Help With Your Federal Income Tax, Articles and stories related to the IRS, taxes, tax credits, EITC and tax deductions and updated tax news

Wednesday, December 19, 2007

Employer Tax ID Number

This a basic guide for the Employer Identification Number, or EIN. Some people call it Employer Tax ID Number.

This is the IRS definition:

An Employer Identification Number (EIN) is a nine-digit number that IRS
assigns in the following format: XX-XXXXXXX. It is used to identify the
tax accounts of employers and certain others who have no employees.
However, for employee plans an alpha (for example, P) or the plan
number (e.g., 003) may follow the EIN. The IRS uses the number to
identify taxpayers that are required to file various business tax returns.
EINs are used by employers, sole proprietors, corporations,
partnerships, non-profit associations, trusts, estates of decedents,
government agencies, certain individuals, and other business entities.
Use your EIN on all of the items that you send to the IRS and the Social
Security Administration (SSA).

You can get the PDF Here

When you get ready to do your taxes, check your W-2 to make sure the EIN is there, or your return will be rejected. On the software I use at work, we enter the number 2 times to confirm it is correct.

Tim


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Tim Watson is a tax preparer during the tax season. Do you need to learn even more about taxes? Here is a great guide U.S. Master Tax Guide . Need a break? Take a look at my Christmas Page .

Tax Withholding And W-4's

Withholding taxes and W-4's for your federal income taxes.

If you are an employee, generally your employer will withhold income tax from your paycheck. Taxes can also be withheld from other income, such as bonuses, gambling winnings, commissions, unemployment compensation and pensions.

Two things determine the amount of tax withheld from your pay, the amount you earn and the information you gave your employer on your form W-4. There are 3 types of information your employer uses to determine the amount withheld: To withhold at the single rate or the lower married rate, how many withholding allowances you claim, and if you want to withhold any additional tax. You can change your W-4 information at anytime, like if you want to change your withholding allowances. If you are married and get divorced, or if there is an event that decreases your withholding allowances, you have 10 days to file a new W-4 with your employer.

If you have income from more than one job at the same time, complete only one set of Form W-4 worksheets. Then split your allowances between the Forms W-4 for each job. You cannot claim the same allowances with more than one employer at the same time. You can claim all your allowances with one employer and none with the other(s), or divide them any other way.

If you do not give your employer a completed W-4, they must withhold your tax at the higher rate.

This has just touched on the basics of federal tax withholding and W-4's. If you need more information, leave a message or contact your tax preparer or tax attorney, or see Publication 505 or 919

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Tim Watson is a tax preparer during the tax season. Do you need to learn even more about taxes? Here is a great guide U.S. Master Tax Guide . Need a break? Take a look at my Christmas Page . You may use this as is provided the resource box stays intact.

Personal Exemptions And Dependents For Federal Income Tax

For this article today, I will focus on personal exemptions and dependents as it concerns your federal income tax return.

The exemption amount has been increased this year to $3,4000 for personal exemptions and exemptions for dependents. There are different rules for both types of exemptions.

If your adjusted gross income (AGI) is above a certain amount, you lose part of the benefit concerning exemptions. These phaseouts start at $117, 300 for married people filing separately, $156,400 for single filers, $195,500 for head of household, and for married filing jointly or qualifying widow(er), the amount is $234,600. Each exemption cannot be reduced to lower than $1,133.

With personal exemptions, you take one for yourself and one for your spouse. You also take an exemption for each of your dependents, provided they are a qualifying child or qualifying relative, which I will explain further down. If you claim an exemption for a dependent, and that dependent files a federal income tax return, they cannot claim their own personal exemption. Also, if another taxpayer is entitled to claim you as a dependent, and even if they do not, you cannot claim the personal exemption on your own return.

One thing that I need to clear up, as I run into this problem a lot, your spouse is NEVER your dependent.

If you file a separate return, you can claim the exemption for your spouse
only if your spouse had no gross income, is not filing a return, and was not the dependent of
another taxpayer. This is true even if the other taxpayer does not actually claim your spouse as
a dependent. This is also true if your spouse is a nonresident alien.

To claim an exemption for a qualifying child or qualifying relative, there are 3 rules that must be met. These 3 rules are Dependent taxpayer test, Joint return test, and Citizen or resident test.


