Are You Eligible for a Tax Credit?

Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes.

Taxpayers should consider their eligibility for the credits listed below:

• 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.
• The Child and Dependent Care Credit is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
• 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.
• Adoption Credit Adoptive parents may qualify for a tax credit of up to $11,390 for qualifying expenses paid to adopt each eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses. For more information, see the instructions for Form 8839, Qualified Adoption Expenses.
• Credit for the Elderly or the Disabled This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are U.S. citizens or residents. There are income limitations. For more information, see IRS Publication 524, Credit for the Elderly or the Disabled.
• Savers Credit (formally called the Retirement Savings Contribution Credit) You may be able to take the credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. For more information, see IRS Publication 590, Individual Retirement Accounts.

There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check the instructions for Form 1040, 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).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www .irs.gov.

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)

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Tax News: Statistics of Income (SOI) Bulletin, Winter 2008

Statistics of Income (SOI) Bulletin, Winter 2008 - Five articles from the winter 2008 issue of the Statistics of Income Bulletin (IRS Publication 1136) are now available. The articles present individual income tax data for Tax Year 2005; split-interest trust data for Filing Year 2006; and unrelated business income tax data for tax-exempt organizations from Tax Year 2004. Also included in this issue of the Bulletin are two historic articles. The first historic article explores the legislative history of tax exemption and presents historical data (1985 to 2004) that highlight recent financial trends among tax-exempt organizations. The second historic article describes patterns in individual income and taxes since the modern income tax was introduced in 1913. (February 2008)


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Volunteer Tax Return Preparation

Are you puzzled by the tax law and which credits and deductions you can take? If so, then why not look into the free, IRS-sponsored, volunteer tax return preparation services?

Note: Many low-income individuals receiving Social Security, Railroad Retirement, certain veterans benefits, or a small amount of earned income who usually do not file a tax return may want to utilize IRS free services this year. Individuals who might not otherwise be required to file a 2007 tax return will need to file a return this year to receive an economic stimulus payment. For more information see IRS Fact Sheet FS 2008-16 Stimulus Payments: Instructions for Low-Income Workers and Recipients of Social Security and Certain Veterans'' Benefits. IRS Fact Sheet 2008-16

For quick refunds, most sites also offer free electronic filing of your tax return. The IRS offers:

• Volunteer Income Tax Assistance (VITA) offers free tax help to people whose incomes are $40,000 or less. Volunteers sponsored by various organizations receive training to prepare basic tax returns in communities across the country. VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping malls and other convenient locations.
• Tax Counseling for the Elderly (TCE) provides free tax help to people aged 60 and older. Trained volunteers from non-profit organizations provide free tax counseling and basic income tax return preparation for senior citizens. Volunteers who provide tax counseling are often retired individuals associated with non-profit organizations that receive grants from the IRS.
• AARP Tax-Aide counseling, part of the IRS-Sponsored TCE Program, AARP offers the Tax-Aide counseling program at thousands of sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to those aged 60 and older. To locate the nearest AARP Tax-Aide site in your community, call 888-227-7669 (888-AARPNOW) or visit AARP's Web site at www .aarp.org.

Filing your taxes can be easy and free. Take advantage of a volunteer assistance program in your area to receive free income tax preparation assistance. 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 1-800-829-1040.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www .irs.gov.

Links:

• Volunteer assistance program
• Tax-Aide Program

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E-Postcard Filing Now Available on IRS.gov for Small Tax-Exempt Organizations

WASHINGTON — The Internal Revenue Service announced the launch of a simple electronic filing system that small tax-exempt organizations may use to comply with a new law requiring them to file an annual return.

In the past, small tax-exempt organizations generally were not required to file Forms 990 or 990-EZ, the annual information returns for tax-exempt organizations. But the Pension Protection Act of 2006 requires that tax-exempt organizations that normally have annual gross receipts of $25,000 or less must file an electronic Form 990-N, "Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required to File Form 990- or 990-EZ," for tax years beginning in 2007.

