Sign The Petition

Number Signed as of July 26, 2008--1,382,457

IRA interest. Although interest earned from your IRA is generally not taxed in the year earned, it is not tax-exempt interest. Do not report this interest on your return as tax-exempt interest.

Hurricane tax relief. Special rules apply to the use of retirement funds (including IRAs) by qualified individuals who suffered an economic loss as a result of Hurricane Katrina, Rita, or Wilma. While qualified hurricane distributions can no longer be made, special rules apply to the repayment of these distributions. See chapter 4, Hurricane-Related Relief, for information on these special rules.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

IRA'S What's New for 2008 (Part 5)-See Part 1-4 Below

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Simplified employee pension (SEP). SEP IRAs are not covered in this publication. They are covered in Publication 560, Retirement Plans for Small Business.

Deemed IRAs. A qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive voluntary employee contributions.

If the separate account or annuity otherwise meets the requirements of an IRA, it will be subject only to IRA rules. An employee's account can be treated as a traditional IRA or a Roth IRA. For this purpose, a “qualified employer plan” includes:A qualified pension, profit-sharing, or stock bonus plan (section 401(a) plan),

A qualified employee annuity plan (section 403(a) plan),

A tax-sheltered annuity plan (section 403(b) plan), and

A deferred compensation plan (section 457 plan) maintained by a state, a political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state.

IRA'S What's New for 2008 (Part 4)-See Part 1 & 2 & 3 Below

Modified AGI limit for retirement savings contributions credit increased. For 2008, you may be able to claim the retirement savings contributions credit if your modified adjusted gross income (AGI) is not more than:

$53,000 if your filing status is married filing jointly,

$39,750 if your filing status is head of household, or

$26,500 if your filing status is single, married filing separately, or qualifying widow(er).

See Can you claim the credit? in chapter 5.

Rollovers from other retirement plans. For 2008, you can roll over amounts from an eligible retirement plan into a Roth IRA.

IRA'S What's New for 2008 (Part 3)-See Part 1 & 2 Below

Modified AGI limit for Roth IRA contributions increased. For 2008, your Roth IRA contribution limit is reduced (phased out) in the following situations.

Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $159,000. You cannot make a Roth IRA contribution if your modified AGI is $169,000 or more.

Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2008 and your modified AGI is at least $101,000. You cannot make a Roth IRA contribution if your modified AGI is $116,000 or more.

Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

IRA'S What's New for 2008 Part 2-See Part 1 Below

$5,000, or

Your taxable compensation for the year.

If you were age 50 or older before 2009, the most that can be contributed to your traditional IRA for 2008 will be the smaller of the following amounts:

$6,000, or

Your taxable compensation for the year.

For more information, see How Much Can Be Contributed? in chapter 1.

Roth IRA contribution limit. If contributions on your behalf are made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:

$5,000, or

Your taxable compensation for the year.

If you were age 50 or older before 2009 and contributions on your behalf were made only to Roth IRAs, your contribution limit for 2008 will generally be the lesser of:

$6,000, or

Your taxable compensation for the year.

However, if your modified adjusted gross income (AGI) is above a certain amount, your contribution limit may be reduced. For more information, see How Much Can Be Contributed? under Can You Contribute to a Roth IRA? in chapter 2.

Modified AGI limit for traditional IRA contributions increased. For 2008, if you are covered by a retirement plan at work, your deduction for contributions to a traditional IRA is reduced (phased out) if your modified adjusted gross income (AGI) is:

More than $85,000 but less than $105,000 for a married couple filing a joint return or a qualifying widow(er),

More than $53,000 but less than $63,000 for a single individual or head of household, or

Less than $10,000 for a married individual filing a separate return.

If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your AGI is more than $159,000 but less than $169,000. If your AGI is $169,000 or more, you cannot take a deduction for contributions to a traditional IRA. See How Much Can You Deduct? in chapter 1.

Roth IRA Contributions

A Roth IRA is an account or annuity set up in the United States solely for the benefit of you or your beneficiaries. It is an individual retirement plan.

However, it differs from traditional IRAs in that contributions are not deductible. For information on contributions and the limitations please refer to Chapter 2 of the Publication 590, Individual Retirement Arrangements.

Introduction

This publication discusses individual retirement arrangements (IRAs). An IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement.What are some tax advantages of an IRA? Two tax advantages of an IRA are that:

Contributions you make to an IRA may be fully or partially deductible, depending on which type of IRA you have and on your circumstances, and

Generally, amounts in your IRA (including earnings and gains) are not taxed until distributed. In some cases, amounts are not taxed at all if distributed according to the rules.

Amended Returns

If you discover an error after your return has been mailed, you may need to amend your return. The service center may correct errors in math on a return and may accept returns with certain forms or schedules left out.

In these instances, do not amend your return! However, do file an amended return if your filing status, your income, your deductions or credits were incorrect.

Use Form 1040X (PDF), Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040 (PDF), Form 1040A (PDF), Form 1040EZ (PDF), Form 1040NR (PDF), or Form 1040NR-EZ (PDF). If you are filing to claim an additional refund, wait until you have received your original refund (you may cash that check).

To avoid penalty and interest, if you owe additional tax for a current year amended return, file Form 1040X and pay the tax by April 15 of the current year. If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day. The Form 1040X Instructions list the addresses for the service centers.

File a separate Form 1040X for each year you are amending. Mail each form in a separate envelope. Be sure to enter the year of the return you are amending at the top of Form 1040X. The form has three columns.

Column A shows original or adjusted figures from the original return. Column C shows the corrected figures. The difference between Columns A and C is shown in Column B. There is an area on the back of the form to explain the specific changes being made and the reason for each change.

Attach any forms or schedules that are affected by the change. Generally, to claim a refund, Form 1040X must be filed within 3 years from the date of your original return or within 2 years from the date you paid the tax, whichever is later.

Please Note: Your state tax liability may be affected by a change made on your federal return. For information on how to correct your state tax return, contact your state tax agency.

Backup Withholding

Banks and other businesses that pay you certain kinds of income must file Form 1099, an information return, with the IRS. Generally, these payments are not subject to withholding; however they may be subject to backup withholding.

Payments that may be subject to "backup withholding" include interest, dividends, rents, royalties, payments for work you do as an independent contractor, and broker payments. Under the backup withholding rules, the business or bank must withhold on a payment if:

You have not given the payer your taxpayer identification number in the required manner,

The IRS has notified the payer that the taxpayer identification number you provided is incorrect.

The IRS has notified the payer to start withholding on interest and dividends because you had not reported all of your interest or dividend income in prior years; or

You have not certified, when required, that you were not subject to backup withholding on interest and dividends.

Payers who withhold income tax under the backup withholding rules must show the tax withheld on a Form 1099. The payer must send you this form by January 31.

If you have not received it by then, contact the bank or business that made payments to you. You should report the amount of tax withheld in the payment section on your Form 1040 (PDF), or Form 1040A (PDF).

More detailed information on the backup withholding rules and procedures for payers can be found in Publication 1281 (PDF).

For more information, refer to Publication 505, Tax Withholding and Estimated Tax.

Penalty for Underpayment of Estimated Tax

The United States income tax is a pay–as–you–go tax, which means that tax must be paid as you earn or receive your income during the year. You can either do this through withholding or by making estimated tax payments.

If you do not pay enough tax, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will have paid enough tax to avoid this penalty if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.

There are special rules for farmers and fishermen. Please refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.

Generally, the payments should be made in four equal amounts to avoid a penalty. However, if you made unequal payments because your income was received unevenly during the year, you may be able to avoid or lower the penalty by annualizing your income.

Use Form 2210 (PDF), Underpayment of Estimated Tax by Individuals and Fiduciaries, to see if you owe a penalty for underpaying your estimated tax.

The penalty may be waived if:

1. The failure to make estimated payments was caused by a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or

2. You retired (after reaching age 62) or became disabled during the tax year for which estimated payments were required to be made or in the preceding tax year, and the underpayment was due to reasonable cause and not willful neglect.

Please refer to the Form 1040 Instructions or the Form 1040A Instructions for where to report the estimated tax penalty on your return.

Recordkeeping

Well–organized records will make it easier to prepare your tax return and will help you answer questions if your return is selected for examination, or prepare any response if you are billed for additional tax.

Records such as receipts, canceled checks, and other documents that support an item of income or a deduction appearing on your return should be kept until the statute of limitations expires for that return.

For assessment of tax you owe, this generally is 3 years from the date you filed the return. For filing a claim for credit or refund, this generally is 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later.

Returns filed before the due date are treated as filed on the due date. There is no statute of limitations when a return is fraudulent or when no return is filed.

If you are an employer, you must keep all your employment tax records for at least 4 years after the tax becomes due or is paid, whichever is later.

If you are in business, there is no particular method of bookkeeping you must use. However, you must use a method that clearly and accurately reflects your gross income and expenses.

The records should substantiate both your income and expenses. Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses. Publication 552, Recordkeeping for Individuals, provides more information on recordkeeping requirements for individuals.

Checklist of Common Errors When Preparing Your Tax Return

Before filing your return, review it to make sure it is correct and complete. The following checklist may help you avoid errors:

Did you use the peel–off label and enter any corrections? If you used the label, did you enter your social security number in the space provided?

If you do not have a label, or there are too many corrections, did you clearly print your name, social security number, and address, including zip code directly on your return?

Did you enter the names and social security numbers for yourself, your spouse, your dependents, and qualifying children for earned income credit or child tax credit, exactly as they appear on the social security cards? If there have been any name changes be sure to go to www.ssa.gov or call at 1–800–772–1213.

Did you check only one filing status?

Did you check the appropriate exemption boxes and enter the names and social security numbers exactly as they appear on the Social Security Card, for all of the dependents claimed? Is the total number of exemptions entered?

Did you enter income, deductions, and credits on the correct lines and are the totals correct?

If you show a negative amount on your return, did you put brackets around it?

If you are taking the standard deduction and checked any box indicating either you or your spouse were age 65 or older or blind, did you find the correct standard deduction using the worksheet in the Form 1040 Instructions or the Form 1040A Instructions?

Did you figure the tax correctly? If you used the tax tables, did you use the correct column for your filing status?

Did you sign and date the return? If it is a joint return, did your spouse also sign and date the return?

Do you have a Form W-2 (PDF) from all of your employers and did you attach Copy B of each to your return? File only one return, even if you have more than one job. Combine the wages and withholding from all Form W-2's, on one return.

Did you attach any Form 1099-R (PDF) that shows tax withheld?

Did you attach all other necessary schedules and forms in sequence number order given in the upper right–hand corner?

If you owe tax, did you enclose a check or money order with the return and write your social security number, tax form, and tax year on the payment? Refer to Topic 158 for more information, and

If you are due a refund and requested direct deposit did you check the routing and account numbers?

Did you make a copy of the signed return and all schedules for your records?

A few of the most common errors are:

1. Incorrect or missing social security numbers.

2. Incorrect tax entered from the tables.

3. Computation errors in figuring the child and dependent care credit or the earned income credit. Also, missing or incorrect identification numbers for child care providers.

4. Withholding and estimated tax payments entered on the wrong line, and

5. Math Errors. Both addition and subtraction.

It is important that you review your entire return because any errors may delay the processing of your return.

Extensions of Time to File Your Tax Return

There are three choices for filing Form 4868 (PDF), Application For Automatic Extension of Time To File U.S. Individual Tax Return, electronically (such as by computer), by paying part of your tax due with a credit card through an outside service provider listed on the form, or by mail.

If you file your Form 4868 electronically you will receive an acknowledgement or confirmation number for your records and you do not need to send in Form 4868. If you need to pay additional taxes, you may do so through the outside service provider or through e-file. If you were or are serving in a combat zone, a qualified hazardous duty area, or in a contingency operation, refer to Topic 301 for more information about extensions.

You can refer to your tax software or tax professional for ways to file electronically using e-file services. If you wish to make a payment using the electronic funds withdrawal option, be sure to have a copy of last year's tax return. You will be asked to provide the Adjusted Gross Income from the return for taxpayer verification.

Besides filing electronically, you can generally get an extension of time to file if you pay part or all of your estimate of income tax due by credit card. You may pay by phone or Internet through one of the service providers listed on Form 4868.

Each service provider will charge a convenience fee based on the amount of the tax payment. At the completion of the transaction, you will receive a confirmation number for your records.

In addition to filing Form 4868 electronically, or by paying part of your tax by credit card, you can file Form 4868 by filling out the form and mailing it to the place where you will file your return.

Please be aware that an extension of time to file is NOT an extension of time to pay.

The State Government page on the IRS web site also contains information useful to individuals. Visit the taxation links for each state's site to find information on individual tax issues, including electronic filing.

When, Where, and How to File

April 15 each year is the due date for filing your Federal individual income tax return, if your tax year ends December 31st. Your return is considered filed timely if the envelope is properly addressed and postmarked no later than April 15.

If you use a fiscal year (which is a year ending on the last day of any month other than December), your return is due on or before the 15th day of the fourth month after the close of your fiscal year.

If the due date falls on a Saturday, Sunday, or legal holiday, the due date is delayed until the next business day (i.e., Tax Year 2006 is due April 17, 2007).

If you cannot file by the due date of your return, then you can request an extension of time to file. However, an extension of time to file is not an extension of time to pay.

You will owe interest on any past–due tax and you may be subject to a late–payment penalty if payment is not made timely. To receive an automatic 6-month extension of time to file your return, you can file Form 4868 (PDF) by the due date of your return. For more information, refer to the Form 4868 Instructions.

If you are a United States citizen or resident, whose home and main place of business or post of duty is outside the United States and Puerto Rico on the due date of your return, you are allowed an automatic extension until June 15, to file your return and pay any tax due.

This also applies if you are in military or naval service on duty outside the United States and Puerto Rico.

If you use this automatic extension, you must attach a statement to your return showing that you met the requirements for the extension on the due date of your return. Refer to Topic 304 for more information about extensions.

If you are serving in a combat zone or in a contingency operation (or are hospitalized as a result of an injury received while serving in such an area or operation), you have at least 180 days after you leave the designated combat zone/contingency operation to file and pay taxes.

See Publication 3, Armed Forces' Tax Guide. If you are determined by the Service to be affected by a Presidentially declared disaster or a terroristic or military action, then you may have up to one year after the due date of your return to file and pay taxes, depending on the deadline specified by the Service.

When filing your return, use the peel–off label that is included in your tax package. Check the label to be sure the information is correct. Make any corrections or additions right on the label.

If you did not receive a tax return package with a label, print or type your name, address and social security number in the spaces provided. If you are filing Form 1040EZ (PDF), you must print this information.

Be sure the social security number is the same number listed on your social security card. If you have changed your name you should notify the Social Security Administration or call 1–800–772–1213 before you file your return.

If a joint return is filed, both husband and wife must sign the return. If your spouse cannot sign because of disease or injury and requests that you sign the return, sign your spouse's name in the proper place followed by the word "by" your signature, followed by the word "husband" or "wife".

Be sure to also sign in the space provided for your signature. In addition, you must attach a statement that includes the form number of the return you are filing, the tax year, the reason your spouse cannot sign the return, and that your spouse has agreed to your signing for him or her. If you are the guardian for your spouse who is mentally incompetent, you may sign the return for your spouse, as guardian.

If your spouse cannot sign the return for any other reason, you may sign it only if you are given a valid power of attorney. The document granting you power of attorney should be attached to the return when it is filed. Form 2848 (PDF), Power of Attorney and Declaration of Representative, may be used for this purpose.

If you are filing a return for a minor child who cannot sign the return, sign the child's name followed by the word "by", your signature, and your relationship, such as "parent" or "guardian of minor child".

For information on signing a return for a decedent, refer to Topic 356.

Be sure to attach the Form W-2 (PDF) and the Form 1099-R (PDF) that show Federal income tax withheld to the front of the return. If you are filing Form 1040 (PDF), be sure to attach all related schedules and forms behind your return in order of the sequence number located in the upper right hand corner of the schedule or form.

If you owe tax, make your check or money order payable to the United States Treasury, and enclose it with your return. On the front of your check or money order, please show your name, address, social security number, daytime phone number, the tax year and type of form you are filing (for example, "2005 Form 1040").

Do not mail cash with your return. You can also use a credit card to pay the tax due by calling 1-800-2paytax (1-800-272-9829) or Link2Gov (1-800-729-1040). Refer to your form instructions for more information.

If you cannot pay the amount owed with the return, refer to Topic 201, The Collection Process, for more information.

Mail your return to the address given in the tax form instructions for the area where you live. If possible, use the pre–addressed envelope that came with your booklet. If you are mailing payment or owe tax, follow additional instructions in your tax package.

You may want to file electronically! When you file electronically, you usually receive your refund within 3 weeks after the IRS has received your return, even faster if you have it directly deposited into your checking or savings account.

Many professional tax return preparers offer electronic filing of tax returns in addition to their return preparation services. A fee may be charged. For more information on electronic filing, click on the e-file logo on the home page of irs.gov.

Taxpayer Advocate Service – Help for Problem Situations

The Taxpayer Advocate Service is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

For example, if you are experiencing financial problems and will be evicted if you don't pay the rent, the Taxpayer Advocate Service may be able to assist you in obtaining your refund expeditiously.

The Taxpayer Advocate Service also may be able to assist you if you have experienced a delay of more than 30 days to resolve a tax-related problem or have not received a response by the date promised. The service is free, confidential, tailored to meet your needs, and available for businesses as well as individuals.

While the Taxpayer Advocate Service cannot change the law or make a technical tax decision, it can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

You can contact the Taxpayer Advocate Service by calling its toll–free number 1-877-777-4778, TTY/TTD 1-800-829-4059 to see if you are eligible for assistance.

