Estimated Tax Payments Due

If you’re self-employed, it’s that time again; time to send the IRS an estimated tax payment. Didn’t I just do that, you ask? Well, in a sense, yes, it does kind of feel that way, doesn't it? That is because the second quarterly estimated tax payment is due just two months after the first. Be forewarned, the third payment will follow in 3 months on September 15th and the fourth, can be as late as 4 months after the third, or January 15th 2010. It’s easy to forget about this month’s payment, because it is seems to be coming right on the heels of the April 15th payment and the filing of last year’s taxes.

To begin with, if you are frustrated with trying to keep your head above water, it is a good idea to remember why you are paying the Internal Revenue Service estimated taxes. The greatest motivator for making your payments in a timely manner is the threat that the IRS will charge you a penalty if you haven't paid 90% of what you owe for the tax year or an amount equal to 100% of your tax liability for the prior year. So, if you are self-employed, own a business or make substantial amounts of money through your investments, it is a good idea to take heed.

If you are newly self-employed, you may be wondering why you have to pay estimated taxes, to begin with? Well understand that the majority of people have little self-control and even less capability of setting aside money to pay tax debts. Given half a chance, they would spend it on other things. In addition, the government needs your money throughout the year for services, and if they didn’t receive your estimated taxes they’d be forced to borrow the necessary funds. This in turn would drive your taxes up, to cover the interest they'd have to pay. Keep in mind, we have a pay-as-you-go tax system, which if paid on schedule, will help to keep you floating and the IRS happy and out of your business as much as possible. If it helps, the best way to look at estimated tax payments is to see them as the equivalent to W-2 withholdings being deducted from your earnings every paycheck, if you had been working for someone else instead of yourself.

So how do you estimate what to pay? The best rule of thumb is to pay 100% of last year’s tax bill (110% if your gross income was over $150,000). Following these guidelines, you will not owe any penalties come April, even if it turns out that you do owe more than that amount. If you have been in business for several years and expect to earn more money this year because your business is growing, pay what your total tax was last year, broken into four equal, quarterly installments.

For example: If you paid $4,000 in taxes last year, in four quarterly payments of $1,000 as long as you send the IRS $1000 every quarter, you won't owe any penalties even if you owe $8000 in tax this year. Keep in mind, you will still need to come up with that extra 4,000 when April of next year, rolls around, so it's best not to run out and buy that wide-screen t.v. just yet. If you don't want to owe the additional $4,000 you would just increase each of the quarterly payments by $1,000 so your total estimates for the year equal $8,000. 

By the way, if you don’t expect to owe more than $1,000 in taxes for the entire year, you do not need to make estimated tax payments. 

So, finally, how do you pay your estimated taxes? If you have had your taxes prepared by a tax professional, they should be able to make accurate recommendations for your quarterly payments with the information contained in last year’s return. They will also be able to print the necessary vouchers that you should attach to your payments, in order to keep the IRS content. 

If you prefer, you can download Form 1040-ES from the IRS website. The form includes a worksheet that walks you through figuring out how much estimated tax you should be paying. You’ll need to have your prior year’s tax info handy including adjusted gross income and deductions. 

To pay your estimated taxes online and avoid the payment vouchers you can sign up for the “Electronic Federal Tax Payment System” (EFTPS), in order to pay your estimated taxes via direct debit.  Keep in mind that once you sign up, you will need to allow for 15 days, in order to receive your PIN information before you can actually make a payment. So either plan well in advance of a payment or fill out the estimated tax vouchers and mail them on or before the due dates of:

• April 15
• June 15
• September 15
• January 15 (next year)

Remember: The payments are NOT every 3 months, but are spaced unevenly. Don’t let one of them catch you by surprise! 

For more information about making estimated tax payments see IRS Publication 505 or consult with your tax professional.