The Form 990-N is required under the new law to be filed electronically. "Filing Form 990-N electronically will help make this process easier for tax-exempt organizations," said Richard Spires, IRS Deputy Commissioner for Operations Support. "Like our other e-file options, this process is fast and reduces the chance for making errors."

Filing the e-Postcard is free and easy. To file, small tax-exempt organizations will need only a few basic pieces of information: the organization’s employer identification number, its tax year, legal name and mailing address, any other names used, an Internet address if one exists, the name and address of a principal officer and a statement confirming the organization's annual gross receipts are normally $25,000 or less.

"The information on the form, which will be available to the public, will help ensure that potential donors have the basic information they need about the organization," said Lois G. Lerner, the director of the IRS’ Exempt Organizations Division.

The due date for filing Form 990-N is the 15th day of the fifth month after the close of the tax year. This means, for example, that an organization whose most recent tax year ended on Dec. 31, 2007, must file Form 990-N by May 15, 2008. The new law provides that organizations that do not file Form 990-N for three consecutive years will lose their tax-exempt status.

“Because this new filing requirement is a big change for small tax-exempt organizations, we have made a special effort to reach out and work with the tax-exempt community to let affected organizations know about it,” Lerner said.

The IRS also has launched a disclosure site on IRS.gov where the public can view a particular organization’s e-Postcard.

The IRS is encouraging everyone –– individual volunteers, tax practitioners and larger organizations –– to spread the word about the new e-Postcard reporting requirement. “People do a lot to help their communities by volunteering their time and money to local charities. We're asking them to also offer a helping hand by making sure that charities know about the law change," Lerner said.

Further information, including frequently asked questions and educational materials, are available on the charities and non-profits section of IRS.gov.

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FREE TAX SERVICES

The IRS provides free publications, forms and other tax material and information to help taxpayers meet their tax obligations. Free help is available on the IRS website, by phone, at local IRS offices and at many community locations.

• IRS.gov You can access free tax information at IRS.gov. At 1040 Central on the Individuals page, you can obtain forms, instructions and publications, learn about IRS e-file, determine your eligibility for the Earned Income Tax Credit, read about the latest tax changes and find answers to Frequently Asked Questions. Most taxpayers can use Free File, available only through the IRS.gov Web site, to electronically prepare and file their federal tax return – for free! You can also check the status of your refund at IRS.gov by clicking on Where’s My Refund, a service available 24 hours a day, seven days a week.
• Telephone Call the IRS Tax Help Line for Individuals, 800-829-1040, to get answers to your federal tax questions. To order free forms, instructions and publications call 800-829-3676. To hear pre-recorded messages covering various tax topics or check on the status of your refund, call 800-829-4477. TTY/TDD users may call 800-829-4059 to ask tax questions or to order forms and publications.
• Community Resources Free tax preparation is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs in many communities. Volunteer return preparation programs provided through IRS and its partners offer free help in preparing simple tax returns for low- to moderate-income taxpayers. Call 800-829-1040 to find the VITA or TCE site nearest you. You may also call AARP — the largest TCE participant — at 888-227-7669 (888-AARPNOW) or access www.aarp.org to find the nearest Tax-Aide site.
• Taxpayer Assistance Centers When you believe your tax issue cannot be handled online or by phone, and you want face-to-face assistance, you can find help at a local Taxpayer Assistance Center. Locations, business hours and an overview of services are at IRS.gov.

For more information about services provided by the IRS, review Publication 910, IRS Guide to Free Tax Services available at IRS.gov or by calling 800-829-3676.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

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MOVING SOON? LET THE IRS KNOW

If you changed your home or business address, notify the IRS to ensure that you receive any refunds or correspondence. While the IRS uses the Postal Service’s change of address files to update taxpayer addresses, notifying the IRS directly is still a good idea.

There are several ways to do this.

