes a profit every year or so, there may be tax implications that surprise you.

What is a hobby? Hobbies, also called not-for-profit activities, are those activities that are not pursued for profit. What is a business? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.

If you are not sure whether you are running a business or simply enjoying a hobby, here are some of the factors you should consider:

Do you run the activity in a businesslike manner?
Does the time and effort you put into the activity indicate an intention to make a profit?
Do you depend on income from the activity?
If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
Have you changed methods of operation to improve profitability?
Do you or your advisors have the knowledge needed to carry on the activity as a successful business?
Have you made a profit in similar activities in the past?
Does the activity make a profit in some years?
Can you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is usually considered a business if it makes a profit during at least three of the last five tax years, including the current year.

An exception is breeding, showing, training or racing horses. Such activity is presumed to be a business if it makes a profit during at least two of the last seven years.

If you are conducting a trade or business you may deduct your ordinary and necessary expenses. An ordinary expense is an expense that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

Losses from a not-for-profit activity (hobby) may not be used to offset other income. It is possible to claim some deductions for hobby activities as itemized deductions on your Form 1040 income tax return. However, there are special rules and limits to the deductions you can claim, and those deductions may not exceed the gross income from your hobby.

Still confused? More information is available at IRS.gov. A good resource is Publication 535, Business Expenses, found on the web site or by calling 800-TAX-FORM (800-829-3676).

Links:

IRS Publication 535, Business Expenses

IRS Phone Forums Cover Small Business Tax Issues

noreply@blogger.com (The Tax Guy) — Fri, 03 Aug 2007 15:58:00 +0000

IRS Phone Forums Cover Small Business Tax Issues

IRS Summertime Tax Tip 2007-12

Small businesses, payroll companies, and tax professionals can get helpful tax information from monthly phone forums (conference calls) sponsored by the Internal Revenue Service. These phone forums are free and convenient – you can call in from the comfort of your home or office.

The monthly phone forums discuss topics of interest to businesses. Some of the previous issues covered are powers-of-attorney, energy credits, electronic IRS for businesses, Form 1099 and the telephone excise tax refund. A future topic will be identity theft prevention.

The next phone forum will be held on August 15, 2007, and the topic will be “Payroll and Foreign Workers.”

Registration for the phone forums is easy and early registration is encouraged. Phone lines are limited and slots are provided on a first-come, first-served basis. There is no registration or participation fee. Just follow the directions provided on the IRS Web site. Once you register, you will receive the call-in phone number and instructions needed to participate in the phone forum.

Additional information on the upcoming phone forum and future forums can be found on the Business page of the IRS Web site at IRS.gov. In the Search field, type in key words “phone forums” and select the link titled “Small Business Tax Workshops and Phone Forums.” While you are visiting the Web site check out the numerous resources for small businesses that are also found at IRS.gov.

Do You Owe Money To The IRS?

noreply@blogger.com (The Tax Guy) — Wed, 01 Aug 2007 14:48:00 +0000

Do You Owe Money To The IRS?

IRS Summertime Tax Tip 2007-11

The vast majority of Americans get a tax refund from the IRS each spring, but what do you do if you are one of those who have received a tax bill? What do you do if you owe money to the IRS and can’t pay?

The IRS encourages you to pay the full amount of your tax liability on time. If you get a bill for late taxes you are expected to promptly pay the tax owed including any additional penalties and interest. It is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS. You can also pay the bill with your credit card. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

You can pay the balance owed by credit card, electronic funds transfer, check, money order, cashier’s check, or cash. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also www.officialpayments.com) or Link2Gov at 888-729-1040 (also www.pay1040.com). To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System (EFTPS) by calling 800-555-4477 or 800-945-8400 (also www.eftps.gov).

An installment agreement may be requested if you cannot pay the liability in full. This is an agreement between you and the IRS for the collection of the amount due in monthly installment payments. To be eligible for an installment agreement you must first file all returns that are required and be current with estimated tax payments. If you are an employer you must be current with your federal tax deposits.

If you owe $25,000 or less in combined tax, penalties, and interest, you can request an installment agreement using the web-based application, Online Payment Agreement (OPA), found on the Internet at IRS.gov. Or, you can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS. The IRS will inform you within 30 days whether your request is approved, denied, or if additional information is needed.

You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, may need to be completed.

If an agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged.

For more information about installment agreements and other payment options visit the IRS Web site at IRS.gov. IRS Publications 594 and 966 also provide additional information regarding your payment options. These publications and Form 9465 can be obtained on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).

