Online Payment Agreement

Do You Barter?

Business Income

Home Office Deduction - What's Allowable?

Electronic Records

Good Recordkeeping Helps Avoid Headaches at Tax Time

IRS E-File: A History

 

FS-2011-10, June 2011

Within 25 years, the mere trickle of 25,000 electronically filled individual tax returns has turned into a torrent of more than 100 million a year and led to a permanent change in the way Americans file their taxes.

And it started with one IRS employee having to manually turn on a modem every time tax returns were e-filed, a dedicated research and project office staff and an admittedly awkward use of the distinctive “Mission Impossible” theme.

The IRS e-file surpassed a landmark: 1 billion individual Form 1040 tax returns received and processed safely and securely. IRS Commissioner Doug Shulman has called IRS e-file one of the federal government’s most successful modernization programs.

IRS e-file has come a long way from the 25,000 returns submitted by five tax preparers in 1986.

In the 1980s, efficient tax collection was becoming more difficult because of the complex, time-consuming and error-prone process of converting paper returns and information documents into a form that could be processed by machine. Even the mere storage of paper tax and information returns was becoming costly as more and more space was needed for the burgeoning reams of required paper forms and documents.

Even as tax practitioners were starting to use computers to prepare clients taxes, the IRS still forced them to print and mail returns because of the processing system.
Enter IRS e-file. The initial idea sprang from the IRS Research Division, which ran tests to prove the technical feasibility of Electronic Filing System (EFS), a concept it believed would simply the processing method.

In 1986, a pilot program was launched to test the costs and benefits of EFS and to gauge acceptance by preparers and taxpayers. Only five tax preparers in three metropolitan areas – Cincinnati, Raleigh-Durham and Phoenix – agreed to participate. Then, the system could only process returns that were due refunds.

“The processing system at that time consisted of a Mitron and a Zilog, which most people have never heard of,” recalled retired IRS employee Leonard Holt, who served as a branch manager in the e-file project office. The tax preparer would call a designated number at the Cincinnati Service Center and an IRS employee would plug the phone into the Mitron, which Holt described as a modem with a tape drive.

When the transmission was finished, the IRS employee would transfer the tape to the Zilog, a super mini-computer, which would massage the data into files that the IRS’ Unisys System could process.

To send the acknowledgement, the IRS employee would have to telephone the tax preparer who would plug the phone into his own modem and reverse the transmission process.

Still, the “electronic” process seemed promising. Holt and former IRS employee Mike Jackman, discussing e-file one day after work, sketched the IRS e-file process onto a napkin along with the creation of an e-File Project Office and the equipment needed to move the concept from beyond the research stage.

Mercedes del Toro, also now retired, became a part of the e-file project office team because she had training in COBOL, a computer programming language. She developed the specifications for the Form 1065 for partnerships and Form 1041 for trusts which also were being e-filed along with the Form 1040.

“My first day on the job started by leafing through the many Internal Revenue Manual pages on my cluttered desk,” recalls del Toro. After lunch, she told her boss the job would take six months; her boss said she had one month. “Thank God for overtime, coffee, good health, sense of humor and a wonderful team.” It wasn’t pretty, but the job was done on time.

In 1987, 66 preparers from seven cities participated and filed 78,000 tax returns. That year, electronic Direct Deposit was added to put the refunds directly in the bank accounts.

By 1988, the IRS moved to an IBM Series I processing system, the 16-bit minicomputer, which finally eliminated the need for an IRS employee to plug the phone into a modem. And tax preparers were starting to become curious.

IRS National Account Manager Aaron Welch was in the IRS’ Baltimore District in 1988 and recalls when officials from headquarters had to explain to tax preparers what e-file was all about because few other IRS employees understood it.

“We had about 12,000 e-file returns in Baltimore District that first year. That included all of Maryland and Washington, D.C. The second year we had about 60,000, and everybody celebrated. This year, taxpayers in Maryland and D.C. e-filed over 2 million federal returns," Welch said.

Once e-file became operational almost the entire project office was conscripted into marketing the new product to tax preparers.

Laurie Barrett, who now works for IRS Portal Business Management, recalls traveling around Colorado trying to convince tax preparers to make the investment into modems and join electronic filing. A promotional video featured the distinctive theme from “Mission Impossible” and Greg Morris, who played electronic expert Barney Collier in the hit television show, was the video spokesman promoting e-file. In the beginning, the theme song brought laughs from the audience, recalled Barrett, who served as an IRS district e-file coordinator when the program started.

