If you have any questions on this or other tax topics, contact me at 817-230-4115 or www.StressFreeTaxHelp.com.

IRS Offers Tips to Avoid Recovery Rebate Credit Confusion

WASHINGTON –– In response to errors showing up on early tax filings, the Internal Revenue Service today urged taxpayers and tax preparers to make sure they properly determine eligibility for the recovery rebate credit before they file their 2008 federal tax returns.

Some individuals who did not get the economic stimulus payment, and a smaller number of those who did, may be eligible for the recovery rebate credit. However, most taxpayers who received the economic stimulus payment last year will not qualify for the recovery rebate credit on their 2008 federal income tax return.

An early sampling of tax returns shows about 15 percent have errors involving the recovery rebate credit. Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line.

To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit now.

The amount of the stimulus payment will not be entered directly on the tax return. For people using a paper tax return, the stimulus payment amount will be required when completing a related worksheet. For people using tax software, the stimulus payment amount will be needed as part of the return preparation process.

How to Get the Recovery Rebate Credit Right

The IRS sent taxpayers nearly 119 million stimulus payments last year. There are three ways individuals can find out how much they received:

• Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.
• Go to the How Much Was My Stimulus Payment? tool that is available on the IRS Web site, IRS.gov. This can provide the correct amount in a matter of a few seconds.
• Individuals can call the IRS at 1-866-234-2942. After a brief recorded announcement they can select option one to find out the amount of their economic stimulus payment. They will need to provide their filing status, Social Security Number and number of exemptions.

With the amount of last year’s economic stimulus payment in hand, the taxpayer can then enter the figure on the recovery rebate credit worksheet or in the appropriate location when tax preparation software requests it.

If the taxpayer or preparer is using tax software, the amount of the rebate recovery credit will automatically be calculated and reported properly. If the taxpayer is using the paper method, the rebate recovery credit, as determined through the worksheet, should be reported on Line 70 of Form 1040, Line 42 of Form 1040A or Line 9 of Form 1040EZ.

For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero.

If there is any question at all as to the amount that should be reported for the recovery rebate credit, the taxpayer or preparer should enter a zero on the appropriate line above, and the IRS will determine whether a recovery rebate credit is due, and, if so, how much.

Some of the major factors that could qualify you for the recovery rebate credit include:

• Your financial situation changed dramatically from 2007 to 2008.
• You did not file a 2007 tax return.
• Your family gained an additional qualifying child in 2008.
• You were claimed as a dependent on someone else’s return in 2007 but cannot be claimed as dependent by someone else in 2008.

Stimulus Payments Not Taxable; Reports of Extensive Refund Delays False

The IRS has received a number of recurring questions involving stimulus payments and the recovery rebate credit. Here are some important tips to keep in mind:

Taxability. The economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A or 1040EZ.

Refund delays. IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds for as much as eight to 12 weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.

One payment. In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recovery rebate credit payments.

Refund amounts. The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.

Direct Deposit Requests. Taxpayers who request a direct deposit will receive the refund in the form of a direct deposit even if errors are detected.

For more information, visit the Recovery Rebate Credit Information Center as well as the rebate questions and answers.

If you have questions about this or other tax topics, contact me at 817-230-4115 or www.StressFreeTaxHelp.com.

Eight Reasons to Try e-file

If you’ve never filed your tax return electronically, you should definitely consider trying it in 2009. Join the millions of taxpayers who are saving time and money to file their tax returns without the many headaches often associated with filing a paper return.

Here are the top eight reasons close to 90 million people filed their tax returns electronically in 2008:

1. It’s easy. You can usually file a state tax return at the same time you electronically file your federal tax return.

2. It’s accurate. No more human errors because e-file checks for math errors and necessary information. This not only increases the accuracy of your return, but it also reduces the need for correspondence with the IRS to clarify errors or omissions.

3. No more second-guessing yourself. When you file electronically, the computer software or online program guides you through the process step-by-step.

4. You’ll get your refund faster. When you use e-file, you can get your refund in as little as ten days.

5. There are more payment options. With e-file, you can file your return early, but wait to pay any balance due by the April deadline. You can also pay electronically using a credit card, electronic funds withdrawal or in some cases the Electronic Federal Tax Payment System.

6. It’s fast. You don’t have to make a trip to the post office. In fact, you won’t even need to walk to the mailbox to send your return. Just click Send.

7. You’ll know the IRS received your return. The IRS will send you an electronic notification acknowledging receipt of your return.

8. You’ll have peace of mind. After clicking send and receiving your notification from the IRS that they received your return…kick back and relax – you’re done!

Links:

• E-file
• Free File
• Form W-4, Employee’s Withholding Allowance Certificate (PDF 31K)
• Electronic Federal Tax Payment System

If you have any questions on this or other tax topics, contact me at 817-230-4115 or www.StressFreeTaxHelp.com.

Free Volunteer Income Tax Assistance

Need help filing your tax return? If so, then you should look into the free, IRS-sponsored, volunteer tax return preparation programs.

