IRS Tax Tips
This page is dedicated to providing you important IRS tax tips for 2010 tax returns.
There are tips for parents (including Child Tax Credits), small business owners and self-employed, medical and dental tax tips, disabled tax payers, and much more. I am sure you will find value in many of these tips to help you keep more of your money, rather than losing it to taxes.
Not all the 2010 tax tips are listed here because I have picked only those which I feel will be beneficial to the most people.
Thank you for visiting my site. Please leave a comment or bookmark this site to follow up on future tax tips.
To read the tips, just do a “search” on the tip “title” or just scroll down the page.
No. 70: IRS Essentials – How to Find What You Need Before Tax Day
No. 69: Seven Things about Getting More Time to File your Tax Return
No. 64: Read This if you Need More Time to Pay Your Taxes
No. 61: Taxpayers Have Extra Time to Make a Contribution to Their IRA This Year
No. 57: Eight Tips for Deducting Charitable Contributions
No. 56: Ten Things to Know about Farm Income and Deductions
No. 55: Walk in; Eight Reasons to Visit an IRS Taxpayer Assistance Center
No. 54: Employee Business Expenses
No. 53: Work From Home? Consider the Home Office Deduction
No. 52: What Parents Should Know about Their Child’s Investment Income
No. 51: Health Insurance Tax Breaks for the Self-Employed
No. 50: Six Tax Tips to Make Tax Filing a Breeze
No. 45: Seven Tips About Rental Income and Expenses
No. 43: Four Credits that Can Pay You at Tax Tip
No. 41: Four Ways to Find Tax Free Help
No. 40: Military Personnel and their Families Get Free Tax Help
No. 39: Checking the Status of Your Refund
No. 36: Get Credit for Your Retirement Savings Contributions
No. 35: Ten Important Facts About Capital Gains and Losses
No. 34: Seven Facts About the Expanded Adoption Credit
No. 32: Ten Facts about IRS Volunteer Tax Assistance
No. 31: Important Tax Law Changes for 2010
No. 30: Six Facts about IRS Publication 17
No. 29: Ten Facts about the Child Tax Credit
No. 28: Here is What to do If You Are Missing a W-2
No. 25: Taxable or Non-Taxable Income?
No. 24: Tax Benefits for Disabled Taxpayers
No. 21: Medical and Dental Expenses
No. 20: EITC – Earned Income Tax Credit – Don’t Overlook It
No. 18: Ten Tax Benefits for Parents
No. 17: Tax Help for Small Businesses and Self-Employed
No. 16: Tax Tips for Self-employed Individuals
No. 13: How to Get Your Prior Year Tax Information from the IRS
No. 11: Let Free File do the hard work for you
No. 1: Why Employees and Retirees may see Changes in 2011 Payments and Withholding
Issue Number: Special Edition Tax Tip 2011-70
Inside This Issue
IRS Essentials – How to Find What You Need Before Tax Day
With the Monday, April 18th federal income tax deadline rapidly approaching the IRS wants remind taxpayers about the self-help tools that are available to make filing taxes easier.
Taxpayers seeking last minute help can find a wide variety of useful products and information from the comfort of their home through the IRS website.
IRS.gov is “open” 24 hours a day 7 days a week.
The 2011 Filing Season Tax Tips, available on www.IRS.gov, provide a wealth of information and links to help taxpayers meet the deadline.
1040 Centralis the comprehensive source for individual income tax information.
Interactive Tax Assistantis a tax law resource that guides taxpayers through a series of questions and provides responses on credits, deductions and general filing questions.
The IRS daily filing season tax tips also available on the website provide easy to read plain language information to help taxpayers. Here are a few of the available tax tips covering some of the most common taxpayer questions.
Want to file your return electronically for free?
Free File on IRS.gov is always open – See IRS Tax Tip 2011-11 – Let Free File Do the Hard Work for You.
Want to know more about filing electronically?
Electronic filing is no longer the exception, it’s the norm – See IRS Tax Tip 2011-10 – Prepare and File Your Taxes Electronically
Need more time to file?
Request an Extension until October 17 – See IRS Tax Tip 2011-69- Seven Things about Getting More Time to File Your Tax Return.
Can’t pay or need an installment agreement?
File on time and the IRS may be able to grant more time to pay – See IRS Tax Tip 2011-64 -Read This if you need More Time to Pay Your Taxes.
Need a form or publication?
No need to call, download it from IRS.gov – See IRS Tax Tip 2011-04- Five Ways to Obtain IRS Forms and Publications.
Not sure if you have to file a tax return?
Your age, income, marital status all make a difference – See IRS Tax Tip 2011-02– Do I Have to File a Tax Return?
Need IRS Individual Tax Law Information?
The IRS has a pub for that – See IRS Tax Tip 2011-30- Six Facts About IRS Publication 17.
Have a question about your refund?
Check out the “Where’s My Refund” tool – See IRS Tax Tip 2011-66- Ten Things to Know about Tax Refunds.
What other information is available on the IRS website?
Need to know more? – See IRS Tax Tip 2011-05- Top Ten Reasons to Visit IRS.gov.
Issue Number: Special Edition Tax Tip 2011-69
Inside This Issue
Seven Things about Getting More Time to File your Tax Return
Can’t make the April 18 tax filing deadline and need more time to file your tax return? You can get an automatic six month extension of time to file from the IRS.
Here are seven important things you need to know about filing an extension:
File on time even if you can’t payIf your return is completed but you are unable to pay the full amount of 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 the IRS website at http://www.irs.govand click “Apply for an Online Payment Agreement (OPA)” at the left side of the home page under Online Services. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options.
Extra time to fileAn 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 amount not paid by the April 18 deadline, plus you may owe penalties.
Form to fileRequest an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, to the IRS by April 18, 2011, or make an extension-related electronic credit card payment. For more information about extension-related credit card payments, see Form 4868.
E-file extensionYou can e-file an extension request using tax preparation software with your own computer or by going to a tax preparer who has the software. The IRS will acknowledge receipt of the extension request if you file by computer.
Traditional Free File and Free File Fillable Forms You can use both Free File options to file an extension. Access the Free File page at http://www.irs.gov.
Electronic funds withdrawalIf 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. For information about these and other methods of payment, visit the IRS website at http://www.irs.govor call 800-TAX-1040 (800-829-1040).
How to get formsForm 4868 is available for download from the IRS website or may be ordered by calling 800-TAX-FORM (800-829-3676).You can also obtain the form at your local IRS office. Telephone requests normally take 7 – 15 days to process and ship.
Issue Number: Special Edition Tax Tip 2011-64
Inside This Issue
Read This if you Need More Time to Pay Your Taxes
Taxpayers who owe taxes may be relieved to know that there are some options for those who owe and can’t afford to pay the full amount right away.