Eileen McCrady, former chief, systems development branch and later marketing branch chief, remembers: “Tax preparers were not buying any of it. Most people figured it was a plot to capture additional information for audits.” Actually, e-filed returns are so accurate that it decreases the chances of hearing from the IRS. In the early days, the number of participating tax preparers was so small that McCrady kept a list, ironically on paper, in her desk. Even at the IRS the use of computers was limited and McCrady often shared one computer with six colleagues.

In 1990, IRS e-file became operational nationwide and 4.2 million returns were filed electronically.

From the beginning, IRS e-file received a tremendous boost when two major tax preparation firms, H&R Block and Jackson-Hewitt, agreed to give it a try. More tax professionals became willing to give it a chance.

And, the e-file seminars eventually became the IRS Tax Forums which now annually draw more than 20,000 tax preparers who learn about the latest tax changes and other IRS activities as well as e-file.

IRS e-file has proven to be a win-win for all involved. Taxpayers get faster refunds, in as few as 10 days if they use direct deposit. Or, they get payment options to file now and pay later. An e-filed return is far more accurate. It has an error rate of 1 percent compared to 20 percent for a paper return.

The IRS currently is phasing in its Modernized e-File (MeF) system, the next generation of electronic filing. MeF means acknowledgements will be sent within minutes as opposed to 48 hours. If a return is rejected, a more detailed message will allow taxpayers to quickly correct errors and resend the return.

MeF uses a transactional based platform that allows individual returns to be transmitted to the IRS. Legacy e-file is based on batch processing that required many returns to be sent at once several times a day.

MeF and the Customer Account Data Engine (CADE), which will replace the IRS master file tapes, will provide the foundation for the future electronic transactions by taxpayers and by tax preparers, eventually providing real-time access to accounts and speeding refunds to a matter of a few days instead of a few weeks.

Now, e-file no longer is the exception; it’s the norm.

E-FILE HISTORICAL TIMELINE

1986: Initial filing season pilot with 5 tax preparers in 3 cities; 25,000 returns filed. The program could only accept simple returns that were due a refund.

1987: Pilot expanded to 7 cities; 78,000 returns filed. Direct Deposit was added as a benefit.

1988: Pilot expanded to 16 IRS districts; 583,000 returns filed. The Form 1065 (partnerships) and Form 1041 (trusts) are added to the e-file list.

1989: Pilot expands to 36 states; 1.1 million returns filed.

1990: E-File expands nationwide; 4.2 million returns filed.

1992: Telefile pilot debuts for 1040-EZ filers to e-file via telephone. The IRS begins to accept individual tax returns where tax is owed and checks can be mailed via paper voucher.

1998: Congress passes IRS RRA 98 containing a provision setting a goal of an 80 percent e-file rate for “all federal tax and information returns.”

1999: Electronic payments through credit cards or direct debit introduced; IRS pilots alternative programs to allow taxpayers to sign returns electronically instead of mailing a signature form.

2002: IRS allows taxpayers to sign e-file returns using a Personal Identification Number (PIN) which made the e-file process entirely paperless.

2003: Free File debuts; IRS partners with Free File Alliance, a consortium of tax software companies, to make free tax preparation software and free e-file available to most individual tax payers. In a major step for businesses, e-file is expanded to the quarterly Form 941 for employment taxes and the annual Form 944 for small businesses.

2004: Modernized e-File (MeF), the next generation of IRS e-file, makes its debut, accepting business and information returns such as the Forms 1120, 1120-S and 990 series.

2005: E-filed returns cross the 50 percent threshold; 68.4 million returns filed. Telefile ends after years of declining use as users migrated to tax software and e-file..
2006: MeF becomes mandatory for businesses and exempt organizations with assets of $50 million or more.

2007: MeF threshold for businesses and exempt organizations lowered to assets of $10 million or more.

2009: Congress passes a provision requiring tax preparers who file more than 10 individual tax returns to file electronically; IRS phases in the requirement, setting the threshold at 100 or more for 2011 and 11 or more for 2012.

2010: MeF begins a roll out for the Form 1040 series and 23 related forms which will take three or more years to make all the related forms available; IRS stops mailing paper Form 1040 packages.

2011: E-filed returns cross the 100 million threshold in one filing season; cumulative total exceeded 1 billion returns. Approximately three out of every four individual tax returns were filed electronically.

IRS Has a Smartphone App!

Keep track of your refund with the IRS App.

Tax Scams

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.