• On your tax return. You may correct the address legibly on the mailing label that comes with your tax package or write the new address in the appropriate boxes on your tax return when you file.
• Form 8822. You may use Form 8822, Change of Address, to submit an address or name change at any time during the year.
• Written Notification. To give written notification, write to the IRS center where you file your return and provide your new address. The addresses for the IRS centers are listed in the tax instructions. In order to process an address change, the IRS will need your full name, old and new addresses, and your social security number or employer identification number, and signatures. If you filed a joint return, you should provide the same information for both spouses. If you filed a joint return and have since established separate residences, you each should notify the IRS of your new addresses.
• Verbal Notification. If an IRS employee contacts you about your account, you may be able to verbally provide a change of address.

It's a good idea to notify your employer of your new address so that you can get your W-2 forms on time.

If you change your address after filing your return, don't forget to notify the post office at your old address so your mail can be forwarded.

You should also notify the IRS if you make estimated tax payments and you change your address during the year. You should mail a completed Form 8822, Change of Address, or write the IRS center where you file your return. You can continue to use your old pre-printed payment vouchers until the IRS sends you new ones. However, do not correct the address on the old voucher.

You can download Form 8822, Change of Address at the IRS Web site, IRS.gov, or order by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Form 8822, Change of Address (PDF 60K)
• Tax Topic 157, Change of Address — How to Notify IRS

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2008 Economic Stimulus Act Provides Tax Benefits to Businesses

WASHINGTON — In addition to providing stimulus payments to individuals, the Economic Stimulus Act of 2008 provides incentives to businesses. These incentives include a special 50-percent depreciation allowance for 2008 purchases and an increase in the small business expensing limitation for tax years beginning in 2008.

50-Percent Special Depreciation Allowance

Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property over several years. It is an annual allowance for the wear and tear, deterioration or obsolescence of the property.

Under the new law, a taxpayer is entitled to depreciate 50 percent of the adjusted basis of certain qualified property during the year that the property is placed in service. This is similar to the special depreciation allowance was previously available for certain property placed in service generally before Jan. 1, 2005, often referred to as “bonus depreciation.” To qualify for the 50 percent special depreciation allowance under the new law, the property must be placed in service after Dec. 31, 2007, but generally before Jan. 1, 2009.

To reflect the new 50-percent special depreciation allowance, the IRS is developing a new version of the depreciation and amortization form for fiscal year filers. The new form will be designated as the 2007 Form 4562-FY.

Section 179 Expensing

In general, a qualifying taxpayer can elect to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property, after the relevant section in the Internal Revenue Code.

Under the new law, a qualifying business can expense up to $250,000 of section 179 property purchased by the taxpayer in a tax year beginning in 2008. Absent this legislation, the 2008 expensing limit for section 179 property would have been $128,000. The $250,000 amount provided under the new law is reduced if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $800,000.

The new law does not alter the section 179 limitation imposed on sport utility vehicles, which have an expense limit of $25,000.

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Tax Facts About Capital Games And Losses

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, the difference between the amounts you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only capital losses on investment property, not personal property.

Here are a few tax facts about capital gains and losses:

• Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
• Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
• Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.
• The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2007, the maximum capital gains rates are 5%, 15%, 25% or 28%.
• If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).

For more information about reporting capital gains and losses, get Publication 17, Your Federal Income Tax, and Publication 550, Investment Income and Expenses, available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Publication 17, Your Federal Income Tax (PDF 2015.9K)
• Publication 550, Investment Income and Expenses (PDF 516K)
• Publication 544, Sales and Other Dispositions of Assets (PDF 321K)
• Publication 505, Tax Withholding and Estimated Tax (PDF 367K)
• Publication 564, Mutual Fund Distributions (PDF 178K)
• Publication 547, Casualties, Disasters, and Thefts (PDF 133K)
• Publication 527, Residential Rental Property (Including Rental of Vacation Homes) (PDF 187K)

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Special Guidelines for Recipients of Certain Social Security, Veterans and Railroad Benefits

Special Guidelines for Recipients of Certain Social Security, Veterans and Railroad Benefits

Certain people who normally are not required to file but who are eligible for the stimulus payment will have to file a 2007 tax return. This includes low-income workers or those who receive Social Security benefits or veterans’ disability compensation, pension or survivors’ benefits from the Department of Veterans Affairs in 2007. These taxpayers will be eligible to receive a payment of $300 ($600 on a joint return) if they had at least $3,000 of qualifying income.