Here are the top 10 things the IRS wants you to know if you need more time to pay your taxes.
Taxpayers who are unable to pay all taxes due are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be less.
Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an installment agreement, temporary delay or an Offer in Compromise.
If you cannot pay the full amount, taxpayers should immediately call the number or write to the address on the bill they receive.
You may want to consider financing the full payment of your tax liability through a loan. The interest rate and fees charged by a bank or credit card company are usually lower than interest and penalties imposed by the Internal Revenue Code.
If you cannot pay in full immediately, you may qualify for a short amount of additional time, up to 120 days, to pay in full. No fee is charged for this type of payment arrangement and this option may minimize the amount of penalties and interest you incur.
You may also want to consider an installment agreement. This arrangement allows you to make monthly payments after a one-time fee of $105 is paid. If you choose to pay through a Direct Debit from your bank account, the fee is reduced to $52. Lower-income taxpayers may qualify for a reduced fee of $43.
To apply for an installment agreement you can use the Online Payment Agreement application available on the IRS website; file a Form 9465, Installment Agreement Request; or call the IRS at the telephone number shown on your bill.
In some cases, a taxpayer may qualify for an offer in compromise, an agreement between the taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.
Even if you set up an installment agreement, the IRS may still file a Notice of Federal Tax Lien to secure the government’s interest until you make the final payment.
It is important to respond to an IRS notice. If you do not pay your tax liability in full or make an alternative payment arrangement, the IRS is entitled to take collection action.
More information on the collection process is available at http://www.irs.gov.
Issue Number: Special Edition Tax Tip 2011-61
Inside This Issue
Taxpayers Have Extra Time to Make a Contribution to Their IRA This Year
This year, you have a few extra days to make contributions to your traditional Individual Retirement Arrangements. That’s because Emancipation Day, a legal holiday in the District of Columbia, will be observed on Friday, April 15, 2011, which moves the due date for filing your tax return and making contributions to your 2010 IRA to Monday, April 18, 2011.
Here are the top 10 things the Internal Revenue Service wants you to know about setting aside retirement money in an IRA.
You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution.
The funds in your IRA are generally not taxed until you receive distributions from that IRA.
Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
For 2010, the most that can be contributed to your traditional IRA is generally the smaller of the following amounts: $5,000 or $6,000 for taxpayers who were 50 or older at the end of 2010 or the amount of your taxable compensation for the year.
Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contributions or if you deduct an IRA contribution.
You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements for additional rules.
Refer to IRS Publication 590, for more information on contributing to your IRA account.
Both Form 8880 and Publication 590 can be downloaded on this website or ordered by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-57
Inside This Issue
Eight Tips for Deducting Charitable Contributions
Charitable contributions made to qualified organizations may help lower your tax bill. The IRS has put together the following eight tips to help ensure your contributions pay off on your tax return.
If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization.
To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good used condition or better to be deductible. Special rules apply to vehicle donations.
Fair market value is generally the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.
Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.
For more information on charitable contributions, refer to Form 8283 and its instructions, as well as Publication 526, Charitable Contributions. For information on determining value, refer to Publication 561, Determining the Value of Donated Property. These forms and publications are available at http://www.irs.govor by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-56
Inside This Issue
Ten Things to Know about Farm Income and Deductions
If you have a farming business, there are several tax issues to consider before filing your federal tax return. The IRS has compiled a list of 10 things that farmers may want to know.
Crop Insurance Proceeds —You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.
Sales Caused by Weather — Related Condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to postpone reporting the gain from selling the additional animals due to the weather until the next year.
Farm Income Averaging— You may be able to average all or some of your current year’s farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.
Deductible Farm Expenses — The ordinary and necessary costs of operating a farm for profit are deductible business expenses. An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.
Employees and Hired Help — You can deduct reasonable wages paid for labor hired to perform your farming operations. This includes full-time and part-time workers. You must withhold social security, medicare and income taxes on employees.
Items Purchased for Resale — You may be able to deduct, in the year of the sale, the cost of items purchased for resale, including livestock and the freight charges for transporting livestock to the farm.
Net Operating Losses— If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.
Repayment of Loans — You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.
Fuel and Road Use —You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.
Farmer’s Tax Guide— More information about farm income and deductions is in IRS Publication 225, Farmer’s Tax Guide, which is available at http://www.irs.govor by calling the IRS at 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-55
Inside This Issue
Walk in; Eight Reasons to Visit an IRS Taxpayer Assistance Center
The IRS has more than 400 offices nationwide where taxpayers can walk in and get face-to-face assistance. These IRS Taxpayer Assistance Centers are your source for personal tax help when you believe your tax issue cannot be handled online or by phone.
Here are eight reasons to stop in and get help at an IRS TAC.
Notices or letters Have you received a letter or notice and need face-to-face assistance to understand the next step? No appointment is necessary – just walk in.
Tax FormsMost IRS forms and many publications are available at your local TAC.
Multilingual AssistanceDon’t let a language barrier prevent you from getting necessary tax assistance. Multilingual services are offered to taxpayers in over 150 languages at IRS TACs. These services are provided through bilingual employees and an Over-the-Phone Interpreter.
Free Federal Tax Return PreparationYour local TAC will prepare basic tax returns for those who qualify for EITC or those whose income is less than $49,000.
PaymentsYou can make payments at an IRS TAC. Be sure you know the tax period and type of tax the payment covers. If you received an IRS notice, be sure to bring it.
Form 2290, Heavy Highway Vehicle Use Tax ReturnYour local TAC can help you prepare Form 2290, accept your payment, and provide needed receipts. However, taxpayers can now e-file and e-pay their Forms 2290, adding another item to the long list of things they can resolve without face-to-face assistance. Publication 4900, e-file and e-pay your Heavy Highway Vehicle Use Tax fast, accurate, safe, is available for more information.
Individual Taxpayer Identification NumberIf you are not eligible for a Social Security Number but need to file a tax return, an IRS TAC can help. Bring your completed tax return, Form W-7, Application for IRS Individual Taxpayer Identification Number and certified identification documents to the TAC to apply for your ITIN and file your return. For more information, see Publication 519, U.S. Tax Guide for Aliens.
Tax Return and Tax Account TranscriptsIf you need a copy of your tax return for financial aid or to obtain a mortgage, a tax return or tax account transcript will generally meet lending institution requirements. Federal tax return transcripts are free and are generally available for the current and past three years
TAC locations, business hours and an overview of services are available at http://www.irs.gov. Just go to the Individuals tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.