You can also call or write to your Local Taxpayer Advocate, whose address and phone number are listed in your local telephone directory and in Publication 1546 (PDF), The Taxpayer Advocate Service of the IRS—How to Get Help With Unresolved Tax Problems.

If you write, please be sure to include your social security number or employer identification number, your return address and a phone number where you can be reached during the day. Include with your letter, copies of any correspondence you have received from the IRS.

In addition, please describe your problem, the tax years involved and any previous attempts to solve the problem (including any offices you contacted). You can also file Form 911, Request for Taxpayer Advocate Service Assistance (And Application for Taxpayer Assistance Order), or ask an IRS employee to complete it on your behalf.

To learn more about the Taxpayer Advocate Service, see www.irs.gov/advocate.

Tax Help for Small Businesses and the Self-Employed

If you are starting or already have a small business and need information on taxes, help is available in the form of media products and services.

Publication 3207, The Small Business Resource Guide CD-ROM is a must for every small business owner, or any taxpayer about to start a business. This handy, interactive CD contains all the business tax forms, instructions and publications to successfully manage a business.

In addition, the CD provides a wide variety of web links to various government agencies, business associations and IRS organizations. The improved subscription option feature is your opportunity to join the SB/SE Mail List to receive valuable information that impacts the small business owner.

In addition, the subscription option feature lets small business owners join the SB/SE Mail List to receive valuable information about IRS outreach programs and products.

In addition, please visit our Small Business and Self-Employed Community Web site at www.irs.gov/smallbiz. Our site provides extensive tax information and online tools and resources especially for the small business person.

We offer an array of educational products which you can view or order online, at your convenience, night or day. Additionally, the Web site features an online classroom with video streaming of several of our multimedia educational products.

We also include an ever expanding list of services, such as the online application for your Employer Identification Number and e-filing.

Tax Assistance for Individuals with Disabilities and the Hearing Impaired

Special assistance is available for persons with disabilities. If you are unable to complete your return because of a physical disability, you may obtain assistance from an IRS office, or the Volunteer Income Tax Assistance Program (VITA) sponsored by IRS. For further information on available IRS services, refer to Topic 101 or refer to Publication 910 (PDF), Guide to Free Tax Services.

Telephone assistance for the hearing impaired is available for individuals with TTY equipment. The toll–free number for this service is 1-800-829-4059. Hearing impaired individuals that do not have this equipment may be able to obtain access through the federal or state relay services.

Braille materials for the visually impaired are available at any of the 142 regional libraries in conjunction with the national library service for the blind and physically handicapped.

To locate your nearest library write to the National Library Service for the Blind and Physically Handicapped, Library of Congress at 1291 Taylor Street, NW, Washington, D.C. 20542. Available materials are limited to Publication 17, Your Federal Income Tax, Publication 334, Tax Guide for Small Business, and Forms 1040, 1040A and 1040EZ (materials include instructions and tax tables).

For additional information on these subjects and other areas that may affect persons with disabilities, refer to Publication 907, Tax Highlights for Persons with Disabilities.

Topic 101 - IRS Services – Volunteer Tax Assistance, Toll–Free Telephone, Walk–in Assistance, and Outreach Programs

The IRS sponsors volunteer assistance programs and offers help to taxpayers in many community locations.

The Volunteer Income Tax Assistance Program (VITA) offers free tax help by trained volunteers to low to moderate income taxpayers. VITA sites are locally available at community locations, and provide free basic income tax return preparation to individuals. To see if you qualify, see Publication 910 (PDF), IRS Guide to Free Tax Services, at our website, www.irs.gov. Volunteers prepare Form 1040A (PDF), Form 1040EZ (PDF), and Form 1040 (PDF).

Trained volunteers can help you with special credits, such as Earned Income Tax Credit (EITC), Child Tax Credit and Credit for the Elderly for which you may qualify.

In addition to free tax return preparation assistance, many VITA sites offer free electronic filing (e-file). Individuals taking advantage of the e-file program will receive their refunds in half the time compared to returns filed on paper – even faster if you have your refund deposited directly into your bank account.

Learn the locations, dates, and hours of the volunteer sites, by calling the IRS toll-free at (800) TAX-1040 or (800) 829–1040.

Another program, Tax Counseling for the Elderly (TCE), is a grant program designed to offer free tax assistance to individuals age 60 years or older with low to moderate income. TCE sites are located at convenient community locations.

TCE counselors offer free income tax return preparation services, and can prepare Form 1040, Form 1040A, Form 1040EZ, Form 1040, Schedule A&B (PDF), and simple Form 1040, Schedule D (PDF). The American Association of Retired Persons (AARP), participates in the TCE program.

To locate the nearest AARP office, visit their web site at www.aarp.org/taxaide/home.htm or call 1-888-AARPNOW or (1-888-227-7669). To locate the nearest TCE site call the IRS toll-free at 1-800-TAX-1040 or 1–800–829–1040.

If you plan to take advantage of any of the volunteer assistance programs, be sure to bring photo identification as well as social security cards for you and all your exemptions, your current year's tax package and/or label; all Forms, W-2 and Forms 1099; information for other income; information for all deductions/credits; and a copy of last year's tax return, amounts paid for day care, and bank routing numbers if your are expecting a refund and choose direct deposit.

You can get free telephone assistance by calling 1-800-829-1040. When calling this number, you may ask questions to help you prepare your return, or ask about a notice you have received. In certain areas, IRS has local offices you may visit to receive assistance.

The Community Outreach Tax Education Program offers free tax seminars to groups of people sharing common tax interests. IRS employees or trained volunteers conduct tax information seminars at convenient times and places in the community.

The seminars cover a variety of topics tailored to the needs of your organization's members and include films or videotapes and discussion of tax questions.

For information on VITA, TCE, and Community Outreach locations and times, or to volunteer for any of these programs, call 1–800–829–1040.

Armed Forces Tax Information

The tax laws provide some special benefits for active members of the U.S. Armed Forces and certain benefits for individuals serving in combat zones.

For more information on the various tax benefits available to members of the U.S. Armed Forces, please refer to Publication 3, Armed Forces' Tax Guide.

For federal tax purposes, the U.S. Armed Forces includes commissioned officers, warrant officers, and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy, and Air Force.

The Coast Guard is also included, but not the U.S. Merchant Marine or the American Red Cross. However, these and other support personnel serving in a combat zone may qualify for certain tax deadline extensions normally available to individuals in the U.S.

Armed Forces serving in a combat zone. For more information on benefits available to individuals serving in a combat zone, please refer to Publication 3, Armed Forces' Tax Guide, or go to Questions and Answers on Combat Zone Tax Provisions at the www.irs.gov web site.

Bad Debt Deduction

If someone owes you money that you cannot collect, you may have a bad debt. For a discussion of what constitutes a valid debt, refer to Publication 550, Investment Income and Expenses, and Publication 535, Business Expense. To deduct a bad debt, you must have previously included the amount in your income or loaned out your cash. If you are a cash basis taxpayer, as most individuals are, you may not take a bad debt deduction for income you expected to receive but did not because the amount was never included in your income. For a bad debt, you must show that there was an intention at the time of the transaction to make a loan and not a gift.

There are two kinds of bad debts – business and nonbusiness. A business bad debt, generally, is one that comes from operating your trade or business. A business deducts its bad debts from gross income when figuring its taxable income. Business bad debts may be deducted in part or in full.

All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless nonbusiness bad debt. You must establish that you have taken reasonable steps to collect the debt and the debt is worthless. It is not necessary to go to court if you can show that a judgment from the court would be uncollectible. You may take the deduction only in the year the debt becomes worthless. A debt becomes worthless when the surrounding facts and circumstances indicate there is no longer any chance the amount owed will be paid. You do not have to wait until a debt is due to determine whether it is worthless.

A nonbusiness bad debt is reported as a short–term capital loss in Part 1 on Form 1040, Schedule D (PDF). It would be subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return.

For more information on nonbusiness bad debts, refer to Publication 550, Investment Income and Expenses. For more information on business bad debts, refer to Publication 535, Business Expenses.

Student Loan Interest Deduction

You may be able to deduct interest you pay on a qualified student loan. And, if your student loan is canceled, you may not have to include any amount in income.

The deduction is claimed as an adjustment to income so you do not need to itemize your deductions on Schedule A Form 1040.

You can claim the deduction if all of the following apply:

1. You paid interest on a qualified student loan in tax year 2007

2. Your filing status is not married filing separately

3. Your modified adjusted gross income is less than $65,000 ($135,000 if filing jointly)

4. You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's return

A qualified student loan is a loan you took out solely to pay qualified higher education expenses. See the instructions for Form 1040 to determine if your expenses qualify.

If you file a Form 2555, Form 2555EZ or Form 4563, use Publication 970 instead of the worksheet in the Form 1040 Instructions.

The deduction will start to phase out when the modified AGI exceeds certain amounts. To determine when the deduction is phased out, please refer to Publication 970, Tax Benefits for Education.

If you paid $600 or more of interest on a qualified student loan during the year, you will receive a Form 1098-E (PDF), Student Loan Interest Statement, from the entity to which you paid the student loan interest.

Tuition And Fees Deduction

You may be able to deduct qualified tuition and related expenses that you pay for yourself, your spouse, or a dependent, as a tuition and fees deduction. To determine whether your expenses are qualified, refer to Publication 970, Tax Benefits for Education.

You do not have to itemize to take this deduction. You can claim qualified tuition and fees as either: (1) an adjustment to income, as directed above; or (2) a Hope or Lifetime Learning credit, or (3) if applicable, as business expenses.

You cannot take the tuition and fees deduction on your income tax return if your filling status is married filing separately, or if you are claimed as a dependent on someone else's return.

The deduction is reduced or eliminated if your modified adjusted gross income exceeds certain limits, based on your filing status. You cannot claim the tuition and fees deduction and a Hope or Lifetime Learning credit for the same student.

If the educational expenses are also allowable as a business expense, the tuition and fees deduction may be claimed in conjunction with a business expense deduction, but the same expenses cannot be deducted twice.

You cannot claim a deduction or credit based on expenses paid with tax-free scholarship, fellowship, grant, or education savings account funds such as a Coverdell education savings account, tax-free savings bond interest or employer-provided education assistance.

The same rule applies to expenses you pay with a tax-exempt distribution from a qualified tuition plan, except that you can deduct qualified expenses you pay only with that part of the distribution that is a return of your contribution to the plan.

Educator Expense Deduction

If you are an eligible educator, you can deduct up to $250 of your unreimbursed expenses [otherwise deductible trade or business expenses] you paid or incurred for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom.

For courses in health and physical education, expenses for supplies are qualified expenses only if they are related to athletics. You can deduct these expenses even if you do not itemize deductions on Form 1040, Schedule A.

This deduction is for expenses paid or incurred during the tax year. Previously, these expenses were deductible only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income limit. The deduction is claimed on line 23 of Form 1040.

You are an eligible educator if, for the tax year, you meet the following requirements:

You are a kindergarten through grade 12;

Teacher

Instructor

Counselor

Principal, or

Aide

You work at least 900 hours a school year in a school that provides elementary or secondary education, as determined under state law.

Qualified expenses are deductible only to the extent the amount of such expenses exceeds the following amounts for the tax year:

The interest on qualified U.S. savings bonds that you excluded from income because you paid qualified higher education expenses,

Any distribution from a qualified tuition program that you excluded from income, or

Any tax-free withdrawals from your Coverdell Education Savings Account.

For additional information regarding personal credits and any alternative minimum tax (AMT), refer to Publication 17, Your Federal Income Tax.

Moving Expenses

If you moved due to a change in your job or business because you started a new job, you may be able to deduct your moving expenses. To qualify for the moving expense deduction, you must satisfy two tests.

Under the first test, the "distance test", your new job must be at least 50 miles farther from your old home than your old job location was from your old home.

If you had no previous workplace, your new job must be at least 50 miles from your old home, or if you are a member of the armed forces and your move was due to a permanent change of station you also may qualify.

The second test is the "time test". If you are an employee, you must work full-time for at least 39 weeks during the 12 months right after starting your new job.

If you are self-employed, you must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after starting your new job.

There are exceptions to the time test in case of death, disability and involuntary separation, among other things. For more information on qualifying to deduct moving expenses please refer to Publication 521, Moving Expenses.

Moving expenses are figured on Form 3903 (PDF) and deducted as an adjustment to income on Form 1040 (PDF). You cannot deduct any moving expenses that were reimbursed by your employer.

For additional information, refer to the Form 3903 (PDF) Instructions and Publication 521, Moving Expenses.

Alimony Paid

You may deduct the alimony or separate maintenance payments you are required to make, and you must include in income the alimony or separate maintenance payments you receive.

This topic covers alimony under divorce or separate maintenance decrees or written separation agreements entered into by you and your spouse/former spouse after 1984. It explains what is deductible if you pay alimony, and what is taxable if you receive alimony.

Alimony payments you make under a divorce or separation instrument are deductible if all of the following requirements are met:

1. You and your spouse or former spouse do not file a joint return with each other, 2. You pay in cash (including checks or money orders),

3. The divorce or separation instrument does not say that the payment is not alimony,

4. If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment,

5. You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and

6. Your payment is not treated as child support.

Child support is never deductible. If your divorce decree or other written instrument or agreement calls for alimony and child support, and you pay less than the total required, the payments apply first to child support. Any remaining amount is considered alimony.

Noncash property settlements, whether in a lump sum or installments, do not qualify as alimony. Voluntary payments (i.e., payments not required by a divorce decree or separation instrument) do not qualify as alimony.

You do not have to itemize deductions to deduct your alimony payments. You must claim the deduction on Form 1040 (PDF). You cannot use Form 1040A or Form 1040EZ.

You must provide the social security number of the spouse or former spouse receiving the payments. If you don't, you may have to pay a $50 penalty and your deduction may be disallowed.

If you are the spouse or former spouse who is receiving the alimony, you must report the full amount as income on your Form 1040. You cannot use Form 1040A or Form 1040EZ. If you do not give your social security number to your spouse or former spouse who is making the alimony payments, you may have to pay a $50 penalty.

More information on alimony, including rules for divorces and separations before 1985 and recapture rules, is available in Publication 504, Divorced or Separated Individuals.

Individual Retirement Arrangements (IRAs)

An individual retirement arrangement, or IRA, is a personal savings plan which allows you to set aside money for retirement, while offering you tax advantages.

You may be able to deduct some or all of your contributions to your IRA. Amounts in your IRA, including earnings, generally are not taxed until distributed to you.

IRA's cannot be owned jointly. However, any amounts remaining in your IRA upon your death can be paid to your beneficiary or beneficiaries.

To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year. You, and/or your spouse if you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self–employment.

Taxable alimony and separate maintenance payments received by an individual are treated as compensation for IRA purposes.

Compensation does not include earnings and profits from property, such as rental income, interest and dividend income or any amount received as pension or annuity income, or as deferred compensation.

Please refer to Publication 590 for information on the amounts you will be eligible to contribute to your IRA account.

Figure your deduction using the worksheets in the Form 1040 Instructions or Form 1040A Instructions or in Publication 590. You cannot claim an IRA deduction on Form 1040EZ; you must use either Form 1040A (PDF) or Form 1040 (PDF). Form 8606 (PDF) should be attached to your return.

The deadline for contributions to a traditional IRA for the year is the due date of your return, not including any extensions of time to file.

Amounts you withdraw from your IRA are fully or partially taxable in the year you withdraw them. If you made only deductible contributions, withdrawals are fully taxable. Use Form 8606 to figure the taxable portion of withdrawals.

Withdrawals made prior to age 59 1/2 may be subject to a 10% additional tax. You also may owe an excise tax if you do not begin to withdraw minimum distributions by April 1st of the year after you reach age 70 1/2.

These additional taxes are figured and reported on Form 5329 (PDF). Refer to Form 5329 Instructions for exceptions to the additional taxes. For information on Roth IRA contributions or distributions, refer to Topic 309.

For information on conversions from a traditional IRA to a Roth IRA, refer to Publication 590.

Wages and Salaries

Wages, salaries, and tips received by an employee for performing services for an employer must be included in your gross income. Amounts withheld from pay for income tax, social security and Medicare taxes, pensions, insurance, and union dues are considered "received" and must be included in gross income in the year they are withheld.

Generally, your employer's contribution to a qualified pension plan for you is not included in gross income at the time it is contributed. However, amounts withheld under certain salary reduction agreements with your employer may have to be included in gross income in the year they are withheld. See Publication 17, Chapter 5, Wages Salaries and Other Earnings, and Chapter 6, Tip Income, for specific information.

Your employer should provide a Form W-2 (PDF) showing your total income and withholding. You must include all wages and withholding's from all Forms W-2 if you received more than one and if filing jointly all of your spouses Forms W-2. Attach a copy of each W–2 to the front of your tax return as indicated in the instructions. Please note that Form 1099-MISC (PDF) generally reports self-employment income.

NOTE: Topic 407 provides information on Business Income.

File an amended tax return, Form 1040X (PDF), if you receive a Form W-2 after your return is filed. Topic 308 provides information on amended returns.

Refer to Topic 154, Forms W-2 and Form 1099–R (What To Do If Not Received), if you have not received one or more Forms W–2 by early February.

For more information on tips, refer to Publication 531, Reporting Tip Income. Publication 1244, which contains Form 4070A, Employee's Daily Record of Tips to Employer, and Form 4070, Employee's Report of Tips to Employer, should also be helpful to you.