Ten Most Common Tax Deductions for Small Businesses

We all know that as a taxpayer, times are bad enough, but as a small business owner, you need to be vigilant about your tax situation and take full advantage of the great tax breaks available to you. To neglect this attention, is to risk greater profit losses and as a worst case scenario, be faced with issues that could force you out of business. There are many tax breaks you as a small business owner can take advantage of, so you do not leave money on the table. Some of the most commonly missed tax deductions for small business are:

1.   Vehicle Expenses

If you use your vehicle for business related activities, such as picking up supplies, attending meetings, or entertaining clients, you can take advantage of the mileage deduction, but remember to keep track of your miles driven.

If you don’t take a mileage deduction you can, instead, take a deduction for the maintenance of your vehicle by subtracting such expenses as fuel, parts, labor and repairs, in addition to which you may also depreciate the vehicle itself, over a period of 5 years.

2.    Education Expenses 

Any seminars, workshops or classes that you take to improve your business or knowledge of the business, are tax deductible, as are the travel costs included in the excursions.

3.    Travel Expenses 

Tolls, airfare, hotels, parking, taxi fees, as well as cleaning costs and a portion of meals, are all allowable deductions. Make sure you retain your receipts and keep accurate records so that you can document the expenses; creating a log of sorts to track the expenses, even without all your receipts, is tremendously helpful come tax time.

4.    Communication Expenses 

Your phone lines, cellular phones, long distance charges, your internet hook-up and fax line are all deductible expenses.

5.    Advertising and Other Business Expenses 

Also part of your business expenses for maintaining and promoting your business, can be deducted. While large deductions are nice, don’t forget all the small things you need to keep your business afloat. Don’t overlook such things as coffee and beverage service, postage, paper clips and other desk supplies, gifts to clients, fees to banking services, dues to business organizations, business-related publications, tax preparation fees and even labor performed by family members or children, such as hanging posters or stuffing envelopes. All of these small things can add up in a hurry and expand the range of your business deductions.

6.    Home Office Expenses 

Don’t forget you can take a lucrative deduction for having a separate room in your home where you consistently conduct your business affairs. A percentage of your mortgage interest, homeowners insurance, property and real estate taxes, as well as repairs and maintenance, can be taken on the portion of the home placed in business use.

7.    Self-Employed Health Insurance Premiums

As a self-employed business owner, taking full advantage of group health benefits can be tremendously advantageous. The benefits provided to employees and their dependents are generally deductible, though subject to limitations. Your own health benefits under the plan are also 100% deductible.

If you are a sole proprietor, you might consider obtaining a health insurance policy in your own name rather than the name of your business. In this way your health insurance benefits will also be deductible.

Insurance for fire, accident and theft as well as liability, worker’s comp and malpractice insurance premiums are also deductible.

8.    Sales Taxes 

You can deduct all sales tax you pay on business property or new equipment, if you are incorporated. Just as the items you purchase are tax deductible, so are the taxes you pay.

9.    Retirement Plans

Contributions you make to your own IRA or 401K plan, SEP IRA, or SIMPLE IRA, as well as employee contributions are deductible on your business tax return. See the IRS Publication 560, for specific details about how to make the most out of contributions to such plans.

10. Upfront Depreciation 

You can take a Section 179 deduction to claim a deduction up to $125,000 on depreciable property, such as equipment, furniture, machinery, fixtures and even storage units.

Your small business deserves every dollar it gets, take the time to explore and claim everything you can, and should claim, on your next tax return. By determining what tax breaks you can take advantage of, you will increase your bottom-line. Your sales will have the opportunity to increase while your costs of doing business will decrease, making for the most lucrative business asset possible.

Tax Consequences of Foreclosure

If you’ve lost your home through foreclosure there are potential tax consequences that you may have over-looked.

There are two possible consequences you should consider: 

1.    Taxable cancellation of debt income

2.    A reportable gain from the disposition of the home

Cancellation of Debt

If your lender cancels or forgives the debt you borrowed, depending on your specific circumstances, you may have to include the canceled amount on your income taxes. Since you were obliged to repay the financial institution, you were not required to include the mortgage proceeds in income. The amount you receive, when that obligation is subsequently forgiven, generally means you must report it as income, since you are no longer required to repay the lender. The lender will likely send you a Form 1099-C, Cancellation of Debt showing the total canceled debt.

