Jan 27
Five Facts about IRS Publication 17
While the Internal Revenue Service provides publications about a wide range of topics, there is one publication every taxpayer should have with them when they are preparing their federal tax return. Publication 17, Your Federal Income Tax is available at IRS.gov and contains a wealth of information for individual taxpayers.
Here are the top five things the IRS wants you to know about Publication 17 and how it will come in handy when you prepare your taxes.
To file your 2009 individual tax return, you’ll have to decide which form to use…unless you e-file (Highly recommended). If you file electronically, the software should automatically select the simplest and best form for you.
Whether you use e-file or prepare on paper, using the simplest form will help avoid costly errors or processing delays. And remember, if you file electronically, it speeds up the processing of your tax return and the delivery of your refund.
Here are things to consider when deciding which IRS form to file.
Click to continue reading “What Tax Form Do You Need To Use?”
When you prepare to file your 2009 tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here, the IRS gives you five important facts that you should know about dependents and exemptions before you file your 2009 tax return.
For more information on exemptions, dependents and whether or not you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available on IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
Links:
Click to continue reading “Five Important Facts about Dependents and Exemptions”
Jul 24
{More info directly from the IRS}
Taxpayers who use e-file and who choose direct deposit can receive their refund in as few as 10 days. That’s because with e-file, there’s no paper return going to the IRS. And with direct deposit, there’s no paper refund going to the taxpayer. So it’s all electronic and much faster than paper.tax preparers (This link takes you to a search engine to find an e-file provider near you.), or with a computer using tax preparation software. This software is available on the Internet for on line use or for download. Many retail stores sell the software for offline use. The IRS does not charge taxpayers to e-file their completed returns, but some tax preparers and software manufactures may charge a fee. However, this year a number of large software companies are waiving this additional fee.
IRS e-file allows taxpayers to file their returns now and pay later if they owe taxes. It allows taxpayers to file both federal and most state returns at the same time.
Taxpayers may use IRS e-file through their
To get all the benefits of electronic filing, taxpayers must make sure that when they are done with their returns, they take the final step of e-filing them. Taxpayers who use a paid preparer should make sure their preparers are taking this final step, too. In addition to error checks contained in the return-preparation software, additional checks are done during the e-file transmission process. That’s why the error rate is so low for e-filed returns. In fact, the error rate is significantly reduced from 20 percent with paper returns to about 1 percent with e-filed returns.
E-filed tax return information is protected through encryption. Also, taxpayers receive an acknowledgment within 48 hours that the IRS has accepted their return.
IRS e-file meets the needs of nearly all taxpayers, no matter how complicated or simple their returns are. E-file helps taxpayers take advantage of the tax credits available to them to maximize their refunds during these tough economic times.
A variety of tax software products are available commercially that offer e-file. This year, several of them will not charge additional fees for e-filing for the first time.
In addition, most taxpayers qualify for free tax preparation offered through Free File on IRS.gov. Regardless of income level, taxpayers who are comfortable with filling out paper tax forms and who don’t need extra assistance can use the IRS’s new Free File Fillable Forms. These new on line versions of paper tax forms that can be e-filed are available for the first time by visiting the IRS.gov Free File site.Free File, which is a form of e-file, is a free federal tax preparation and electronic filing program for eligible taxpayers developed through a partnership between the IRS and the Free File Alliance LLC. The Alliance is a group of private-sector tax software companies. Since Free File’s debut in 2003, a total of more than 24 million returns have been prepared and e-filed through the program.
Free File
Free File offers 20 different software options that can assist taxpayers with an Adjusted Gross Income (AGI) of $56,000 or less in 2008 to e-file their federal tax returns for free. That means 70 percent of all taxpayers – 98 million taxpayers – can take advantage of tax software that will help them complete their returns through the Free File program.
This year, the IRS and its partners are offering a new option, Free File Fillable Forms, which opens up Free File to virtually everyone, even those whose incomes exceed $56,000.
Free File Fillable Forms allow taxpayers to fill out and file their tax forms electronically, just as they would on paper. This option does not include an “interview” process like the other Free File offerings, but it does allow taxpayers to enter their tax data, perform basic math calculations, sign electronically, print their returns for record keeping and e-file their returns. This “self-service” option may be right for those who are comfortable with the tax law, know what forms they want to use or don’t need assistance to complete their returns.
Both the fillable-forms option and the previously available “full service” Free File offerings are available only through the IRS.gov Web site. Both new and returning taxpayers must access Free File through IRS.gov. Otherwise, the e-file provider may charge them a fee.
Look for details on IRS.gov beginning Jan. 16.
