IRS Tax Tips

The IRS Mission: Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.

This mission statement describes our role and the public’s expectation about how we should perform that role.

• In the United States, the Congress passes tax laws and requires taxpayers to comply.
• The taxpayer’s role is to understand and meet his or her tax obligations.
• The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share.

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TT-2008-01: SEVEN WAYS TO GET A JUMP START ON YOUR TAXES

Earlier is better when it comes to working on your taxes. Taxpayers are encouraged to get a head start on tax preparation, especially since early filers avoid the last minute rush and get their refunds sooner.

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

1. Gather your records in advance. Make sure you have all the records you need, including W-2s and 1099s. Don’t forget to save a copy for your files.
2. Get the right forms. They’re available around the clock on the IRS Web site, IRS.gov.
3. Take your time. Don’t forget to leave room for a coffee break when filling out your tax return as rushing can mean making a mistake.
4. Double-check your math and verify all Social Security numbers. These are among the most common errors found on tax returns. Taking care will reduce your chance of hearing from the IRS and speed up your refund.
5. E-filing is easy. E-filing catches math errors and provides confirmation your return has been received and gives you a faster refund.
6. Get the fastest refund. When you e-file file early, you receive your refund faster. When you choose direct deposit, you receive your refund sooner than waiting for a check.
7. Don’t panic. If you have a problem or a question, remember the IRS is there to help. Try the IRS Web site at IRS.gov or call the IRS customer service number at 800-829-1040.

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

TT-2008-02: SHOULD YOU FILE A TAX RETURN?

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

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

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

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

• Earned Income Tax Credit. The Earned Income Tax Credit is a federal income tax credit for eligible low-income workers. The credit reduces the amount of tax an individual owes, and may be returned in the form of a refund.
• Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not use the full amount of your Child Tax Credit
• Health Coverage Tax Credit. Limited to certain individuals who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation.

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

TT-2008-03: CHOOSE YOUR CORRECT FILING STATUS

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

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

There are five filing status options:

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

For more information about filing status see publication 501, Exemptions, Standard Deduction, and Filing Information available on the IRS website at IRS.gov or by calling 800-TAXFORM (800-829-3676).

TT-2008-04: WILL THE AMT DELAY YOUR REFUND?

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

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

• Form 8863, Education Credits.
• Form 5695, Residential Energy Credits.
• Schedule 2 (Form 1040A), Child and Dependent Care Expenses for Form 1040A Filers.
• Form 8396, Mortgage Interest Credit.
• Form 8859, District of Columbia First-Time Homebuyer Credit

If you are filing using one of the five affected forms you won’t be able to send your return to the IRS for a few weeks until the IRS computers are reprogrammed for the late tax law change. The IRS expects to be ready for these returns by February 11.

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

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

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

TT-2008-05: CHOOSE THE SIMPLEST FEDERAL TAX FORM FOR YOUR NEEDS

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

1040EZ You may qualify to use Form 1040EZ, the simplest form, if:

• Your taxable income is below $100,000
• Your filing status is Single or Married Filing Jointly
• You (and spouse) are under age 65 and not blind
• You are not claiming any dependents
• Your interest income is $1,500 or less

1040A You may be able to use Form 1040A if:

• Your taxable income is below $100,000
• You have capital gain distributions
• You claim certain tax credits
• You claim deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees

1040 If you cannot use either a 1040EZ or 1040A, you probably need to use Form 1040. You must file form 1040 if:

• Your taxable income is $100,000 or more
• You claim itemized deductions
• You are reporting self-employment income
• You are reporting income from sale of property

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

TT-2008-06: SHOULD I ITEMIZE?

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

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

Single $5,350

Married Filing Jointly $10,700

Head of Household $7,850

Married Filing Separately $5,350

• Some taxpayers have different standard deductions. The standard deduction is more for taxpayers age 65 or older and for those who are blind. It is generally less for those who can be claimed as a dependent on some other taxpayer’s return.

• Limited itemized deductions. Your itemized deductions may be limited if your adjusted gross income is more than $156,400 or $78,200 for Married Filing Separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest.

• Married Filing Separately. When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize and cannot claim the standard deduction.

• Some taxpayers are not eligible for the standard deduction. They include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months.

• Forms to use. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

TT-2008-07: ADVICE FOR CHOOSING A TAX RETURN PREPARER

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

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

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

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

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

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

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

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

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

TT-2008-08: KEEPING GOOD RECORDS

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

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

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

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

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

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

TT-2008-09: 1040 CENTRAL — ONE CLICK AWAY

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

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

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

External Links

• Forms and Publications
• E-filing
• 1040 Central

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