1. 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.
2. 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.
3. Publication 17 is packed with basic tax-filing information and tips on what income to report and how to report it.
4. 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.
5. Publication 17(SP) El Impuestos Federal sobre los Ingresos is available in Spanish.
6. 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).

Links:

• Publication 17, Your Federal Income Tax
• Publication 17, Your Federal Income Tax (PDF 2085K)

Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Extender Bill)

IRS News Release: Tax Season Starts on Time for Most Taxpayers; Those Affected by Late Tax Breaks Can File in Mid-to Late February

Announced January 20, 2011 - Beginning Feb. 14, the IRS will start processing both paper and e-filed returns claiming itemized deductions on Schedule A, the higher education tuition and fees deduction on Form 8917 and the educator expenses deduction.

---

As a result of the December 17, 2010 tax law changes, the Internal Revenue Service announced on December 23, 2010 that the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns.

Due to late tax breaks certain filers will have to wait until Mid-to Late February to file their tax return. Taxpayers will need to wait to file if they are within any of the following three categories:

• Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid-late February.
• Taxpayer claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students -covering up to $4,000 of tuition and fees paid to a post-secondary institution-is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
• Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket expenses of up to $250. The educator expense is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

People claiming any of these three items will need to wait to file their tax returns until tax processing systems are ready. The Internal Revenue Service plans a Feb. 14 start date for processing tax returns delayed by the tax law changes. The IRS needed the extra time to update its systems to accommodate the tax law changes without disrupting other operations tied to the filing season.

Additional Information:

• IRS to Start Processing Delayed Returns on Feb. 14; Most People Unaffected and Can File Now (added 1/20/11)
• IRS Kicks Off 2011 Tax Season with Deadline Extended to April 18; Taxpayers Impacted by Recent Tax Breaks Can File Starting in Mid- to Late February
• Tax Season Starts on Time for Most Taxpayers; Those Affected by Late Tax Breaks Can File in Mid- to Late February
• Forms Affected By the Extender Provisions
  

IRS Reminds Small Charities to Check Their Reporting Requirements Because They May Have Gotten Simpler

WASHINGTON — The Internal Revenue Service today announced that small tax-exempt organizations may be able to shift to the simpler Form 990-N (e-Postcard) for their 2010 annual information reporting.

The IRS today issued guidance (Revenue Procedure 2011-15) that will allow more tax-exempt organizations to file the e-Postcard rather than the Form 990-EZ or the standard Form 990.

For tax years beginning on or after Jan. 1, 2010, most tax-exempt organizations whose gross annual receipts are normally $50,000 or less can file the e-Postcard. The threshold was previously set at $25,000 or less. (However, supporting organizations of any size must file the standard Form 990 or, if eligible, Form 990-EZ).

A tax-exempt organization’s annual gross receipts or total assets are used to determine which of the three versions of Form 990 it is required to file. IRS.gov contains information about which form to file.

The Pension Protection Act of 2006 made important changes to rules regarding tax-exempt organizations’ annual filing requirements, which took effect as of the beginning of 2007.

First, it mandated that small tax-exempt organizations, other than churches and church-related organizations, file an annual notice with the IRS if they were too small to file Form 990 or Form 990-EZ. (The Form 990-N was created for small tax-exempt organizations that had not previously had a filing requirement.) Second, it required all supporting organizations, regardless of their size, to file the standard Form 990 or Form 990-EZ. Finally, the law specifies that any tax-exempt organization that fails to file for three consecutive years automatically loses its federal tax-exempt status.

Any tax-exempt organization that has not yet complied with these new requirements should do so immediately. If an organization loses its exemption, it will have to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

How to Track Your Tax Refund

Wondering where your tax refund could be? Just watch the video to find out how to track your tax refund.

How to Deal With a Federal Tax Lien

Federal Tax Liens

Whenever you owe taxes to the U.S. Treasury and don't pay, a claim against you by the federal government arises by law. (Internal Revenue Code § 6321.) This claim is called a tax lien. The existence of the government's claim is not public information-at least initially-and so it is sometimes called a "secret" or "statutory" or "automatic" lien.

The tax lien automatically attaches to just about everything you own or have a right in. If you owe interest and penalties on the tax, which is often the case, the lien covers these amounts as well.
States may also have tax lien rights.