Trained community volunteers can help eligible taxpayers with all special credits, such as the Child Tax Credit or the Credit for the Elderly. Also, many sites have language specialists to assist people with limited English skills.

Nearly 12,000 free tax preparation sites will be open nationwide this year as the Internal Revenue Service continues to expand its partnerships with nonprofit and community organizations performing vital tax preparation services for low-income and elderly taxpayers.

The IRS Volunteer Income Tax Assistance Program offers free tax help to people who earn less than $42,000. The Tax Counseling for the Elderly Program offers free tax help to taxpayers who are 60 and older.

As part of the IRS-sponsored TCE Program, AARP offers the Tax-Aide counseling program at nearly 7,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-moderate income with special attention to people age 60 and older. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 (888-AARPNOW) or visit AARP’s internet site.

The military also partners with the IRS to provide free tax assistance to military personnel and their families. The Armed Forces Tax Council oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. The AFTC 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 and the effect of the new EITC guidelines.

Locations and hours of operation are often available through city information hotlines and local community organizations. Local volunteer tax preparation site information is also available by calling the IRS toll-free number 1-800-906-9887.

Links:

• Volunteer assistance program
• Tax-Aide Program

If you have questions about these or other tax topics, contact me at 817-230-4115 or www.StressFreeTaxHelp.com.

Five Important Tax Credits

Check it out! You might be eligible for a tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable. That means you might receive a refund rather than owe any taxes.

Here are five popular credits you should consider before filing your 2008 Federal Income Tax Return:

1. The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.

2. 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.

3. 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.

4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low- and 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).

5. Health Coverage Tax Credit Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.

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 that is available on the IRS Web site at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).

Links:

• 1040 Central
• Publication 596, Earned Income Credit (EIC) (PDF 281K)
• Publication 972, Child Tax Credit (PDF 128K)
• Publication 503, Child and Dependent Care Expenses (PDF 167K)
• Publication 524, Credit for the Elderly and Disabled (PDF 140K)
• Publication 970, Tax Benefits for Education (PDF 368K)
• Publication 590, Individual Retirement Arrangements (IRAs) (PDF 449K)
• Form 1040 Instructions (PDF 1,101K)

Apparently, foreclosures were at an all time high in the 4th Quarter of last year. See the story: Morgage woes break records again in 4Q.

If you have questions on this or any other tax topic, contact me at 817-230-4115 or www.StressFreeTaxHelp.com.

If you have questions on this or another tax related topic, contact me at 817-230-4115 or www.StressFreeTaxHelp.com.

Mortgage Debt Forgiveness

If your mortgage debt is partly or entirely forgiven during tax years 2007 – 2012, you may be able to claim special tax relief and exclude the debt forgiveness income.

Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence. The limit is $1 million for a married person filing a separate return.

Taxpayers may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence. Refinanced debt proceeds used for the purpose of substantially improving your principal residence also qualify for the exclusion.

However, proceeds of refinanced debt used for other purposes (for example, to pay off credit card debt) do not qualify for the exclusion.

If you qualify, you claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attaching it to your federal income tax return for the year.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other tax relief provisions, (for example, insolvency), may be available. See Form 982 for details.

If your debt is reduced or eliminated you will receive a year-end statement, Form 1099-C, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.

The IRS urges borrowers to examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven (Box 2) and the value listed for your home (Box 7).

For more information about the Mortgage Forgiveness Debt Relief Act of 2007, visit the IRS Web site at IRS.gov. A good resource is IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. Taxpayers may obtain a copy of this publication and Form 982 either by downloading from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:

• Form 982
• Form 1099-C

Here is another separate BizJournal.com article to provide additional insight on the topic. (http://www.bizjournals.com/extraedge/consultants/growing_pains/2009/03/02/column22.html?ana=e_sol).

Be sure and share your thoughts on this matter. Additionally, if you have questions or want to discuss the possibility of starting a business yourself, contact me at 817-230-4115 or www.StressFreeTaxHelp.com.

Some might say yes while others might say no. The link below is an article from BizJournals.com on just this topic (http://www.bizjournals.com/bizjournals/othercities/jacksonville/stories/2009/02/23/story6.html?b=1235365200^1781198&s=sbc:1&ana=e_sol).

Take a look at what others are saying about the idea of opening or starting a business in this current economy. You just might be surprised at what you find.

If you have any questions about starting a business in this market or other tax related questions contact me at 817-230-4115 or www.StressFreeTaxHelp.com.

IRS Issues Winter 2009 Statistics Of Income Bulletin

WASHINGTON —The Internal Revenue Service today released the winter 2009 issue of the Statistics of Income Bulletin, which features information on 138.4 million individual income tax returns filed for tax year 2006. Of those returns, about 93 million, or 67 percent, were taxable, which means that the taxpayer reported total income tax greater than zero. The total number of taxable returns in tax year 2006 was up 2.4 percent from 2005.