Issue Number: Special Edition Tax Tip 2011-54
Inside This Issue
Employee Business Expenses
If you itemize deductions and are an employee, you may be able to deduct certain work-related expenses. The IRS has put together the following facts to help you determine which expenses may be deducted as an employee business expense.
Expenses that qualify for an itemized deduction include:
Business travel away from home
Business use of car
Business meals and entertainment
Travel
Use of your home
Education
Supplies
Tools
Miscellaneous expenses
You must keep records to prove the business expenses you deduct. For general information on recordkeeping, see IRS Publication 552, Recordkeeping for Individuals available on the IRS website, http://www.irs.gov, or by calling 800-829-3676.
If your employer reimburses you under an accountable plan, you do not include the payments in your gross income, and you may not deduct any of the reimbursed amounts.
An accountable plan must meet three requirements:
You must have paid or incurred expenses that are deductible while performing services as an employee.
You must adequately account to your employer for these expenses within a reasonable time period, and
You must return any excess reimbursement or allowance within a reasonable time period.
If the plan under which you are reimbursed by your employer is non-accountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses.
Generally, report expenses on IRS Form 2106 or IRS Form 2106-EZ to figure the deduction for employee business expenses and attach it to Form 1040. Deductible expenses are then reported on Form 1040, Schedule A, as a miscellaneous itemized deduction subject to 2% of your adjusted gross income rules. Only employee business expenses that are in excess of 2% of your adjusted gross income can be deducted.
For more information see IRS Publication 529, Miscellaneous Deductions available on the IRS website, http://www.irs.gov, or by calling 800-829-3676.
Issue Number: Special Edition Tax Tip 2011-53
Inside This Issue
Work From Home? Consider the Home Office Deduction
Whether you are self-employed or an employee, if you use a portion of your home for business, you may be able to take a home office deduction. Here are six things the IRS wants you to know about the Home Office deduction
1. Generally, in order to claim a business deduction for your home, you must use part of your home exclusively and regularly:
as your principal place of business, or
as a place to meet or deal with patients, clients or customers in the normal course of your business, or
in any connection with your trade or business where the business portion of your home is a separate structure not attached to your home.
2. For certain storage use, rental use, or daycare-facility use, you are required to use the property regularly but not exclusively.
3. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.
4. There are special rules for qualified daycare providers and for persons storing business inventory or product samples.
5. If you are self-employed, use Form 8829, Expenses for Business Use of Your Home to figure your home office deduction and report those deductions on line 30 of Form 1040 Schedule C, Profit or Loss From Business.
6. If you are an employee, additional rules apply for claiming the home office deduction. For example, 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 http://www.IRS.govor by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-52
Inside This Issue
What Parents Should Know about Their Child’s Investment Income
Parents need to be aware of the tax rules that affect their children’s investment income. Here are four facts from the IRS that will help parents determine whether their child’s investment income will be taxed at the parents’ rate or the child’s rate:
1. Investment IncomeChildren with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income.
2. Age RequirementThe child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meets one of three age requirements for 2010:
Was under age 18 at the end of the year,
Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or
Was a full-time student over age 18 and under age 24 at the end of the year and did not have earned income that was more than half of his or her support.
3. Form 8615To figure the child’s tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child’s federal income tax return.
4. Form 8814When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents’ Election To Report Child’s Interest and Dividends.
More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available at http://www.irs.govor by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-51
Inside This Issue
Health Insurance Tax Breaks for the Self-Employed
Here is some information from the IRS about a special tax deduction for the self-employed. You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are one of the following:
A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming.
A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., box 14, code A.
A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.
The insurance plan must be established under your business.
For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual.
For partners, the policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
For more-than-2% shareholders, the policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
For more information see IRS Publication 535, Business Expenses, available at http://www.IRS.govor by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-50
Inside This Issue
Six Tax Tips to Make Tax Filing a Breeze
Tax preparation shouldn’t be so stressful. The IRS has put together six tips to help make your tax filing experience a breeze this year.
1. Don’t ProcrastinateResist the temptation to put off your taxes until the very last minute. Rushing 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.
2. Visit the IRS Website In 2010, more than 304 million visits were made to http://www.irs.gov. Make 1040 Central your first stop to learn the latest news and find answers to your questions about tax filing.
3. Use Free FileLet Free File do the hard work for you with brand-name tax software or online fillable forms. It’s available exclusively at http://www/irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $58,000 or less, you qualify for free tax software that is offered through a private-public partnership with manufacturers. If you made more or are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic versions of IRS paper forms. Visit www.irs.gov/freefile to review your options.
4. Try IRS e-fileAfter 21 years, IRS e-file has become the safe, easy and most common way to file a tax return. Last year, 70 percent of taxpayers – 99 million people – used IRS e-file. Starting in 2011, many tax preparers will be required to use e-file and will explain your filing options to you. This is your chance to give it a try. IRS e-file is approaching 1 billion returns processed safely and securely. If you owe taxes, you have payment options to file immediately and pay later (by the tax deadline). Best of all, combine e-file with direct deposit and you can get your refund in as few as 10 days.
5. Don’t Panic if You Can’t PayIf you cannot pay the full amount of taxes you owe by the mid-April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. You should also contact the IRS to discuss your payment options at 800-829-1040. The agency may be able to provide some relief such as an installment agreement.
More than 75 percent of taxpayers eligible for an Installment Agreement can apply using the Web-based Online Payment Agreement application available on IRS.gov. To find out more about this simple and convenient process type “Online Payment Agreement” in the search box on the IRS.gov homepage.
6. Request an Extension of Time to File – But Pay on TimeIf the mid-April tax deadline clock runs out, you can get an automatic six-month extension of time to file through October 17. However, this extension of time to file does not give you more time to pay any taxes due. If you have not paid at least 90 percent of the total tax due by the April deadline you may also be subject to an Estimated Tax Penalty. To obtain an extension, just file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The easiest way to file a Form 4868 is through Free File at www.irs.gov/freefile. Form 4868 is also available for downloading at http://www.irs.govor you can call 800-TAX-FORM (800-829-3676) and have a paper form mailed to you.
Issue Number: Special Edition Tax Tip 2011-45
Inside This Issue
Seven Tips About Rental Income and Expenses
Do you rent property to others? If so, you’ll want to read the following seven tips from the IRS about rental income and expenses.
You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them. Publication 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property.
When to report income.You generally must report rental income on your tax return in the year that you actually receive it.
Advance rent. Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it, regardless of the period covered.
Security deposits. Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. But if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, include the amount you keep in your income in that year.
Property or services in lieu of rent. If you receive property or services, instead of money, as rent, include the fair market value of the property or services in your rental income. If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.