Qualifying income includes Social Security benefits, certain Railroad Retirement benefits, certain veterans’ benefits and earned income, such as income from wages, salaries, tips and self-employment. For taxpayers filing joint tax returns, only a total of $3,000 of qualifying income from both spouses is required to be eligible for a payment.

The special version of the Form 1040A unveiled today on IRS.gov shows taxpayers in these groups the specific sections of the form they need to fill out to qualify for the stimulus payment. The mock-up is designed to be used as a guide for filling out an actual Form 1040A.

“People who don’t normally need to file have a roadmap on how to fill out the Form 1040A quickly and easily,” Stiff said. “We encourage recipients of Social Security and veterans’ benefits who don’t normally need to file a tax return to use this mock-up of the form as a guide to help them get their stimulus payment.”

The Form 1040A illustration on IRS.gov shows the limited number of lines that will need to be filled out for recipients of Social Security, certain Railroad Retirement and certain veterans’ benefits. A key line is reporting their 2007 benefits on Line 14a of Form 1040A. The IRS reminds taxpayers they can also use Line 20a on Form 1040 to report these same benefits.

In addition, taxpayers in these groups should write the words “Stimulus Payment” at the top of the 1040A or 1040.

For now, taxpayers in this group filing a tax return can only file a paper copy of the Form 1040 or Form 1040A. The IRS is working to update its systems to accept electronic versions of these limited-information returns for taxpayers who otherwise have no need to file a tax return. The IRS is also working with the software community to handle these returns electronically at a future date.

The IRS also reminded taxpayers with Social Security, Railroad Retirement or veterans’ benefits who have already filed but did not report their qualifying benefits on either Line 14a of Form 1040A or Line 20a of Form 1040 that they may need to file an amended return in some situations to receive a larger stimulus payment.

Taxpayers who already have filed but did not report these benefits can file an amended return by using Form 1040X, which can only be filed with a paper form.

The IRS reminded taxpayers who don’t have any other requirement to file a tax return that submitting a tax return to qualify for the economic stimulus payments does not create any additional tax or trigger a tax bill. In addition, the stimulus payments will not have any effect on eligibility for federal benefits.

The IRS is working with the Social Security Administration and Department of Veterans Affairs and other organizations to ensure that recipients are aware of the need to file a tax return to receive their stimulus payment in 2008.

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More Information on Stimulus Payments

WASHINGTON — The Internal Revenue Service released additional information today about the upcoming economic stimulus payments in a specially designed section for taxpayers on IRS.gov.

The new information includes an extensive set of Frequently Asked Questions about the stimulus payments, with a special emphasis on recipients of Social Security and certain veterans’ benefits. Millions of people in this group who normally don’t file a tax return will need to do so this year in order to receive a stimulus payment.

For recipients of Social Security and certain veterans’ benefits and low-income workers who don’t normally need to file, the IRS also released a special version of a Form 1040A that highlights the simple, specific sections of the return that can be filled out by people in these categories to qualify for a stimulus payment.

“Most taxpayers just need to file a 2007 tax return in order to automatically receive the stimulus payment,” said Acting IRS Commissioner Linda Stiff. “But we are especially concerned about recipients of Social Security and veterans’ benefits who may need to take special steps this year to file a tax return in order to obtain a stimulus payment. IRS.gov will help taxpayers get what they need.”

The Frequently Asked Questions section – accessible through the front page of IRS.gov -- includes an extensive set of information for all taxpayers with questions about the stimulus payments, commonly referred to as rebates. The questions and answers include important information for low-income workers and certain recipients of Social Security, Railroad Retirement benefits and veterans’ benefits.

The special IRS.gov section also features extensive examples of how much taxpayers can expect to receive in stimulus payments. The page includes more than two-dozen payment scenarios affecting different types of taxpayers.