Notice of Federal Tax Lien

If the IRS sends you a valid tax bill and you don't pay it, you may receive a written demand to pay. This paper is called a CP-501 notice, referring to the IRS number on the right-hand corner. If you don't pay within 30 days, the IRS has to the right to file a notice in the public records showing your tax debt. This paper is officially called a Notice of Federal Tax Lien. The IRS files over 500,000 notices each year in the county and/or state public records offices where you live, work, or own real estate. In the few states without county recording systems, the IRS sends the Notice of Federal Tax Lien to the secretary of state's office. The state or county fee for recording the tax lien is paid by the IRS and added to your bill.

The IRS does not check first to see if you actually own real estate before recording the lien notice. It has no reason to. Even if you don't own property now, you might later and the IRS gets first dibs on the proceeds from its sale or financing.

EXAMPLE: Joyce owes the IRS and lives in Orange County with her Aunt Mildred. The IRS records a Notice of Federal Tax Lien at the county recorder's office, even though Joyce owns no real estate. Aunt Mildred dies and leaves her home to Joyce. The IRS's lien now attaches to the house. Joyce won't be able to sell the house with a clear title without first paying off the IRS. And Joyce won't get rid of the lien by getting rid of the property. Any buyer takes the property with the IRS lien on it. And the IRS then has two sources of collection-Joyce and the property held by the buyer.

Effect of a Recorded Notice of Federal Tax Lien

Just as a recorded mortgage tells anyone who searches the public records or pulls your credit report that you owe on your home, a Notice of Federal Tax Lien shows the world that you owe the IRS.

A recorded tax lien damages your borrowing ability by scaring off potential creditors or lenders, making it difficult for you to finance any purchases or get a home loan. Tax lien notices are picked up by credit reporting agencies, such as Experian, Equifax, and TransUnion.

Neutralizing a Recorded Federal Tax /Lien

Keep in mind that the automatic, secret, or statutory tax lien and a recorded Notice of Federal Tax Lien are two distinct things.

You can't escape a valid automatic tax lien without (a) paying the tax, interest, and penalties owed, (b) eliminating it in bankruptcy, (c) reducing and paying it through an Offer in Compromise, or (d) having the time limit for collections run. An automatic tax lien will not appear in any public record, such as a county recorder's office. Hence, it's sometimes called a silent or secret tax lien.

A recorded Notice of Federal Tax Lien tells the world your secret. The best way to get rid of it is to get an IRS Certificate of Release of Federal Tax Lien. The IRS will issue a Certificate of Release if you fully pay the tax owed, discharge it in bankruptcy, or pay it through an Offer in Compromise or if the time limit for IRS collections has run out.

The IRS will not reduce the original amount shown on a tax lien as you make payments. So, if the lien starts out at $100,000 and you pay it down to $1,000, the lien will show as $100,000 until the last penny is paid. Only then will the IRS issue the Certificate of Release.

When the tax is paid in full, eliminated, or reduced and paid through an Offer in Compromise or bankruptcy or the time for collections has lapsed, the IRS must issue the Certificate of Release (Form 668Z) within 30 days. Once you get the Certificate of Release, you should record it (if the IRS doesn't) and pay the recording fee in the counties where the IRS filed the lien. Also send a copy to the major credit reporting agencies to make sure it gets into your file.

Unfortunately, the original recorded IRS lien notice is not erased by the lien release. Credit bureaus can and do report the original lien-and the release-as long as ten years after the recording.
If the IRS Records a Tax Lien

Legally, the IRS must notify you in writing and give you a chance to pay or try to prevent the lien from being recorded before sending the notice to the public records offices. But if you've moved or the notice is lost in the mail, you may never get the warning and only learn of it when you apply for credit or a loan-and are turned down.

You can appeal an IRS tax lien notice filing to the IRS ¬Appeals Office. First request a telephone conference with the manager of the IRS unit filing the lien. If the manager turns you down, fax or mail a completed Form 9423, Collection Appeal Request, to the collection office. (A copy with instructions is at the IRS website, www.irs.gov.)

The appeal request is usually decided within five business days. The appeals officer looks at whether the collectors followed correct procedures and considers the facts and circumstances of your case. The officer should telephone you, so list your work and home telephone numbers in your letter. Most taxpayers lose.

Avoiding or Eliminating a Tax Lien

A recorded tax lien can be the kiss of death on your credit rating. It may effectively prevent you from selling or refinancing real estate. It won't, however affect your right to sell personal property, such as a motor vehicle, boat, or furnishings.

The best way to deal with a tax lien is to avoid one in the first place.

