Tax Tips

 

The following information is from the Internal Revenue Service's website and is for informational purposes only and should not be construed as legal advice.

Eight facts about filing status

Everyone who files a federal tax return must determine which filing status applies to them. It’s important you choose your correct filing status as it determines your standard deduction, the amount of tax you owe and ultimately, any refund owed to you.

  • Your marital status on the last day of the year determines your marital status for the entire year.
  • If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
  • Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
  • A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
  • If your spouse died during the year and you did not remarry during 2009, you may still file a joint return with that spouse for the year of death, provided the joint return election is not revoked by a personal representative for the deceased spouse.
  • A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
  • Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
  • You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2007 or 2008, you have a dependent child and you meet certain other conditions.



Eight things to know if you receive an Internal Revenue Service (IRS) notice

Every year the Internal Revenue Service (IRS) sends millions of letters and notices to taxpayers. Many taxpayers will receive this correspondence during the late summer and fall. Here are eight things every taxpayer should know about IRS notices – just in case one shows up in your mailbox.

  • Don’t panic. Many of these letters can be dealt with simply and painlessly.
  • There are number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.
  • Each letter and notice offers specific instructions on what you are asked to do to satisfy the inquiry.
  • If you receive a correction notice, you should review the correspondence and compare it with the information on your return.
  • If you agree with the correction to your account, usually no reply is necessary unless a payment is due.
  • If you do not agree with the correction the IRS made, it is important that you respond as requested. Write to explain why you disagree. Include any documents and information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left-hand corner of the notice. Allow at least 30 days for a response.
  • Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help us respond to your inquiry.
  • It’s important that you keep copies of any correspondence with your records.



Does the Internal Revenue Service (IRS) owe you money?

If you are due a refund and haven’t filed a prior year tax return, you should consider filing the return to claim that refund. If you’re missing a refund for a previously filed tax return, you should contact the Internal Revenue Service (IRS) to check the status of your refund and confirm your current address.

Unclaimed Refunds
Some people may have had taxes withheld from their wages but weren’t required to file a tax return because they had too little income. Others may not have had any tax withheld but would be eligible for the refundable Earned Income Tax Credit.
  • To collect this money, a return must be filed with the IRS no later than three years from the due date of the return.
  • If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.
  • There is no penalty assessed by the IRS for filing a late return qualifying for a refund.
  • Current and prior year tax forms and instructions are available on the Forms and Publications web page of www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).
  • Information about the Earned Income Tax Credit and how to claim it is also available on www.IRS.gov.
Undeliverable Refunds
Were you expecting a refund check but didn’t get it?
  • Refund checks are mailed to your last known address. Checks are returned to the IRS if you move without notifying the IRS or the U.S. Postal Service.
  • You may be able to update your address with the IRS on the “Where’s My Refund?” feature available on www.IRS.gov. You’ll be prompted to provide an updated address if there’s an undeliverable check outstanding within the last 12 months.
  • You can also ensure the IRS has your correct address by filing Form 8822, Change of Address, which is available on www.IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
  • If you don’t have access to the Internet and think you may be missing a refund, you should first check your records or contact your tax preparer. If your refund information appears correct, call the IRS toll-free assistance line at 800-829-1040 to check the status of your refund and confirm your address.



Filing facts for recently married or divorced taxpayers

If you were married or divorced recently, there are a couple of things you’ll want to do to ensure the name on your tax return matches the name registered with the Social Security Administration (SSA).

  • If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, Internal Revenue Service (IRS) computers can’t match the new name with their Social Security Number (SSN).
  • If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.
  • Informing the SSA of a name change is a snap: you’ll just need to file a Form SS-5: Application for a Social Security Card, at your local SSA office.
  • Form SS-5 is available on SSA’s Web site at www.socialsecurity.gov, by calling 800-772-1213 or at local offices. It usually takes about two weeks to have the change verified.
  • If you adopted your spouse’s children after getting married, you’ll want to make sure the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A: Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS.


Tax tips for the recently married

Here are some tips to help newlyweds avoid stress at tax time:

  • Report any name change to the Social Security Administration (SSA), so your name and Social Security Number (SSN) will match when you file your next tax return. File a Form SS-5:, Application for a Social Security card, at your local SSA office; the form is available at www.socialsecurity.gov
  • Notify the Internal Revenue Service (IRS) if you have a new address by sending Form 8822, Change of Address. Download Form 8822 at www.IRS.gov
  • Notify the U.S. Postal Service when you move so it can forward any IRS correspondence.
  • Report any name and address changes to your employer(s) to ensure receipt of your Form W-2: Wage and Tax Statement, after the end of the year.
  • If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on www.IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status.



Tax tips for summer child care expenses

Here are five facts the Internal Revenue Service (IRS) wants you to know about a tax credit available for child care expenses:

1. The cost of day camp can count as an expense towards the child and dependent care credit.

2. Expenses for overnight camps do not qualify.

3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you’ll get some tax benefit if
    you qualify for the credit.

4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.

5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two
    or more qualifying individuals to figure the credit.




    Extension of first-time homebuyers tax credit

    The Worker, Homeownership and Business Assistance Act of 2009 has extended the popular first-time homebuyer tax credit originally scheduled to expire on December 1, 2009. This new legislation offers those in the process of buying a home more time to take advantage of this significant tax benefit, allowing them to claim the credit if they close on a first-time home purchase by midnight on June 30, 2010.