Links:

2006 Form 433-F, Collection Information Statement
IRS Publication 594, What You Should Know About The IRS Collection Process
IRS Publication 966, Electronic Choices to Pay All Your Federal Taxes

Request Telephone Tax Refund By Amending Your Return

noreply@blogger.com (The Tax Guy) — Mon, 30 Jul 2007 17:41:00 +0000

Request Telephone Tax Refund By Amending Your Return

IRS Summertime Tax Tip 2007-10

Maybe you filed your federal tax return, received a refund and even spent the last penny before realizing that you missed out on a one time opportunity to request the Telephone Excise Tax Refund! Luckily, some opportunities do call twice.

You can still request the telephone tax refund even if you filed a 2006 return but missed this unique refund. Simply file an amended return using Form 1040X.

The one-time refund of previously collected federal telephone excise taxes is owed to just about anyone who paid a phone bill in the last several years. You are eligible if you paid long-distance excise taxes on landline, cell phone, Voice over Internet Protocol (VoIP), or bundled service that was billed for the period after Feb 28, 2003 and before Aug 1, 2006. (Bundled service is local and long-distance under a plan that does not separately list the charges.)

Eligible taxpayers have two options: requesting the actual amount of federal excise tax paid based upon your telephone bills for this period; or requesting the standard refund that ranges from $30-$60 based upon the number of exemptions you are entitled to claim on an individual income tax return.

To amend your return, use the most recent version of IRS Form 1040X and enter the credit on line 15. If you have received an initial refund check you may cash it while waiting for any additional refund.

Form 1040X must be filed on paper and can be printed from the IRS Web site IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

The refund is also available for many individuals who did not have a regular 2006 income tax filing requirement through the Form 1040EZ-T.

For more information on the Telephone Excise Tax Refund Form 1040EZ-T, and Form 1040X, check out IRS.gov.

Links:

Pay Your Taxes Electronically - Use EFTPS

noreply@blogger.com (The Tax Guy) — Fri, 27 Jul 2007 17:41:00 +0000

Pay Your Taxes Electronically - Use EFTPS

IRS Summertime Tax Tip 2007-09

If you owe federal taxes, consider paying through EFTPS, the Electronic Federal Tax Payment System. EFTPS is a fast, easy, convenient and secure service provided free by the Department of Treasury.

EFTPS is available to both individual and business taxpayers. With EFTPS, you can pay all your federal tax payments through the internet or by telephone. These payments include corporate, excise and employment taxes as well as your 1040 quarterly estimated tax payments.
EFTPS is convenient and flexible. It allows individual taxpayers to schedule payments up to 365 days—and businesses up to 120 days—in advance of the payment due date. With the ability to schedule payments in advance, you can avoid missing deadlines and incurring penalties. Scheduled payments can be cancelled up to 48 hours before the scheduled payment due date.
EFTPS is available around-the clock. The electronic payment system and a live Customer Service representative are available 24 hours a day, 7 days a week. Other features include an immediate, printable acknowledgement number which acts as a receipt for your payment.

After you enroll in EFTPS, you will receive a confirmation package by mail. In a separate mailing you will receive an EFTPS Personal Identification Number (PIN) with instructions for activating your enrollment. Employers who apply for and receive a new Employer Identification Number and have a federal tax obligation are automatically enrolled in EFTPS Express Enrollment to make their Federal Tax Deposits.
For more information you can visit IRS.gov. Click on the e-file logo and look for "Electronic Payment Options" and the EFTPS logo. To enroll, visit EFTPS.gov or call EFTPS Customer Service at 800-555-4477.

Links:

Electronic Payment Options

Need to Change Your Federal Tax Withholding? - IRS Has an On-Line Calculator That Can Help

noreply@blogger.com (The Tax Guy) — Wed, 25 Jul 2007 17:40:00 +0000

Need to Change Your Federal Tax Withholding? - IRS Has an On-Line Calculator That Can Help

IRS Summertime Tax Tip 2007-08

Did you have too little or too much federal tax withheld from your pay in 2006 – owing money or getting a large refund when you filed your tax return? Have you recently experienced a lifestyle change such as marriage, divorce, new child, home purchase or retirement? Did you start a new job? If any of these situations apply, you may want to adjust your federal tax withholding with your employer. The withholding calculator, on the IRS Web site at IRS.gov can help you figure the correct amount of federal withholding and provide information you can use to complete a new Form W-4, Employee’s Withholding Allowance Certificate.

Before you begin, you need to have a few items handy:

Your most recent pay stubs.
Your most recent federal income tax return.

Here are some tips for using the withholding calculator:

Fill in all information that applies to your situation.
Estimate when necessary. Remember, the results are only as accurate as the information you input.
Check out the information links embedded in the program whenever you have a question.
Print out the final screen that summarizes your input and the results. Use it to complete a new Form W-4 (if necessary) and give the completed W-4 to your employer. Keep the print of the final screen and a copy of your new W-4 with your tax records.