Expenses paid by tenant. If your tenant pays any of your expenses, the payments are rental income. You must include them in your income. You can deduct the expenses if they are deductible rental expenses. See Rental Expenses in Publication 527, for more information.
Rental expenses. Generally, the expenses of renting your property, such as maintenance, insurance, taxes, and interest, can be deducted from your rental income.
Personal use of vacation home. If you have any personal use of a vacation home or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use. If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses.
For more information on rental income and expenses see Publication 527. This publication can be downloaded from http://www.irs.govor ordered by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-43
Inside This Issue
Four Credits That Can Pay You at Tax Time
You might be eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. Here are four popular tax credits you should consider before filing your 2010 Federal Income Tax Return:
- The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
- The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
- The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
- The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications and additional information available at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-41
Inside This Issue
Four Ways to Find Free Tax Help
The IRS offers free assistance by computer, telephone and in person. The IRS can also help find free tax preparation sites for those who qualify. Here are four great ways you can get the information you need to file your tax return
- IRS Website The IRS website at http://www.irs.gov is a one-stop shop for a wide array of tax information. You can even prepare and file your federal tax return – for free – through Free File, a service offered by IRS and its partners who make available free tax preparation software and free electronic filing. But you must go through IRS.gov to use Free File. Have some tax questions? Check out 1040 Central on the Individuals page for the latest news. You can even track your refund with Where’s My Refund?.
- Taxpayer Assistance Centers When you believe your tax issue cannot be handled online or by phone and you want face-to-face assistance, you can find help at a local IRS Taxpayer Assistance Center. Locations, business hours and an overview of services are available at IRS.gov. Just go to the Individuals tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.
- Community Resources Free tax preparation is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs in many communities. Volunteer return preparation programs provided through IRS and its partners offer free help in preparing simple tax returns for low-to-moderate-income taxpayers. For a list of the 2011 VITA sites you can visit IRS.gov, or call 800-906-9887. You may also call AARP — the largest TCE participant — at 888-227-7669 (888-AARPNOW) or access www.aarp.org to find the nearest AARP Tax-Aide site.
- Telephone Call the IRS Tax Help Line for Individuals, 800-829-1040, to get answers to your federal tax questions. To hear pre-recorded messages covering various tax topics or check on the status of your refund, call 800-829-4477. TTY/TDD users may call 800-829-4059 to ask tax questions or to order forms and publications. To order free forms, instructions and publications call 800-829-3676.
For more information about free services provided by the IRS, review Publication 910, IRS Guide to Free Tax Services available at http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-40
Inside This Issue
Military Personnel and their Families Get Free Tax Help!
Military members and their spouses may be eligible to receive free tax return preparation assistance. The IRS and U.S. Armed Forces participate in the Volunteer Income Tax Assistance program which provides free tax advice, tax preparation, return filing and other tax assistance to military members and their families.
1. Armed Forces Tax CouncilThe Armed Forces Tax Council oversees the operation of the military tax programs worldwide, conducting outreach with the IRS to military personnel and their families. The AFTC consists of tax program coordinators for the Marine Corps, Air Force, Army, Navy and Coast Guard.
2. Volunteer Tax SitesVolunteer assistors at military-based VITA sites are trained to address military-specific tax issues, such as combat zone tax benefits and the new Earned Income Tax Credit guidelines.
3. What to Bring To receive this free assistance, you should bring the following records to your military VITA site:
Valid photo identification
Social Security cards for you, your spouse and dependents or a social security number verification letter issued by the Social Security Administration
Birth dates for you, your spouse and dependents
Wage and earning statement(s) — Form W-2, W-2G, 1099-R
Interest and dividend statements (Forms 1099)
A copy of last year’s federal and state tax returns, if available
Checkbook to get routing number and account number for direct deposit
Total amount paid for day care and day care provider’s identifying number
Other relevant information about income and expenses
4. Joint returnsIf your filing status is Married Filing Jointly and you wish to file your tax return electronically, both you and your spouse should be present to sign the required forms. If it isn’t possible for both of you to be present, a valid power of attorney that allows tax preparation can be used to sign and file the return.
5. Special Exception There is a special exception to using a power of attorney for spouses in combat zones that permits the filing spouse to e-file a joint return with only a written statement setting forth that the other spouse is in a combat zone and is unable to sign.
For more information, review IRS Publication 3, Armed Forces’ Tax Guide, available at http://www.irs.govor order a free copy by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-39
Inside This Issue
Checking the Status of Your Refund
If you already filed your federal tax return and are due a refund, you have several options to check on your refund. Here are eight things the IRS wants you to know about checking the status of your refund:
1. Online Access to Refund Information Where’s My Refund? or ¿Dónde está mi reembolso? are interactive tools on http://www.irs.govand are the fastest, easiest way to get information about your federal income tax refund. Whether you split your refund among several accounts, opted for direct deposit into one account, used part of your refund to buy U.S. Savings Bonds or asked the IRS to mail you a check, Where’s My Refund? and ¿Dónde está mi reembolso? give you online access to your refund information, 24 hours a day, 7 days a week. It’s quick, easy and secure.
2. When to Check Refund Status If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. If you file a paper return, refund information will generally be available three to four weeks after mailing your return.
3. What You Need to Check Refund Status When checking the status of your refund, have your federal tax return handy. To get your personalized refund information you must enter:
Your Social Security Number or Individual Taxpayer Identification Number
Your filing status which will be Single, Married Filing Joint Return, Married.
Filing Separate Return, Head of Household, or Qualifying Widow(er).
Exact whole dollar refund amount shown on your tax return.
4. What the Online Tool Will Tell You Once you enter your personal information, you could get several responses, including:
Acknowledgement that your return was received and is in processing.
The mailing date or direct deposit date of your refund.
Notice that the IRS could not deliver your refund due to an incorrect address. In this instance, you may be able to change or correct your address online using Where’s My Refund?
5. Customized Information Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you may be able to start a refund trace.
6. Visually Impaired Taxpayers Where’s My Refund? is also accessible to visually impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.
7. Toll-free Number If you do not have internet access, you can check the status of your refund in English or Spanish by calling the IRS Refund Hotline at 800-829-1954 or the IRS TeleTax System at 800-829-4477. When calling, you must provide your or your spouse’s Social Security number, filing status and the exact whole dollar refund amount shown on your return.
8. IRS2Go This is the IRS’ first smartphone application that lets taxpayers check on the status of their tax refund. Apple users can download the free IRS2Go application by visiting the Apple App Store. Android users can visit the Android Marketplace to download the free IRS2Go app.