IRS.gov will be updated frequently to provide taxpayers with all they need to understand the stimulus payments.

The IRS will begin sending taxpayers their economic stimulus payments in early May after the current tax season concludes. In most cases, the payment will equal the amount of tax liability on the tax return, with a maximum amount of $600 for individuals ($1,200 for married couples who file a joint return). Payments to more than 130 million households will continue over several weeks during the spring and summer. A payment schedule for taxpayers will be announced in the near future on IRS.gov.

The IRS reminds taxpayers when they file their 2007 tax return to use direct deposit, which is the fastest way to get both regular refunds and stimulus payments. However, taxpayers who use Refund Anticipation Loans (RALs) or enter into any other loan or financial agreement with their tax professional cannot receive their stimulus payments by direct deposit and instead will get a paper check.

The only way to receive a stimulus payment in 2008 is to file a 2007 tax return. The vast majority of taxpayers must take no extra steps to receive their stimulus payment beyond the routine filing of their tax return. No other action, extra form or call is necessary.

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IRS Successfully Processing Tax Forms Affected by AMT Legislation

The Internal Revenue Service is now processing five tax forms affected by legislation involving the Alternative Minimum Tax (AMT).

On Monday, IRS systems began to accept and process returns that include the five affected forms. After several days of processing, the IRS has confirmed all systems are working properly.

In late December, the IRS announced it would delay processing of several tax forms. For the vast majority of taxpayers, the filing season this year began on time. But for any taxpayer whose return included any of the five affected forms, filing opened on Feb. 11.

Taxpayers who use the five forms can now file their tax returns as normal.

The affected forms are:

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

Approximately 13.5 million taxpayers will use these forms this year. Altogether, the IRS expects to receive nearly 140 million individual tax return submissions this year.

The IRS has worked closely with the software industry and tax practitioners during the reprogramming process to minimize disruptions for taxpayers and the tax community.
For more information, see Alternative Minimum Tax –– How It Affects Filing Season 2008.

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Are Your Social Security Benefits Taxable?

How much, if any, of your social security benefits are taxable depends on your total income and marital status. Generally, if social security benefits were your only income, your benefits are not taxable and you probably do not need to file a federal income tax return.

If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040A or Form 1040 Instruction booklet.

Before you go to the instruction book, do the following quick computation to determine whether some of your benefits may be taxable:

• First, add one–half of the total social security you received to all your other income, including any tax exempt interest and other exclusions from income.
• Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.

The 2007 base amounts are:

• $32,000 for married couples filing jointly
• $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year
• $0 for married persons filing separately who lived together during the year

For additional information on the taxability of social security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Link:

• Publication 915, Social Security and Equivalent Railroad Retirement Benefits (994.0KB)

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Can You Use Schedule C-EZ?

Want to save time and trouble when filing taxes for your small business? You may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business income and expenses on your 2007 Form 1040 federal income tax return. The maximum deductible business expense threshold for filing Schedule C-EZ is $5,000.

Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship).

Schedule C-EZ:

• Has an instruction page and a one-page form with three short parts — General Information, Figure Your Net Profit, and Information on Your Vehicle.
• Includes a simple worksheet for figuring the amount of deductible expenses. If that amount does not exceed $5,000, and if your business did not have a net loss, you may be able to use the C-EZ instead of Schedule C. (Other restrictions apply; be sure to read the instructions carefully.

Schedule C:

• Is two pages long and is divided into five parts — Income, Expenses, Cost of Goods Sold, Information on Your Vehicle, and Other Expenses.
• Requires more detailed information than the C-EZ. The instruction package is 10 pages long.
• Must be used when deductible business expenses exceed $5,000 or when a business has a net loss.

Using Schedule C-EZ can save time and reduce paperwork burden for eligible businesses. More information about Schedule C-EZ and reporting net profit for sole proprietorships can be found on the IRS Web site at IRS.gov.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Link – Publication 334, Tax Guide for Small Business (PDF 407K)

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Mortgage Workouts, Now Tax-Free for Many Homeowners

Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form

WASHINGTON — Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions, available now on IRS.gov.