For many people, the withholding calculator is a great tool that can simplify the process of determining your withholding. However, if you are subject to the alternative minimum tax or self-employment tax or if your current job will end before the end of the year, you will probably achieve more accurate withholding by following the instructions in Publication 919, How Do I Adjust My Tax Withholding, which is available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

Links:

IRS Withholding Calculator

IRS Publication 919

New Rules for Small Tax-Exempt Organizations - Many May Now Have to File an Annual Notice

noreply@blogger.com (The Tax Guy) — Mon, 23 Jul 2007 17:39:00 +0000

New Rules for Small Tax-Exempt Organizations - Many May Now Have to File an Annual Notice

IRS Summertime Tax Tip 2007-07

Beginning in 2008, small tax-exempt organizations that were previously not required to file a return may be required to file an annual electronic notice. The notice is Form 990-N, Electronic Notice (e-Postcard) for Tax Exempt Organizations Not Required to File Form 990 or 990-EZ, and the new filing requirement applies to tax years beginning after December 31, 2006.

The electronic notice (or e-Postcard) is a provision of the Pension Protection Act of 2006 and applies to small tax-exempt organizations – organizations not required to file Form 990 or 990-EZ because their gross receipts are normally $25,000 or less. Not all small tax-exempt organizations will have to file the e-Postcard. Some exceptions are organizations included in a group return and private foundations required to file Form 990-PF. Also, the e-Postcard requirement does not apply to churches, their integrated auxiliaries, and conventions or associations of churches.

The Internal Revenue Service started mailing letters to small tax-exempt organizations in July 2007. The letters notify these organizations of their potential requirement to file the e-Postcard. IRS is developing an electronic filing system for the e-Postcard and will publicize filing procedures when the system is completed and ready for use. There will not be a paper Form 990-N.

It’s very important that organizations required to file the e-Postcard do so each year or they risk losing their tax-exempt status. The Pension Protection Act requires the IRS to revoke the tax-exempt status of any organization that does not meet its annual filing requirement for three consecutive years.

If you would like more information on the e-Postcard, including notification of when the filing system is ready, sign up for Exempt Organization’s EO Update, an e-mail newsletter that highlights new issues and activities affecting exempt organizations. To subscribe, go to www.irs.gov/eo and click on “EO Newsletter.” Information on tax-exempt organizations, including the e-Postcard, can be found on the IRS Web site at IRS.gov.

Links:

News Release IR-2007-129

Deducting "Other" Business Expenses

noreply@blogger.com (The Tax Guy) — Fri, 20 Jul 2007 17:39:00 +0000

Deducting "Other" Business Expenses

IRS Summertime Tax Tip 2007-06

The mysterious “other.”

Some tax deductions are not mentioned by name on a tax form but can still be quite valuable to a taxpayer. If you own a trade or business, you can deduct a number of expenses under the broad category of “other.”

In general, taxpayers may deduct ordinary and necessary expenses incurred in the conducting of a trade or business. An ordinary expense is common and accepted in the taxpayer’s trade or business. A necessary expense is appropriate for the business.

Although many common expenses are deducted on designated lines of the tax schedule, some expenses may not fit into a particular category. Taxpayers can deduct these as “other” expenses. A breakdown of “other” expenses must be listed on line 48 of Form 1040 Schedule C. The total is then entered on line 27.

Examples of “other” expenses include:

Amortization of certain costs, such as pollution-control facilities, research and experimentation, and intangibles including goodwill.
Bad debts. Business bad debts must be directly related to sales or services provided by the business, must have been previously included in income and must be worthless (non-recoverable). If a taxpayer deducts a bad debt expense and later recovers it, the amount must be included in income in the year collected.
Business start-up costs. These are costs related to creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Generally these costs are amortized. However, taxpayers who started a business in 2006 may elect to deduct up to $5,000 of certain start up costs, subject to limitations. Refer to chapter 7 of Publication 535, Business Expenses, for more information.
Gulf Opportunity (GO) Zone clean-up costs. Fifty percent of qualified clean-up costs for the removal of debris from, or the demolition of structures on, real property located in the GO Zone which are paid or incurred in 2006 are deductible as “other” expenses. The property must be held for use in a trade or business, for the production of income, or as inventory.

Personal, living and family expenses, do not qualify as deductible “other” business expenses.

Further information is available in IRS Publication 535, Business Expenses available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676)

Link: IRS Publication 535, Business Expenses

Keeping Good Tax Records

noreply@blogger.com (The Tax Guy) — Wed, 18 Jul 2007 17:38:00 +0000

Keeping Good Tax Records

IRS Summertime Tax Tip 2007-05

In a tax emergency, would you be ready? Well–organized records not only help you prepare your tax return. They also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax.

Fortunately, you don’t have to keep all tax records around forever. There are laws known as statutes of limitations that impact how long you must keep receipts, canceled checks, and other documents that support an item of income or a deduction on your return.