Adjusted gross income on these 93 million returns totaled more than $7.4 trillion, which was up 8.5 percent from 2005. Total income tax on these returns totaled approximately $1 trillion, up 9.5 percent from 2005. (Adjusted gross income is total income, as defined by the tax code, less statutory adjustments – primarily business, investment or certain other deductions.)

The average tax rate for taxable returns was 13.8 percent, an increase of approximately 0.2 percentage points from 2005.

Taxpayers in the top 1 percent of adjusted gross income reported adjusted gross income of at least $388,806 in tax year 2006. This group accounted for 22.1 percent of all adjusted gross income for 2006, up 0.9 percentage points from the prior year. This group also accounted for 39.9 percent of the total income tax reported, an increase from 39.4 percent in 2005.

Taxpayers in the top 5 percent of adjusted gross income reported adjusted gross income of at least $153,542. This group accounted for 36.7 percent of adjusted gross income and 60.1 percent of total income tax.

The Bulletin also includes articles on the following:

• Split-interest trusts reported $12.2 billion in total net income in filing year 2007, an increase of 22.1 percent since 2006. Total accumulations, including ordinary income, short-term and long-term capital gains, and nontaxable income, also increased, from $66.3 billion in filing year 2006 to $73.1 billion in 2007.
• Charitable and other tax-exempt organizations reported more than $10 billion in gross unrelated business income for tax year 2005. Between 2004 and 2005, total unrelated business income tax liability increased by 49 percent to $543.3 million.
• Foreign persons received $378.4 billion in U.S. source income during tax year 2005 and $333.2 billion of that amount, or 88.0 percent, was exempt from withholding taxes. For tax year 2005, interest payments accounted for 56 percent ($211.8 billion) of total income paid to foreign recipients.
• Taxpayers will file 240 million federal tax returns and supplemental documents for calendar year 2009, according to projections from the IRS Office of Research. This number, which includes individual, corporation, partnership and estate tax returns, as well as extension of time to file applications and amended returns, among others, represents a decrease of 4.3 percent from estimated return filings of 250.8 million for 2008. The Office of Research also estimates that the Economic Stimulus Act of 2008 increased 2008 filings of Form 1040, 1040A, and 1040EZ returns by approximately 14.4 million returns over baseline projections for that year. No projections are available for filings that may occur as a result of the American Recovery and Reinvestment Act of 2009.
• The final article in the Bulletin examines allocation, the identification and movement of taxpayer-reported data items to other more specific items or categories. This is one of many statistical processes that the Statistics of Income (SOI) Division applies to U.S. corporate income tax returns selected for the SOI sample. For tax year 2005, the total amount allocated was more than $10.5 trillion.

The Statistics of Income Bulletin is available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. The annual subscription rate is $53 ($74.20 foreign), single issues cost $39 ($48.75 foreign).

For more information about these data, write to the Director, Statistics of Income (SOI) Division, RAS:S, Internal Revenue Service, P.O. Box 2608, Washington, DC 20013-2608; call Statistical Information Services at (202) 874-0410; or send a fax to (202) 874-0964. These are not toll-free numbers.

Related Items:

• SOI Bulletin: Winter 2009
• Historical Tables and Appendix
• Tax Statistics

By the way, the government would like you not to file. Read below to find out how they get to keep your money.

IRS Has $1.3 Billion for People Who Have Not Filed a 2005 Tax Return

WASHINGTON — Unclaimed refunds totaling approximately $1.3 billion are awaiting over a million people who did not file a federal income tax return for 2005, the Internal Revenue Service announced today. However, to collect the money, a return for 2005 must be filed with the IRS no later than Wednesday, April 15, 2009.

Especially in these tough economic times, people should not lose out on money that is rightfully theirs,” said IRS Commissioner Doug Shulman. “People should check their records, especially if they had taxes withheld from their paychecks but were not required to file a tax return. They may be leaving money on the table, including valuable tax credits that can mean even more money in their pockets.”

The IRS estimates that half of those who could claim refunds for tax year 2005 would receive more than $581. Some individuals may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury. For 2005 returns, the window closes on April 15, 2009. The law requires that the return be properly addressed, postmarked and mailed by that date. There is no penalty assessed by the IRS for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2005 refund that their checks will be held if they have not filed tax returns for 2006 or 2007. In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.

By failing to file a return, individuals stand to lose more than refunds of taxes withheld or paid during 2005. Many low-income workers may not have claimed the Earned Income Tax Credit (EITC). Generally, unmarried individuals qualified for the EITC if in 2005 they earned less than $35,263 and had more than one qualifying child living with them, earned less than $31,030 with one qualifying child, or earned less than $11,750 and had no qualifying child. Limits are slightly higher for married individuals filing jointly.

Current and prior year tax forms and instructions are available on the Forms and Publications web page of IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676). Information about the Earned Income Tax Credit and how to claim it is also available on IRS.gov. Taxpayers who need help also can call the toll-free IRS help line at 1-800-829-1040.

Individuals Who Did Not File a 2005 Return with an Estimated Refund

*Excluding the Earned Income Credit and other taxes.

Contact me at www.StressFreeTaxHelp.com with any questions.