“The new law contains important provisions for struggling homeowners,” said Acting IRS Commissioner Linda Stiff. “We urge people with mortgage problems to take full advantage of the valuable tax relief available.”

The late-December enactment means that reporting procedures for this law change were not incorporated into tax-preparation software or IRS forms. For that reason, people using tax software should check with their provider for updates that include the revised Form 982. Similarly, the IRS is now updating its systems and expects to begin accepting electronically-filed returns that include Form 982 by March 3. The paper Form 982 is now being accepted, but the IRS reminds affected taxpayers to consider filing electronically, which greatly reduces errors and speeds refunds.

The new law applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

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 kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this form must show the amount of debt forgiven and the fair market value of any property given up through foreclosure.

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

Related Items:

• Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness
• 1099-C

Guidelines For Roth IRA Contributions

From the IRS:

Although Roth IRAs are popular retirement arrangements, some taxpayers may be confused about whether they can contribute to a Roth IRA. Here are some helpful guidelines:

• Income Limits To contribute to a Roth IRA, you must have taxable compensation (e.g., wages, salary, tips, professional fees, bonuses). These limits vary depending on your filing status.
• Age There is no age limitation for Roth IRA contributions.
• Contribution Limits In general, if your only IRA is a Roth IRA, the maximum 2007 contribution limit is the lesser of your taxable compensation or $4,000 ($5,000 if age 50 or older). The maximum contribution limit phases out depending on your modified adjusted gross income.
• Spousal Roth IRA You can make contributions to a Roth IRA for your spouse provided you meet the income requirements.

Time Contributions to a Roth IRA can be made at any time during the year or by the due date of your return for that year (not including extensions).

Roth IRA contributions are not tax deductible and are not reported on your tax return. On the other hand, you do not have to pay tax on any qualified distributions, distributions that are a return of your regular Roth IRA contributions, or distributions that are rolled over into another Roth IRA.

For complete information and definitions of terms, get Publication 590,

Individual Retirement Arrangements. Visit the IRS Web site at IRS.gov, or call 800-TAX-FORM (800-829-3676) to request a free copy of the publication.

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Publication 590, Individual Retirement Arrangements (PDF 461K)

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Are Missing A Form 1099?

From the IRS:

If you receive certain types of income, you may get a Form 1099 for use with your federal tax return. Form 1099 is an information return provided by the payer of the income. The payer should send or provide your Form 1099-series information returns by January 31, 2007.

If you have not received an expected Form 1099 by a few days after that, contact the payer. If you still do not receive the form by February 15th, call the IRS for assistance at 800-829-1040.

In some cases, you may obtain the information that would be on the Form 1099 from other sources. For example, your bank may put a summary of the interest paid during the year on the December or January statement for your savings or checking account. If you are able to get the accurate information needed to complete your tax return, you do not have to wait for the Form 1099 to arrive.

You will not usually attach a 1099-series form to your return, except when you receive a Form 1099-R that shows income tax withheld. You should keep a copy of all the 1099s that you receive with your tax records for the year. There are several different forms in this series, including:

• Form 1099–B, Proceeds From Broker and Barter Exchange Transactions
• Form 1099–DIV, Dividends and Distributions
• Form 1099–INT, Interest Income
• Form 1099–MISC, Miscellaneous Income
• Form 1099–OID, Original Issue Discount
• Form 1099–R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
• Form SSA–1099, Social Security Benefit Statement

If you file your return and later receive a Form 1099 for income that you did not fully include on that return, you should report the income and take credit for any income tax withheld by filing Form 1040X, Amended U.S. Individual Income Tax Return. Form 1040X and instructions are available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org or other designations instead of .gov. The address of the official IRS governmental Web site is www.irs.gov.

Links:

• Form 1040X, Amended U.S. Individual Income Tax Return (PDF 123K)
• Instructions for Form 1040X (PDF 43K)
• Forms and Publications

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