Generally, for questioning the amount of tax you reported or making an assessment of additional tax, the IRS has 3 years from the date you filed the return. For filing a claim for credit or refund, you generally have 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later. For either purpose, returns filed before the due date are treated as filed on the due date. There is no statute of limitations when a return is fraudulent or when no return is filed.

You should keep some records indefinitely, such as property records. You may need them to prove the amount of gain or loss if the property is sold.

Generally, income tax returns should be kept for 3 years from the date the return was filed. They could help you prepare future tax returns or amend a return.

For more information on recordkeeping requirements for individuals, order Publication 552, Recordkeeping for Individuals.

If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.

If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.

Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses. The publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Parents Can Get Credit for Sending Kids to Day Camp

noreply@blogger.com (The Tax Guy) — Mon, 16 Jul 2007 17:38:00 +0000

Parents Can Get Credit for Sending Kids to Day Camp

IRS Summertime Tax Tip 2007-04

Here’s a tax break for the busy summer. Many working parents must arrange for care of their children under 13 years of age during the school vacation period. A popular solution — with a tax benefit — is a day camp program.

The cost of day camp can count as an expense towards the child and dependent care credit. Expenses for overnight camps do not qualify. If your childcare provider is a sitter at your home, you'll get some tax benefit if you qualify for the credit.

The credit is generally 20% to 35% of non-reimbursed expenses; up to $3000 in expenses for one child and up to $6000 for two or more children. The actual credit is also based on your income.

You figure the credit on up to $3,000 of expenses for one child, $6,000 for two or more children. The credit rate ranges from 20% to 35% of expenses, depending on your income. The 35% rate applies if your income is under $15,000; the 20% rate, if your income is over $43,000.

For more information, check out IRS Publication 503, Child and Dependent Care Expenses available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link: IRS Publication 503, Child and Dependent Care

Can You Take a Home Office Deduction?

noreply@blogger.com (The Tax Guy) — Fri, 13 Jul 2007 17:37:00 +0000

Can You Take a Home Office Deduction?

IRS Summertime Tax Tip 2007-03

If you plan to run your small business out of your home you may be temped to “write-off” many of your household expenses. But how do you know what is deductible and what is not? The IRS has some advice that may help answer the question: “Can I take a Home Office Deduction?”

Generally, expenses related to the rent, purchase, maintenance and repair of a personal residence are not deductible.

However, if you use part of your home for business purposes you may be able to take a home office deduction. Expenses that can be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation.

In order to claim a business deduction, you must use part of your home:

Exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or
On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.

In addition, if you work as an employee you can claim this deduction only if the regular and exclusive business use of the home is for the convenience of your employer and the portion of the home is not rented by the employer.

“Exclusive use” means a specific area of the home is used only for trade or business. “Regular use” means the area is used regularly for trade or business. Incidental or occasional business use is not regular use.

Non-business profit-seeking endeavors such as investment activities do not qualify for a home office deduction, nor do not-for-profit activities such as hobbies.

Example: An attorney uses the den in his home to write legal briefs or prepare clients’ tax returns. The family also uses the den for recreation. The den is not used exclusively in the attorney’s profession, so a business deduction cannot be claimed for its use.

These requirements are discussed in greater detail in Publication 587, Business Use of Your Home available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Link: Publication 587, Business Use of Your Home

Gambling Winnings and Losses

noreply@blogger.com (The Tax Guy) — Wed, 11 Jul 2007 17:37:00 +0000

Gambling Winnings and Losses

IRS Summertime Tax Tip 2007-02

Your summer vacation may mean a trip to the casino or the racetrack. What will you owe Uncle Sam if Lady Luck happens to be on your side?

Gambling winnings are fully taxable and must be reported on your tax return.

You must file Form 1040 and include all of your winnings. Gambling income includes, among other things, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips. You can find more information in Publication 525, Taxable and Nontaxable Income.

Anyone who pays your winnings or awards you a prize is required to issue you a Form W-2G if your winnings are subject to Federal income tax withholding or if your winnings are over a certain amount.

However, all gambling winnings must be reported regardless of whether any portion is subject to withholding. In addition, you may be required to pay an estimated tax on your gambling winnings. For information on tax withholding on gambling income, refer to Publication 505, Tax Withholding and Estimated Tax.

If your luck isn’t always so good, you may deduct gambling losses. Losses may be deducted only if you itemize deductions and only if you also have gambling winnings. Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A. But remember, the losses you deduct may not be more than the gambling income you report on your return.

Even though you may be on vacation, if you want to deduct losses when you file your return next spring, it is important to keep an accurate diary or similar record of your gambling winnings and losses right now.

To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show both your winnings and losses.