For some, a tax lien is just one more black mark on their credit report and won't make it much worse. But you should respond to an IRS letter threatening a lien filing by contacting the IRS at the telephone number on the letter, or calling 800-829-1040, or calling the Taxpayer Advocate Service. Be ready to convince the IRS that you fall into the category "Will filing notice impair collection of the tax liability?" Point out that a tax lien will kill your chance of getting a bank loan, for example.

If you tried but failed to convince the IRS to forgo recording a tax lien, here are your options after the lien notice has been filed:

- Appeal the lien filing. The IRS has five business days after filing the lien to provide written notice to the taxpayer. This must include notice of the right to request a hearing within 30 days from the sixth day after the lien filing. If you win the appeal, the lien will be withdrawn; unfortunately, the fact of the lien filing will still appear on your credit report. (Internal Revenue Code §/6320.)

- Pay in full. If you don't have the funds, can you borrow from friends or relatives? It is better to owe just about anyone other than the IRS. The IRS must record a release within 30 days of full payment, but often the agency doesn't follow through. Call the IRS Centralized Lien Processing Office at 800-913-6050 to verify the release was filed. Or, obtain a copy of your credit report. If it's still in the report, call the Taxpayer Advocate Service for fastest service. (See Chapter 8.)

- Request a partial discharge. If you own several assets that are encumbered by the tax lien and want to use one to pay off the IRS, ask for a discharge from the tax lien. The IRS will likely do this.

Frederick W Daily is a tax attorney, author and former tax law professor. He has over 35 years experience in helping folks and businesses deal with the IRS disputes. He has appeared on hundreds of radio and TV programs including Good Morning America. He is regularly quoted as a tax expert in the publications such as New York Times, Wall Street Journal and Money magazine. He is the author of best selling books such as "Tax Savvy for Small Business" and "Stand Up to the IRS." For more information see http://www.taxattorneydaily.com

Article Source: http://EzineArticles.com/?expert=Frederick_Daily

Do I have to File a Tax Return?

 

IRS Tax Tip 2011-02, January 04, 2011

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

Check the Individuals section of the IRS website at http://www.irs.gov or consult the instructions for Form 1040, 1040A, or 1040EZ for specific details that may help you determine if you need to file a tax return with the IRS this year. You can also use the Interactive Tax Assistant available on the IRS website to determine if you need to file a tax return. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions.

There are some instances when you may want to file a tax return even though you are not required to do so. Even if you don’t have to file, here are seven reasons why you may want to:

1. Federal Income Tax Withheld You should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.
2. Making Work Pay Credit  You may be able to take this credit if you had earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
3. Earned Income Tax Credit  You may qualify for EITC if you worked, but did not earn a lot of money.EITC is a refundable tax credit; which means you could qualify for a tax refund.
4. Additional Child Tax Credit  This refundable credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.
5. American Opportunity Credit  The maximum credit per student is $2,500 and the first four years of postsecondary education qualify.
6. First-Time Homebuyer Credit  The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. To qualify for the credit, taxpayers must have bought – or entered into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed on the home on or before September 30, 2010. If you bought a home as your principle residence in 2010, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.
7. Health Coverage Tax Credit  Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2010 tax return.

For more information about filing requirements and your eligibility to receive tax credits, visit http://www.irs.gov.

Links:

• Forms and Publications

• Earned Income Tax Credit

• First-Time Homebuyer Credit Information Center

• Health Coverage Tax Credit.

• 1040 Central

YouTube Videos:

Do I Have To File A Tax Return?  English | ASL | Text Script

Six Important Facts about Dependents and Exemptions

Some tax rules affect every person who may have to file a federal income tax return – these rules include dependents and exemptions. Here are six important facts the IRS wants you to know about dependents and exemptions that will help you file your 2010 tax return.

1. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2010 tax return.

2. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

3. Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the social security number of any dependent for whom you claim an exemption.

4. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Tax Credit payments you received.

5. If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.

6. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

For more information on exemptions, dependents and whether you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available at http://www.irs.gov or can be ordered by calling 800-TAX-FORM (800-829-3676). You can also use the Interactive Tax Assistant at http://www.irs.gov to determine who you can claim as a dependent and how much you can deduct for each exemption you claim. The ITA tool is a tax law resource on the IRS website that takes you through a series of questions and provides you with responses to tax law questions.