More On Casualty, Disaster, and Theft Losses

If your business or income-producing property is completely destroyed, the decrease in fair market value is not considered. Your loss is the adjusted basis of the property, minus any salvage value and any insurance or other reimbursement you receive or expect to receive. For more information on determining adjusted basis, see Publication 551, Basis of Assets.

In figuring your loss, do not consider the loss of future profits or income due to the casualty.

Casualty losses are claimed on Form 4684 (PDF), Casualties and Thefts. Section A is used for personal–use property and Section B is used for business or income-producing property. If personal-use property was destroyed or stolen, you may wish to refer to Publication 584B (PDF), Business Casualty, Disaster, and Theft Loss Workbook.

Casualty losses are generally deductible only in the year the casualty occurred. However, if you have a deductible loss from a disaster in a Presidentially declared disaster area, you can choose to deduct that loss on your tax return for the year immediately preceding the year of the casualty. If you have already filed your return for the preceding year, the loss may be claimed in the preceding year by filing an amended return, ( Form 1040X (PDF) for Individuals or Form 1120X (PDF) for Corporations).

Generally, you must make the choice to use the preceding year by the due date of the current year's return, without extensions.

For Example:

The election to deduct a 2005 disaster loss on your 2004 return must be made on or before the due date (without extensions) of the 2005 return.

You can revoke this choice within 90 days after making it by returning to the IRS any refund or credit you received from making the choice. If you revoke your choice before receiving a refund, you must return the refund within 30 days after receiving it for the revocation to be effective.

Generally, you can choose to postpone reporting gain due to insurance proceeds that exceed your basis in property destroyed or damaged by a casualty if you purchase replacement property or repair the damage within two years. Postponement of gain is only available if the amount you spend on replacing or repairing your property is equal to, or exceeds, the insurance proceeds you receive. Otherwise, the excess of the insurance proceeds over the amount you spend to replace or repair your property must be reported as gain.

If your main home, or any of its contents, is damaged or destroyed as a result of a disaster in a Presidentially declared disaster area, do not report any gain due to insurance proceeds you receive for unscheduled personal property, such as damaged furniture, that was part of the contents of your home. You can choose to postpone gain from any other insurance proceeds received for your main home or its contents if you purchase replacement property within four years after the close of the first tax year in which any gain is realized. For this purpose, insurance proceeds received for the home or its contents are treated as being received for a single item of property, and any replacement property you purchase that is similar or related in service or use to your home or its contents is treated as similar or related in service or use to that single item of property. Again, postponement of gain is only available if the amount you spend on replacing or repairing your property is equal to, or exceeds, the insurance proceeds you receive. Otherwise, you must recognize gain to the extent that the insurance proceeds are more than the cost of your replacement property. Renters qualify to choose relief under these rules if the rented residence is their main home.

If your home is located in a Presidentially declared disaster area and your state or local government orders you to tear it down or move it because it is no longer safe to live in, the resulting loss in value is treated as a casualty loss from a disaster. Figure your loss in the same way as any other casualty loss of personal-use property. The State or local government order must be issued within 120 days after the area is declared a disaster area.

If your loss deduction is more than your income, you may have a net operating loss. You do not have to be in business to have a net operating loss from a casualty. For more information, refer to Publication 536, Net Operating Losses.

The IRS may postpone for up to one year certain tax deadlines of taxpayers who are affected by a Presidentially declared disaster. The tax deadlines the IRS may postpone include those for filing income, estate, gift, generation-skipping transfer, certain excise, and employment tax returns, paying taxes associated with those returns, and making contributions to a traditional IRA or Roth IRA.

If the IRS postpones the due date for filing your return and for paying your tax and you are affected by a Presidentially declared disaster area, the IRS may abate the interest on underpaid tax that would otherwise accrue for the period of the postponement.

Casualty, Disaster, and Theft Losses

A casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected, and unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption.

If your property is not completely destroyed, or if it is personal-use property, determine your loss from a casualty by first figuring the decrease in fair market value of your property as a result of the casualty event.

To determine the fair market value of your property, refer to Topic 703. Keep in mind the general definition of fair market value is the price at which property would change hands between a buyer and seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts.

If the property was held by you for personal use, you must further reduce your loss by $100. This $100 reduction for losses of personal-use property applies to each casualty or theft event that occurred during the year.

The total of all your casualty and theft losses of personal-use property must be further reduced by 10% of your adjusted gross income.

For more information regarding casualty losses of personal-use property and how to deduct them, refer to Topic 507 and Publication 547, Casualties, Disasters, and Thefts.

I am in a disaster area and heard the IRS could help me. What can the IRS do?

If you have been affected by a Presidentially declared disaster, the IRS may help you by allowing additional time for filing returns and making payments, and in some circumstances, waiving penalties if the disaster has caused you to file or pay late.

The IRS may also, provide copies or transcripts of previously filed returns, free of charge. You may be eligible to file for a casualty loss deduction on the prior year's tax return, or if you have already filed, by amended return (Form 1040X).

For additional information on this subject, refer to Tax Topic 515, Casualty, Disaster, and Theft Losses, and Publication 547, Casualties, Disasters, and Theft.

My spouse and I are filing separate returns. How can we split our itemized deductions?

If you and your spouse file separate returns and one of you itemizes deductions, the other spouse will have a standard deduction of zero. Therefore, the other spouse should also itemize deductions.

You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse. Deductible expenses that are paid out of separate funds, such as medical expenses, are deductible by the spouse who pays them.

If these expenses are paid from community funds, the deduction may depend on whether or not you live in a community property state. In a community property state, the deduction is, generally, divided equally between you and your spouse.

For more information refer to Publication 504, Divorced or Separated Individuals; and Publication 555, Community Property.

Home Mortgage Points

The term "points" is used to describe certain charges paid to obtain a home mortgage. Points may be deductible as home mortgage interest, if you itemize deductions on Form 1040, Schedule A (PDF). If you can deduct all of the interest on your mortgages, you may be able to deduct all of the points paid on the mortgage. For more information on deducting interest, refer to Topic 505.

You can deduct the points in full in the year they are paid, if all the following requirements are met:

1. Your loan is secured by your main home (your main home is the one you live in most of the time).

2. Paying points is an established business practice in your area.

3. The points paid were not more than the amount generally charged in that area.

4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.

5. The points were not paid for items that usually are separately stated on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, or property taxes.

6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. You cannot have borrowed the funds from your lender or mortgage broker in order to pay the points.

7. You use your loan to buy or build your main home.

8. The points were computed as a percentage of the principal amount of the mortgage, and

9. The amount is clearly shown on your settlement statement.

Points that do not meet these requirements may be deductible over the life of the loan. Points paid for refinancing generally can only be deducted over the life of the new mortgage.

However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six requirements stated previously, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. Points charged for specific services, such as preparation costs for a mortgage note, appraisal fees or notary fees are not interest and cannot be deducted.

Points paid by the seller of a home cannot be deducted as interest on the seller's return, but they are a selling expense which will reduce the amount of gain realized. Points paid by the seller may be deducted by the buyer provided the buyer subtracts the amount from the basis, or cost, of the residence. Points you pay on loans secured by your second home can be deducted only over the life of the loan.

You may be subject to a limit on some of your itemized deductions, including points; for more information on the adjusted gross income limitations please refer to the Form 1040 Instructions.

For more information on points, refer to Publication 936, Home Mortgage Interest Deduction.

If I must deduct points over the life of my mortgage, and I have a 30 year mortgage, does this mean that I divide the points paid by 30 and enter that amount on Schedule A?

No, you don't divide the points by 30. If you choose to use the straight-line method, you need to divide the points by the number of payments over the term of the loan and deduct points for a year according to the number of payments made in the year.

If the loan ends prematurely, due to payoff or refinance with a different lender, for example, then the remaining points are deducted in that year.

Points not included in Form 1098 (PDF) (usually not included on a refinance) should be entered on Form 1040, Schedule A (PDF), Itemized Deductions. For more information, refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points.

Is the mortgage interest and property tax on a second residence deductible?

The mortgage interest on a second home which you use as a residence for some portion of the taxable year, is generally deductible if the interest satisfies the same requirements for deductibility as interest on a primary residence.

Real estate taxes paid on your primary and second residence are, generally, deductible. Deductible real estate taxes include any state, local, or foreign taxes on real property levied for the general public welfare.

Deductible real estate taxes do not include taxes charged for local benefits and improvements that increase the value of the property. For more information, refer to Publication 17, Your Federal Income Tax for Individuals, Chapter 24; Tax Topic 503, Deductible Taxes; and Publication 530, Tax Information for First-Time Home Owners.

Our home was seriously damaged by flooding last year. Are there special provisions for claiming a loss since our home is located in a declared disaster area?

Casualty losses not compensated for by insurance or otherwise are generally deductible only in the year the casualty occurred. However, if you have a deductible loss from a disaster in an area that is officially designated by the President of the United States as eligible for federal disaster assistance, you can choose to deduct that loss on your return for the year immediately preceding the loss year.

In other words, you may treat the loss as having occurred in either the current year or the previous year, whichever provides the best tax results for you.

If you have already filed your return for the preceding year, the loss may be claimed by filing an amended return, Form 1040X (PDF), Amended U.S. Individual Income Tax Return.

For more information on disaster area losses (including flood losses), refer to Tax Topic 515, Disaster Area Losses (Including Flood Losses), or Publication 547, Casualties, Disasters and Thefts. Publication 584, Casualty, Disaster, and Theft Loss Workbook, can be used to help you catalog your property.

Home mortgage interest is interest you pay on a loan secured by your main home or a second home. The loan may be a mortgage to buy your home, a second mortgage, a home equity loan, or a line of credit.

Your main home is where you live most of the time. It can be a house, cooperative apartment, condominium, mobile home, house trailer, or houseboat that has sleeping, cooking and toilet facilities.

A second home can include any other residence you own, and treat as a second home. You do not have to use the home during the year. However, if you rent it to others, you must also use it as a home during the year for more than the greater of 14 days or 10 percent of the number of days you rent it, for the interest to qualify as home mortgage interest.

Home mortgage interest and points are generally reported to you on Form 1098 (PDF), Mortgage Interest Statement, by the financial institution to which you made the payments.

If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on these mortgages:

1. A mortgage you took out on or before October 13, 1987 (grandfathered debt.) 2. Mortgages taken out after October 13, 1987, to buy, build, or improve your home, (called home acquisition debt) but only if this debt plus any grandfathered debt totals $1 million or less throughout 2007. The limit is $500,000 if you are married filing separately.

3. Any mortgages taken out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if these mortgages total $100,000 or less throughout 2007, and all mortgages, including any grandfathered debt and home acquisition debt, on the home, total no more than your homes fair market value. The limit is $50,000 if you are married filing separately.

If one or more of your mortgages does not fit into any of these categories, refer to Publication 936, Home Mortgage Interest Deduction, to figure the amount of interest you can deduct.

You may be able to take a credit against your federal income tax if you were issued a mortgage credit certificate by a state or local government for low income housing. Use Form 8396 (PDF), Mortgage Interest Credit, to figure the amount. For further information, please refer to Publication 530, Tax Information for First Time Homeowners.

You cannot deduct personal interest. Personal interest includes interest paid on a loan to purchase a car for personal use, credit card and installment interest incurred for personal expenses. Items you cannot deduct as interest include points (if you are a seller), service charges, credit investigation fees, and interest relating to tax–exempt income, such as interest to purchase or carry tax–exempt securities.

You may be subject to a limit (phaseout) on some of your itemized deductions including mortgage interest. For more information on the limitations based on the adjusted gross income please refer to the Form 1040 Instructions.

Interest Expense

Interest is an amount you pay for the use of borrowed money. To deduct interest you paid on a debt you must be legally liable for the debt.

Additionally, you generally must itemize your deductions, unless the interest is on rental or business property or on a student loan.

If you prepay interest, you must allocate the interest over the tax years to which it applies. You may deduct in each year only the interest that applies to that year.

However, there is an exception that applies to points paid on a principal residence.

The types of interest you can deduct as itemized deductions on Form 1040, Schedule A (PDF) are investment interest and home mortgage interest, including certain points. For information on points, refer to Topic 504 .

You can deduct student loan interest on Form 1040 (PDF) or Form 1040A (PDF). For information on deducting student loan interest, refer to Topic 456.

I took out a home equity loan to pay off personal debts. Is this interest deductible? Where do I enter this amount on my tax return?

A loan taken out for reasons other than to buy, build, or substantially improve your home, such as to pay off personal debts may qualify as home equity debt.

The interest would be deducted on Form 1040, Schedule A (PDF), Itemized Deductions. The amount you can deduct as interest on home equity debt is subject to certain limitations. For more information, refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 505, Interest Expense.

I have a mortgage for my primary residence and a second mortgage for land that I intend to build a home on. Can the interest be deducted for the second mortgage?

Unless you have begun construction of a home on the bare land that you can occupy within 24 months the interest you paid on the second mortgage would not qualify as deductible mortgage interest. . For more information, refer to Publication 936, Home Mortgage Interest Deduction.

My father is in a nursing home and I pay for the entire cost. Can I deduct the expenses on my tax return?

Nursing home expenses are allowable as medical expenses in certain instances. If you, your spouse, or your dependent is in a nursing home, and the primary reason for being there is for medical care, the entire cost, including meals and lodging, is a medical expense.

If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a medical expense, and the cost of the meals and lodging is not deductible.

To determine if your father qualifies as your dependent for this purpose, refer to Publication 502, Medical and Dental Expenses.

You deduct medical expenses on Form 1040, Schedule A (PDF), Itemized Deductions. The total of all allowable medical expenses must be reduced by 7.5% of your Adjusted Gross Income.

Can I deduct alimony paid to my former spouse?

If you are divorced or separated, you may be able to deduct the alimony or separate maintenance payments that you are required to make to your spouse or former spouse, or on behalf of that spouse.

For additional information, refer to Tax Topic 452, Alimony Paid (this topic covers alimony under decrees or agreements after 1984); and Publication 504, Divorced or Separated Individuals.

Alimony Paid

You may deduct the alimony or separate maintenance payments you are required to make, and you must include in income the alimony or separate maintenance payments you receive.

This topic covers alimony under divorce or separate maintenance decrees or written separation agreements entered into by you and your spouse/former spouse after 1984. It explains what is deductible if you pay alimony, and what is taxable if you receive alimony.

Alimony payments you make under a divorce or separation instrument are deductible if all of the following requirements are met:

1. You and your spouse or former spouse do not file a joint return with each other,

2. You pay in cash (including checks or money orders),

3. The divorce or separation instrument does not say that the payment is not alimony,

4. If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment,

5. You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and

6. Your payment is not treated as child support.

Child support is never deductible. If your divorce decree or other written instrument or agreement calls for alimony and child support, and you pay less than the total required, the payments apply first to child support. Any remaining amount is considered alimony.

Noncash property settlements, whether in a lump sum or installments, do not qualify as alimony. Voluntary payments (i.e., payments not required by a divorce decree or separation instrument) do not qualify as alimony.

You do not have to itemize deductions to deduct your alimony payments. You must claim the deduction on Form 1040 (PDF). You cannot use Form 1040A or Form 1040EZ.

You must provide the social security number of the spouse or former spouse receiving the payments. If you don't, you may have to pay a $50 penalty and your deduction may be disallowed.

If you are the spouse or former spouse who is receiving the alimony, you must report the full amount as income on your Form 1040.

You cannot use Form 1040A or Form 1040EZ. If you do not give your social security number to your spouse or former spouse who is making the alimony payments, you may have to pay a $50 penalty.

More information on alimony, including rules for divorces and separations before 1985 and recapture rules, is available in Publication 504, Divorced or Separated Individuals.

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One of the main features is an outline of a plan for getting 25 to 30 year olds elected to congress.

This is in no way an endorsement of Ron Paul. It is to show that a 25 year old with the same message of bringing the "federal monster" under control could raise enough money for a successful campaign.

JFK is featured quite prominently is this Ebook. His tax cuts gave us one of the best economies in the history of America.

You should find his economic philosophy both informative and illuminating; it is quite the opposite of today's diseased class warfare/class envy.

Interest Expense

Interest is an amount you pay for the use of borrowed money. To deduct interest you paid on a debt you must be legally liable for the debt. Additionally, you generally must itemize your deductions, unless the interest is on rental or business property or on a student loan.

If you prepay interest, you must allocate the interest over the tax years to which it applies. You may deduct in each year only the interest that applies to that year. However, there is an exception that applies to points paid on a principal residence.

The types of interest you can deduct as itemized deductions on Form 1040, Schedule A (PDF) are investment interest and home mortgage interest, including certain points. For information on points, refer to Topic 504 .

You can deduct student loan interest on Form 1040 (PDF) or Form 1040A (PDF). For information on deducting student loan interest, refer to Topic 456.

Home mortgage interest is interest you pay on a loan secured by your main home or a second home. The loan may be a mortgage to buy your home, a second mortgage, a home equity loan, or a line of credit.

Your main home is where you live most of the time. It can be a house, cooperative apartment, condominium, mobile home, house trailer, or houseboat that has sleeping, cooking and toilet facilities.

A second home can include any other residence you own, and treat as a second home. You do not have to use the home during the year. However, if you rent it to others, you must also use it as a home during the year for more than the greater of 14 days or 10 percent of the number of days you rent it, for the interest to qualify as home mortgage interest.

Home mortgage interest and points are generally reported to you on Form 1098 (PDF), Mortgage Interest Statement, by the financial institution to which you made the payments.

If all of your mortgages fit into one or more of the following three categories at all times during the year, you can deduct all of the interest on these mortgages:

1. A mortgage you took out on or before October 13, 1987 (grandfathered debt.)

2. Mortgages taken out after October 13, 1987, to buy, build, or improve your home, (called home acquisition debt) but only if this debt plus any grandfathered debt totals $1 million or less throughout 2007. The limit is $500,000 if you are married filing separately.