For more information, refer to Publication 529, Miscellaneous Deductions. The publication is available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Links:

You May Be Eligible for the Advanced Earned Income Tax Credit

noreply@blogger.com (The Tax Guy) — Mon, 09 Jul 2007 15:07:00 +0000

You May Be Eligible for the Advanced Earned Income Tax Credit

IRS Summertime Tax Tip 2007-01

Why wait? You may be eligible for a tax credit right now that could mean larger paychecks this summer. This benefit is called the Advanced Earned Income Credit or Advance EIC.

If you expect to qualify for the credit in 2007, you may be able to start getting part of the credit with your pay now. Otherwise, you could wait until you file your tax return in 2008.

To receive part of the credit with your pay, you must expect to have at least one qualifying child for the current year, expect to fall within certain income limits, and expect to meet certain other conditions. You cannot get the Advance EIC if you do not expect to have a qualifying child, even if you expect to be eligible to claim the EIC on your current year tax return. To see if you qualify, ask your employer for the current year Form W-5, Earned Income Credit Advance Payment Certificate.

If you qualify, complete Form W–5 and give it to your employer. Your employer will then add the advance earned income credit to your net pay each pay period you are eligible.

You may have only one Form W–5 in effect with a current employer at one time. If you and your spouse are both employed, each of you must file a separate Form W–5.

If your situation changes after you give your employer Form W–5, you must give your employer a new Form W–5. For example, give your employer a new Form W–5 if you no longer expect to qualify for the EIC or you no longer want to get advance payments of the credit with your pay.

Remember, if you receive the EIC with your pay during the current year, you must file Form 1040A or Form 1040 for the current year to report the advance payments you received during the year and to take advantage of any remaining credit. You cannot use Form 1040EZ. The total of the advance payments you receive will be shown on your current year Form W–2.

The current year Form W–5 expires on December 31, 2007. If you expect to be able to claim the credit in advance for the following year, you must give a new completed Form W–5 which is valid for that year to your employer.

For more information about the Advance EIC see IRS Publication 596, Earned Income Credit. This publication (available in both English and Spanish) and Form W-5 can be downloaded from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

Still Time To Request Telephone Tax Refund

noreply@blogger.com (The Tax Guy) — Tue, 17 Apr 2007 16:50:00 +0000

Still Time To Request Telephone Tax Refund

IRS TAX TIP 2007-76

It is not too late to request your telephone tax refund.

Most individual telephone customers will request this refund when they file their 2006 Federal Income Tax return, which is due on April 17, 2007. If you get an extension to file your income tax return, the extension will also apply to your request for the telephone tax refund.

You can still request this unique refund even if you have already filed your 2006 return. Simply file an amended return using Form 1040X.

The refund is also available for many individuals who do not have a regular 2006 income tax filing requirement. If this applies to you, use Form 1040EZ-T to request the refund. Form 1040EZ-T should be filed as soon as possible but is not subject to the April 17, 2007 tax deadline.

The one-time refund of previously collected federal telephone excise taxes is owed to just about anyone who paid a phone bill in the last several years. If you paid long-distance excise taxes on landline, cell phone, Voice over Internet Protocol (VoIP), or bundled service that was billed for the period after Feb 28, 2003 and before Aug 1, 2006 you are eligible for this refund. (Bundled service is local and long-distance service provided under a plan that does not separately list the charge for local service.)

If you are eligible, you have two options for requesting this refund. You can request the actual amount of federal excise tax you paid based upon your telephone bills for this period. Or you can choose to request the standard refund amount that ranges from $30-$60 based upon the number of exemptions you are entitled to claim on an individual income tax return.

If you must amend your return, be sure to use the most recent version of Form 1040X (revised February 2007) and enter the credit on line 15 of the Form 1040X. Wait to mail the completed Form 1040X until at least three weeks after the date that you filed your original Form 1040, if it was e-filed, or eight weeks if you filed on paper. This will prevent delays in processing any refund requests. You may cash your initial refund check while waiting for any additional refund.

Form 1040X, which is available on IRS.gov, cannot be electronically filed. It must be filed on paper. In addition to the IRS Web site, Forms 1040X and instructions are available by calling 800-TAX-FORM (800-829-3676).

Links:

Telephone Excise Tax Refund
Form 1040X, Amended U.S. Individual Income Tax Return (PDF 110K)
Form 1040X Instructions (PDF 45K)

Keeping Good Records

noreply@blogger.com (The Tax Guy) — Mon, 16 Apr 2007 16:49:00 +0000

Keeping Good Records

IRS TAX TIP 2007-75

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good record-keeping 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 record-keeping 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 1-800-TAX-FORM (1-800-829-3676).