Tests To Be a Qualifying Child

1. The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them. Cousins do not count.

2. The child must be (a) under age 19 at the end of the year, (b) under age 24 at the end of the year and a full-time student, or (c) any age if permanently and totally disabled.

3. The child must have lived with you for more than half ofthe year.

4. The child must not have provided more than half of his or her own support for the year.

5. If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child.

Tests to be a qualifying relative

1.) The person cannot be your qualifying child or the qualifying child of any other taxpayer.

2.) The person either (a) must be related to you in one of the ways listed under Relatives who do not have to live with you, or (b) must live with you all year as a member of your
household , and your relationship must not violate local law. For example, if you live in Florida as boyfriend/girlfriend, this actually violates Florida law, so that would not be allowed.

3.) The person’s gross income for the year must be less than$3,400.

4.) You must provide more than half of the person’s total support for the year.


You cannot claim any dependents if you, or your spouse if filing jointly, could be claimed as a dependent by another taxpayer

You cannot claim a married person who files a joint return as a dependent unless that joint return is only a claim for refund and there would be no tax liability for either spouse on separate returns.

You cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico, for some part of the year.

I hope this helps you when it comes time to file your 2007 Federal Tax Return.

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Tim Watson is a tax preparer during the tax season. Do you need to learn even more about taxes? Here is a great guide U.S. Master Tax Guide . Need a break? Take a look at my Christmas Page . You may use this as is provided the resource box stays intact.

Tuesday, December 18, 2007

What is Your Tax Filing Status For 2007?

Your tax filing status for 2007 is explained here.

Single: If on the last day of the year you are unmarried or legally separated from your spouse under a divorce decree or a separate maintenance decree, and you do not qaulify for another filing status, your filing status is single. You can use form 1040EZ if you have no dependents and are under age 65 and meet other requirements.

Widow(er). Your filing status may be single if you were widowed before January 1, 2007, and
did not remarry before the end of 2007. However, you might be able to use another filing
status that will give you a lower tax. Check with your tax preparer or tax attorney.

Married Filing Jointly: If you are married at the end of the year and both you and your spouse agree, you can choose to file as married filing jointly. With a joint return, you report your combined incomes, and also your combined deductions. Also, you can file a joint return if only one spouse has income or deductions. Generally, you get the best tax benefit filing this way if you are married. If your spouse died during the year, you can file as married filing jointly as you are considered married for the whole year.

Married Filing Separately: You can choose this filing status if you are married. This status may be beneficial to you if you want to be responsible for only your tax, or if it results in lower tax than filing a joint return. Prepare your return both ways to find the best benefit for you. Once again, it is generally better to file a joint return. There are many credits you will not be able to take if you use this status, and it can cost you hundreds or thousands of dollars.

Head of Household: If you meet all of the following requirements, you may be able to file using this status.

1.) If you are considered unmarried or are unmarried at the end of the year.
2.) You paid more than half of the entire cost of keeping up a main home.
3.) A qualifying person lived with you for at least half of the year. If your qualifying person is a dependent parent, he or she does not have to live with you.

You use form 1040A or 1040.

Qualifying Widow(er) With A Dependent Child: You could be eligible to use this status for 2 years following the year your spouse died. If your spouse died in 2006, and you have a dependent child, you can use this status in 2007 and 2008. Generally, your tax rate will be lower than using married filing separately or single. Use Form 1040A or Form 1040.

If you have any questions, feel free to post a comment, or contact your tax preparer.

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Tim Watson is a tax preparer during the tax season. Do you need to learn even more about taxes? Here is a great guide U.S. Master Tax Guide . Need a break? Take a look at my Christmas Page . You may use this as is provided the resource box stays intact.

2007 Tax Filing Requirements For Dependents

If your parents or anyone else can claim you as a dependent, and any of the situations below apply to you, you must file a return.

Earned income includes salaries, wages, tips, and professional fees. It also
includes taxable scholarship and fellowship grants. Unearned income includes investment-type income such as taxable interest,ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust. Gross income is the total of your earned and unearned income.

Single dependents-Are you age 65 or older or blind?

If the answer is no, you must file a return if any of the following apply.

• Your unearned income was more than $850.
• Your earned income was more than $5,350.
• Your gross income was more than the larger of:
• $850, or
• Your earned income (up to $5,050) plus $300.

