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It’s that time again; IRS offers tips for filing 2008 returns
The IRS is reminding taxpayers that it is time to start thinking about filing income tax returns for 2008. The following is the IRS' list of 10 top tax tips:
1. Gather records…now. It’s never too early to start getting together any documents or forms needed when filing taxes: receipts, canceled checks, and other documents that support an item of income or a deduction. Also, be on the lookout for W-2s and 1099s, coming soon from employers.
2. Find forms. Whether it's a 1040 or 1040-EZ, all IRS forms and publications can be downloaded on Web site, IRS.gov.
3. Do a little research. Check out Publication 17 on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything needed when filing returns. Review Pub 17 to ensure that all credits and deductions are being taken.
4. Think ahead about how to file. Will the return be prepared by the taxpayer or a preparer? Does the taxayer qualify to file at no cost using Free File on IRS.gov? Who is eligible for free help at an IRS office or volunteer site? How about purchasing tax preparation software or file online? There are many things to consider. So, take time to weigh them all and find the best option.
5. Don't rush. Rushing to get a return filed increases the chance of making a mistake and not catching it.
6. Double-check the return. Mistakes will slow down the processing of tax returns. In particular, make sure all the Social Security numbers and math calculations are correct as these are the most common errors made by taxpayers.
7. Consider e-file. When filing electronically, the computer will handle the math calculations, and refunds will arrive in about half the time it takes when filing a paper return.
8. Think about Direct Deposit. Refunds deposited directly into bank accounts are received faster than waiting for a check by mail.
9. Visit IRS.gov often. The official IRS Web site is a great place to find everything needed to file tax returns: forms, tips, FAQs and updates on tax law changes.
10. Relax. There’s no need to panic. If there is a problem, remember the IRS is here to help. Try IRS.gov or call the customer service number at 800-829-1040.
First Time Homebuyer Credit
First-time homebuyers should begin planning now to take advantage of a new tax credit. Available for a limited time, the credit:
*Applies to home purchases after April 8, 2008, and before July 1, 2009.
*Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
*Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
*The credit operates much like an interest-free loan because it must be repaid in equal installments over a 15-year period. *Taxpayers will claim the credit on new IRS Form 5405, First-Time Homebuyer Credit.
*Only the purchase of a main home located in the United States qualifies. Vacation homes and rental property are not eligible. For a home that the taxpayer constructs, the purchase date is the first date the home is occupied.
*Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
*The individual who makes an eligible purchase in 2008, can claim the first-time homebuyer credit on the 2008 tax return. Those who make an eligible purchase in 2009, can choose to claim the credit on either the original or amended 2008 return, or on the 2009 return.
*The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the maximum credit will be available for homes costing $75,000 or more. The credit normally must be repaid over a 15-year period starting the second year after the year the credit is claimed.
*The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on the modified adjusted gross income. In general, for a married couple filing a joint return the phase-out begins at $150,000 and is completely phased out at $170,000. For other taxpayers, the phase-out range is between $75,000 and $95,000.
*Not everyone will qualify for the credit. There are other rules that may impact eligibility and decision to claim the First-Time Homebuyer Credit. Get all the information at IRS.gov.
Filing status
Everyone who files a federal tax return must determine which filing status applies. It’s important to choose the correct filing status as it determines the standard deduction, the amount of tax owed, and ultimately, any refund owed.
There are two things to consider when determining the filing status:
First, marital status on the last day of the year determines the filing status for the entire year. Second, if more than one filing status applies, choose the one that gives the lowest tax obligation.
The five filing status options are as follows:
1. Single. This generally applies to anyone who is unmarried, divorced or legally separated according to individual state law.
2. Married Filing Jointly. A married couple may file a joint return together. If a spouse died during the year, the taxpayer can still file a joint return with that spouse for the year of death.
3. Married Filing Separately. A married couple may elect to file separate returns.
4. Head of Household. This generally applies to taxpayers who are unmarried. He/she must also have paid more than half the cost of maintaining a home for him/herself and a qualifying person.