3. Any mortgages taken out after October 13, 1987, other than to buy, build, or improve your home (called home equity debt), but only if these mortgages total $100,000 or less throughout 2007, and all mortgages, including any grandfathered debt and home acquisition debt, on the home, total no more than your homes fair market value. The limit is $50,000 if you are married filing separately.

If one or more of your mortgages does not fit into any of these categories, refer to Publication 936, Home Mortgage Interest Deduction, to figure the amount of interest you can deduct.

You may be able to take a credit against your federal income tax if you were issued a mortgage credit certificate by a state or local government for low income housing. Use Form 8396 (PDF), Mortgage Interest Credit, to figure the amount. For further information, please refer to Publication 530, Tax Information for First Time Homeowners.

You cannot deduct personal interest. Personal interest includes interest paid on a loan to purchase a car for personal use, credit card and installment interest incurred for personal expenses. Items you cannot deduct as interest include points (if you are a seller), service charges, credit investigation fees, and interest relating to tax–exempt income, such as interest to purchase or carry tax–exempt securities.

You may be subject to a limit (phaseout) on some of your itemized deductions including mortgage interest. For more information on the limitations based on the adjusted gross income please refer to the Form 1040 Instructions.

NOTICE:

Interest and penalties paid to the IRS on Federal taxes are not deductible. For more information, refer to Items You Cannot Deduct in Chapter 25, Interest Expense, in Publication 17, Your Federal Income Tax for Individuals; and Tax Topic 505, Interest Expense.

I donated a used car to a qualified charity. I itemize my deductions, and I would like to take a charitable contribution for the donation. Do I need to attach any special forms to my return? What records do I need to keep?

If you claim a deduction on your return of over $500 for all contributed property, you must attach a Form 8283 (PDF), Noncash Charitable Contributions, to your return.

If you claim a total deduction of $5,000 or less for all contributed property, you need only complete Section A of Form 8283 (PDF).

If you claim a deduction of more than $5,000 for an item or a group of similar items, you generally need to complete Section B of Form 8283 (PDF) which requires, in most cases, an appraisal by a qualified appraiser.

You will need to obtain and keep evidence of your car donation and be able to substantiate the fair market value of the car. If you are claiming a deduction of $250 or more for the car donation, you will also need a contemporaneous written acknowledgement from the charity that includes a description of the car and a statement of whether the charity provided any goods or services in return for the car and, if so, a description and estimate of the fair market value of the goods or services.

For more information on these requirements, refer to Publication 526, Charitable Contributions; Publication 561, Determining the Value of Donated Property; Form 8283, Noncash Charitable Contributions, and its instructions.

Last year, my parents took out a student loan for me in their name and I also took out a student loan. My parents received Form 1098-E for their loan and I also received Form 1098-E for my loan. Can we both claim the interest from the loans on our tax returns? Last year, I was not their dependent.

In order for a taxpayer to claim a deduction for student loan interest, the loan must be incurred for the taxpayer, the taxpayer's spouse, or a person who was the taxpayer's dependent when the taxpayer took out the loan.

Since you were not your parents' dependent when they took out the student loan, the interest they paid on the loan does not qualify for deduction. However, the student loan interest payments you made on the student loan you took out on your behalf are eligible for deduction, provided all the other requirements are met.

For more information, refer to Publication 970, Tax Benefits for Education, Chapter 4; Tax Topic 505, Interest Expense; and Tax Topic 513, Educational Expenses.

Right-click to download Real World Economics: For High School Seniors, College Students and New Entrants To The Workforce.

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You will need Adobe Reader (the latest version is recommended) installed on your computer in order to open and read this ebook. You can get Adobe Reader here (a new window will open so you can download it without leaving this page).

If you want to open the file in your browser window, just click on the link. However, if you want to download the file to view later, then right-click on the link and choose "Save Target As" if you are using Internet Explorer or "Save Link As" if you are using Mozilla. Some Browsers use "Save File as" Then select where you want to save the file on your hard drive.

Once you have saved the file, locate where you saved it, and double click to open.

One of the main features is an outline of a plan for getting 25 to 30 year olds elected to congress.

This is in no way an endorsement of Ron Paul. It is to show that a 25 year old with the same message of bringing the "federal monster" under control could raise enough money for a successful campaign.

JFK is featured quite prominently is this Ebook. His tax cuts gave us one of the best economies in the history of America.

You should find his economic philosophy both informative and illuminating; it is quite the opposite of today's diseased class warfare/class envy.

What are the limits for deducting interest paid on a student loan?

The maximum deductible interest on a qualified student loan is $2,500 per return.

There is no deduction if you file as married filing separately, if you are claimed as a dependent, or if the loan is from a related party or a qualified employer plan. There are limits based on your filing status and adjusted gross income. For more information, refer to Publication 970, Tax Benefits for Education, and Tax Topic 513, Educational Expenses.

Right-click to download Real World Economics: For High School Seniors, College Students and New Entrants To The Workforce.

It's Free-It's Instant

You will need Adobe Reader (the latest version is recommended) installed on your computer in order to open and read this ebook. You can get Adobe Reader here (a new window will open so you can download it without leaving this page).

If you want to open the file in your browser window, just click on the link. However, if you want to download the file to view later, then right-click on the link and choose "Save Target As" if you are using Internet Explorer or "Save Link As" if you are using Mozilla. Some Browsers use "Save File as" Then select where you want to save the file on your hard drive.

Once you have saved the file, locate where you saved it, and double click to open.

One of the main features is an outline of a plan for getting 25 to 30 year olds elected to congress.

This is in no way an endorsement of Ron Paul. It is to show that a 25 year old with the same message of bringing the "federal monster" under control could raise enough money for a successful campaign.

JFK is featured quite prominently is this Ebook. His tax cuts gave us one of the best economies in the history of America.

You should find his economic philosophy both informative and illuminating; it is quite the opposite of today's diseased class warfare/class envy.

My employer is including my graduate school tuition reimbursements on my W-2 as wages. Where do I claim these education expenses on my Form 1040?

If your graduate school tuition is deductible and the reimbursements are included in your income as wages, you may take the expense as a miscellaneous itemized deduction on Form 1040, Schedule A (PDF), Itemized Deductions.

You may also need to attach Form 2106 (PDF), Employee Business Expenses. For more information, refer to Publication 970, Tax Benefits for Education, Chapter 12; Tax Topic 513, Educational Expenses; and Form 2106 (PDF), Employee Business Expenses.

Am I eligible to claim both my job education expenses (minus 2% of AGI) and the Lifetime Learning Credit on my taxes?

If you are eligible to deduct educational expenses and are also eligible for the lifetime learning credit, then it is possible to claim both, as long as you do NOT use the SAME educational expenses to claim both benefits.

Your may want to allocate some of your expenses to the deduction and others to the credit. This is sometimes desirable because a qualifying expense for one benefit may not be a qualifying expense for the other tax benefit.

For example, the cost of course-related books ordinarily qualifies for the deduction, but not for the lifetime learning credit. For more information, refer to Publication 970, Tax Benefits for Education; Form 8863 (PDF), Education Credits (Hope and Lifetime Learning Credits); and Tax Topic 513, Educational Expenses.

Can I deduct the cost of classes I need for work?

In some cases, you may be able to deduct the cost of classes you need for work. This deduction, however, would be subject to the 2 percent of AGI limitation, along with most other miscellaneous itemized deductions you list on Form 1040, Schedule A (PDF), Itemized Deductions.

For more information, refer to Publication 970, Tax Benefits for Education,

What types of educational expenses are deductible?

Deductible educational expenses include amounts spent for tuition, books, supplies, laboratory fees, and similar items.

They also include the cost of correspondence courses, as well as formal training and research you do as part of an educational program.

Transportation and travel expenses to attend qualified educational activities may also be deductible. For more information, refer to Publication 970, Tax Benefits for Education; Chapter 12 and Tax Topic 513, Educational Expenses.

My university required each incoming freshman to come to school with their own computer. Is there any way to deduct the cost of the computer from my tax liability?

The cost of a personal computer is generally a personal expense that is not deductible.

However, if the school includes the cost of school-supplied computers as part of the cost of tuition or as a fee required for attendance or enrollment, and bill students for computer software that students cannot obtain elsewhere, your expenses may qualify as an expense towards either the Lifetime Learning Credit or Hope Credit.

For more information, refer to Publication 970, Tax Benefits for Education, Chapters 2 and 3.

Amended Returns

After filing your return, you may realize you made an error. IRS corrects many errors during processing. However, there are certain situations that require you to file an Amended Return.

Note: The following applies forms 1040, 1040A, 1040EZ, or 1040NR or 1040NR-EZ.

Generally, you must file an Amended Return within 3 years from the date you filed your original return or within 2 years from the date you paid the tax, whichever is later.

The limits are different for net operating losses, foreign tax credits, and bad debts. For additional information, refer to Chapter 1 of Publication 17, Your Federal Income Tax. Publication 17 is available for download, or you may request a copy by calling 1-800-829-3676.

Social Security and Equivalent Railroad Retirement Benefits

If the only income you received during the tax year was your social security or equivalent railroad retirement benefits, your benefits are probably not taxable and you probably will not have to file a tax return.

If you also received other income, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.

If you have income in addition to your benefits, you may have to file a return even if none of your benefits are taxable. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040 Instructions or Form 1040A Instructions.

To make a determination if your benefits are taxable, complete the social security benefits worksheet in the Form 1040 or 1040A instruction book.

The taxable benefits, if any, must be included in the gross income of the person who has the legal right to receive them. For example, if you and your child received benefits, but the check for your child was made out in your name, you must use only your own portion of the benefits in figuring if any part is taxable to you.

Half of the portion that belongs to your child must be added to your child's other income to determine if any of those benefits are taxable to your child.

If you are married and file a joint return, you and your spouse must combine your incomes, social security benefits, and equivalent railroad retirement benefits when figuring the taxable portion of your benefits.

If part of your benefits is taxable, you must use Form 1040 (PDF) or Form 1040A (PDF). You cannot use Form 1040EZ.

You should receive your Form SSA-1099 or Form RRB-1099 by early February of the current tax year. The form will show benefits paid to the person who has the legal right to receive them, and the amount of any benefits you repaid.

It will also show amounts by which the benefits were reduced because you received workers compensation benefits. The Substitute Workers Compensation benefits would be taxable to the same extent.

For additional information, refer to Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

If any part of your social security or equivalent railroad retirement benefits will be taxable in the current tax year, you may request to have additional income tax withheld from your social security and/or tier 1 Railroad Retirement Benefits; you may request to have additional withholding from other income or pay estimated tax during the year. Refer to Publication 505, Tax Withholding and Estimated Tax, for additional information on estimated tax.

Issue Number: IR-2008-022

Inside This Issue

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.

Student Loan Interest

Student loan interest is interest paid by you, or on your behalf, during the year on a qualified student loan. The maximum benefit can be found in Chapter 4, Student Loan Interest Deduction, of Publication 970, Tax Benefits for Education.

The student loan interest deduction is taken as an adjustment to income. This means you can claim this deduction even if you do not itemize deductions on Form 1040, Schedule A. You must meet several requirements to take this deduction.

Please refer to Chapter 4 of Publication 970, Tax Benefits for Education, for the maximum benefit amount.

Personal Exemptions

If you are a U.S. citizen or resident alien at the end of the tax year

and

Another taxpayer may not claim you as a dependent:

You may claim a personal exemption for yourself.

The amount of the exemption will depend on your Adjusted Gross Income (AGI) for the tax year. The amount of your exemption will be reduced if your AGI goes above a certain level for your filing status. Refer to the Form 1040 Instructions or the Form 1040A Instructions for further details.

To figure the amount you can claim for your personal exemption, please refer to Worksheet 2 on page 19 of Publication 501, Exemptions, Standard Deduction, and Filing Information. Publication 501 is available for download, or you may request a copy by calling 1-800-829-3676.

Dependents-continued

If your child was born alive during the year, and the dependency tests are met, you may take the full dependency exemption.

This is true even if the child lived only for a moment. State or local law must treat the child as having been born alive. There must be proof of a live birth shown by an official document, such as a birth certificate.

If your child was born and died in the tax year being filed, and you do not have a Social Security Number (SSN) for the child, you may attach a copy of the child's birth certificate instead.

If you do, enter "died" in the space you would normally enter the child's Social Security Number. You may not claim an exemption for a stillborn child.

If your dependent died during the year and otherwise met the dependency tests, you may take an exemption for your dependent.

Dependents

Due to tax law changes, the definition of dependent has changed for tax years starting in 2005. If you need information on claiming a dependent for years before 2005, see the form instructions for the tax year for which you are filing.

You are allowed one exemption for each person you can claim as a dependent.

You may take an exemption for your dependent even if your dependent files a tax return, except a joint return. Your dependent, however, cannot claim his or her personal exemption if you are entitled to do so.

If a housekeeper, maid, or servant works for you, you may not claim a dependency exemption for that person.

For additional information on Dependents, refer to Publication 501, Exemptions, Standard Deduction and Filing Information. Publication 501 is available for download, or you may request a copy by calling 1-800-829-3676.

Can You Use The Simplified Method To Figure The Taxable Part Of Your Pension Or Annuity?

Pensions – the General Rule and the Simplified Method

If you made after-tax contributions to your pension or annuity plan, you can exclude part of your pension or annuity payments from your income.

You must figure this tax-free part when the payments first begin. The tax-free amount remains the same each year, even if the amount of the payment changes.

If you begin receiving annuity payments from a qualified retirement plan after November 18, 1996, generally you use the Simplified Method to figure the tax–free part of the payments.

A qualified retirement plan is a qualified employee plan, a qualified employee annuity, or a tax–sheltered annuity plan. Under the Simplified Method, you figure the taxable and tax–free parts of your annuity payments by completing the Simplified Method Worksheet in the Form 1040 Instructions or Form 1040A Instructions or in Publication 575, Pension and Annuity Income.

For more information on the Simplified Method, refer to Publication 575, or if you receive United States Civil Service retirement benefits, refer to Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits.

If you began receiving annuity payments from a qualified retirement plan after July 1, 1986 and before November 19, 1996, you generally could have chosen to use either the Simplified Method or the General Rule to figure the tax–free part of the payments.

If you receive annuity payments from a nonqualified retirement plan, you must use the General Rule. Under the General Rule, you figure the taxable and tax–free parts of your annuity payments using life expectancy tables prescribed by the IRS.

For a fee, the IRS will figure the tax–free part of your annuity payments for you. For more information, refer to Publication 939, General Rule for Pensions and Annuities.

Right-click to download Real World Economics: For High School Seniors, College Students and New Entrants To The Workforce.

It's Free-It's Instant

You will need Adobe Reader (the latest version is recommended) installed on your computer in order to open and read this ebook. You can get Adobe Reader here (a new window will open so you can download it without leaving this page).

If you want to open the file in your browser window, just click on the link. However, if you want to download the file to view later, then right-click on the link and choose "Save Target As" if you are using Internet Explorer or "Save Link As" if you are using Mozilla. Some Browsers use "Save File as" Then select where you want to save the file on your hard drive.

Once you have saved the file, locate where you saved it, and double click to open.

One of the main features is an outline of a plan for getting 25 to 30 year olds elected to congress.

This is in no way an endorsement of Ron Paul. It is to show that a 25 year old with the same message of bringing the "federal monster" under control could raise enough money for a successful campaign.

JFK is featured quite prominently is this Ebook. His tax cuts gave us one of the best economies in the history of America.

You should find his economic philosophy both informative and illuminating; it is quite the opposite of today's diseased class warfare/class envy.

Can You Include Your Child's Income On Your Tax Return?

Tax on a Child's Investment Income

Part of a child's investment income may be taxed at the parent's tax rate for taxable years beginning before May 26, 2007 if:

The child was under age 18 at the end of the tax year,

At least one of the child's parents was alive at the end of the tax year,

The child's investment income for the tax year was more than the dollar amount specified by law ($1,700 for 2007),

The child is required to file a tax return for the tax year, and

The child does not file a joint return for the year.

The child's tax is figured on Form 8615 (PDF), Tax for Children Under Age 18 With Investment Income of More Than $1,700. This form must be attached to the child's tax return.

You as a parent may be able to avoid having to file a tax return for your child by including the child's income on your tax return. You can choose to do this if all of the following conditions are met:

Your child was under age 18 at the end of the tax year,

Your child is required to file a return unless you make this election,

Your child had income only from interest and dividends, which includes Alaska Permanent Fund dividends and capital gain distributions,

The interest and dividend income was less than the certain amount relative to the tax year ($8,500 for 2007),

No estimated tax payments were made for the tax year, and no prior tax year's tax overpayment was applied to the current tax year, under your child's name and social security number,

No federal income tax was withheld from your child's income under backup withholding, and

You are the parent whose return must be used when applying the special tax rules for children under age 18.

If you do not file a joint return with the child's other parent, refer to Publication 929, Tax Rules for Children and Dependents, to find out which parent's return may include the child's income.

To make this choice, attach Form 8814 (PDF), Parents' Election to Report Child's Interest and Dividends, to your Form 1040 (PDF).

For more information refer to Publication 929, Tax Rules for Children and Dependents. You will need this publication to complete Form 8615 if the child has capital gain distributions.

Capital Gains and Losses

Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.

If you received the asset as a gift or inheritance, refer to Topic 703 for information about your basis. You have a capital gain if you sell the asset for more than your basis.

You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal–use property, such as your home or car, are not deductible.

Capital gains and losses are classified as long–term or short–term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term.