Links:

Publication 552, Recordkeeping for Individuals ( PDF 61K )

Taxpayer Advocate Service

noreply@blogger.com (The Tax Guy) — Fri, 13 Apr 2007 16:48:00 +0000

Taxpayer Advocate Service

IRS Tax Tip 2007-74

If you have tried to resolve tax problems with the IRS and are still having problems or facing economic harm, you have somewhere to turn: seek the free assistance of the Taxpayer Advocate Service.

The Taxpayer Advocate Service is an independent organization within the IRS whose employees assist taxpayers in these circumstances or those who believe that an IRS system or procedure is not working as it should.

The service is free, confidential, tailored to meet your needs, and available for businesses as well as individuals. You may be eligible for assistance if:

You are experiencing economic harm or significant cost (including fees for professional representation),
You have experienced a delay of more than 30 days to resolve your tax issue, or
You have not received a response or resolution to the problem by the date promised by the IRS.

For individuals, examples of economic harm as a result of an IRS action might include an inability to provide for basic necessities such as housing, transportation or food; or for businesses, an inability to met payroll expenses.

There is at least one local taxpayer advocate in each state, the District of Columbia, and Puerto Rico. Because advocates are part of the IRS, they know the tax system and how to navigate it. If you qualify, you will receive personalized service from a knowledgeable advocate who will:

Listen to your problem,
Help you understand what needs to be done to resolve it, and
Stay with you every step of the way until your problem is resolved.

You can contact the Taxpayer Advocate Service by:

Calling the TAS case intake line at 877-777-4778 (TTY/TTD 800-829-4059),
Writing or calling your local taxpayer advocate, whose address and phone number are listed in the government listings in your local telephone directory and in Pub. 1546, The Taxpayer Advocate Service of the IRS – How to Get Help With Unresolved Tax Problems,
Filing Form 911, Application for Taxpayer Assistance Order, with the Taxpayer Advocate Service, or
Asking an IRS employee to complete Form 911 on your behalf.

To get a copy of Form 911 or to learn more about the Taxpayer Advocate Service, visit the Web site at IRS.gov and select the link for the Taxpayer Advocate. You can download Form 911 and Publication 1546 from the Forms and Publications section, or order a copy by calling 800-TAX-FORM (800-829-3676).

Tax Tips for 2007.

Links:

Taxpayer Advocate Service
Publication 1546, The Taxpayer Advocate Service of the IRS (PDF 902K)
Tax Topic 104, Taxpayer Advocate Service — Help for Problem Situations
Form 911, Application for Taxpayer Assistance Order (PDF 126K)

Appeal Rights

noreply@blogger.com (The Tax Guy) — Thu, 12 Apr 2007 16:47:00 +0000

Appeal Rights

IRS Tax Tip 2007-73

Are you in the middle of a disagreement with the IRS? If you disagree with the IRS about the amount of your tax liability or about proposed collection actions, you have the right to ask the IRS Appeals Office to review your case.

IRS Publication 1, Your Rights as a Taxpayer, explains some of your most important taxpayer rights. During their contact with taxpayers, IRS employees are required to explain and protect these taxpayer rights, including the right to appeal.

The Appeals Office, which is independent of the IRS office that proposed the disputed action, can work with taxpayers by correspondence, telephone, or informal conferences.

Through Appeals procedures, taxpayers can settle most differences without expensive and time-consuming court trials. However, if you and the Appeals Officer or Settlement Officer cannot reach agreement or if you prefer not to appeal within the IRS, in most cases, you may take your disagreement to federal court.

For more information about Appeals and its processes, go to the IRS Web site at IRS.gov and select the link to “Appeal a Tax Dispute”, which is found at the bottom of the page. This website assists you in determining if you are ready for Appeals, how to request an appeal, and what you can expect from Appeals. The site also provides easy to use online self-help tools designed to help you focus on your area of dispute and to determine if you will benefit from filing an appeal.

For additional information about Appeals, this website contains informative online video streams entitled “The Appeals Process (Examination)” and “The Appeals Process (Collection).”

Information is also available in IRS Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don't Agree; Pub. 556, Examination of Returns, Appeal Rights, and Claims for Refund; and Pub. 1660, Collection Appeal Rights (for Liens, Levies, and Seizures). To get copies of IRS publications, visit this web site or call 800-TAX-FORM (800-829-3676).

Tax Tips for 2007.

Links:

Tax Information for Appeals
Tax Topic 151 – Your Appeal Rights
Publication 1, Your Rights as a Taxpayer (PDF 21K)
Publication 5, Your Appeal Rights and How to Prepare a Protest If You Don't Agree (PDF 36K)
Publication 556, Examination of Returns, Appeal Rights and Claims for Refunds (PDF 105K)
Publication 1660, Collection Appeal Rights (for Liens, Levies, and Seizures) (PDF 31K)
Publication 3605, Fast Track Mediation (PDF 15K)

What To Do If You Receive an IRS Notice

noreply@blogger.com (The Tax Guy) — Wed, 11 Apr 2007 16:46:00 +0000

What To Do If You Receive an IRS Notice

IRS Tax Tip 2007-72

It’s a moment many taxpayers dread. A letter arrives from the IRS — and it’s not a refund check. Don’t panic; many of these letters can be dealt with simply and painlessly.