If The answer is yes, you must file a return if any of the following apply.

• Your unearned income was more than $2,150, or $3,450 if 65 or older and blind.
• Your earned income was more than $6,650, or $7,950 if 65 or older and blind.
• Your gross income was more than $1,300, or $2,600 if 65 or older and blind,
plus the larger of:
• $850, or
• Your earned income (up to $5,050) plus $300.

Married dependents—are you age 65 or older or blind?

If the answer is no, you must file a return if any of the following apply.

• Your unearned income was more than $850.
• Your earned income was more than $5,350.
• Your gross income was at least $5 and your spouse files a separate return and
itemizes deductions.
• Your gross income was more than the larger of:
• $850, or
• Your earned income (up to $5,050) plus $300.

If the answer is yes, you must file a return if any of the following apply.

• Your unearned income was more than $1,900, or $2,950 if you are 65 or older and blind.
• Your earned income was more than $6,400, or $7,450 if you are 65 or older and blind.
• Your gross income was at least $5 and your spouse files a separate return and
itemizes deductions.
• Your gross income was more than $1,050, or $2,100 if 65 or older and blind
plus the larger of:
• $850, or
• Your earned income (up to $5,050) plus $300.


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Tim Watson is a tax preparer during the tax season. Do you need to learn even more about taxes? Here is a great guide U.S. Master Tax Guide . Need a break? Take a look at my Christmas Page . You may use this as is provided the resource box stays intact.

Monday, December 17, 2007

2007 Tax Reminders

Here are some great tax reminders to help keep you safe and to help you with your taxes when it comes time to file.

1.) Write in your Social Security number if you do a paper return. If you use tax software, you will be asked to enter your number and it will be filled in the proper spot on the form. Make sure to enter your SS# properly, and always keep your number safe.

2.) Protect your tax records from identity theft. Keep your tax records in a safe place. Call the IRS at 1-800-829-1040 if you think your id has been used wrong for tax purposes.

3.) Look out for email phising scams. There are a few still going on out there. The IRS will NEVER ask for your information in an email.

4.) You can check the yes box to designate a third party to discuss your return with the IRS.

5.) If your address changes, notify the IRS

6.) If you choose direct deposit for your refund, you may be able to split the refund into 2 or 3 accounts.

7.) You can use form 4868 to get an automatic 6 month extension to file your return.

8.) If you expect to receive the earned income credit and a qualifying child lives with you, you may be able to get advance payments for some of it in 2008 through your employer.

9.) If you are over 70 1/2, you can make a qualifying charitable contribution directly from your IRA, and the distribution is not reported as income.

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2007 Federal Tax Filing Requirements For Taxpayers

With filing season still set to start on January 14, 2008, it is time to at least starting to think about getting your tax documents ready so that you can get the maximum benefit when you file your taxes.

This explains the 2007 filing requirements for most taxpayers.

First, there are 5 filing statuses. They are single, married filing separately (MFS), married filing jointly (MFJ), head of household (HOH) , and qualifying widow(er) with dependent child.

If you file single, are under the age of 65, and your gross income is at least $8,750, then you file a return. If you over 65, then file if your gross income is at least $10,050.

For MFS, at any age, you file if your gross income was at least $3,400.

For MFJ, if both spouse are under 65, file if your gross income is at least $17,500. If one spouse is over 65, the amount is $18,550. If both spouses are over 65, the amount is $19,600

For HOH, if you are under 65, the amount is $11,250. If you are over 65, the amount is $12,550

For qualifying widow(er), if you are under 65 the amount is $14,100. If you are over 65, the amount is $15,150.

If you were born January 1, 1943, you are considered to be age 65 at the end of 2007.

Gross income is defined as money, goods, property, and service that is not tax exempt. This also includes income from outside of the United States. Social Security income is not reported, unless you file MFS and you lived with your spouse at any time during 2007.

I will once again say that the vast majority of the time, it is to your benefit to file married filing jointly instead of married filing separately. Filing the wrong way can potentially cost you thousands of dollars.

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Tim Watson is a tax preparer during the tax season. Do you need to learn even more about taxes? Here is a great guide U.S. Master Tax Guide . Need a break? Take a look at my Christmas Page . You may use this as is provided the resource box stays intact.