If you hold it one year or less, your capital gain or loss is short-term.

Capital gains and deductible capital losses are reported on Form 1040, Schedule D (PDF). If you have a net capital gain, that gain may be taxed at a lower tax rate. The term "net capital gain" means the amount by which your net long–term capital gain for the year is more than your net short–term capital loss.

The highest tax rate on a net capital gain is generally 15% (or 5%, if it would otherwise be taxed at 15% or less). There are 3 exceptions:

The taxable part of a gain from qualified small business stock is taxed at a maximum 28% rate.

Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum 28% rate.

The part of any net capital gain from selling Section 1250 real property that is required to be recaptured in excess of straight-line depreciation is taxed at a maximum 25% rate.

If you have a taxable capital gain, you may be required to make estimated tax payments. Refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.

If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is limited to $3,000, or $1,500 if you are married filing separately.

If your net capital loss is more than this limit, you can carry the loss forward to later years. Use the Capital Loss Carryover Worksheet in Publication 550, to figure the amount carried forward.

Additional information on capital gains and losses is available in Publication 550, Investment Income and Expenses, and Publication 544, Sales and Other Dispositions of Assets. If you sell your main home, refer to Topics 701 and 703, or to Publication 523, Selling Your Home.

The address of the official IRS governmental Web site is www.irs.gov.

Right-click to download Real World Economics: For High School Seniors, College Students and New Entrants To The Workforce.

It's Free-It's Instant

You will need Adobe Reader (the latest version is recommended) installed on your computer in order to open and read this ebook. You can get Adobe Reader here (a new window will open so you can download it without leaving this page).

If you want to open the file in your browser window, just click on the link. However, if you want to download the file to view later, then right-click on the link and choose "Save Target As" if you are using Internet Explorer or "Save Link As" if you are using Mozilla. Some Browsers use "Save File as" Then select where you want to save the file on your hard drive.

Once you have saved the file, locate where you saved it, and double click to open.

One of the main features is an outline of a plan for getting 25 to 30 year olds elected to congress.

This is in no way an endorsement of Ron Paul. It is to show that a 25 year old with the same message of bringing the "federal monster" under control could raise enough money for a successful campaign.

JFK is featured quite prominently is this Ebook. His tax cuts gave us one of the best economies in the history of America.

You should find his economic philosophy both informative and illuminating; it is quite the opposite of today's diseased class warfare/class envy.

Interest Received

Most interest that you receive, and can be withdrawn, is taxable income. Examples of taxable interest are interest on bank accounts, money market accuracy certificates, and deposited insurance dividends.

Interest on insurance dividends you leave on deposit with the Department of Veterans Affairs, however, is not taxable. Interest on Series EE and Series I U.S.

Savings bonds generally does not have to be reported until you redeem or dispose of the bonds or they mature. Interest from these bonds may be excluded from income if you pay qualified higher educational expenses during the year and meet other requirements.

Refer to Publication 550, Investment Income and Expenses, for detailed information.

Certain distributions commonly referred to as dividends are actually interest. They include "dividends" on deposits or share accounts in cooperative banks, credit unions, domestic savings and loan associations, federal savings and loan associations, and mutual savings banks.

If you have a bond, note, or other debt instrument that was originally issued at a discount, part of the original issue discount may have to be included in your income each year as interest.

Refer to Publication 550 or Publication 1212, List of Original Issue Discount Instruments, for more information on original issue discount.

You must show the amount of any tax exempt interest you received during the tax year. This is an information reporting requirement only, and does not convert tax exempt interest to taxable interest.

You should receive a Form 1099-INT (PDF), Interest Income, Form 1099-OID (PDF), Original Issue Discount, or a similar statement from each payer of interest of $10 or more, showing the taxable interest you must report.

If you received interest as a nominee for the actual owner, you need to show that amount below a subtotal of all interest income listed on Form 1040 Schedule B or Form 1040A Schedule 1. Follow the form instructions for nominees.

You must prepare a Form 1099-INT (PDF) for the interest that is not yours and give Copy B to the actual owner. You must also file a copy and a completed Form 1096 (PDF), Annual Summary and Transmittal of U.S. Information Returns, with the Internal Revenue Service Center.

Excludable interest from redeemed U.S. savings bonds used to pay qualified higher education expenses is figured on Form 8815 (PDF) and shown on Form 1040 Schedule B or Form 1040A Schedule 1.

If you receive taxable interest, you may have to pay estimated tax. For more information on interest income, refer to Publication 550.

You must give the payer of your interest income your correct social security number. If you do not, you may be subject to a penalty and backup withholding. Refer to Topic 307 for information on backup withholding.

The address of the official IRS governmental Web site is www.irs.gov.

###

Other Income

Most categories of income (for example, wages, dividends, and interest) are reported on specified lines of Form 1040 (PDF). Less common types of income are reported in a general category called "other income". Please refer to the Form 1040 Instructions for information on where to report this income. You can attach a statement to your return with additional information.

The following are examples of income to report on your Form 1040.

Gambling winnings (lotteries, raffles), etc. Report the full amount received, not the net amount. If you itemize, report gambling losses on Schedule A, but not for an amount more than winnings claimed. You cannot otherwise deduct gambling losses.

Prizes and awards received other than in connection with your trade or business. A prize or award that is received in connection with your trade or business is reported on Form 1040, Schedule C (PDF) or Form 1040, Schedule C-EZ (PDF), (if you are self–employed), or elsewhere on Form 1040 (if you are an employee).

Fees for jury duty. (If you turn over all or a portion to your employer who continued to pay you while you served, show this reduction of the fee on line 36 and write "jury pay" on the dotted line.)

Fees for being an executor, administrator or personal representative of an estate, unless you are engaged in the trade or business of being a professional executor, administrator, or personal representative. Fees for a nonprofessional are reported as other income on Form 1040 unless

(1) the estate requires extensive managerial activities on your part for a long period of time and the activities may rise to the level of a trade or business, or

(2) the estate includes an active trade or business in which you actively participate and the fee is for the operation of that trade or business. Fees for a professional executor, administrator, or personal representative (one who is engaged in the trade or business) are reported on Schedule C.

Canceled debts. If a debt you owe is canceled or forgiven, other than as a gift or bequest, you may have to include it in income. Refer to Publication 525, Taxable and Nontaxable Income, for exceptions and exclusions. You may also refer to Publication 908 (PDF), Bankruptcy Tax Guide.

Alaska Permanent Fund Dividends.

Qualified state tuition program earnings if greater than the beneficiary's adjusted qualified education expenses. Refer to Publication 970, Tax Benefits for Education.

Income from rental of personal property (income from the rental of real estate is reported elsewhere on Form 1040 and Schedule E).

Income from an activity not engaged in for profit, such as a hobby. Deductions relating to the activity cannot exceed the income from the activity and may be claimed only as itemized deductions on Schedule A.

Damages received for the following: personal nonphysical injuries or sickness; backpay/lost profits (in most cases); and punitive damages relating to any injury or illness. Damages for emotional distress in a case not involving personal physical injury, except to the extent the damages are paid for medical care. (Interest on any award of damages is includable as interest income).

Reimbursements or other amounts received for items deducted in an earlier year, such as medical expenses, real estate taxes, or home mortgage interest. Refer to "Recoveries" in Publication 525, Taxable and Nontaxable Income, for details on how to figure the amount to report.

Loss on certain corrective distributions of excess deferrals resulting from contributions made to a qualified retirement plan. Refer to Publication 525, Taxable and Nontaxable Income, under Employee Compensation — Retirement Plan Contributions.

Note: Income reported on Form 1099-MISC (PDF) in Box 7 as non-employee compensation IS NOT included on Form 1040 as other income. Refer to Topic 408 for more information on how to report non-employee compensation.

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Self-Employment Income

You are self-employed if you carry on a trade or business as a sole proprietor. A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit.

You do not have to carry on regular full-time business activities to be self-employed. Part-time work in addition to your regular job may be self-employment.

You are a sole proprietor if you own an unincorporated business by yourself. The business has no existence apart from you, the owner, for Federal tax purposes.

If you are the sole member of a domestic Limited Liability Company (LLC), you are a sole proprietor unless you elect to treat the LLC as a corporation. A sole proprietor must report the income and expenses from the business or profession on Form 1040, Schedule C, Profit or Loss From Business.

Form 1040, Schedule C-EZ, Net Profit From Business, may sometimes be used instead of Schedule C. If you own more than one business as a sole proprietor, you must prepare a separate Schedule C for each business.

If you are a sole proprietor, you are generally liable for self-employment tax, which is figured on Form 1040, Schedule SE, Self Employment Tax.

If you earn or receive income during the year that is not subject to withholding, or if you do not have enough income tax withheld from other income such as wages, you may have to pay estimated tax.

For more information about sole proprietorships, refer to Publication 334, Tax Guide for Small Business. For more information on estimated tax, refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax.Publication 334 and Publication 505 are available for download, or you may request a copy by calling 1-800-829-3676.

To be deductible, charitable contributions must be made to qualified organizations. See Publication 526, Charitable Contributions.

If your contribution entitles you to merchandise, goods, or services, including admission to a charity ball, banquet, theatrical performance, or sporting event, you can deduct only the amount that exceeds the fair market value of the benefit received.

For a contribution of cash, check, or monetary gift (regardless of amount), you must maintain as a record of the contribution either a bank record or a written communication from the qualified organization.

You generally can deduct the fair market value of any property you donate, as well as your cash contributions, to qualified organizations. See Publication 561, Determining the Value of Donated Property.

For any contribution of $250 or more (including contributions of property), you must obtain a contemporaneous written acknowledgment from the qualified organization.

One document may satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgement requirement for all contributions of $250 or more.

You must fill out Form 8283 (PDF) Section A, if your total deduction for all noncash contributions is more than $500.

An appraisal generally must be done if you make a contribution of noncash property worth more than $5,000. In that case, you must also fill out Form 8283 Section B. Attach Form 8283 to your return.

For more information refer to Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property.

EITC - it's not just for families with children

Workers with low wages who do not have a child might be able to claim the Earned Income Tax Credit (EITC). Childress workers with low-income are believed to be the largest number of taxpayers who do not claim the credit.

If you are 25 years old but under age 65 at the end of the year and had low wages or other earned income you may be able to claim the credit.

If you are married, either you or your husband or wife must be 25 but under 65 at the end of the year. Check here for the income levels for this year and prior years. Also, you may be able to claim the credit for the last few years.

You can find out if you are eligible for the EITC by answering a few questions and providing basic income information, using the IRS' online EITC Assistant web tool. It's available in English and Spanish.

In short, to qualify for EITC, you must meet the following rules:

Must have a valid Social Security Number You must have earned income from employment or self-employment Your filing status cannot be married, filing separately

You must be a U.S. citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien filing a joint return

You cannot be the qualifying child of another person

If you do not have a qualifying child, you must:

be age 25 but under 65 at the end of the year,

live in the United States for more than half the year, and

not qualify as a dependent of another person

Cannot file Form 2555 or 2555-EZ (related to foreign earned income)

For 2007, you investment income must be $2,900 or less.

If neither you nor your spouse meets the income test, you cannot claim the EITC. You should write "No" next to line 66a (Form 1040), line 40a (Form 1040A), or line 8a (Form 1040EZ) when you prepare your return.

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Earned Income Tax Credit (EITC)

Am I an Eligible Individual?

Determine if you are eligible for the Earned Income Tax Credit. Even if you are an eligible individual, whether you can claim the credit also depends on your filing status and income level.

This tool Click here to use the IRS tool. will not only determine your eligibility, but can also determine your filing status, and the number of your qualifying children, and it can estimate your credit amount.

How Much is My Credit?

If you already know that you are eligible for the credit for this tax year, this tool will estimate your credit amount.

You will need to know the amount and types of income that you will receive for the 2007 tax year and any adjustments to that income.

You should use actual amounts if you have them available. The program will assist you by prompting you for the amounts needed.

Earned Income Tax Credit (EITC) - Should I Apply?

The EITC is a credit for certain people who work. You (and your spouse, if you are filing a joint return) and any qualifying children listed on Schedule EIC need valid social security numbers.

Find out if you are eligible for the Earned Income Tax Credit (EITC) by answering some questions and providing basic income information.

The program will also assist you in determining your correct filing status, determining whether your child(ren) meets the tests for a qualifying child, and estimating the amount of credit that you may receive.

However, if you were denied the EITC after 1996 due to a reckless or intentional disregard of the rules, you cannot claim the EITC for the next two years after the denial.

If your error was due to fraud, you cannot claim the EITC for the next ten years after the fraud determination.

If you need more information regarding the EITC, additional resources are available.

Additional Child Tax Credit

If you were not allowed the maximum basic Child Tax Credit per qualifying child, you may be eligible for an Additional Child Tax Credit. The amount of the maximum Child Tax Credit can be found in Publication 972.

This credit may be available to you if you have three or more qualifying children or if you have earned income that exceeds the base amount for the year.

The base amount of earned income needed can be found in the Instructions for Form 8812. The Additional Child Tax Credit may give you a refund even if you do not owe any tax.

Form 8812 and Publication 972 are available for download, or you may request a copy by calling 1-800-829-3676.

Additional Child Tax Credit

A qualifying child must be all of the following:

1. Under age 17, 2. A citizen, national or resident of the United States,

3. Someone you are claiming as a dependent,

4. Someone who is 1. your son, daughter, stepson, or stepdaughter,

2. a descendant of a son, daughter, stepson, or stepdaughter,

3. a brother, sister, stepbrother, or stepsister,

4. a descendent of a brother, sister, stepbrother, or stepsister,

5. your eligible foster child, or

6. your adopted child or a child lawfully placed with you for legal adoption.

Child Tax Credit

The Child Tax Credit is a credit that can reduce your tax.

The maximum amount of the credit possible depends on the number of Qualifying Children and which tax year you are filing. The amount of the maximum child tax credit per Qualifying Child can be found in Publication 972.

Publication 972 is available for download, or you may request a copy by calling 1-800-829-3676.

You may be entitled to a child tax credit for each of your qualifying children.

A qualifying child is:

1. Under age 17, at the end of the taxable year, 2. Generally a citizen, national or resident of the United States 3. Your 1. son or daughter 2. stepson or stepdaughter

3. adopted child, or a child who is lawfully placed with the taxpayer for legal adoption

4. eligible foster child

5. brother, sister, step-brother, step-sister, or a descendant of either, or

6. or a descendant of any of the above 4. An individual who has the same principal place of abode as you do for more than one-half of the taxable year, and 5. An individual who has not provided more than one-half of their own support for the calendar year in which the taxable year of the taxpayer begins

Is your child a qualifying child?

If the answer is Yes:

You QUALIFY to take the child tax credit. However, the amount of credit may be reduced, or eliminated, because of the Modified Adjusted Gross Income Limit (defined later), or the amount of your income tax liability after taking into account certain other credits.

To determine the amount of your credit, if any, you will need to use the worksheet for the Child Tax Credit in your instruction booklet for the form you are filing. In some cases you may be required to use the worksheet in the Publication 972.

Form 1040 Instructions, Form 1040A Instructions, and Publication 972 are available for download, or you may request a copy by calling 1-800-829-3676.

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Miscellaneous Expenses

Certain employee expenses are deductible as miscellaneous itemized deductions on Form 1040, Schedule A (PDF).

Miscellaneous itemized deductions are subject to a 2% limit, which means you only can deduct certain expenses to the extent that they exceed 2% of your adjusted gross income from the total amount of deductions.

For additional information, refer to the Form 1040, Schedule A&B Instructions, and Publication 529, Miscellaneous Deductions, or Publication 946, How To Depreciate Property.

If you want more in-depth information about educational expenses, refer to Topic 513. For further information on employee business expenses, refer to Topic 511, and Topic 512.

Deduction for Higher Education Expense

The tuition and fees deduction is allowed for qualified higher education expenses you paid in the taxable year for you, your spouse (if filing jointly), or your dependent. You may take this deduction even if you do not itemize deductions on Form 1040, Schedule A.

You cannot, however, claim both the deduction and the education credit for the same student in the same year. For additional information see Tax Topic 302.

Topic 509 - Business Use of Home

Whether you are self–employed or are an employee, you may be able to deduct certain expenses for the part of your home you use for business despite the general denial of business expense deductions for the home.

To deduct expenses for business use of the home, part of your home must be used regularly and exclusively as one of the following:

1. The principal place of business for your trade or business; 2. The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or

3. In connection with your trade or business, if you use a separate structure that is not attached to your home.

Where the exclusive use requirement applies, you cannot deduct business expenses for any part of your home that you use for both personal and business purposes.

For example, if you are an attorney and use the den of your home to write legal briefs and also for personal purposes, you may not deduct any business–use–of–your–home expenses.

Further, under the principal-place-of-business test, you must determine that your home is the principal place of your trade or business after considering where your most important activities are performed and most of your time is spent, in order to deduct expenses for the business use of your home.

Deductions also may be taken for regular use of a residence for the provision of day care services or for business storage purposes; exclusive use is not required in these cases.

You also may take deductions if you rent out your residence. For more information, see Publication 587

Deductible expenses for business use of your home include the business portion of real estate taxes, deductible mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance and repairs. You may not deduct expenses for lawn care in general or for painting a room not used for business.

When figuring the amount you can deduct for the business use of your home, you can use the entire amount of expenses attributable solely to the portion of the home used in your business.

The amount you can deduct for expenses attributable to the whole house depends on the percentage of your home used for business. To figure this percentage, you may divide the number of square feet used for business by the total square feet in your home.