For example: You borrow $175,000 and default on the mortgage loan after making payments totaling $25,000. If the lender is unable to collect the remaining balance of the debt from you, a cancellation of debt of $150,000 is created, which is generally taxable income to you.

Capital Gain

Despite a foreclosure, you may have still realized a gain during your possession of the property. If this occurs you will need to calculate the profits from the foreclosure by subtracting the amount realized from the sale from the adjusted tax basis of the home. The cost of improvements to the property in addition to the original price of the property is your adjusted tax basis. Your gross proceeds minus your expenses will be your gain. In a foreclosure the amount realized depends a lot on whether your loan is recourse or non-recourse:

• For recourse loans, if your home is sold at a foreclosure sale, the amount realized is its fair market value, which is generally the sales price, minus expenses of the sale, such as court costs, legal fees and real estate commissions. If your mortgage is a recourse loan, you're personally responsible for repaying the bank or mortgage company. If you don't repay the loan, or "default," the bank can sue you for the remaining amount due on your loan if the proceeds from a foreclosure sale doesn't cover the amount you owe.
• For non-recourse loans, your amount realized equals the amount you owed on the mortgage plus any interest that comes due up to the time of the foreclosure. if your mortgage is non-recourse, your lender cannot make you pay the loan. The only thing it can do is foreclose and sell your house for payment on the debt.

Gratefully there are other situations when cancellation of debt may not be taxable:

1. If you have declared bankruptcy the discharged debt is considered non-taxable.
2. If your total debts are more than the fair market value of your total assets, you are consider to be insolvent and may qualify for an exemption.
3. If you run a farm and the debt was incurred in the operation of it, you may also qualify for an exemption.

Retiree Stimulus Money - $250 - is on the Way

Retirees

If you are among the 50 million individuals who receive Supplemental Security Income, Railroad Retirement Benefits or Veteran’s Disability checks, you are about to see some extra cash flowing your way, thanks to President Obama’s American Recovery and Reinvestment Act.

Although, you won’t exactly be rolling in the dough, the receipt of an extra $250 per person will surely generate some glee and will be, no doubt, a little welcome relief during these tough times.  Perhaps the best thing about this year’s stimulus to retirees, is that the payments will be mailed or deposited directly into your bank account, by the Social Security Administration, themselves. As a consequence, and instead of dealing with the bureaucracy of the Department of Treasury, mingled with the regulations of the Railroad Retirement Board and the rules of the Department of Veterans Affairs, the delivery process can be expected to go more smoothly this year. Cause for celebration you say?

Can we dare to believe that the federal government is actually getting smarter, by allowing the agencies who generally pay you your benefits, to be able to deliver these funds to you as well? Say it isn’t so! Does this mean that those poor folks who only filed a tax return last year to get their share of the stimulus money, will be spared that same hassle this year? For sure, it will be nice to know that the Internal Revenue Service is spending their time, this summer, processing last year’s returns and issuing refund checks, instead of dealing with a glut of unnecessary papers and tax returns. You might say, this year’s delivery system is an unexpected, but welcome change and a definite win-win situation for all parties concerned.

The Rest of Us

And, what about the rest of us? Are you a non-retired taxpayer, looking for some relief too? Where is your stimulus payment coming from this year, you ask? Thanks to the Making Work Pay Credit, you should be seeing a few extra dollars in your paycheck and if you aren’t, it’s time to speak to your office’s payroll department. Instead of receiving a stimulus check this year in one lump sum, the American Recovery and Reinvestment Act, has enabled businesses to pay you a small portion of the funds in each paycheck, thereby spreading the stimulus out over time. After the failure of last year’s payments to generate a stimulus in our economy, the federal government hopes those few extra dollars in your pocket each month, will encourage us all to turn around and immediately reinvest it in the system.