Issue Number: Special Edition Tax Tip 2011-36
Inside This Issue
Get Credit for Your Retirement Savings Contributions
You may be eligible for a tax credit if you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement. Here are six things the IRS wants you to know about the Savers Credit:
1. Income Limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and income of:
Single, married filing separately, or qualifying widow(er), with income up to $27,750
Head of Household with income up to $41,625
Married Filing Jointly, with incomes up to $55,500
2. Eligibility requirements To be eligible for the credit you must have been born before January 2, 1992, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.
3. Credit amount If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
4. Distributions When figuring this credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.
5. Other tax benefitsThe Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
6. Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.
For more information, review IRS Publication 590, Individual Retirement Arrangements (IRAs), Publication 4703, Retirement Savings Contributions Credit, and Form 8880. Publications and forms can be downloaded at http://www.irs.govor ordered by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-35
Inside This Issue
Ten Important Facts About Capital Gains and Losses
Did you know that almost everything you own and use for personal or investment purposes is a capital asset? Capital assets include a home, household furnishings and stocks and bonds held in a personal account. When a capital asset is sold, the difference between the amount you paid for the asset and the amount you sold it for is a capital gain or capital loss.
Here are ten facts from the IRS about gains and losses and how they can affect your Federal income tax return.
Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.
When you sell a capital asset, the difference between the amount you sell it for and your basis – which is usually what you paid for it – is a capital gain or a capital loss.
You must report all capital gains.
You may deduct capital losses only on investment property, not on property held for personal use.
Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any.
The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income. For 2010, the maximum capital gains rate for most people is 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain. Special types of net capital gain can be taxed at 25% or 28%.
If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $1,500 if you are married filing separately.
If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.
Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
For more information about reporting capital gains and losses, see the Schedule D instructions, Publication 550, Investment Income and Expenses or Publication 17, Your Federal Income Tax. All forms and publications are available at http://www.irs.govor by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-34
Inside This Issue
Seven Facts about the Expanded Adoption Credit
You may be able to take a tax credit of up to $13,170 for qualified expenses paid to adopt an eligible child. The Affordable Care Act increased the amount of the credit and made it refundable, which means it can increase the amount of your refund.
Here are seven things the IRS wants you to know about the expanded adoption credit.
Beginning in tax year 2010 the credit is refundable, meaning that you can get it even if you owe no tax.
For tax year 2010 you must file a paper tax return and Form 8839, Qualified Adoption Expenses, to get the credit and you must attach documents supporting the adoption.
Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and the state’s determination for special needs children.
Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child. These expenses may include adoption fees, court costs, attorney fees and travel expenses.
An eligible child must be under 18 years old, or physically or mentally incapable of caring for himself or herself.
If your modified adjusted gross income is more than $182,520, your credit is reduced. If your modified AGI is $222,520 or more, you cannot take the credit.
Taxpayers claiming the credit will still be able to use IRS Free File to prepare their returns, but the returns must be printed and mailed to the IRS, along with all required documentation.
For more information see the Adoption Benefits FAQ page available at http://www.irs.govor the instructions to IRS Form 8839, Qualified Adoption Expenses, which can be downloaded from the website or ordered by calling 800-TAX-FORM (800-829-3676).
Issue Number: Special Edition Tax Tip 2011-32
Inside This Issue
Ten Facts about IRS Volunteer Tax Assistance
Taxpayers looking for free basic income tax preparation assistance may qualify for IRS sponsored community-based, volunteer tax return preparation programs.
Here are the top 10 things the IRS wants you to know about these volunteer programs.
The IRS sponsors both the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs.
The IRS Volunteer Income Tax Assistance Program offers free tax help to people who earn less than $49,000. Most locations offer free electronic filing.
The Tax Counseling for the Elderly Program offers free tax help to taxpayers who are 60 and older.
The IRS trains community volunteers so they can help eligible taxpayers with several special credits, such as the Earned Income Tax Credit, the Child Tax Credit and the Credit for the Elderly.
Many volunteer sites have language specialists to assist people with limited English skills.
More than 12,000 free tax preparation sites are open nationwide this year as the IRS continues to expand its partnerships with nonprofit and community organizations performing these vital tax preparation services.
As part of the TCE program, AARP offers the Tax-Aide free tax preparation program at over 6,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteers provide assistance to low-to-moderate people, with special attention paid to those 60 and older.
The military also partners with the IRS to provide free tax assistance to military personnel and their families. The Armed Forces Tax Council consists of the tax program coordinators for the Army, Air Force, Navy, Marine Corps and Coast Guard. Volunteers are trained and equipped to address military-specific tax issues, such as combat zone tax benefits.
Locations and hours of operation are often available through city information hotlines and local community organizations.
Local VITA site information is also available at http://www.irs.govor by calling the IRS toll-free number 1-800-906-9887. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 (888-AARPNOW) or visit http://www.aarp.org.
Issue Number: Special Edition Tax Tip 2011-31
Inside This Issue
Important Tax Law Changes for 2010
Taxpayers should make sure they are aware of many important changes to the tax law before they complete their 2010 federal income tax return.
Here are several important changes that the IRS wants you to keep in mind when you file your 2010 federal income tax return in 2011.
Health Insurance Deduction Reduces Self Employment Tax In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their social security self-employment tax liability in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. But in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.
Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.
As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. Details, including a worksheet, are in the instructions to Form 1040.
First-time homebuyer credit You must meet the required deadlines to be eligible to claim the credit. You must have bought — or entered into a binding contract to buy — a principal residence on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed or gone to settlement on the home on or before Sept. 30, 2010. Because of the documentation requirements for claiming the credit, taxpayers who claim the credit on their 2010 tax return must file a paper — not electronic — return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and a properly executed copy of a settlement statement used to complete the purchase.
Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally begin repaying it on the 2010 return. In most cases, the credit must be repaid over a 15-year period. Many of those affected by this requirement received reminder letters from the IRS.
A repayment requirement also applies to a taxpayer who claimed the credit on either their 2008 or 2009 return and then sold it or stopped using the home as their main home in 2010. Use Form 5405 to report the repayment.
In addition, certain members of the armed forces and some other taxpayers still have time to buy a home and take the credit. See Form 5405 and its instructions for details.
Standard Mileage Rates for 2010 The standard mileage rate for business use of a car, van, pick-up or panel truck is 50 cents for each mile driven. The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 16.5 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.
Tax Breaks Extended Several tax breaks that expired at the end of 2009 were renewed and can be claimed on 2010 returns. They include:
State and local general sales tax deduction, primarily benefiting people living in areas without state and local income taxes. Claim on Schedule A, Line 5.
Higher education tuition and fees deduction benefiting parents and students. Claim on Form 8917.
Educator expense deduction for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250, Claim on Form 1040, Line 23 or Form 1040A Line 16.