Or, if the rooms are approximately the same size, divide the number of rooms used for business by the total number of rooms in your home. You figure the business portion of your expenses by applying this percentage to the total of each expense.

If you are a qualified day-care provider who does not use any area exclusively for day care, your business portion is further limited by the ratio of the number of hours the area is used exclusively for business to the total number of hours the portion was available for any use.

If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home, other than mortgage interest, taxes, casualty losses, and the like is limited. However, those business expenses that can not be deducted because of the gross income limitation can be carried forward to the next year but will be subject to the deduction limit for that year.

If you are in the business of farming or are an employee, use the worksheet in Publication 587 , Business Use of Your Home, (including use by daycare providers) to figure your deduction.

As an employee, you must itemize deductions on Form 1040, Schedule A (PDF) to claim expenses for the business use of your home. Farmers claim their expenses on Form 1040, Schedule F (PDF). If you are self–employed, use Form 8829 (PDF) to figure your business–use–of –the–home deductions and report those deductions on Form 1040, Schedule C (PDF).

Publication 587 has detailed information on rules for the business use of your home, including how to determine if your home office qualifies as your principal place of business.

Medical Expenses

Medical care expenses include amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments or operations affecting any part or function of the body. The expenses must be to alleviate or prevent a physical or mental defect or illness.

For examples of deductible medical and dental expenses, refer to, What Medical Expenses Are Includible? in Publication 502, Medical and Dental Expenses. Publication 502 is available for download, or you may request a copy by calling 1-800-829-3676.

Topic 504 - Home Mortgage Points

The term "points" is used to describe certain charges paid to obtain a home mortgage. Points may be deductible as home mortgage interest, if you itemize deductions on Form 1040, Schedule A (PDF). If you can deduct all of the interest on your mortgages, you may be able to deduct all of the points paid on the mortgage. For more information on deducting interest, refer to Topic 505.

You can deduct the points in full in the year they are paid, if all the following requirements are met:

1. Your loan is secured by your main home (your main home is the one you live in most of the time).

2. Paying points is an established business practice in your area.

3. The points paid were not more than the amount generally charged in that area.

4. You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.

5. The points were not paid for items that usually are separately stated on the settlement sheet such as appraisal fees, inspection fees, title fees, attorney fees, or property taxes.

6. The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. You cannot have borrowed the funds from your lender or mortgage broker in order to pay the points.

7. You use your loan to buy or build your main home.

8. The points were computed as a percentage of the principal amount of the mortgage, and

9. The amount is clearly shown on your settlement statement.

Points that do not meet these requirements may be deductible over the life of the loan. Points paid for refinancing generally can only be deducted over the life of the new mortgage.

However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six requirements stated previously, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds.

Points charged for specific services, such as preparation costs for a mortgage note, appraisal fees or notary fees are not interest and cannot be deducted.

Points paid by the seller of a home cannot be deducted as interest on the seller's return, but they are a selling expense which will reduce the amount of gain realized.

Points paid by the seller may be deducted by the buyer provided the buyer subtracts the amount from the basis, or cost, of the residence. Points you pay on loans secured by your second home can be deducted only over the life of the loan.

You may be subject to a limit on some of your itemized deductions, including points; for more information on the adjusted gross income limitations please refer to the Form 1040 Instructions.

For more information on points, refer to Publication 936, Home Mortgage Interest Deduction.

Work Therapy For Veterans-Tax Free

Compensated work therapy payments received by some veterans, unable to work, are now tax-free. Because these are tax-free veterans’ benefits, recipients will no longer receive Forms 1099, reporting these payments, from the Department of Veterans Affairs.

Disabled veterans who paid tax on these benefits in 2004, 2005 and 2006 can claim a refund by filing an amended return using Form 1040X. See news release IR-2007-198 for details.

Issue Number: IR-2008-011

Inside This Issue

IRS Warns of New E-Mail and Telephone Scams Using the IRS Name; Advance Payment Scams Starting

WASHINGTON — The Internal Revenue Service today warned taxpayers to beware of several current e-mail and telephone scams that use the IRS name as a lure. The IRS expects such scams to continue through the end of tax return filing season and beyond.

The IRS cautioned taxpayers to be on the lookout for scams involving proposed advance payment checks. Although the government has not yet enacted an economic stimulus package in which the IRS would provide advance payments, known informally as rebates to many Americans, a scam which uses the proposed rebates as bait has already cropped up.

The goal of the scams is to trick people into revealing personal and financial information, such as Social Security, bank account or credit card numbers, which the scammers can use to commit identity theft.

Typically, identity thieves use a victim’s personal and financial data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes.

Most of these fraudulent activities can be committed electronically from a remote location, including overseas. Committing these activities in cyberspace allows scamsters to act quickly and cover their tracks before the victim becomes aware of the theft.

People whose identities have been stolen can spend months or years — and their hard-earned money — cleaning up the mess thieves have made of their reputations and credit records.

In the meantime, victims may lose job opportunities, may be refused loans, education, housing or cars, or even get arrested for crimes they didn't commit.

The most recent scams brought to IRS attention are described below.

Rebate Phone Call

At least one scheme using the word “rebate” as part of the lure has been identified. In that scam, consumers receive a phone call from someone identifying himself as an IRS employee. The caller tells the targeted victim that he is eligible for a sizable rebate for filing his taxes early.

The caller then states that he needs the target’s bank account information for the direct deposit of the rebate. If the target refuses, he is told that he cannot receive the rebate.

This phone call is a scam. No legislation has yet been enacted that would allow the IRS to provide advance payments to taxpayers or that determines the details of those payments.

Moreover, the IRS does not force taxpayers to use direct deposit. Those who opt for direct deposit do so by completing the appropriate section of their tax return, with bank routing and account information, when they file; the IRS does not gather the information by telephone.

Refund e-Mail

The IRS has seen several variations of a refund-related bogus e-mail which falsely claims to come from the IRS, tells the recipient that he or she is eligible for a tax refund for a specific amount, and instructs the recipient to click on a link in the e-mail to access a refund claim form.

The form asks the recipient to enter personal information that the scamsters can then use to access the e-mail recipient’s bank or credit card account.

In a new wrinkle, the current version of the refund scam includes two paragraphs that appear to be directed toward tax-exempt organizations that distribute funds to other organizations or individuals. The e-mail contains the name and supposed signature of the Director of the IRS’s Exempt Organizations business division.

This e-mail is a phony. The IRS does not send unsolicited e-mail about tax account matters to individual, business, tax-exempt or other taxpayers.

Filing a tax return is the only way to apply for a tax refund; there is no separate application form. Taxpayers who wish to find out if they are due a refund from their last annual tax return filing may use the “Where’s My Refund?” interactive application on the IRS Web site at IRS.gov. The only official IRS Web site is located at www.irs.gov.

Audit e-Mail

Another new scam brought to IRS attention contains features not seen before by the IRS. Using a technique calculated to get almost anyone’s attention, the e-mail notifies the recipient that his or her tax return will be audited. This is the first scam of which the IRS is aware that uses this to get the victim to respond.

Unusual for a scam e-mail, it may contain a salutation in the body addressed to the specific recipient by name. Most scam e-mails seen by the IRS are sent using the same technique used by spammers, in which hundreds of thousands of messages are sent to potential victims based on Internet address. Because of the volume, the typical scam e-mail is not personalized.

This e-mail instructs the recipient to click on links to complete forms with personal and account information, which the scammers will use to commit identity theft.

This e-mail is a phony. The IRS does not send unsolicited, tax-account related e-mails to taxpayers.

Changes to Tax Law e-Mail

This bogus e-mail is addressed to businesses, accountants and “Treasury” managers. It instructs them to download information on tax law changes by clicking on a series of links to publications on businesses, estate taxes, excise taxes, exempt organizations and IRAs and other retirement plans. The IRS believes that clicking on a link downloads malware onto the recipient’s computer. Malware is malicious code that can take over the victim’s computer hard drive, giving someone remote access to the computer, or it could look for passwords and other information and send them to the scamster. There are other types of malware, as well.

The urls contained in the link are not legitimate IRS Web addresses. All IRS.gov Web page addresses begin with http://www.irs.gov/.

Paper Check Phone Call

In a current telephone scam, a caller claims to be an IRS employee who is calling because the IRS sent a check to the individual being called. The caller states that because the check has not been cashed, the IRS wants to verify the individual’s bank account number. The caller may have a foreign accent.

In reality, the IRS leaves it entirely up to the individual to choose to cash or not cash a paper check. The IRS has no business need to know, and does not ask for, bank account or similar information, except when taxpayers indicate on their tax return that they are opting for the direct electronic deposit of their refund. In that case, however, it is the individual’s responsibility to provide the IRS with the correct bank routing and account numbers on the tax return; the IRS does not contact taxpayers to verify the information.

What to Do

Anyone wishing to access the IRS Web site should initiate contact by typing the IRS.gov address into their Internet address window, rather than clicking on a link in an e-mail or opening an attachment.

Those who have received a questionable e-mail claiming to come from the IRS may forward it to a mailbox the IRS has established to receive such e-mails, phishing@irs.gov, using instructions contained in an article on IRS.gov titled “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.” Following the instructions will help the IRS track the suspicious e-mail to its origins and shut down the scam. Find the article by visiting IRS.gov and entering the words “suspicious e-mails” into the search box in the upper right corner of the front page.

Those who have received a questionable telephone call that claims to come from the IRS may also use the phishing@irs.gov mailbox to notify the IRS of the scam.

The IRS has issued previous warnings on scams that use the IRS to lure victims into believing the scam is legitimate. More information on identity theft, phishing and telephone scams using the IRS name, logo or spoofed (copied) Web site is available on the IRS Web site at IRS.gov. Enter the terms “phishing,” “identity theft” or “e-mail scams” into the search box in the upper right corner of the front page.

There’s no telephone tax refund for 2007, but it’s not too late to request this one-time refund on a 2006 return. Most telephone customers, including most cell-phone users, qualify for the refund. Eligible telephone customers who filed a 2006 tax return but overlooked this special excise tax refund can file an amended return using Form 1040X.

Those who never filed for tax year 2006 can request it when they file their 2006 return. Phone customers who don’t need to file a regular income-tax return, including many low-income people and senior citizens, can use a special short form, Form 1040EZ-T, to request the refund.

Compensated work therapy payments received by some veterans, unable to work, are now tax-free. Because these are tax-free veterans’ benefits, recipients will no longer receive Forms 1099, reporting these payments, from the Department of Veterans Affairs. Disabled veterans who paid tax on these benefits in 2004, 2005 and 2006 can claim a refund by filing an amended return using Form 1040X. See news release IR-2007-198 for details.

Employees working for employers who failed to withhold Social Security and Medicare taxes should use new Form 8919 to report and pay their share of these taxes.

This includes section 530 employees — that is, people who work for employers claiming relief from federal payroll taxes under section 530 of the Revenue Act of 1978.

It also includes employees who are treated as independent contractors but who have received a determination letter from the IRS which states they are employees.

Workers who believe they are misclassified as independent contractors can file Form SS-8 with the IRS and request a determination of their worker classification.

For employees, the Social Security tax rate is 6.2 percent and the Medicare tax rate is 1.45 percent. Normally, employers withhold these taxes from workers’ pay, match these amounts and turn over the combined amounts to the IRS.

Workers, properly classified as independent contractors, should not use Form 8919 but instead, continue to use Schedule SE. IRS Publication 1779 has further details on employee versus independent contractor status.

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Other Changes

Taxpayers can exclude up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return.

This provision 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 qualify for this relief.

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Inflation Adjustments for 2007

Personal exemptions and standard deductions rise, tax brackets are widened and more than three dozen individual and business tax provisions are adjusted to keep pace with inflation. A complete rundown of these changes can be found at 2007 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits.

Popular items adjusted include the following:

The value of each personal and dependency exemption is $3,400, up $100 from 2006. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent. An individual who qualifies as someone else’s dependent cannot claim a personal exemption, and personal and dependency exemptions are phased out for higher-income taxpayers.

The standard deduction is $10,700 for married couples filing a joint return and qualifying widow(er)s, a $400 increase over 2006; $5,350 for singles and married individuals filing separate returns, up $200; and $7,850 for heads of household, up $300. Higher amounts apply to blind people and senior citizens. The standard deduction is often reduced for a taxpayer who qualifies as someone else’s dependent. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions, and state and local taxes.

The maximum earned income tax credit is $4,716 for taxpayers with two or more qualifying children, $2,853 for those with one child and $428 for people with no children. Last year’s maximums were $4,536, $2,747 and $412, respectively. Available to low and moderate income workers and working families, the EITC helps taxpayers whose incomes are below certain income thresholds, which in 2007 rise to $39,783 for those with two or more children, $35,241 for people with one child and $14,590 for those with no children. One in six taxpayers claim the EITC, which unlike most tax breaks, is refundable, meaning that people can get it even if they owe no tax and even if no tax is taken out of their paychecks.

Standard Mileage Rates Adjusted for 2007

The standard mileage rate for business use of a car, van, pick-up or panel truck is 48.5 cents a mile, up 4 cents from 2006.

The standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 20 cents a mile, up 2 cents over last year.

The standard mileage rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

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New Rules for Giving to Charity

To deduct any charitable donation of money, taxpayers must have a bank record or a written communication from the recipient showing the name of the organization and the date and amount of the contribution.

Though taxpayers are already required to keep records to support their contribution deductions, this new provision is designed to provide greater certainty, both to taxpayers and the government, in determining what may be deducted as a charitable contribution. See Publication 526.###

Mortgage Insurance Premiums May be Deductible

Some borrowers may be able to deduct mortgage insurance premiums paid on mortgages taken out or refinanced during 2007. A borrower who prepays premiums for later years may deduct only the premiums that relate to 2007, except for prepayments for guarantees made by the Department of Veterans Affairs or the Rural Housing Service. Only mortgage insurance contracts issued during 2007, 2008, 2009 or 2010 qualify for this new itemized deduction. Proceeds of the mortgage, secured by a first or second home, must be used exclusively to buy, build or improve these homes, or alternatively, to refinance a mortgage, secured by the home and used for these purposes. Home-equity loans used for other purposes are not eligible. The deduction for mortgage insurance premiums is phased out for taxpayers with adjusted gross incomes exceeding $100,000 ($50,000, if married filing separately). Claim this deduction on Schedule A, Line 13. Further details are in Publication 936.

Contribution Limits Rise for IRAs and Other Retirement Plans

This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan, with incomes between $52,000 and $62,000, compared to $50,000 to $60,000 last year.

The phase-out range is $83,000 to $103,000, up from $75,000 to $85,000 last year, if the spouse making the IRA contribution is covered by a workplace retirement plan.

Where an IRA contributor, not covered by a workplace retirement plan, is married to someone who is covered, the deduction is phased out if the couple’s income is between $156,000 and $166,000, up from $150,000 to $160,000 in 2006.

The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work. Use the worksheet in the line instructions for Form 1040 Line 32 or Form 1040A Line 17 to figure the IRA deduction.

For 2007 and 2008, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans rises $500, to $15,500. The catch-up contribution limit for those aged 50 to 70-½ remains at $5,000.

For SIMPLE plans, the limit is also up $500, to $10,500, and the catch-up limit remains $2,500.This year for the first time income limits for the saver’s credit are adjusted for inflation.

The saver’s credit supplements other tax benefits available to low- and- moderate income taxpayers who save for retirement. Begun in 2002 as a temporary provision, the saver’s credit is now a permanent part of the tax code. Use Form 8880 to claim the credit.

Extender Tax Breaks Reappear on IRS Forms

Several popular tax breaks, renewed too late to be included on 2006 forms, once again appear as separate items on various 2007 IRS forms. As a result, unlike last year, eligible taxpayers will no longer have to follow special instructions in order to claim the deduction for state and local sales taxes, the educator expense deduction and the tuition and fees deduction.

Those who itemize, rather than taking the standard deduction, can choose to claim state and local sales taxes on Form 1040 Schedule A, Line 5.

The educator expense deduction is reported on Form 1040, Line 23 or Form 1040A, Line 16.

Taxpayers who choose to claim the tuition and fees deduction must fill out and attach new Form 8917. The resulting deduction is reported on Form 1040 Line 34 or Form 1040A Line 19. Note that many who qualify for the tuition and fees deduction may reap greater tax savings by instead claiming the Hope credit or the lifetime learning credit for a particular student. Figure these credits on Form 8863. Publication 970 has details on these and other education-related tax benefits.

Who is affected by delays related to late passage of the Alternative Minimum Tax in December?

More than 13 million taxpayers with tax returns affected by late enactment of the Alternative Minimum Tax “patch” in December will face delays with filing and refunds. The only people affected are those using any of five specific forms related to AMT calculations:

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

The effect of the delay may be lessened by the fact that under previous filing patterns only between 3 million to 4 million taxpayers file returns with the five affected forms during these early weeks in the filing season.

There’s no telephone tax refund for 2007, but it’s not too late to request this one-time refund on a 2006 return. Most telephone customers, including most cell-phone users, qualify for the refund.

Eligible telephone customers who filed a 2006 tax return but overlooked this special excise tax refund can file an amended return using Form 1040X.

Those who never filed for tax year 2006 can request it when they file their 2006 return. Phone customers who don’t need to file a regular income-tax return, including many low-income people and senior citizens, can use a special short form, Form 1040EZ-T, to request the refund.

Compensated work therapy payments received by some veterans, unable to work, are now tax-free. Because these are tax-free veterans’ benefits, recipients will no longer receive Forms 1099, reporting these payments, from the Department of Veterans Affairs. Disabled veterans who paid tax on these benefits in 2004, 2005 and 2006 can claim a refund by filing an amended return using Form 1040X. See news release IR-2007-198 for details.