The Self-Employed

If you are self-employed, you might be wondering how all this will affect you. You could say, you have the most control over how you receive that little bit extra this year. In other words, it will be up to you to decide, if you want to reduce your quarterly estimated tax payments or leave them alone in hopes of a potentially bigger refund next year. If you are expecting an increase in income this year, or even just have high hopes, it might be worth-your-while to leave a bit of a buffer around you, in order to avoid having to pay Uncle Sam next spring.

Regardless, of how you receive your piece of this year’s economic stimulus, be assured that the continued downturn in our economy will not last forever. In doing whatever you can to keep yourself afloat, bear in mind that our federal government is continuing to do its part to help you.

When You Need to Pay the IRS

When you owe the IRS and need to send payments with or without your tax return, there are some things you should keep in mind. Since what you owe the IRS is subject to interest and a monthly late payment penalty, it is in your best interests to pay-off the full amount as quickly as possible to minimize the extra charges. Penalties will also be assessed for failure to file a tax return, so remember, even if you cannot pay your balance right away, you must file your return.

Some things to consider when arranging payment:

1. Never send cash.
2. You can authorize an electronic funds withdrawal through your tax provider, at the same time that you e-file your return.
3. Whether you file electronically or on paper, you can pay online or over the phone using your credit card. To pay by phone call 1-800-2PAY-TAX, or pay online at officialpayments.com. A small convenience fee, beginning at $1.00, will be charged by the service provider, not the IRS, when authorizing a payment by phone or on the internet.
4. If you itemize, you may be able to deduct the convenience fee charged for paying individual income taxes with a credit or debit card as a miscellaneous itemized deduction. The deduction is subject to the 2 percent limit on Form 1040, Schedule A, Itemized Deductions.
5. As an alternative to paying taxes or user fees by check or money order, you can make payments 24 hours a day, seven days a week.  Refer to Publication 3611, e-File Electronic Payments for more details.
6. Do not staple or otherwise attach your payment to the actual paper Form 1040 or Form 1040-V Payment voucher. Instead, put them loose in the envelope.
7. Make money orders or checks payable to “United States Treasury.”
8. Include on your check your full legal name, address, main Social Security number (the first SS# on the tax form,) your daytime telephone number, the tax year and the form number, (eg. 2008 F-1040.)
9. When sending your payment and tax return to the IRS, complete and include Form 1040-V, Payment Voucher. The inclusion of this form helps the IRS process your payment accurately and efficiently.

If it turns out that you cannot pay the IRS in full, they offer a short additional time to pay of up to 120 days, or approximately four months. Even if you cannot make the full payment you may want to pursue financing the amount due, through a home equity loan or a cash advance on your credit card. Although this creates yet another entity you will owe, the interest rate on a cash advances or a loans from financial institutions will usually be lower than the combination of interest and penalties accrued from the IRS.

Because the IRS wants your payment they also offers various options for making monthly installment payments. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts.

Some of the possibilities for paying in installments are:

• Direct Debit from your bank account
• Payroll Deduction from your employer
• Payment via check or money order
• Electronic Federal Tax Payment System.
• Payment by credit card via phone or Internet
• Online Payment Agreement

If you decide on an installment agreement, your monthly payment should be based on your ability to pay and should be an amount that you are comfortable paying each month to avoid further penalties and fees.

Call your tax professional for assistance or for additional information about payments refer to Electronic Payments,  Form 1040-V - Payment Voucher, Form 1040-ES - Estimated Tax for Individuals, Publication 17 - Your Federal Income Tax.

Are You A Last Minute Filer?

April 15th is just around the corner.  Here are some guidelines to follow, if you are still trying to complete your tax return.