Each year, the IRS sends millions of letters and notices to taxpayers to request payment of taxes, notify them of a change to their account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return. Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry. You should review the correspondence and compare it with the information on your return.

Agree? If you agree with the correction to your account, no reply is necessary unless a payment is due.
Disagree? If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
Questions? Most correspondence can be handled without calling or visiting an IRS office, if you follow the instructions in the letter or notice. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call so your account can be readily accessed.

Sometimes, the IRS sends a second letter or notice requesting additional information or providing additional information to you. Be sure to keep copies of any correspondence with your records.

For more information about IRS notices and bills, see Publication 594, What You Should Know about the IRS Collection Process. Information about penalties and interest charges is available in Publication 17, Your Federal Income Tax. Both publications are available on this web site or by calling 800-TAX-FORM (800-829-3676).

Tax Tips for 2007.

Links:

Publication 594, Understanding the Collection Process (PDF 129K)
Publication 17, Your Federal Income Tax (PDF 2,072K)
Tax Topic 651, Notices — What to Do

Amending Your Tax Return

noreply@blogger.com (The Tax Guy) — Tue, 10 Apr 2007 16:45:00 +0000

Amending Your Tax Return

IRS Tax Tip 2007-71

Oops! You’ve discovered an error after your tax return has been filed. What should you do? You may need to amend your return.

The IRS usually corrects math errors or requests missing forms -- such as W-2s or schedules. In these instances, do not amend your return. However, you should file an amended return if any of the following were reported incorrectly:

Your filing status
Your total income
Your deductions or credits

Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A, 1040EZ or electronically-filed return. Be sure to enter the year of the return you are amending at the top of Form 1040X. If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes to the IRS processing center for the area in which you live. The 1040X instructions list the addresses for the centers.

The Form 1040X has three columns. Column A is used to show original or adjusted figures from the original return. Column C is used to show the corrected figures. The difference between the figures in Columns A and C is shown in Column B. There is an area on the back of the form where you explain the specific changes being made on the return and the reason for each change.

If the changes involve another schedule or form, attach it to the 1040X. For example, if you are filing a 1040X because you have a qualifying child and now want to claim the Earned Income Credit, you must attach a Form 1040 Schedule EIC to show the qualifying person's name, year of birth and Social Security number.

If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund. If you owe additional tax for 2005, you should file Form 1040X and pay the tax by the April due date to avoid any penalty and interest.

Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

How to amend your return if you failed to request the telephone excise tax refund: Eligible taxpayers who did not take the telephone excise tax credit when filing their regular income tax returns must request the refund by filing Form 1040X. The telephone excise credit should be entered on line 15 of the 1040X. Taxpayers should use the most recent version of 1040X (revised 2/2007) to include this credit.

Tax Tips for 2007.

Links:

Frequently Asked Questions: Amended Returns & Form 1040X
Form 1040X, Amended U.S. Individual Income Tax Return (PDF 110K)
Form 1040X Instructions (PDF 45K)
Tax Topic 308 — Amended Returns

How Long Should It Take To Receive Your Tax Refund?

noreply@blogger.com (The Tax Guy) — Mon, 09 Apr 2007 16:45:00 +0000

How Long Should It Take To Receive Your Tax Refund?

IRS Tax Tip 2007-70

Are you expecting a tax refund from the Internal Revenue Service this year? If you file a complete and accurate paper tax return, your refund should be issued about six to eight weeks after the IRS receives your return. If you file your return electronically, your refund is issued in about half that time — even faster if you choose direct deposit.

You can check on the status of your refund 72 hours after you e-filed your return or four weeks after mailing your return. There are several ways to check the status of your refund. To use these applications, you will need your Social Security number, filing status and the exact whole dollar amount of your refund.

Where's My Refund: The fastest, easiest way to find out about your current year refund is access IRS.gov and click on the “Where’s My Refund” link available from the home page
Refund Hotline: Call the IRS Refund Hotline at 800-829–1954
TeleTax: Call IRS TeleTax System at 800-829-4477.

If you do not get a date for your refund, wait until the next week before calling back.

In some circumstances, you may not receive your refund as quickly as you expected. Refund delays can be caused by a variety of reasons. For example, a name and Social Security number listed on the tax return may not match the IRS records. You may have failed to sign the return or to include a necessary attachment, such as Form W-2, Wage and Tax Statement. Or you may have made math errors that require extra time for the IRS to correct.

Tax Tips for 2007.