Almost 4.8 million tax returns were filed through Free File last year, an increase of 24 percent over the previous year’s total of nearly 3.9 million returns.
A Brief History of IRS e-File
The IRS began the e-file program in 1986 as a pilot project in three cities: Cincinnati, Phoenix and Raleigh-Durham, N.C. That year, there were 25,000 tax returns filed electronically. The e-file program expanded nationwide in 1990 and 4.2 million tax returns were filed. IRS e-file has undergone tremendous growth each year, with nearly 90 million tax returns e-filed last year.
Related Items:
Federal/State e-File for Taxpayers
Authorized IRS e-File Providers for Individuals
I read a lot about the taxing world. Often I am searchingto find books to recommend to my clients to give them a better understanding how a tax return works and what is needed to make it work best and what they can do to minimize their liability. The Truth About Paying Fewer Taxes is by far the best book I have ever come across to accomplish just that.
The Truth About Paying Fewer Taxes is a book with “52 Truths” about taxes. It plainly answers questions like ”do you have to file?”, to “when?”, to figuring out just what is taxable all the way through to retirement. Also covering Compliance, Audits, and Special Tax Situations The Truth About Paying Fewer Taxes will give you a better understanding of taxes, thus giving you what you need to cut your taxes.
The Truth About Paying Fewer Taxes, is a book written by Kay Bell. Kay is a fellow tax blogger (Don’t Mess With Taxes, Taxes: Eye on the IRS), She helped create Bankrate.com’s tax channel and continues to be a major contributor to Bankrate’s Tax Guide. I have had occasion to talk with Kay on the phone, and I communicate regularly with her via Twitter.
Kay’s writing is beautiful and gentile, like reading a great novel.
You can see a full list of the 52 truths just by looking at Barnes and Nobel’s Feature tab for The Truth About Paying Fewer Taxes Each one of the truths is explained in detail and in plain language, so you can save money and understand why you’re saving money.
I have been recommending this book to every one of my clients, and will continue to do so from now on.
I have a signed copy (yes, signed by Kay Bell the author) of The Truth About Paying Fewer Taxes and will be giving it away here.
How to enter:
Each of the following will count as one entry for a chance to win.
Please read the Contest Terms below.
ü Leave a comment on this post stating how you prepared or will prepare your taxe return. (self, fast-food chain, CPA, software, free-file, Other-please describe)
ü Subscribe to my RSS feed and leave a comment below to let me know you did so, or
ü Subscribe to my email feed leave a comment here using the same email address with which you subscribed. (this will gain you two entries for the drawing)
ü Blog about this contest and link back here from your blog. (Leave me a comment and link to your blog post here to let me know.)
ü Follow me on twitter – @bruce_taxguy. Leave a comment here with your twitter username.
ü Tweet about this contest and leave a comment to let me know you did so.
Bonus Entries: Leave comments on other posts on this blog. If you’re new to taxguy, visit earlier posts. The comment(s) must show some thought and not just “I agree” or “Great idea.” Come back to this post and let me know which post(s) you commented on. Each approved comment will gain you an additional entry.
Contest Terms
Ø The contest begins now and ends at 11:59PM EST on March 17th, 2009. Comments to this post will be closed at that time.
Ø 1 winner will be randomly selected using a random integer generator at random.org.
Ø I will contact the winner via the email address used to comment here.
Ø The winner will have 3 days to respond with necessary contact information for mailing prize. (I will send a 2nd notification email after 2 days if we have not heard back.)
Ø If the winner does not respond after 4 days, a new winner will be selected from remaining entrants.
Prize Terms
While I will do my best to ensure proper delivery of the winners autographed copy of The Truth About Paying Fewer Taxes, I am not liable for non-delivery due to:
v Incorrect mailing and contact information provided by the winner
v Loss or error on the part of the postal service or delivery personnel
v Any other matter beyond my control
Oct 27
“Taxing” Lessons Learned…
This is the finial addition to my series “Mistakes made when choosing a paid tax preparer”.
I want to first personally thank everyone who submitted a guest post. Thank You.
I hope this series full of Free information has opened your eyes to the lessons about filing your taxes with a paid tax practitioner.
Some people having read this whole series will conclude — oh well, “I’ll just file my taxes to Uncle Sam myself. It doesn’t seem like that big of a deal anyway”
With all due respect, this kind of attitude can get you is some hot water if you don’t watch out! Choosing the right tax professional is an investment of time and money, and I will add, a wise investment indeed. I say “wise” because the consequences of a misfiled tax return, an incorrect tax return or a late/penalized tax return are awful in the short and long term. Do not put yourself through the ongoing pain and agony of dealing with angry IRS agents and uncompromising auditors who’ll take you to the cleaners if you’re even the least bit sloppy.