1. Use electronic filing - Instead of trying to mail your return with a date cancel stamp on or before the deadline, consider e-filing your return. You will find e-filing assures you that the return is complete and correct.
2. Check tax ID numbers - Check and re-check for accuracy, any I.D. numbers contained within your return. Any inaccuracies or illegible numbers, be they Social Security, tax ID, or employer numbers will delay or potentially subtract from your tax refund.
3. Review your figures - Review the figures on your W2s and 1099s, whether you e-file or mail your return, it is vital that you transfer the amounts accurately.
4. Double-check your math - Confirm you are using the correct amount from the tax tables and that you have performed all computations for a refund or balance due correctly.
5. Don't forget to date and add your signature - If you are filing a joint return, both you and your spouse must make sure to sign. It doesn't matter if one spouse has no income, both of you must sign the return. If you had your return prepared by someone else, that person must also sign the return.
6. No refund by check - Try to Direct Deposit the refund to your bank account; this can speed up the receipt of you refund, by a significant period of time.
7. Pay your balance due - Make your check out to "United States Treasury," and send it together with the Form 1040-V, the Payment Voucher. Do not staple it to the form! Include your name, address, SSN, telephone number, tax year and form number on the check or money order.
8. Request an extension - If you have been unable to complete your return as April 15th draws near, make sure to request an extension of time to file. 
9. Use Web site access - Visit the IRS.gov website for any number of helpful brochures, publications, forms and information 24 hours a day.
10. Read it one more time - Just when you think you're all done with your return, read through it one more time for accuracy. If you catch small errors before you mail the return or push the send button, you will avoid any costly delays in processing your return and receiving the biggest refund possible.

Call or drop into your local PRO-TAX office, where we will be happy to assist right up to the last minute!

Tax Filing Extension

April 15 is the filing deadline for a federal tax return.  If you need more time to get your paperwork complete, make sure you file Form 4868, Automatic Extension of Time to File, with the IRS by the end of the day on the 15th.  This gives you an automatic six-month (October 15, 2009) extension of time to file.  

NOTE:  An Extension of Time to File is not an “Extension of Time to Pay.”  The Extension gives you an automatic six months of additional time to get your paperwork together and file that return.  But, if you owe more than what you paid with your estimate, you’ll be accumulating penalties and interest on the difference, so don’t take the entire six months to do this. 

When filing your Extension of Time to File, you should estimate what you think you owe to the IRS.  This should not be “pulling numbers out of thin air.”  You still need to go through your receipts and tax documents and get them somewhat organized.  From here, you can estimate both your income and your expenses, and then approximate what you owe Uncle Sam.  Keep in mind that this is an ESTIMATE.  And, you should pay what you estimate you owe at the time you file Form 4868.

There are three ways to file Form 4868:

1. Electronically; we are happy to help you with this
2. By paying part or all of your taxes due with a credit card by calling the provider listed on the form
3. By mailing in the Form with payment 

If you have questions, or need assistance completing Form 4868, please visit your local PRO-TAX office.  We would be happy to help you file the extension correctly and on-time.

Traditional IRA versus a Roth IRA

This year you have told yourself that you are going to start saving for retirement. You’d like to open an IRA, or Individual Retirement Account, but which kind of an IRA should you open? You have heard of two kinds, a traditional IRA and something called a Roth IRA, and you have no idea what the difference is between them. 

An IRA is defined as a personal retirement plan whereby a limited amount of annual earned income may be saved or invested in specially designated accounts.  

Traditional IRAs 

Contributions to a traditional IRA are completely tax deductible, unless your income exceeds a certain level, where phase-outs begin. Although you can still make a contribution, if you are in the higher tax brackets, you will be unable to deduct those contributions on your tax return. You can begin to take distributions from a traditional IRA at the age of 59 ½ without penalty and you must start taking distributions by 70 ½, even if you don’t want to. If you end up having to withdraw money prior to the age of 59 1/2, you will generally have to pay a 10% penalty. When you receive money from this kind of IRA, be prepared to pay taxes, because although your money has been growing tax free, now that you have withdrawn some, the funds become taxable income. There are no income restrictions when it comes to contributing to a Traditional IRA.