District of Columbia first-time homebuyer credit. Claim on Form 8859
For further information about these changes visit the IRS website at http://www.irs.gov.
Issue Number: IRS Tax Tip 2011-30
Inside This Issue
Six Facts about IRS Publication 17
Starting with “What’s New for 2010” IRS Publication 17, Your Federal Income Tax, takes you step by step through each part of your individual Federal Income tax return. This comprehensive booklet explains the tax law in a way that will help you better understand your taxes so that you pay only as much as you owe and no more.
Here are the top six things the IRS wants you to know about Publication 17.
Publication 17, Your Federal Income Tax, is available on the IRS website at http://www.irs.gov and contains a wealth of information for individual taxpayers.
The online version of Publication 17 contains electronic links that make finding your answer simple. Both the downloadable PDF and online 2010 Publication 17 have thousands of helpful hyperlinks. Publication 17 is packed with basic tax-filing information and tips on what income to report and how to report it. Publication 17 also includes information on figuring capital gains and losses, claiming dependents, choosing the standard deduction versus itemizing deductions, and how to claim valuable tax credits.
Publication 17(SP) El Impuestos Federal sobre los Ingresos is available in Spanish.
You can get a hard copy of Publication 17 for free. To get a copy, visit http://www.irs.gov or call 800-TAX-FORM (800-829-3676).
Issue Number: IRS Tax Tip 2010-29
Inside This Issue
Ten Facts about the Child Tax Credit
The Child Tax Credit is an important tax credit that may be worth as much as $1,000 per qualifying child depending upon your income. Here are 10 important facts from the IRS about this credit and how it may benefit your family.
Amount- With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2010.
Relationship Test- To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.
Dependent Test- You must claim the child as a dependent on your federal tax return.
Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
Residence Test- The child must have lived with you for more than half of 2010. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
Limitations- 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. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $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.
Additional Child Tax Credit- If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
Form 8812, Additional Child Tax Credit
Publication 972, Child Tax Credit
Form 1040A, U. S. Individual Income Tax Return
Form 1040A Instructions
Form 1040, U.S. Individual Income Tax Return
Form 1040 Instructions
Issue Number: IRS Tax Tip 2011-28
Inside This Issue
Here is What to do If You Are Missing a W-2
Before you file your 2010 tax return, you should make sure you have all the needed documents including all your Forms W-2. You should receive a Form W-2, Wage and Tax Statement, from each of your employers. Employers have until January 31, 2011 to send you a 2010 Form W-2 earnings statement.
If you haven’t received your W-2, follow these four steps:
1. Contact your employer If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.
2. Contact the IRS If you do not receive your W-2 by February 14th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:
Employer’s name, address, city and state, including zip code and phone number
Dates of employment
An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2010. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. File your return You still must file your tax return or request an extension to file April 18, 2011, even if you do not receive your Form W-2. If you have not received your Form W-2 by the due date, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible. There may be a delay in any refund due while the information is verified.
4. File a Form 1040X On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.
Form 4852, Form 1040X, and instructions are available at http://www.irs.govor by calling 800-TAX-FORM (800-829-3676).
Form 4852, Substitute for Form W-2, Wage and Tax Statement
Form 1040X, Amended U.S. Individual Income Tax Return
Instructions for Form 1040X
Issue Number: IRS Tax Tip 2011-25
Inside This Issue
Taxable or Non-Taxable Income?
Generally, most income you receive is considered taxable but there are situations when certain types of income are partially taxed or not taxed at all.
To help taxpayers understand the differences between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items not included as taxable income:
Adoption Expense Reimbursements for qualifying expenses
Child support payments
Gifts, bequests and inheritances
Workers’ compensation benefits
Meals and Lodging for the convenience of your employer
Compensatory Damages awarded for physical injury or physical sickness
Welfare Benefits
Cash Rebates from a dealer or manufacturer
Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:
Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
Scholarship or Fellowship Grant If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
Non-cash Income Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.
All other items—including income such as wages, salaries, tips and unemployment compensation — are fully taxable and must be included in your income unless it is specifically excluded by law.
These examples are not all-inclusive. For more information, see Publication 525, Taxable and Nontaxable Income, which can be obtained at http://www.irs.govor by calling the IRS at 800-TAX-FORM (800-829-3676).
Publication 525, Taxable and Nontaxable Income
Issue Number: IRS Tax Tip 2011-24
Inside This Issue
Tax Benefits for Disabled Taxpayers
Taxpayers with disabilities and parents of children with disabilities may qualify for a number of IRS tax credits and benefits. Listed below are seven tax credits and other benefits which are available if you or someone else listed on your federal tax return is disabled.
Standard DeductionTaxpayers who are legally blind may be entitled to a higher standard deduction on their tax return.
Gross Income Certain disability-related payments, Veterans Administration disability benefits, and Supplemental Security Income are excluded from gross income.
Impairment-Related Work Expenses Employees who have a physical or mental disability limiting their employment may be able to claim business expenses in connection with their workplace. The expenses must be necessary for the taxpayer to work.
Credit for the Elderly or Disabled This credit is generally available to certain taxpayers who are 65 and older as well as to certain disabled taxpayers who are younger than 65 and are retired on permanent and total disability.
Medical ExpensesIf you itemize your deductions using Form 1040, Schedule A, you may be able to deduct medical expenses.See IRS Publication 502, Medical and Dental Expenses.
Earned Income Tax CreditEITC is available to disabled taxpayers as well as to the parents of a child with a disability.If you retired on disability, taxable benefits you receive under your employer’s disability retirement plan are considered earned income until you reach minimum retirement age. The EITC is a tax credit that not only reduces a taxpayer’s tax liability but may also result in a refund. Many working individuals with a disability who have no qualifying children, but are older than 25 and younger than 65 do — in fact — qualify for EITC. Additionally, if the taxpayer’s child is disabled, the age limitation for the EITC is waived. The EITC has no effect on certain public benefits. Any refund you receive because of the EITC will not be considered income when determining whether you are eligible for benefit programs such as Supplemental Security Income and Medicaid.
Child or Dependent Care Credit Taxpayers who pay someone to care for their dependent or spouse so they can work or look for work may be entitled to claim this credit.There is no age limit if the taxpayer’s spouse or dependent is unable to care for themselves.
For more information on tax credits and benefits available to disabled taxpayers, see Publication 3966, Living and Working with Disabilities or Publication 907, Tax Highlights for Persons with Disabilities, available on the IRS website at http://www.irs.govor by calling 800-TAX-FORM (800-829-3676).