A retired public safety officer can exclude from income up to $3,000 in distributions from an eligible government retirement plan used to pay the premiums on accident and health insurance or long-term care insurance.

Distributions must be made directly from the plan to the insurance provider. Retired law enforcement officers, firefighters, chaplains and members of rescue squads or ambulance crews qualify for this provision.

Claim the exclusion on Form 1040 Line 16 or Form 1040A Line 12.

Taxpayers can exclude up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return.

This provision 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 qualify for this relief.

Employees working for employers who failed to withhold Social Security and Medicare taxes should use new Form 8919 to report and pay their share of these taxes.

This includes section 530 employees — that is, people who work for employers claiming relief from federal payroll taxes under section 530 of the Revenue Act of 1978.

It also includes employees who are treated as independent contractors but who have received a determination letter from the IRS which states they are employees.

Workers who believe they are misclassified as independent contractors can file Form SS-8 with the IRS and request a determination of their worker classification.

For employees, the Social Security tax rate is 6.2 percent and the Medicare tax rate is 1.45 percent. Normally, employers withhold these taxes from workers’ pay, match these amounts and turn over the combined amounts to the IRS.

Workers, properly classified as independent contractors, should not use Form 8919 but instead, continue to use Schedule SE. IRS Publication 1779 has further details on employee versus independent contractor status.

Inflation Adjustments for 2007

Personal exemptions and standard deductions rise, tax brackets are widened and more than three dozen individual and business tax provisions are adjusted to keep pace with inflation.

A complete rundown of these changes can be found at 2007 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits.

Popular items adjusted include the following:

The value of each personal and dependency exemption is $3,400, up $100 from 2006. Most taxpayers can take personal exemptions for themselves and an additional exemption for each eligible dependent.

An individual who qualifies as someone else’s dependent cannot claim a personal exemption, and personal and dependency exemptions are phased out for higher-income taxpayers. The standard deduction is $10,700 for married couples filing a joint return and qualifying widow(er)s, a $400 increase over 2006; $5,350 for singles and married individuals filing separate returns, up $200; and $7,850 for heads of household, up $300.

Higher amounts apply to blind people and senior citizens. The standard deduction is often reduced for a taxpayer who qualifies as someone else’s dependent.

Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions, and state and local taxes.

The maximum earned income tax credit is $4,716 for taxpayers with two or more qualifying children, $2,853 for those with one child and $428 for people with no children.

Last year’s maximums were $4,536, $2,747 and $412, respectively. Available to low and moderate income workers and working families, the EITC helps taxpayers whose incomes are below certain income thresholds, which in 2007 rise to $39,783 for those with two or more children, $35,241 for people with one child and $14,590 for those with no children.

One in six taxpayers claim the EITC, which unlike most tax breaks, is refundable, meaning that people can get it even if they owe no tax and even if no tax is taken out of their paychecks.

Standard Mileage Rates Adjusted for 2007

The standard mileage rate for business use of a car, van, pick-up or panel truck is 48.5 cents a mile, up 4 cents from 2006.

The standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 20 cents a mile, up 2 cents over last year.

The standard mileage rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

New Rules for Giving to Charity

To deduct any charitable donation of money, taxpayers must have a bank record or a written communication from the recipient showing the name of the organization and the date and amount of the contribution.

Though taxpayers are already required to keep records to support their contribution deductions, this new provision is designed to provide greater certainty, both to taxpayers and the government, in determining what may be deducted as a charitable contribution. See Publication 526.

Mortgage Insurance Premiums May be Deductible

Some borrowers may be able to deduct mortgage insurance premiums paid on mortgages taken out or refinanced during 2007.

A borrower who prepays premiums for later years may deduct only the premiums that relate to 2007, except for prepayments for guarantees made by the Department of Veterans Affairs or the Rural Housing Service.

Only mortgage insurance contracts issued during 2007, 2008, 2009 or 2010 qualify for this new itemized deduction.

Proceeds of the mortgage, secured by a first or second home, must be used exclusively to buy, build or improve these homes, or alternatively, to refinance a mortgage, secured by the home and used for these purposes. Home-equity loans used for other purposes are not eligible.

The deduction for mortgage insurance premiums is phased out for taxpayers with adjusted gross incomes exceeding $100,000 ($50,000, if married filing separately).

Claim this deduction on Schedule A, Line 13. Further details are in Publication 936.

Contribution Limits Rise for IRAs and Other Retirement Plans

This filing season, more people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a workplace retirement plan, with incomes between $52,000 and $62,000, compared to $50,000 to $60,000 last year. The phase-out range is $83,000 to $103,000, up from $75,000 to $85,000 last year, if the spouse making the IRA contribution is covered by a workplace retirement plan. Where an IRA contributor, not covered by a workplace retirement plan, is married to someone who is covered, the deduction is phased out if the couple’s income is between $156,000 and $166,000, up from $150,000 to $160,000 in 2006. The phase-out range remains $0 to $10,000 for a married individual filing a separate return who is covered by a retirement plan at work. Use the worksheet in the line instructions for Form 1040 Line 32 or Form 1040A Line 17 to figure the IRA deduction.

For 2007 and 2008, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b) and most 457 plans rises $500, to $15,500. The catch-up contribution limit for those aged 50 to 70-½ remains at $5,000. For SIMPLE plans, the limit is also up $500, to $10,500, and the catch-up limit remains $2,500.This year for the first time income limits for the saver’s credit are adjusted for inflation. The saver’s credit supplements other tax benefits available to low- and- moderate income taxpayers who save for retirement. Begun in 2002 as a temporary provision, the saver’s credit is now a permanent part of the tax code. Use Form 8880 to claim the credit.

Extender Tax Breaks Reappear on IRS Forms

Several popular tax breaks, renewed too late to be included on 2006 forms, once again appear as separate items on various 2007 IRS forms. As a result, unlike last year, eligible taxpayers will no longer have to follow special instructions in order to claim the deduction for state and local sales taxes, the educator expense deduction and the tuition and fees deduction.

Those who itemize, rather than taking the standard deduction, can choose to claim state and local sales taxes on Form 1040 Schedule A, Line 5.

The educator expense deduction is reported on Form 1040, Line 23 or Form 1040A, Line 16.

Taxpayers who choose to claim the tuition and fees deduction must fill out and attach new Form 8917. The resulting deduction is reported on Form 1040 Line 34 or Form 1040A Line 19. Note that many who qualify for the tuition and fees deduction may reap greater tax savings by instead claiming the Hope credit or the lifetime learning credit for a particular student. Figure these credits on Form 8863. Publication 970 has details on these and other education-related tax benefits.

AMT Exemption Increased for One Year

For tax-year 2007, Congress raised the alternative minimum tax exemption to $66,250 for a married couple filing a joint return, up from $62,550 in 2006.

The exemption rises to $33,125 for a married person filing separately, up from $31,275, and it rises to $44,350 for singles and heads of household, up from $42,500.

Under current law, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2008. Form 6251 and the AMT Calculator, which is being updated and will be available later in January, provide more information.

While the vast majority of taxpayers can file as usual, about 13.5 million taxpayers who file any of five tax forms affected by recent tax law changes related to the AMT will have to wait until Feb. 11, 2008, to file their returns.

IRS.gov has more information on this important subject, including a list of affected forms and questions and answers.

The Earned Income Tax Credit (EITC) helps low- and moderate-income workers and working families. Working families with incomes below $39,783 and childless workers with incomes under $14,590 often qualify.

Ordinarily, you must have earned income as an employee, independent contractor, farmer or business owner. Some disability retirees are also eligible. Use the EITC Assistant, which will be available in mid-January, to see if you qualify.

Tax Credits Can Save You Money

These credits can increase your refund or reduce the tax you owe. Usually, credits can only lower your tax to zero.

But some credits, such as the EITC and the child tax credit, can actually exceed your tax. Though some credits are available to people at all income levels, others have income restrictions.

These include the EITC, saver’s credit, education credits and child tax credit.

If you qualify, you can claim any credit, regardless of whether you itemize your deductions.

Any credit can be claimed on Form 1040, sometimes referred to as the long form. Alternatively, except for the energy credits, all the credits outlined in this fact sheet can be claimed on the 1040A short form.

The EITC can even be claimed on Form 1040EZ. The instruction booklet for each of these forms has more information about these and other tax credits.

Energy-Saving Tax Credits

You can take a credit based on what you spend on various energy-saving improvements made to your main home. New energy-efficient improvements qualify, including insulation, exterior windows, exterior doors, water heaters, heat pumps, central air conditioners, furnaces and hot water boilers.

The overall credit is limited to $500 and further dollar limits apply to specific components –– for example, $200 for windows. If you took the full $500 credit in 2006, you cannot claim the credit in 2007, even if you made qualifying energy-saving improvements.

Separately, there is a 30 percent credit for the cost of photovoltaic property, solar water heating property and fuel cell property.

These credits are claimed on Form 5695.

Saver’s Credit

The saver’s credit helps low-and moderate-income workers save for retirement. You probably qualify if your income is below certain limits and you contribute to an IRA or workplace retirement plan, such as a 401(k). Income limits for 2007 are $26,000 for singles and married filing separately, $39,000 for heads of household and $52,000 for joint filers.

Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply. You still have time to put money in an IRA and get the saver’s credit on your 2007 return. 2007 IRA contributions can be made until April 15, 2008. Use Form 8880 to claim the saver’s credit.

Education Credits

The Hope credit and the lifetime learning credit help parents and students pay for post-secondary education. Normally, you can claim tuition and required enrollment fees paid for your own, as well as your dependents’ college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time. You can take the lifetime learning credit, even if you’re only taking one course.

In some cases, you may do better by claiming the tuition and fees deduction, instead.

You cannot take both an education credit and the tuition and fees deduction for the same student in the same year. Special rules, including income limits, apply to each of these tax breaks.

Education credits are claimed on Form 8863. For details on these and other education-related tax breaks, see Publication 970.

Credit for Child and Dependent Care Expenses

If you pay someone to care for your child so you can work or look for work, you probably qualify for this credit. Normally, your child must be your dependent and under age 13. Though often referred to as the child care credit, this credit is also available if you pay someone to care for a spouse or dependent, regardless of age, who is unable to care for himself or herself. In most cases, you need to obtain the care provider’s social security number or taxpayer identification number and enter it on your return.

Form 1040 filers claim the credit for child and dependent care expenses on Form 2441. Form 1040A filers claim it on Schedule 2.

Child Tax Credit

If you have a dependent child under age 17 you probably qualify for the child tax credit. This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,400 exemption you can claim for each dependent. Don’t confuse the child tax credit with the child care credit. For details on figuring and claiming the child tax credit, see IRS Publication 972.

Do you know any former prisoners of war (POW) or their family members? If so, the Department of Veterans Affairs (VA) needs your help.

VA is once again reaching out to former prisoners of war not currently using VA benefits and services, urging them to contact the Department to find out if they are eligible for health care, disability compensation and other services.

$$$$$Credit For Qualifying Cars

May 27, 2007

IRS Procedures: Amended Returns & Form 1040X

What should I do if I made a mistake on my federal return that I have already filed?

It depends on the type of mistake that was made. Many mathematical errors are caught in the processing of the tax return itself. If you did not attach a required schedule the service will contact you and ask for the missing information.

If you did not report all your income or did not claim a credit, you are entitled to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return. Include copies of any schedules that have been changed or any Form W-2 (PDF) you did not include.

The Form 1040X (PDF) should be submitted after you receive your refund or by the due date of the return, whichever, is earlier. Generally, to claim a refund, the Form 1040X (PDF) must be received within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.

Internal Revenue Service Tip May 25, 2007

Topic 157 - Change of Address – How to Notify IRS

If you have moved or your address has changed, you need to notify the IRS to ensure you receive any IRS refund or correspondence. You may provide your new address in a variety of ways. You may correct the address legibly on the mailing label from your tax package or write the new address on your return when you file. When your return is processed, we will update your records.

If you change your address after filing your return, you should notify your post office that services your old address. This ensures your mail will be forwarded (not all post offices forward government checks). Complete a Form 8822 (PDF), Address Change Request, to change your address with the IRS. Form 8822 may be downloaded from the IRS website (www.irs.gov).

If you correspond to inform us of your address change, we need your full name, old and new addresses, and your Social Security Number or Employer Identification Number and your signature. If you filed a joint return, you should provide the same information and signatures for both spouses.

Send your address change information to the campus where you filed your last return and provide your new address. The campus addresses are listed in the instructions to the tax forms.

If you filed a joint return and you and/or your spouse establish separate residences, you both should notify the IRS of your new address.

Note: The U.S. Postal Service provides the IRS with change of address updates weekly. Tax forms will be mailed to the last address clearly and concisely provided by the taxpayer or the change of address information furnished by the Postal Service.

More Tax Topic Categories

Issue Number: IR-2007-38

Inside This Issue

Feb. 26, 2007

IRS TOLL-FREE HELP

Free tax help from the IRS is just a phone call away. The IRS provides various services through its toll-free telephone numbers. Some of these services are available 24 hours a day.· Ask questions about your tax return. You can call the IRS Tax Help Line for Individuals at 800-829-1040, to get answers to your federal tax questions. · Order forms and publications. Call 800-TAX-FORM (800-829-3676). Copies of forms, publications and other helpful information are also available around-the-clock at the IRS Web site at www.irs.gov. · Check the status of your refund. Call the Refund Hotline at 800-829-1954. You will need to know your social security number, filing status and the exact whole-dollar amount of your expected refund. TeleTax, the automated refund line, at 800-829-4477 is available around the clock and will also let you check the status of your income tax refund. Automated refund information is generally available four to five weeks after you have filed your tax return. You can also check the status of your refund at IRS.gov by clicking on Where’s My Refund? This service is available 24 hours a day, seven days a week. · Recorded tax information: The TeleTax line at 800-829-4477 has recorded messages covering more than 100 tax topics. Topics include items such as Who Must File?, Highlights of Tax Changes, Education Credits, Individual Retirement Accounts, Earned Income Tax Credit, What to Do if You Can't Pay Your Tax and more. · Hearing-impaired individuals with access to TTY/TDD equipment. Call 800-829-4059 to ask questions or to order forms and publications. This number is answered only by TTY/TDD equipment. The IRS Tax Help Line, Refund Hotline, and the TTY/TDD numbers are available from 7:00 a.m. to 10:00 p.m. (local time) on weekdays. Alaska and Hawaii will follow Pacific Time. The services offered on the IRS toll-free lines are also available 24 hours a day 7 days a week on the Internet at IRS.gov.

If, during the 5-year period ending on the date of sale, you owned the home for at least 2 years and lived in it as your main home for at least 2 years, you can exclude up to the maximum dollar limit. However, you cannot exclude the portion of the gain equal to depreciation allowed or allowable for periods after May 6, 1997. This gain is reported on Form 4797 (PDF),Sale of Business Property. Refer to Publication 523, Selling Your Home, and Form 4797 (PDF), Sale of Business Property, for specifics on calculating and reporting the amount of gain.

If I sell my home and use the money I receive to pay off the mortgage, do I have to pay taxes on that money?

It is not the money you receive for the sale of your home, but the amount of gain on the sale over your cost, or basis, that determines whether you will have to include any proceeds as taxable income on your return. You may be able to exclude this gain from income up to a maximum dollar limit. If you can exclude all of the gain, you do not need to report the sale on your tax return. To determine the maximum dollar limit you can exclude or for additional information on selling your home, refer to Publication 523, Selling Your Home.

References:

* Publication 523, Selling Your Home * Tax Topic 701, Sale of your Home - after May 6, 1997 * Tax Topic 703, Basis of Assets

I sold my principal residence this year. What form do I need to file?

If you meet the ownership and use tests, you will generally only need to report the sale of your home if your gain exceeds a certain dollar amount prescribed by law. To determine the amount of gain that can be excluded from income refer to Publication 523, Selling Your Home. You may be entitled to exclude gain from income if during the 5-year period ending on the date of the sale, you have:

* Owned the home for at least 2 years (the ownership test), and * Lived in the home as your main home for at least 2 years (the use test).

If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases. If you are required or choose to report a gain, it is reported on Form 1040, Schedule D (PDF) , Capital Gains and Losses .

If you were on qualified extended duty in the U.S. Armed Services or the Foreign Service you may suspend the five-year test period for up to 10 years. You are on qualified extended duty when the extended duty lasts for more than 90 days or for an indefinite period AND:

* At a duty station that is at least 50 miles from the residence sold, or * When residing under orders in government housing.

This change applies to home sales after May 6, 1997. You may use this provision for only one property at a time and one sale every two years.

References:

* Publication 523, Selling Your Home * Tax Topic 701, Sale of your Home - after May 6, 1997 * Tax Topic 703, Basis of Assets

I have investment property. Can you explain the term basis of assets?

Basis is your investment in property for tax purposes. The difference between the selling price of your assets and your basis determines whether there is a taxable gain or loss on the disposition of your property. You need to determine your basis to figure allowable depreciation deductions as well. Your original basis is usually your cost to acquire the asset. Your adjusted basis (which is the basis you use to determine gain or loss or depreciation amounts) is the result of increasing or decreasing your original basis according to certain events.

Increases to basis include but are not limited to:

. Improvements having a useful life of more than a year

. Assessments for local improvements

. Sales tax

. The cost of extending utilities lines to the property

. Legal fees such as the cost of defending or perfecting title

. Zoning costs

Decreases to basis include but are not limited to:

. Depreciation

. Nontaxable corporate distributions

. Casualty and theft losses

. Easements

. Rebates from the manufacturer or seller

Additional information on basis can be found in Publication 551, Basis of Assets, or Tax Topic 703, Basis of Assets.