    According to the Internal Revenue Service (IRS), the credit has provided a tax benefit to more than 1.4 million* taxpayers as of September 2009. The credit enables those buying a primary residence for the first time to claim 10 percent of the purchase price of their home, up to $8,000 for single taxpayers or married taxpayers filing jointly.


    The new provisions include the following changes:
    • Taxpayers must purchase their home, or be locked into a contract to close, before midnight on April 30, 2010. The closing must occur before midnight on June 30, 2010.
    • The credit is allowed in full for those with incomes up to $125,000 ($225,000 if married filing joint). The credit is reduced for taxpayers with an income between $125,000 and $145,000 ($225,000 and $245,000 if married filing joint) and is not available for taxpayers with an income higher than $145,000 ($245,000 if married filing joint).
    • Taxpayers (and their spouses) who have lived in their home for five consecutive years out of the eight years preceding closing on a new house may qualify for a reduced credit ($6,500 or $3,250 for those who file separately).



    Some current homeowners now also qualify for first-time homebuyer credit

    A new law that went into effect Nov. 6, 2009 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.

    The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.

    The maximum credit amount remains at $8,000 for a first-time homebuyer — that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.

     

    But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

    For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

    Income Limits Rise

    The new law raises the income limits for people who purchase homes after Nov. 6, 2009. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

    For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.


    New Requirements
    Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:
    • Dependents are not eligible to claim the credit.
    • No credit is available if the purchase price of a home is more than $800,000.
    • A purchaser must be at least 18 years of age on the date of purchase

    For Members of the Military

     

    Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.

     




    Ten things the Internal Revenue Service (IRS) wants you to know about identity theft


    • If you receive a letter or notice from the Internal Revenue Service (IRS) which leads you to believe someone may have fraudulently used your Social Security Number (SSN), respond immediately to the name and address or phone number printed on the IRS notice.
    • If you receive a letter from the IRS that indicates more than one tax return was filed for you, this may be a sign that your SSN was used fraudulently.
    • Another sign that you may be the target of identity theft is an IRS letter indicating you received wages from an employer unknown to you.
    • The IRS has a department which deals specifically with identity theft issues. The IRS Identity Protection Specialized Unit is available if you have been in contact with the IRS about an identity theft issue and have not achieved a resolution.
    • You can contact the IRS Identity Protection Specialized Unit by calling the Identity Theft Hotline at 800-908-4490, Monday through Friday from 8:00 am to 8:00 pm local time (Alaska and Hawaii follow Pacific Standard Time).
    • The IRS Identity Protection Specialized Unit is also available if you believe your identity may be at risk of being stolen due to a lost or stolen purse or wallet or due to questionable activity on your credit card or your credit report.
    • The IRS never initiates communication with taxpayers about their tax account through emails. If you receive an e-mail or find a Web site you think is pretending to be the IRS, forward the e-mail or Web site URL to the IRS at phishing@irs.gov.
    • The IRS has many more resources available to help inform taxpayers about identity theft on the IRS Web site at www.IRS.gov. On www.IRS.gov you can access information on how to report scams and bogus IRS Web sites. You can also visit the IRS Identity Theft Resource Page, which you can find by typing Identity Theft Resource Page in the search box on the IRS.gov home page.
    • The Federal Trade Commission is also available to assist taxpayers with identity theft issues. You can reach them at 877-ID-THEFT (877-438-4338).
    • Visit www.OnGuardOnline.gov for protection tips from the federal government and the technology industry.



    Ten tips for deducting charitable contributions

    When preparing to file your federal tax return, don’t forget your contributions to charitable organizations. Your donations could add up to a sizeable tax deduction if you itemize on IRS Form 1040, Schedule A. Here are a few tips to ensure your contributions pay off on your tax return:

    • Contributions must be made to qualified organizations to be deductible. You cannot deduct contributions made to specific individuals, political organizations and candidates.
    • You cannot deduct the value of your time or services. Nor can you deduct the cost of raffles, bingo or other games of chance.
    • If your contributions entitle you to merchandise, goods or services, including admission to a charity ball, banquet, theatrical performance or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.
    • Donations of stock or other property are usually valued at the fair market value of the property. Special rules apply to donation of vehicles.
    • Clothing and household items donated must generally be in good used condition or better to be deductible.
    • Regardless of the amount, to deduct a contribution of cash, check or other monetary gift, you must maintain a bank record or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution.
    • To claim a deduction for contributions of cash or property equaling $250 or more you must obtain 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 from the organization may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more.
    • If you claim a deduction of more than $500 for all contributed property, you must 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 requires an appraisal by a qualified appraiser.
    • Contributions made for relief efforts in a Midwest disaster area receive special benefits. For more information, see Publication 4492-B, Information for Affected Taxpayers in the Midwest Disaster Areas.



    Six facts about the American opportunity tax credit

    Many parents and college students will be able to offset the cost of college over the next two years under the new American Opportunity Tax Credit. Here are six important facts the IRS wants you to know about the new American Opportunity Tax Credit:

    • This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course materials.
    • The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000 per student each year. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.
    • The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.
    • Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.
    • The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.
    • You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction, whichever is more beneficial for you.


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