Publication 3966, Living and Working with Disabilities
Publication 907, Tax Highlights for Persons with Disabilities
Issue Number: IRS Tax Tip 2011-21
Inside This Issue
Medical and Dental Expenses
If you itemize your deductions on Form 1040, Schedule A, you may be able to deduct expenses you paid in 2010 for medical care – including dental – for yourself, your spouse, and your dependents. Here are six things the IRS wants you to know about medical and dental expenses and other benefits.
You may deduct only the amount by which your total medical care expenses for the year exceed 7.5 percent of your adjusted gross income. You do this calculation on Form 1040, Schedule A in computing the amount deductible.
You can only include the medical expenses you paid during the year. Your total medical expenses for the year must be reduced by any reimbursement. It makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.
You may include qualified medical expenses you pay for yourself, your spouse, and your dependents, including a person you claim as a dependent under a multiple support agreement. If either parent claims a child as a dependent under the rules for divorced or separated parents, each parent may deduct the medical expenses he or she actually pays for the child. You can also deduct medical expenses you paid for someone who would have qualified as your dependent except that the person didn’t meet the gross income or joint return test.
A deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription except for insulin.
You may deduct transportation costs primarily for and essential to medical care that qualify as medical expenses. The actual fare for a taxi, bus, train, or ambulance may be deducted. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses. With either method you may include tolls and parking fees.
Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses.
For additional information on medical deductions and benefits, see Publication 502, Medical and Dental Expenses or Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, available at http://www.irs.govor by calling 800-TAX-FORM (800-829-3676).
Issue Number: IRS Tax Tip 2011-20
Inside This Issue
EITC – Earned Income Tax Credit – Don’t Overlook It
The Earned Income Tax Credit is a financial boost for workers earning $48,362 or less a year. Four of five eligible taxpayers filed for and received their EITC last year. The IRS wants you to get what you earned also, if you are eligible.
Here are the top 10 things the IRS wants you to know about this valuable credit, which has been making the lives of working people a little easier for 36 years.
As your financial, marital or parental situations change from year to year, you should review the EITC eligibility rules to determine whether you qualify. Just because you didn’t qualify last year, doesn’t mean you won’t this year.
If you qualify, the credit could be worth up to $5,666. EITC not only reduces the federal tax you owe, but could result in a refund. The amount of your EITC is based on your earned income and whether or not there are qualifying children in your household. The average credit was around $2,100 last year.
If you eligible for EITC, you must file a federal income tax return and specifically claim the credit – even if you are not otherwise required to file.Remember to include Schedule EIC, Earned Income Credit when you file your Form 1040 or, if you file Form 1040A, use and retain the EIC worksheet.
You do not qualify for EITC if your filing status is Married Filing Separately.
You must have a valid Social Security Number. You, your spouse – if filing a joint return – and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
You must have earned income. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.
Married couples and single people without children may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make this election, the combat pay remains nontaxable.
It’s easy to determine whether you qualify. The EITC Assistant, an interactive tool available on the IRS website, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and estimate the amount of your EITC.
Free help is available at Volunteer Income Tax Assistance sites and IRS Taxpayer Assistance Centers to help you prepare and claim your EITC. If you are preparing your taxes electronically, the software program you use will figure the credit for you. To find a VITA site or TAC near you, visit http://www.irs.gov.
For more information about the EITC, see IRS Publication 596, Earned Income Credit. This publication – available in both English and Spanish – can be downloaded from the IRS website or ordered by calling 800-TAX-FORM (800-829-3676).
Publication 596, Earned Income Credit (EIC)
Tax Topic 601, Earned Income Credit
Issue Number: IRS Tax Tip 2011-18
Inside This Issue
Ten Tax Benefits for Parents
Did you know that your children may help you qualify for some tax benefits? Here are 10 tax benefits the IRS wants parents to consider when filing their tax returns this year.
DependentsIn most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
Child Tax CreditYou may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.
Child and Dependent Care CreditYou may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.
Earned Income Tax CreditThe EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
Adoption CreditYou may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included. For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.
Children with Earned IncomeIf your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.
Children with Investment IncomeUnder certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.
Higher Education CreditsEducation tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970, Tax Benefits for Education.
Student loan InterestYou may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.
Self-employed health insurance deductionIf you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent. For more information see the IRS website.
The forms and publications on these topics can be found at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Issue Number: IRS Tax Tip 2011-17
Inside This Issue
Tax Help for Small Businesses and Self-Employed
The IRS Small Business and Self-Employed Tax Center at http://www.irs.gov/smallbiz offers extensive resources and online tools designed to help small businesses and self-employed persons.
The IRS Small Business and Self-Employed Tax Center on the IRS website offers the following resources:
Small business forms and publications
Employer Identification Number online application
Employment tax information – federal income tax, Social Security and Medicare taxes, FUTA and self-employment tax
Tax-related news that could affect your business
Small business educational events
IRS videos for small businesses
A-Z Index for Business – find information fast using the A-Z listing
The site provides important tax information available for all stages of owning a business. Whether you’re starting, operating or closing a business, visit http://irs.gov/smallbizfor all your federal income tax information.
Other resources available on the IRS website include a virtual small business tax workshop, video and audio presentations, a guide to IRS audits, and a tax calendar designed for small business taxpayers.
The IRS Video Portal:
Tax Questions? Learn about tax topics through video and audio presentations on the IRS Video Portal. The video portal contains archived versions of live panel discussions, archived webinars, video clips, and audio archives of national phone forums.
IRS Audits Video Series:
“Your Guide to an IRS Audit” takes the viewer through the steps of an audit from notification to closing. The video series is composed of scenarios that demonstrate the stages of each type of audit: correspondence, office and field. The scenarios address issues that are common to audits of small businesses.
Virtual Small Business Tax Workshop:
The IRS Virtual Small Business Tax Workshop is an interactive resource to help small business owners learn about their federal tax rights and responsibilities. The workshop contains nine stand-alone lessons that can be selected and viewed in any sequence. The workshop is available online 24 hours a day, seven days a week from any computer. It can also be ordered on CD.
Tax Calendar for Small Business Taxpayers:
The Tax Calendar for Small Businesses and Self-Employed – Publication 1518 – is available online or as a printable PDF file. This 12-month calendar is filled with information on general business taxes, IRS and Social Security Administration customer assistance, electronic filing and paying options, retirement plans, business publications and forms, and common tax filing dates. Each page highlights different tax issues and tips that may be relevant to small-business owners, with room on each month to add notes, state tax dates or business appointments. You can also download the tax events into your calendar or subscribe to the tax calendar events. The calendar provides the small business owner with a ready resource for meeting their tax obligations.
Issue Number: IRS Tax Tip 2011-16
Inside This Issue
Tax Tips for Self-employed Individuals
If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself self-employed and you would file IRS Schedule C, Profit or Loss From Business or Schedule C-EZ, Net Profit From Business with your Form 1040.