Internal Revenue Service Tip

Issue Number: TT-2007-34

Inside This Issue

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 2006, 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).

FEB. 19,2007

10.1 Capital Gains, Losses/Sale of Home: Property (Basis, Sale of Home, etc.)

What is the basis of property received as a gift?

To figure the basis of property you get as a gift, you must know its adjusted basis to the donor just before it was given to you. You also must know its fair market value (FMV) at the time it was given to you. and whether any gift tax was paid. If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or loss when you dispose of the property. Your basis for figuring gain is the same as the donor's adjusted basis, plus or minus any required adjustments to basis while you held the property. Your basis for figuring a loss is the FMV of the property when you received the gift, plus or minus any required adjustments to basis while you held the property. See Adjusted Basis in Publication 551, Basis of Assets.

If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.

If the FMV is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Increase your basis by all or part of any gift tax paid, depending on the date of the gift. See Gifts received before 1977 in Publication 551, Basis of Assets. Also, for figuring gain or loss, you must increase or decrease your basis by any required adjustments to basis while you held the property. See Adjusted Basis in Publication 551, Basis of Assets.

For more information on the gift tax, see Publication 950, Introduction to Estate and Gift Taxes..

Internal Revenue Service Tip

ssue Number: TT-2007-33

Inside This Issue

FEB.15, 2007

GAMBLING INCOME AND LOSSES

Gambling winnings are fully taxable and must be reported on your tax return. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.

Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld federal income taxes from the payment.

Here are some general guidelines on gambling income and losses:

* Reporting winnings: The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. You may not use Form 1040A or 1040EZ. * Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 27, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.

It is important to keep an accurate diary or similar record of your gambling winnings and losses. To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.

For more information see IRS Publication 529, Miscellaneous Deductions, or Publication 525, Taxable and Nontaxable Income, both available on the IRS Web site, IRS.gov, or by calling 800-TAX-FORM (800-829-3676).

Internal Revenue Service Tip

Issue Number: TT-2007-30

Inside This Issue

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.

The 2006 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).

Internal Revenue Service Tip

Issue Number: IR-2007-029

Inside This Issue

Purchasers of GM Hybrids Still Qualify for Tax Credit

WASHINGTON — The Internal Revenue Service announced that purchasers of General Motors Corp. qualified vehicles may continue to claim the Alternative Motor Vehicle Credit. The announcement comes after the IRS concluded its quarterly review of the number of hybrid vehicles sold.

General Motors sold 3,358 qualifying vehicles to retail dealers in the quarter ending December 31, 2006. This brings the cumulative number of qualified General Motors hybrid vehicles sold to 5,558. The credit amount and make and model of qualified vehicles sold are:

* Chevrolet Silverado Hybrid 2WD, Model Years 2006 and 2007 — $250 * Chevrolet Silverado Hybrid 4WD, Model Years 2006 and 2007 — $650 * GMC Sierra Hybrid 2WD, Model Years 2006 and 2007 — $250 * GMC Sierra Hybrid 4WD, Model Years 2006 and 2007 — $650 * Saturn Vue Green Line, Model Year 2007 — $650

Taxpayers may claim the full amount of the credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

See Related Item: Hybrid Cars and Alternative Motor Vehicles

Internal Revenue Service Tip

Issue Number: TT-2007-28

Inside This Issue

More Direct Deposit Options- Split Your Refund

Starting in 2007, taxpayers have more choices and flexibility for the direct deposit of 2006 federal income tax refunds. For the first time, taxpayers can split refunds among up to three accounts held by as many as three different U.S. financial institutions, such as banks, mutual funds, brokerage firms or credit unions.

The split-refund option is available to taxpayers who choose direct deposit regardless of whether they filed the original returns on paper or in electronic format using Form 1040, 1040A, 1040EZ, 1040-PR, 1040NR, 1040NR-EZ or 1040-SS. However, taxpayers filing Form 1040-EZ-T, Request for Refund of Federal Telephone Excise Tax, or Form 8379, Injured Spouse Allocation, cannot opt to split their refund.

To split direct-deposit refunds among two or three accounts or financial institutions, taxpayers should complete new Form 8888, Direct Deposit of Refund to More Than One Account. Taxpayers can continue, though, to use the direct deposit line on Form 1040 to electronically send their refunds to one account.

The IRS will electronically deposit refunds to taxpayers’ accounts held by a U.S. financial institution, providing that an accurate account number and American Bankers Association (ABA) routing number is supplied and the financial institution accepts direct deposits for the type of accounts designated. Taxpayers should verify routing and account numbers with their financial institutions. IRS assumes no responsibility for taxpayer or preparer error.

Note that taxpayers can do things much faster electronically than by paper. For those filing their taxes electronically, the refund is deposited in their account within two weeks. A paper check refund takes three weeks. Those filing taxes on paper, the process is longer. They get their direct deposit refund within four to six weeks or paper checks within six weeks.

By using the IRS’ popular Where’s My Refund? Feature, taxpayers can track their refunds. Taxpayers can access Where’s My Refund? online at IRS.gov or by calling 800-829-1954.

Internal Revenue Service Tip

Issue Number: IR-2007-027

Inside This Issue

IRS Moves to Prevent Telephone Tax Refund Abuse;Help Taxpayers Make Accurate Requests

WASHINGTON — The Internal Revenue Service announced today it is taking additional steps to prevent abuse by tax preparers and help taxpayers make accurate requests for the one-time telephone excise tax refund.

This week, IRS Criminal Investigation special agents and IRS revenue agents are conducting special site visits with tax preparers across the nation to prevent inflated requests made for the one-time telephone tax refund. Visits began this week to 22 different tax preparers who have handled more than 1,500 tax returns.

“We are taking this unusual step to confront blatant abuse of this important refund program,” said IRS Commissioner Mark W. Everson. “We want tax preparers to prepare accurate tax returns. If they don’t, we will move swiftly to impose civil penalties and, where warranted, seek criminal sanctions.”

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. The IRS also authorized a one-time refund of the federal excise tax collected on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.

The IRS has monitored telephone excise tax refund requests for potential problems since the tax-filing season opened in early January. The IRS has seen some problems with returns from tax preparers that may indicate criminal intent.

Some tax-return preparers are requesting thousands of dollars of refunds for their clients in instances where clients are entitled to only a tiny fraction of that amount. In some cases, taxpayers requested a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income. In several instances, taxpayers requested a refund of $30,000 – hundreds of times of what could be reasonably expected. Some refund requests appear to be for the entire amount of the taxpayer’s phone bill, rather than just the three-percent long-distance tax.

Taxpayers who request more of a refund than they are entitled to receive will have their refunds held and they may be subject to an audit.

To make the refund easier to figure, the IRS established a standard refund amount, based on personal exemptions, ranging from $30 to $60. If taxpayers have phone bills and other records, they can request the actual amount of excise tax paid. Though using the standard amount is optional, it is easy to figure and approximates the eligible amount for most individual taxpayers. You only have to fill out one line on your return, and you don’t need to present proof to the IRS.

At the same time, the IRS issued a new reminder today for taxpayers who are not filing for the refund even though they may qualify. In early returns filed this year, more than one-third of early filers did not request the telephone tax refund. Other taxpayers are making mistakes when requesting the refund. The IRS encourages taxpayers to see if they qualify for the telephone tax refund and to make sure they fill out tax returns accurately and completely.

The best and most reliable information on this refund can be found in the Telephone Excise Tax Refund section on the front page of IRS.gov, the tax agency’s popular Web site. Here, taxpayers can download forms, find answers to frequently-asked questions and link to participating private-sector Free File partners offering free electronic-filing services.

Internal Revenue Service Tip

Issue Number: TT-2007-26

Inside This Issue

CHANGES TO TAX LAWS IN 2006

Taxpayers should be aware of important changes to the tax law before they complete their 2006 federal income tax forms. Here are some changes that may affect your return.

* New energy-saving tax credits. A ten percent credit can now be claimed for various energy-saving improvements made to the taxpayer’s main residence. There is also a thirty percent credit for the cost of energy-saving property such as photovoltaic cells.

* Expanded tax savings for retirement plans. 401(k) and 403(b) plans can now create a qualified Roth contribution program.

* Retirement contributions from tax free combat pay. Military members serving in Iraq, Afghanistan and other combat zone localities can now count tax-free combat pay when figuring how much to contribute to a Roth or traditional IRA.

* Military reservists not subject to early distribution tax. Reservists called to active duty can now receive payments from retirement plans without being subject to the ten percent early-distribution tax.

* New rules on donations to charity. To be deductible, clothing and household items donated to charity after Aug. 17, 2006, must be in good used condition or better.

* Tax free transfers from IRA’s to charity. An IRA holder, age 70 ½ or over, can directly transfer tax-free, up to $100,000 per year to an eligible charity. This option is available in tax years 2006 and 2007.

* “Kiddie” Tax Age Change. Children under 18 with taxable investment income may need to pay at their parents’ higher marginal rates. Before, so-called “kiddie” tax applied only to children under 14.

Also new this year, two changes may affect the amount of your refund or the way in which you choose to receive your refund.

* Telephone Excise Tax Refund. Individual taxpayers will be able to request a refund if they paid the federal excise tax on long-distance or bundled service.

* New Split Refund Option. Taxpayers now can split their refunds among up to three accounts held by up to three U.S. financial institutions, such as banks, mutual funds, brokerage firms or credit unions.

For more information, visit the IRS Web site at IRS.gov. Also, see Publication 553, Highlights of 2006 Tax Changes, and the instruction book for Form 1040.

Internal Revenue Service Tip

Issue Number: IR-2007-024

Inside This Issue

Paulson, IRS Launch Campaign to Help Low-Income Taxpayers Take Advantage of Tax Credit, Free Tax Help

Internal Revenue Service Tip

WASHINGTON — Treasury Secretary Henry M. Paulson, Treasurer Anna Escobedo Cabral and IRS Commissioner Mark W. Everson and the IRS’ national partners launched Earned Income Tax Credit (EITC) Awareness Day at a Treasury Department press conference today. The event kicks off a nationwide campaign to inform taxpayers about this important credit for working families and the availability of free tax help.

“The Earned Income Tax Credit helps Americans who work hard but need extra support to make ends meet – people who are often on the first step of the economic ladder, gaining the experience and skills to land a better job and earn a higher income in the future,” said Secretary Paulson. “Our goal is not just to help people get by. Our goal is to help people get ahead.”

More than 150 coalitions and partners across the nation marked EITC Awareness Day with a series of news conferences or news releases promoting this valuable tax credit for low-wage taxpayers. These organizations operate free tax preparation sites for low-income individuals, for seniors and for other eligible taxpayers.

The Treasury officials were joined by partners Mayor Otis Johnson of Savannah, Georgia, Brian Gallagher, chief executive officer of United Way of America, Elsie Meeks, executive director of First Nations Oweesta Corporation and Linda Eatmon-Jones, coordinator, DC CASH, for the kickoff event at the Treasury Department.

The Earned Income Tax Credit provides a refundable credit of up to $4,536 for eligible families. EITC claimants are eligible for free tax preparation services provided at 12,000 volunteer sites nationwide or they can also link to Free File through IRS.gov if they wish to prepare their own return.

In addition to providing help claiming the EITC, these free tax sites can help qualified taxpayers request their one-time telephone excise tax credit.

“The IRS wants all eligible taxpayers to claim the EITC. Trained volunteers working at these free tax preparation sites can help ensure that taxpayers receive all the deductions and credits they are due. And, if you want to do your own taxes, there is always Free File which is available at IRS.gov,” said Commissioner Everson.

Many organizations offering free tax help also are encouraging taxpayers to save a little money or open a bank account. The IRS is helping in this effort by creating a new split-refund program that allows all taxpayers to divide their refund among up to three financial accounts, such as checking, savings and retirement.

Internal Revenue Service Tip

“Tax time is an ideal time to think about savings. For many taxpayers, tax refunds are the largest checks they will receive throughout the year, and the new split-refund program gives individuals and families the opportunity to build a nest egg for the future,” said Treasurer Cabral.

During tax year 2005, more than 22 million returns received over $41 billion in EITC. However, the IRS also estimates that as many as 25 percent of eligible taxpayers fail to claim this tax credit.

Eligible people who fail to claim EITC include Spanish speakers, individuals who are self-employed or have service jobs in private households, childless taxpayers, rural residents, and recipients of other types of public assistance such as food stamps.

The credit was created in 1975 in part to offset the burden of Social Security taxes and to serve as a work incentive. The amount of the credit varies but it is generally determined by income and family size. Many states also have a local version of EITC which also can increase a taxpayer’s refund.

Internal Revenue Service Tip

Tax preparers and taxpayers can find a wealth of information at IRS.gov. Both can use the EITC Assistant at www.irs.gov/eitc which is an easy-to-use interactive tool to help determine if the taxpayer is qualified for EITC. This step-by-step online program helps answer questions about eligibility, filing status, qualifying children and credit amount. The EITC Assistant also is available in Spanish.

For the 2006 tax year, the maximum credit is $4,536 for a family with two or more children; $2,747 for a family with one child and $412 if the taxpayer does not reside with children.

The maximum amount of earned income allowed is higher for tax year 2006 than it was for 2005. Please see Fact Sheet 2007-13 for all eligibility requirements. Generally, a taxpayer may be able to take the credit for tax year 2006 if the taxpayer:

* has more than one qualifying child and earns less than $36,348 ($38,348 if married filing jointly), * has one qualifying child and earns less than $32,001 ($34,001 if married filing jointly), or * does not have a qualifying child and earns less than $12,120 ($14,120 if married filing jointly).

The maximum amount of investment income also increased to $2,800 for tax year 2006.

The IRS reminds tax professionals that they must perform due diligence when preparing an EITC tax return. To help, the IRS created an EITC Tax Preparer Electronic Toolkit which is available at www.eitcfortaxpreparers.com.

In addition to on-line tools, the IRS also produces Publication 596, Earned Income Credit, which explains all the eligibility rules and also includes a worksheet to determine eligibility. The publication is available in English and Spanish.

The Internal Revenue Service Home Page features front and center, a warning about Internet scams, stating among other things, that scams are on the rise.

Internal Revenue Service Tip

IRS Update:

Issue Number: TT-2007-14Inside This Issue

LONG-DISTANCE TELEPHONE EXCISE TAX REFUND

You may be eligible for a one-time tax refund! This one-time refund of previously collected federal telephone excise taxes may be requested on your 2006 federal income tax return. Anyone who paid long-distance excise taxes on landline, cell phone, Voice over Internet Protocol (VoIP), or bundled service that was billed for the period after Feb 28, 2003 and before Aug 1, 2006 is eligible for this refund. (Bundled service is local and long-distance service provided under a plan that does not separately list the charge for local service.)

You can request a refund of the actual federal excise tax you paid based upon your telephone bills for this period. Or you can request the standard refund amount ranging from $30-$60 based upon the number of exemptions you claim on your individual income tax return.

Choosing the standard amount is optional. Using this option is the easiest way to get your refund and avoid gathering 41 months of old phone records. By choosing the standard amount you will only need to fill out one line on your tax return. The standard amount is based on actual telephone usage data and reflects the long-distance phone tax paid by similarly sized families or households.

Internal Revenue Service Tip

Choosing to request the actual amount paid may be more beneficial for some taxpayers. To request a refund based upon the actual amount you paid, you must determine the amounts paid based on your phone bills. Figure the refund on Form 8913 and attach this form to your 2006 income tax return.

If you are not normally required to file a tax return, there is a new form (Form 1040EZ-T) that you can use to request this refund. Form 1040EZ-T can be mailed to the IRS or it can be prepared and filed electronically at no cost by using Free File at IRS.gov.

Businesses and tax-exempt organizations are also eligible for the telephone excise tax refund. These organizations must use Form 8913, Credit for Federal Telephone Excise Tax Paid. Businesses and tax-exempt organizations may report the actual amount of refundable phone taxes they paid for the 41-month billing period from March 2003 through July 2006. Or they may use a formula established to estimate the refund. Businesses should attach Form 8913 to their regular 2006 income tax returns. Tax-exempt organizations must attach it to Form 990-T.

For more information as well as answers to the most commonly asked questions, go to the IRS Web site at IRS.gov and select the link for the Telephone Excise Tax Refund.

The Internal Revenue Service has many forms and free publications on a wide variety of topics to help you understand and meet tax filing requirements. If you need IRS materials try one of these easy options:

* Internet: You can access forms and publications on the IRS website 24 hours a day, 7 days a week, at IRS.gov. * Phone: Call 800-TAX-FORM (800-829-3676) to order current year forms, instructions and publications and prior year forms and instructions. You should receive your order within 10 days. * Walk-in: 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. Braille materials are also available. Many large grocery stores, copy centers, and office supply stores have forms you can photocopy or print from a CD. * Mail: Send your order for tax forms and publications to National Distribution Center, P.O. Box 8903, Bloomington, IL 61702-8903. You should receive your products within 10 days after we receive your order.

Scammers, skillfully but fraudulently use the IRS name or logo to get financial information, resulting too often, in identity theft.This type of identity theft, occurring over the Internet is called Phishing, because scammers are fishing for information in order to hook victims.

Internal Revenue Service Tip

If you get a suspicious e-mail from the IRS, especially one promising a refund, you can send the information to: phishing@irs.gov. To do this Go To

To Be Further Informed, you can view a sample phony e-mail.

Sample phony e-mail

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Starting A New Business?

Need an EIN (Employer Identification Number Form SS4)

If you are not comfortable with sending information via the Internet, then download the form SS-4 PDF file and mail it to the address shown Here

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