Links:

IRS Publication 501, Exemptions, Standard Deduction, and Filing Information

Top 10 Tax Time Tips

 

IRS TAX TIP 2011-01, January 03, 2011

It’s that time of the year again. The income tax filing season has begun and important tax documents should be arriving in the mail. Even though your return is not due until April, getting an early start will make filing easier. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

1. Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.
2. Be on the lookout W-2s and 1099s will be coming soon; you’ll need these to file your tax return.
3. Use Free File Let 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-file After 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 by the tax deadline. Best of all, combine e-file with direct deposit and you get your refund in as few as 10 days.
5. Consider other filing options There are many different options for filing your tax return.You can prepare it yourself or go to a tax preparer.You may be eligible for free face-to-face help at an IRS office or volunteer site.Give yourself time to weigh all the different options and find the one that best suits your needs.
6. Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.
7. Visit the IRS website again and again The official IRS website is a great place to find everything you’ll need to file your tax return: forms, publications, tips, answers to frequently asked questions and updates on tax law changes.
8. Remember this number: 17 Check out IRS Publication 17, Your Federal Income Tax on the IRS website. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.
9. Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.
10. Don’t panic!  If you run into a problem, remember the IRS is here to help. Try http://www.irs.gov or call toll-free at 800-829-1040.

Links:

• Forms and Publications

• E-filing

• 1040 Central

Ways to Obtain IRS Forms and Publications

The Internal Revenue Service has free tax forms and publications on a wide variety of topics.  Due to the continued growth in electronic filing, the availability of free options to taxpayers and efforts to reduce costs; the IRS will no longer be automatically mailing paper tax packages.

If you need IRS forms, here are four easy methods for getting the information you need.

1. On the Internet You can access forms and publications on the IRS website 24 hours a day, seven days a week, at http://www.irs.gov.
2. Taxpayer Assistance Centers There are 401 TACs across the country where IRS offers face-to-face assistance to taxpayers, and where taxpayers can pick up many IRS forms and publications. Visit http://www.irs.gov and go to Contact My Local Office on the Individuals page to find a list of TAC locations by state. On the Contact My Local Office page, you can also select TAC Site Search and enter your zip code to find the IRS walk-in office nearest you as well as a list of the services available at specific offices.
3. At Convenient Locations in Your Community During the tax filing season, many libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly requested publications. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.
4. By Mail You can call 1-800-TAX-FORM (800-829-3676) Monday through Friday 7:00 am to 10:00 pm local time – except Alaska and Hawaii which follow Pacific time – to order current year forms, instructions and publications as well as prior year forms and instructions by mail. You will receive your order by mail, usually within 10 days.

Please wait until after January 10, 2011, to order tax products for 2010.

Links:

• Publication 910, Guide to Free Tax Services (PDF 636K)
• Publication 2053A, Quick and Easy Access to IRS Tax Help and Forms (PDF 40K)
• State tax forms

IRS Releases Form to Help Small Businesses Claim New Health Care Tax Credit

IRS Also Announces How Tax-Exempt Organizations Will Claim Credit

WASHINGTON –– The Internal Revenue Service today released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible tax-exempt organizations –– which do not generally file income tax returns –– will claim the credit during the 2011 filing season.

The IRS has posted a draft of Form 8941 on IRS.gov. Both small businesses and tax-exempt organizations will use the form to calculate the credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return.

Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used by tax-exempt organizations to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– also to claim the small business health care tax credit.

The final version of Form 8941 and its instructions will be available later this year.

The small business health care tax credit was included in the Affordable Care Act signed by the President in March and is effective this year. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage towards buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years.  The maximum credit goes to smaller employers ¬¬–– those with 10 or fewer full-time equivalent (FTE) employees ––¬¬ paying annual average wages of $25,000 or less.

The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.

More information about the credit, including a step-by-step guide and answers to frequently asked questions, is available on the Affordable Care Act page on the IRS website.

Calculate Health Care Tax Credit

IRS Releases Form to Help Small Employers Calculate New Health Care Tax Credit, Announces How Tax-Exempts Will Claim Refundable Credit

---

The IRS today announced the release of a draft version of the Form 8941 that both small businesses and tax-exempt organizations will use to calculate the small business health care tax credit during the 2011 tax season.  The credit is designed to encourage small employers to offer health insurance coverage or maintain the coverage they currently offer their employees.

While small businesses will include the amount of the credit as part of the general business credit on their tax returns, tax-exempt organizations eligible for the refundable credit will claim the credit on a revised Form 990-T. The revised Form 990-T will enable eligible tax-exempt organizations to claim the tax credit even though they owe no tax on unrelated business income.