Oh, you say you didn’t mean to make that mistake? Oh, you say you didn’t know you had to do this or that? Tough beans. Tax auditors eat these kinds of excuses up and spit out big red marks with lots of zeros on a line which says: YOU OWE!!!!
Unless you are Bill Gates, these are not dollar figures you like to see in the red column. No one wants to pay unexpected bills, especially back taxes!
Now I’ll tell you a bigger problem.
Unclaimed refund money taxpayers never receive because they had no idea they were entitled to a certain deduction or they never filled out a particular form that automatically got them more money. The worst part is you don’t have extra money in your bank account or even in your pocket right now because you didn’t get a tax preparer who knew what they were doing to help you file in recent years. Statistically speaking, you could be out as much as $1,300.00 in back refund money because you choose to file by yourself. (Ouch!)
My clients wouldn’t take that chance. They’ve chosen a quality tax professional.
I ask those of you who have never hired a professional preparer, this year, hire one and ask to let them review your previous 3 years of tax returns (I don’t charge for reviews – if there is a 1040X then there are charges)at the same time. You might have some “buried treasure” lying around in your files and not know it.
Take action now … Before the deadline!
Most taxpayers procrastinate. I hope you are not one of them…
(My office is now scheduling appointments for the up-coming season)
Oct 20
Without A Guarantee!
This is another addition to the series “Mistakes made when choosing a paid tax preparer”.
I already touched on the topic of guarantees earlier, but since having one or more guarantees is so important – especially when it comes to filing your taxes with the IRS – I thought I better go into a little bit more detail just to make sure you are clear on what should be expected of a tax professional in this area.
In my assessment, the more guarantees, the better. So you know, I’m talking about IN WRITING guarantees, NOT some tax professional verbally telling you, “Oh, yeah – you’ll never have a problem if I prepare your taxes, but if you do, I guarantee I’ll fix it. No problem.”
That is not the kind of ‘guarantee’ I’m talking about. I’ve heard too many horror stories about taxpayers getting a letter from the IRS, then take it to their accountant, and then the letter sits on a desk gathering dust. Or the stories about the CPA who makes some calls on your behalf, but you get charged an arm and a leg in the process. Or sadly, a taxpayer doesn’t get any help from the person who prepared their taxes for them so they go it alone and call the IRS themselves and figure out what to do and not to do during this normally ugly IRS correspondence. This can be a nightmarish!
Don’t go down this road! In your case, just make sure the paid tax practitioner you are working with has guarantees, in writing, for you to hold on to if ever needed. And make sure the guarantees include stuff you want guaranteed! Let me give you an example:
I’ve seen some accountants guarantee they will file your taxes for you by April 15th or they will file an extension for you. Well, whipy skipy dipy do! That sure makes you feel good in the morning, doesn’t it?
Other weak guarantees I’ve seen in the tax industry are, “We guarantee we will begin preparing your tax return the same day we meet with you.” That means nothing. Most don’t care when I start preparing their taxes. They want to know how long it is going to take me to finish it and do so without leaving out silly errors I know I should have caught.
But truth be told …
If you got to sneak a peek behind what ‘REALLY’ goes on in most tax professionals’ offices, you’d be SHOCKED!)
So let’s pretend you knew what was really going on once you left your accountant’s office. I GUARANTEE you’d be saying (or thinking) the following:
· … you barely looked at my return because you were too overloaded with other tax work and you didn’t hire enough competent employees to help you during tax season …
· … you don’t trust other tax preparers doing your returns, but since you get so tired doing everything yourself, stupid mistakes become common place and you hope no one notices (kind of like an ostrich with his head in the sand)
· … if I decided to take my taxes and go somewhere else, you won’t care for very long because you’ve got too much going on, getting so many different files mixed up, you don’t have time to even notice …
The moral of this story is:
Protect yourself and file your taxes with a tax business that’s been around for a long time and can back up everything they do with multiple guarantees. And remember: the guarantees should be in areas you care about, like:
· Tax Return Accuracy …
· Speed of Service …
· Most Money Legally Yours …
· Ongoing IRS Protection For Years After Filing …
These are the things YOU care about! Make sure the tax professional you choose stands behind these critical areas of tax filing so you get the most out of your tax filing experience!
Again, I want to invite any and all guest post on this subject. I want to hear from all bloggers or just readers with their own input. Let’s see what you see I am missing. If you have some words of wisdom on this subject please let us share it with everyone, if it is something that has already been covered, so what, I am looking for others to tell what they know or have learned about finding a paid preparer.