Here are six things the IRS wants you to know about self-employment:
Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
If you are self-employed you generally have to pay Self-employment Tax. Self-employment tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. You figure SE tax yourself using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.
If you are self-employed you generally have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you don’t make quarterly payments you may be penalized for underpayment at the end of the tax year.
You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.
For more information see IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available at http://www.irs.govor by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
Publication 334, Tax Guide for Small Business
Publication 535, Business Expenses
Publication 505, Tax Withholding and Estimated Tax
Issue Number: IRS Tax Tip 2011-13
Inside This Issue
How to Get Your Prior Year Tax Information from the IRS
Taxpayers who need certain prior year tax return information can obtain it from the IRS. Here are nine things to know if you need federal tax return information from a previously filed tax return.
There are three options for obtaining free copies of your federal tax return information – on the web, by phone or by mail.
The IRS does not charge a fee for transcripts, which are presently available for the current tax year as well as the past three tax years.
A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes made after the return was filed.
A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data – including marital status, type of return filed, adjusted gross income and taxable income.
To request either transcript online, go to http://www.irs.gov and look for our new online tool called Order A Transcript. To order by phone, call 800-908-9946 and follow the prompts in the recorded message.
To request a 1040, 1040A or 1040EZ tax return transcript through the mail, complete IRS Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript. Businesses, partnerships and individuals who need transcript information from other forms or need a tax account transcript must use the Form 4506T, Request for Transcript of Tax Return.
If you order online or by phone, you should receive your tax return transcript within 5 to 10 days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail using Form 4506T or Form 4506T-EZ.
If you still need an actual copy of a previously processed tax return, it will cost $57 for each tax year that you order. Complete Form 4506, Request for Copy of Tax Return, and mail it to the IRS address listed on the form for your area. Copies are generally available for the current year as well as the past six years. Please allow 60 days for actual copies of your return.
Visit http://www.irs.gov to determine which form will meet your needs. Forms 4506, 4506T and 4506T-EZ can be found at http://www.irs.govor by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
Issue Number: IRS Tax Tip 2011-11
Inside This Issue
Let Free File do the hard work for you
Everyone can prepare and e-file their federal tax returns for free through the IRS Free File Program. Free File is offered through a public-private partnership between the Internal Revenue Service and brand-name tax software companies. Free File can help you do your taxes fast; it’s safe and it doesn’t cost anything. Free File offers two options: easy-to-use software or online fillable forms.
Free File software is for taxpayers who earn $58,000 or less. Nearly 100 million Americans – that’s 70 percent of the nation’s taxpayers – can use the free brand-name software and secure e-filing offered by private-sector companies. Several software products also are in Spanish. Each company sets its eligibility requirements, generally based on income, age or state residency. However, if your adjusted gross income was $58,000 or less in 2010, you will find at least one tax software product to use.
Here’s how it works: You must access Free File through the IRS website. At http://www.irs.gov/freefile, you can use an online tool which allows you to give a little information about yourself and the tool will guide you to the software for which you are eligible. Or, you can review the complete list of companies and their offerings and make a selection.
Once you select a software product, you will be directed away from the IRS website to that company’s website. There, the software generally will offer a step-by-step guide through the tax preparation process.
Free File does all the hard work. You don’t need to be a tax expert; the software will help find tax breaks, such as the Earned Income Tax Credit, that you may be due. The software asks the questions; you supply the answers. It will find the right tax forms and do the math. Free File has a high satisfaction rate among its users, 98% recommend it to others. Combine e-file and direct deposit and you get your refund in as few as 10 days.
A word about security: all Free File companies use the latest is secure technology. The safety of taxpayer information is everyone’s priority. Thirty million taxpayers have used Free File since 2003, safely and securely.
Some companies provide state tax return software – sometimes for free and sometimes for a fee. Some states also have a relationship with the Free File Alliance and those states are listed on the companies’ websites.
Free File Fillable Forms Is Another Free Option
For people who make more than $58,000 or who are comfortable preparing their own tax return, there is Free File Fillable Forms. It also must be accessed through http://www.irs.gov/freefile. There is no software assistance with Free File Fillable Forms. It does basic math calculations. It does not support state income tax returns. It is perfect for the true do-it-yourself taxpayer who has preferred paper tax returns in the past. It also has free e-filing.
Issue Number: Special Edition Tax Tip 2011-01
Inside This Issue
Why Employees and Retirees may see Changes in 2011 Payments and Withholding
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, enacted on December 17, 2010, included several changes impacting workers’ take-home pay and retirees’ net pension checks for 2011. The Tax Relief Act extended for two years the income tax rates that were scheduled to expire at the end of 2010; that extension prevented a large increase in federal income tax withholding.
However, the new law did not extend the Making Work Pay (MWP) credit that had been available for tax years 2009 and 2010. While most workers qualified for the maximum MWP credit, pension recipients did not qualify for any MWP credit unless they also had wages or other earned income. In December 2010, the IRS published new federal income tax withholding information to reflect the impact of the Tax Relief Act. The fact that that the MWP credit expired, by itself, would have resulted in increased withholding for most taxpayers. However, under the Tax Relief Act, withholding for social security tax for all wage earners was reduced from 6.2% to 4.2% (withholding for Medicare, at 1.45%, did not change). For most employees, the net effect of these two changes will result in less total tax being withheld from their checks. The social security tax reduction does not affect pension payments.
Due to the late enactment of these tax law changes, the IRS asked employers and plan administrators to adjust their systems as soon as possible but not later than January 31, 2011. This means employees and pension recipients may not have seen the full impact of these changes until their first paycheck in February, 2011. Once employers implement the changes, there will be a net increase in take-home pay for most employees (excluding the impact of any other withholding amounts, such as withholding for health insurance, state income taxes, etc.).
Once pension plan administrators implement the 2011 changes, the retirement check payments for some pensioners may be lower depending upon the method that their plan administrators used to calculate withholding in 2010. Because the MWP credit did not apply to pensioners, the IRS published a table for 2009 and 2010 giving plan administrators the option of increasing withholding for their pension recipients. Not all plan administrators made the optional adjustment and instead allowed pensioners to make the adjustment when they filed their tax returns. Since the 2011 withholding tables do not reflect the expired credit, pension recipients in this situation are likely to see the withholding for their 2011 pension payments increase by approximately $7 to $50 per payment, depending on filing status, the amount of the payment, and how often the payment is made.
IRS encourages both employees and pensioners to review their withholding every year using the withholding calculatoron IRS.gov and, if necessary, fill out a new W-4 or W-4P form and give it to their employer or pension plan administrator.