Links:

Where’s My Refund?
Form 3911, Taxpayer Statement Regarding Refund (PDF 62K)
Tax Topic 152 — Refunds
Frequently Asked Questions

Need More Time to File?

noreply@blogger.com (The Tax Guy) — Fri, 06 Apr 2007 15:37:00 +0000

Need More Time to File?

IRS Tax Tip 2007-69

If you can't meet the April filing deadline to file your tax return, you can get an automatic six month extension of time to file from the IRS.

Here are some things to remember about filing extensions:

• File Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, with the IRS by the April deadline, or make an extension-related electronic payment.
• The extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due.
• You will owe interest on any amounts not paid by the April deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date.
• You can e-file an extension request using tax preparation software on your own computer or by going to a tax preparer that has the software. The IRS will acknowledge receipt of the extension request if you file by computer.
• You can use Free File to file for an extension. Many private-sector companies in the IRS Free File Alliance offer extensions for no charge. You can access Free File via the IRS Web site at IRS.gov. Taxpayers with adjusted gross incomes of $52,000 or less may file their 2006 Federal Income Tax Returns electronically through Free File.

If you ask for an extension via computer, you can also choose to pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account. You will need the appropriate bank routing and account numbers and must also have available the adjusted gross income from your 2006 federal income tax return to verify your identity. For information on these and other methods of payment, call 800-TAX-1040 (800-829-1040).

If your return is completed but you are unable to pay the tax due, do not request an extension. File your return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due. To apply online for a payment agreement, go to IRS.gov, use the pull-down menu under “I need to …” and select “Set Up a Payment Plan.”

To obtain a copy of Form 4868 or other forms and publications use Efile tax preparation software, download them from IRS.gov or visit your local IRS office. Note that forms and publications can be ordered by calling 800-TAX-Form (800-829-3676). However, telephone requests normally take 10 days to fill and may not arrive before the tax deadline of April 17.

Links:

Form 4868, Application for Extension of Time to File U.S. Individual Income Tax Return (PDF 50K)
Form 9465, Installment Agreement Request (PDF 100K)
Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (PDF 348K)
Publication 3, Armed Forces' Tax Guide (PDF 206K)
Official Payments Corporation
Link2 Gov Corporation

Payment Options

noreply@blogger.com (The Tax Guy) — Thu, 05 Apr 2007 19:18:00 +0000

Payment Options

IRS Tax Tip 2007-68

If you cannot pay the full amount of taxes you owe by the April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. There are also alternative payment options to consider:

• Pay by Credit Card You can charge your taxes on your American Express, MasterCard, Visa or Discover cards. To pay by credit card, contact one of the service providers at its telephone number or Web site listed below and follow the instructions. The service providers charge a convenience fee based on the amount you are paying. Do not add the convenience fee to your tax payment.
o Link2Gov Corporation: 888-PAY-1040 (888-729-1040), www.pay1040.com
o Official Payments Corporation: 800-2PAY-TAX (800-272-9829), www.officialpayments.com

• Extension of Time to Pay Based on the circumstances, a taxpayer could qualify for an extension of time to pay. The IRS is willing to allow extensions of time to pay in order to assist in tax debt repayment. A taxpayer can request an extension from 30 - 120 days depending on the specific situation. Taxpayers qualifying for an extension from 30 -120 days generally will pay less in penalties and interest than if the debt were repaid through an installment agreement.

• Installment Agreement The IRS may allow you to pay any remaining balance in monthly installments through an installment agreement. You can apply for an IRS installment agreement using our new Web-based Online Payment Agreement application on IRS.gov. This new Web-based application allows eligible taxpayers or their authorized representatives to self-qualify, apply for, and receive immediate notification of approval. Another alternative is to attach a Form 9465, Installment Agreement Request, to the front of your tax return. The IRS charges a $105 fee for setting up an installment agreement. The fee is only $52 if you pay via direct debit. If your income is below a certain level (see Form 13844), you may qualify for a $43 fee. You will also be required to pay interest plus a late payment penalty on the unpaid taxes for each month or part of a month, after the due date that the tax is not paid. If you do not file your return by the due date -- including extensions -- you may have to pay a failure-to-file penalty.

For more information about filing and paying your taxes, visit the IRS Web site at IRS.gov and choose “1040 Central” or refer to the Form 1040 Instructions or IRS Publication 17, Your Federal Income Tax. You can download forms and publications at IRS.gov or request a free copy by calling toll free 800-TAX-FORM (800-829-3676).

Links:

Electronic Payment Options
www.officialpayments.com
www.pay1040.com
Form 9465, Installment Agreement Request (PDF 100K)
Installment payment process
Partial Pay Installment Agreements
Is an Offer in Compromise Right for You?
Publication 17, Your Federal Income Tax (PDF 2,072K)