Picking A CPA With Too Much “Accounting” Experience That Doesn’t Relate To You!
This is another addition to the series “Mistakes made when choosing a paid tax preparer”.
Most people don’t realize this, but many CPA’s usually spend most of their time doing accounting and auditing work – NOT taxes! (CPA = Certified Public Accountant) They get paid to sign off on accounting, payroll and complicated bookkeeping for larger businesses. So when it comes to preparing taxes for the regular middle income family, it’s just not something they’ve been spending their time thinking about or doing much of, or most of the year.
CPA’s have a ton of experience in many very complicated accounting practices, doing very complex audit work and usually doing a really great job helping some large business or very high net worth rich guy with his investments and taxes. But, for most tax returns that are filed each year, nah.
Look here, does this sound like your tax return? I thought so.
You are not alone. The majority of regular middle income folks will never need the experience coming from a CPA’s background because the accounting and auditing work does not relate to their normal family income status. Am I saying all CPA’s are wrong for you to choose to file your taxes? Absolutely not. There are some Certified Public Accountants who take the time to keep up with the latest tax laws. They’re specialist.
In most cases however, you are better off finding a tax preparer who is good at doing what you need done. And in this case, if the tax preparer preparers a lot of middle income tax returns already, that’s even better.
Think of it this way: Would you use a sledge hammer to hang a picture frame? (I didn’t think so.) Remember: Go with a tax professional with TAX preparing experience, not auditing or accounting or something else that doesn’t relate to you!
In my post Who Is. . . I list the different professions that prepare taxes. A Tax Attorney, A Bookkeeper, Accountants, Public accountants, Management accountants, an Enrolled Agent, a Tax Preparer. All are qualified to handle your return preparation. I ask that you chose someone who fits you. Look around
Please catch my guest post over at The Wondering Tax Pro. Where I give my tax advice. BEST OF THE BEST – BRUCE MCFARLAND is the start of a series of Guest Post for TWTP so he can spend his week locked in at work. Yes tax preparers work all year, not just January thru April.
Several of us are giving out our best advice in the tax world. Try not to miss the series. (it last all week)
Tax Carnival #41: TaxtoberFest 2008 is up don’t miss my entry there. There is a lot of great entries for this carnival, make sure to read them all.
Again, I want to invite you all to write guest post on this subject. I want to hear from all bloggers or just readers with their own input. Let’s see what you see I have missed. If you have some words of wisdom on this subject please let us share it with everyone, if it is something that has already been covered, so what, I am looking for others to tell what they know or have learned about finding a paid preparer. I have room for two more guest spots.
Oct 4
“Yes, I know I don’t normally post on Saturday. but . . .”
WHO GETS THE DEPENDENCY EXEMPTION?
Earlier in the week I was presented with a tax scenario in a comment by a “reader” to an earlier post.
The scenario was originally presented as follows –
A husband and wife adopt the children of the wife’s deceased brother. Thus the children go from being the couple’s nieces to their own children. Can the wife’s son, who is 32 yrs old and lives in the household with his mother and the two small children, claim the children on his tax return? Although the home is a mobile home owned by the wife/mother? Although he can’t prove he provided any financial support to the children? Yes he can, but find a way on Turbo Tax to give the advice.
The author of the comment, who identified himself as an Enrolled Agent (EA) and admitted to being employed by H+R Block, was attempting to explain that tax preparation from a “box” (i.e. tax software such as Turbo Tax) is worthless, as it won’t advise you how to handle specific complicated tax situations. And he is correct; software can’t give you advice on tax law.
Based on the above limited and incomplete information in the example the correct answer to the basic question “can the son claim the children” should have been – “it depends”. Obviously more specific details were needed to properly answer the question. However my first reaction, again based on the limited information provided, was that the son could not claim the children. They would be more properly claimed by the adopted parents.
More information was subsequently provided on the scenario -
The children’s natural father died in 2003. He had received a commitment from his sister before his passing that she would always take care of his children. He deemed the children’s natural mother to be unfit. She was at the time of his passing and is still serving a term in prison. The children were legally adopted by the aunt and uncle in 2004. They were age 5 and 10 in 2007.
The new adoptive father is 67 yrs old and is ill, and the wife was virtually unable to work during 2007. Her total earnings were $1,250. The mother/aunt and her first husband had a son, Michael, who is now 32 yrs old. In 2006 the mother/aunt asked Michael to move in and help, and he did so in 2006. He lived there for all of 2007. Therefore, according to the author, in 2007 he is legally entitled to claim his “siblings”, and does not have to prove he provided any support.