5. Qualifying Widow(er) with Dependent Child. This filing status may be available if a spouse died during 2006 or 2007, the taxpayer has a dependent child, and meets certain other conditions.
There’s much more information about determining filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Top five facts about
dependents, exemptions
1. Dependents may be required to file their own tax returns. Although a dependent on someone else’s tax return, an individual may still have to file his/her own tax return. That depends on several factors, including: the amount of unearned, earned or gross income, marital status, any special taxes owed, and any advance Earned Income Credit payments received.
2. Exemptions reduce taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption the taxpayer can deduct $3,500 on the 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by filing status.
3. Dependents may not claim an exemption. If a dependent is claimed, such as a child, that dependent may not claim a personal exemption on his/her own tax return.
4. A spouse is never considered a dependent. On a joint return, one exemption can be claimed for the taxpayer and one for a spouse. Those filing separate returns may claim the exemption for his/her spouse only if they had no gross income, are not filing a joint return and were not the dependent of another taxpayer.
5. Some people cannot be claimed as your dependents. Generally, a married person cannot be claimed 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.
For more information on dependents and exemptions, including whether or not a dependent needs to file a tax return, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
Choose best form
When filing the 2008 individual tax return, use one of three IRS tax forms. Be sure to use the simplest form, which will help avoid costly errors or processing delays. Each of these forms can be filed electronically, which speeds up the processing.
Use the 1040EZ if:
* Taxable income is below $100,000
* Filing status is Single or Married Filing Jointly
* Taxpayer (and spouse) are under age 65 and not blind
* Not claiming any dependents
* Interest income is $1,500 or less
Use the 1040A if:
* Taxable income is below $100,000
* There are capital gain distributions
* Certain tax credits are being claimed
* Claiming deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees
Those who cannot use the 1040EZ or the 1040A, probably need to file using the 1040. The 1040 must be used if:
* Taxable income is $100,000 or more
* Itemized deductions are claimed
* Reporting self-employment income
* Reporting income from sale of property
When preparing the return, be sure to carefully check the instructions for the appropriate form. All IRS forms and instructions can be found on our Web site, IRS.gov.
1. Gather records…now. It’s never too early to start getting together any documents or forms needed when filing taxes: receipts, canceled checks, and other documents that support an item of income or a deduction. Also, be on the lookout for W-2s and 1099s, coming soon from employers.
2. Find forms. Whether it's a 1040 or 1040-EZ, all IRS forms and publications can be downloaded on Web site, IRS.gov.
3. Do a little research. Check out Publication 17 on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything needed when filing returns. Review Pub 17 to ensure that all credits and deductions are being taken.
4. Think ahead about how to file. Will the return be prepared by the taxpayer or a preparer? Does the taxayer qualify to file at no cost using Free File on IRS.gov? Who is eligible for free help at an IRS office or volunteer site? How about purchasing tax preparation software or file online? There are many things to consider. So, take time to weigh them all and find the best option.
5. Don't rush. Rushing to get a return filed increases the chance of making a mistake and not catching it.
6. Double-check the return. Mistakes will slow down the processing of tax returns. In particular, make sure all the Social Security numbers and math calculations are correct as these are the most common errors made by taxpayers.
7. Consider e-file. When filing electronically, the computer will handle the math calculations, and refunds will arrive in about half the time it takes when filing a paper return.
8. Think about Direct Deposit. Refunds deposited directly into bank accounts are received faster than waiting for a check by mail.
9. Visit IRS.gov often. The official IRS Web site is a great place to find everything needed to file tax returns: forms, tips, FAQs and updates on tax law changes.
10. Relax. There’s no need to panic. If there is a problem, remember the IRS is here to help. Try IRS.gov or call the customer service number at 800-829-1040.
First Time Homebuyer Credit
First-time homebuyers should begin planning now to take advantage of a new tax credit. Available for a limited time, the credit:
*Applies to home purchases after April 8, 2008, and before July 1, 2009.
*Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
*Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
*The credit operates much like an interest-free loan because it must be repaid in equal installments over a 15-year period. *Taxpayers will claim the credit on new IRS Form 5405, First-Time Homebuyer Credit.