Roth IRAs 

With a Roth IRA your contributions are not deductible on your tax return, however, all earnings and your principal investment are 100% tax free when it comes time for withdrawal. Unlike a traditional IRA, there are no age restrictions with a Roth IRA. You decide when and if you want any of the funds and principal contributions can be withdrawn anytime without penalty. At present, there are restrictions that could bar you from opening a Roth IRA. For example, in 2009, if you are single, you cannot earn more than $101,000 annually, if you are married, you and your spouse must have a combined income of $166,000 or less, otherwise you will have to opt for a traditional IRA, where the income restrictions are more lenient. If you do open a Roth, keep in mind that if you should subsequently receive a significant increase in salary, you may not be able to continue to make contributions. Contributions are also limited to the amount of your earned income during the year, so if you only earn $4,000, you can only contribute $4,000 or less to your Roth. At this time, the maximum you can contribute to a Roth is $5,000/year, or $6,000 if you are 50 years or older.  

Converting a Traditional IRA to a Roth 

In 2009, to qualify for a Roth conversion, your adjusted gross income may not exceed $100,000, whether you are single or married. 

However, one important thing to keep in mind, if you only qualify to open a traditional IRA or already have one, in 2010 the income restrictions on Roth IRA conversions expire, meaning anyone will be able to convert the funds in a traditional IRA to a Roth. Despite the fact that you will have to pay taxes on the amount you convert, the 2010 conversion amount may be included as taxable income in 2011 and 2012. The ability to spread the possible heavy tax burden over more than one year may make it possible for you to take advantage of this fabulous opportunity.

Tax Consequences of Divorce

Divorce can involve many potential tax traps and pitfalls. You will be changing your tax status and that alone, can have quite an effect on your financial life. Here are some things to be aware of:

Filing Status

Since you will no longer be filing as “married,” you will want to make sure that your withholding is in keeping with your new filing status. If you have children, and you have not remarried, you may opt to file as “head of household,” the non-custodial parent will usually file "single." In joint custody cases where there is more than one child, it can be advantageous for each parent to claim one child, regardless of where the child resides most of the time.  In this way, both parents could, potentially, qualify as "head of household." The benefits of "head of household" tax rates are far better than those for filing “single.”

Child Support

Both parents have a legal duty to support their child according to their ability to do so. For this reason, child support is neither taxable to the recipient, nor tax deductible to the spouse paying, regardless of which parent retains custody of the child or where the child resides a majority of the time. In order to claim your child on your tax return, all dependency tests must be met for either a "qualifying child" or a "qualifying relative." For more information about who qualifies, visit irs.gov.

Although, the parent who has custody of the child for the greater part of the year, generally has the right to claim that child as a dependent, the custodial parent may transfer the dependency exemption to the other parent by signing Form 8332. If you offer to give away a deduction you may be able to work out an amicable arrangement with your ex-partner, so that you both reap the benefits.

Alimony or Spousal Support

A divorce agreement should clearly state the difference between alimony and child support. A substantial spousal support or alimony payment can be a large tax deduction for one spouse, and a huge tax liability for the other, because alimony is tax-deductible for the person making the payments and taxable to the person receiving. Beware of how all kinds of support are distinguished in your agreement.

If your agreement combines the alimony, family and child support together into one payment, the entire payment will be considered spousal support and will be fully taxable to the recipient.

Other Income or Deductions

When splitting other marital assets, income such as interest and dividends, can also have a dramatic impact on your finances. Assuming one of the parties wishes to remain in their home, mortgage interest can be divided or eliminated completely depending on who retains ownership. The equity in the home can be divided between the two parties and the spouse remaining in the home can arrange a new mortgage, as sole owner. This relieves any responsibility to mortgage payments owed by the spouse who chooses to remove themselves from the home.

Likewise, additional assets, such as rental property, will also be divided, and the tax burden will fall upon the person retaining ownership of that property.