*Only the purchase of a main home located in the United States qualifies. Vacation homes and rental property are not eligible. For a home that the taxpayer constructs, the purchase date is the first date the home is occupied.
*Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
*The individual who makes an eligible purchase in 2008, can claim the first-time homebuyer credit on the 2008 tax return. Those who make an eligible purchase in 2009, can choose to claim the credit on either the original or amended 2008 return, or on the 2009 return.
*The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the maximum credit will be available for homes costing $75,000 or more. The credit normally must be repaid over a 15-year period starting the second year after the year the credit is claimed.
*The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on the modified adjusted gross income. In general, for a married couple filing a joint return the phase-out begins at $150,000 and is completely phased out at $170,000. For other taxpayers, the phase-out range is between $75,000 and $95,000.
*Not everyone will qualify for the credit. There are other rules that may impact eligibility and decision to claim the First-Time Homebuyer Credit. Get all the information at IRS.gov.
Filing status
Everyone who files a federal tax return must determine which filing status applies. It’s important to choose the correct filing status as it determines the standard deduction, the amount of tax owed, and ultimately, any refund owed.
There are two things to consider when determining the filing status:
First, marital status on the last day of the year determines the filing status for the entire year. Second, if more than one filing status applies, choose the one that gives the lowest tax obligation.
The five filing status options are as follows:
1. Single. This generally applies to anyone who is unmarried, divorced or legally separated according to individual state law.
2. Married Filing Jointly. A married couple may file a joint return together. If a spouse died during the year, the taxpayer can still file a joint return with that spouse for the year of death.
3. Married Filing Separately. A married couple may elect to file separate returns.
4. Head of Household. This generally applies to taxpayers who are unmarried. He/she must also have paid more than half the cost of maintaining a home for him/herself and a qualifying person.
5. Qualifying Widow(er) with Dependent Child. This filing status may be available if a spouse died during 2006 or 2007, the taxpayer has a dependent child, and meets certain other conditions.
There’s much more information about determining filing status in Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Top five facts about
dependents, exemptions
1. Dependents may be required to file their own tax returns. Although a dependent on someone else’s tax return, an individual may still have to file his/her own tax return. That depends on several factors, including: the amount of unearned, earned or gross income, marital status, any special taxes owed, and any advance Earned Income Credit payments received.
2. Exemptions reduce taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption the taxpayer can deduct $3,500 on the 2008 tax return. Exemptions amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by filing status.
3. Dependents may not claim an exemption. If a dependent is claimed, such as a child, that dependent may not claim a personal exemption on his/her own tax return.
4. A spouse is never considered a dependent. On a joint return, one exemption can be claimed for the taxpayer and one for a spouse. Those filing separate returns may claim the exemption for his/her spouse only if they had no gross income, are not filing a joint return and were not the dependent of another taxpayer.
5. Some people cannot be claimed as your dependents. Generally, a married person cannot be claimed 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.
For more information on dependents and exemptions, including whether or not a dependent needs to file a tax return, see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
Choose best form
When filing the 2008 individual tax return, use one of three IRS tax forms. Be sure to use the simplest form, which will help avoid costly errors or processing delays. Each of these forms can be filed electronically, which speeds up the processing.
Use the 1040EZ if:
* Taxable income is below $100,000
* Filing status is Single or Married Filing Jointly
* Taxpayer (and spouse) are under age 65 and not blind
* Not claiming any dependents
* Interest income is $1,500 or less
Use the 1040A if:
* Taxable income is below $100,000
* There are capital gain distributions
* Certain tax credits are being claimed
* Claiming deductions for IRA contributions, student loan interest, educator expenses or higher education tuition and fees
Those who cannot use the 1040EZ or the 1040A, probably need to file using the 1040. The 1040 must be used if:
* Taxable income is $100,000 or more
* Itemized deductions are claimed
* Reporting self-employment income
* Reporting income from sale of property
When preparing the return, be sure to carefully check the instructions for the appropriate form. All IRS forms and instructions can be found on our Web site, IRS.gov.
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