In the long run, as a divorcing couple, as long as you negotiate and honor your agreements in good faith, you will save yourselves money and aggravation. Whatever your circumstances and despite the stressfulness and anguish of this emotional time; working together with your partner during and after a divorce, can eventually lead to an equitable place, where the needs of all parties, including your children, are met.

Where's the Money? What Happened If Your Refund Wasn't All You'd Expected

Where's the Money? What Happened If Your Refund Wasn't All You'd Expected

At PRO-TAX we work hard to get you the maximum tax refund to which you are entitled under the law. But sometimes the final amount issued doesn't match up with what you expected to get. What happened between the filing of your return and the issuing of your refund check?

The answer in most cases is that you owed money to the government (or to someone the government ordered you to pay). Congress authorized the Department of Treasury's Financial Management Service (FMS) to deduct from income tax refunds to pay any such debts. These debts include past-due child support, non-tax debts to Federal agencies, or unpaid state income tax obligations. Simply put, the government takes any money it thinks you owe it before you receive your refund. Your final refund amount is whatever is left over (if anything). 

If this occurs, the FMS will send you a notice informing you what agency claimed you had a debt and the amount they took from your refund. If you do not receive the notice, call 800–304–3107 or TDD 866–297–0517. Do NOT call the IRS (unless the original refund amount shown in the notice is different from what you were told you would receive).

What If You Think the Deduction Was Wrong?

If you believe that the amount deducted from your refund is wrong or that you do not owe the debt shown in the notice, you have the right to challenge the finding.

• If your return was filed by PRO-TAX, simply bring the FMS notice to the PRO-TAX office that prepared your original return. Our representative will help you file a claim with the agency that claimed you owed a debt.
• Otherwise, contact the agency claiming the debt. Its name and contact information are on the notice you received from the FMS. Remember, only contact the IRS if you are disputing the original refund amount as shown on the FMS notice.

One more thing: If you filed your income tax jointly but you are not responsible for the debt that was deducted, you may be entitled to receive your full portion of the original refund. You will need to fill out Form 8379. Attach form 8379 to your original tax filing form if you know in advance that there may be a claim against your spouse’s refund, and write “INJURED SPOUSE” on the upper-left corner of the tax filing form. If you receive an FMS notice of such a claim after you filed, just submit the 8379 form by itself. Processing of these claims can take 11-14 weeks.

If you have questions not answered here, contact your PRO-TAX office or the FMS directly at 800-304-3107.

First-Time Homebuyers Credit - Expanded Tax Break!

On February 17th President Obama signed into law the American Recovery and Reinvestment Act of 2009. As part of that act, the First-Time Homebuyers Credit was expanded.  

According to to the IRS, taxpayers who who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

“For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit," said IRS Commissioner Doug Shulman. “This important change gives qualifying homebuyers cash they do not have to pay back.”

The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on IRS.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009. The instructions to the revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations and repayment of the credit.

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.

The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

Do I Need To File A Tax Return

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive. Even if you determine that you don’t have to file, there are several reasons why you may want to file anyway.
 

• Federal Income Tax Withheld. You should file to get money back if Federal Income Tax was withheld from your pay, if you made estimated tax payments, or had a prior year overpayment applied to this year's tax.

• Recovery Rebate Credit. If you did not qualify or did not receive the maximum amount for the 2008 Economic Stimulus Payment, you may be entitled to a Recovery Rebate Credit when you file your 2008 tax return.

• Earned Income Tax Credit. You may qualify for the Earned Income Tax Credit, or EITC, if you worked, but did not earn a lot of money.  EITC is a refundable tax credit meaning you could qualify for a tax refund.

• Additional Child Tax Credit. This credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

• First time Homebuyer Credit. If you bought a main home after April 8, 2008, and before July 1, 2009 and did not own a main home during the prior 3 years, you may be able to take this refundable credit.

Don't leave money on the table for the IRS.  If any of the above apply, you should file a return to claim any refund due.