The author of the comment further states that the tie breaker rules only come into play if both the adoptive parents and son claimed the children as dependents. The adoptive parents did not do so. Michael, the “brother” of the children, had income of $27,000 for the year. The author did not file him as Head of Household as he said “it would have been impossible to prove he provided 50%+ support of the household”.
This information changes things a bit. There is now a case for allowing Michael, the adoptive mother’s son, to claim the adopted children as dependents on his tax return.
Let us address the issues in this scenario. Here are the facts that have been presented –
1. The two children, age 5 and 10 in 2007, were legally adopted by their aunt and uncle in 2004.
2. Michael is the son of the adoptive mother, and the adopted children are now his half sisters.
3. Michael lived in his mother’s home for the entire year 2007.
4. The two adopted children also lived in the same home for the entire year 2007.
5. The adoptive father, Michael’s step-father, is 67 years old and, presumably, retired with no income.
6. The adoptive mother, Michael’s mother, had income of $1,250 for 2007.
7. Michael earned $27,000 for 2007.
8. The adoptive parents did not claim the children as dependents on their 2007 tax return.
Let us now look at the rules for Exemptions for Dependents>Qualifying Child from IRS Publication 501 (Exemptions, Standard Deductions and Filing Information) -
“There are five tests that must be met for a child to be your qualifying child. The five tests are:
1. Relationship,
2. Age,
3. Residency,
4. Support, and
5. Special test for qualifying child of more than one person.”
In the scenario as it pertains to Michael –
1. Relationship – To meet this test, a child must be:
a. Your son, daughter, stepchild, foster child, or a descendant (for example, your grandchild) of any of them, or
b. Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them.
The children are Michael’s half sisters – so they pass this test.
2. Age – To meet this test, a child must be:
a. Under age 19 at the end of the year,
b. A full-time student under age 24 at the end of the year, or
c. Permanently and totally disabled at any time during the year, regardless of age.
The children are age 5 and 10, so they pass this test.
3. Residency – To meet this test, your child must have lived with you for more than half of the year. There are exceptions for temporary absences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents.
The children lived with (in the same home as) Michael for the entire year – so they pass this test.
4. Support – To meet this test the child cannot have provided more than half of his or her own support for the year.
No information has been provided to the contrary, so we assume they pass this test. Notice the support test does not require Michael to provide more than half of the children’s support – it only asks if the children themselves provided more than half of their own support.
5. Special test for qualifying child of more than one person –
Sometimes, a child meets the relationship, age, residency, and support tests to be a qualifying child of more than one person. Although the child is a qualifying child of each of these persons, only one person can actually treat the child as a qualifying child. To meet this special test, you must be the person who can treat the child as a qualifying child.
If you and another person have the same qualifying child, you and the other person(s) can decide which of you will treat the child as a qualifying child. That person can take all of the following tax benefits (provided the person is eligible for each benefit) based on the qualifying child.
· The exemption for the child.
· The child tax credit.
· Head of household filing status.
· The credit for child and dependent care expenses.
· The exclusion from income for dependent care benefits.
· The earned income credit.
The other person cannot take any of these benefits based on this qualifying child. In other words, you and the other person cannot agree to divide these tax benefits between you.
The children meet the various tests to be a qualifying child of both their adoptive parents and Michael. The adoptive parents have chosen not to treat the children as their qualifying children and do not claim them as dependents on their tax return. This test is passed.
So it appears that Michael can claim the children as dependents on his tax return, as the author of the scenario has stated.
However, there is still some missing information. Is there more income coming into the household or is it just the $27,000 from Michael and the $1,250 from his mother?
Given the fathers age he is certainly drawing Social Security. Is he also receiving a pension? I expect the adoptive mother is receiving Social Security “in care of” the children (they are getting SS checks from their natural father’s SS account). This is treated as income of the children and could possibly affect the issue of whether they provide more than half of their own support. Is the mother the same age as the father? If so, she might also be receiving Social Security.
I expect, that with possibly four SS checks going into the household this is why, according to the comment author, “I did not file him as Head of Household because it would have been impossible to prove he provided 50%+ support of the household”.
I have to wonder what other information is missing in our scenario. The bottom line to this post is – To make a truly informed determination it is necessary to know all the facts and circumstances of the individual situation.
I thank the EA from H+R Block for providing us with an interesting scenario.
Thanks to a fellow tax blogger for assistance with this post.
Yes, this post was co-written.
Mistakes Made When Choosing A Paid Tax Preparer
This is another addition to the series “Mistakes made when choosing a paid tax preparer”.
I regularly review the prior tax return of a new client that I receive. From reviewing these tax returns it is obvious to me that the most common mistake taxpayers make when selecting a tax preparer is failing to determine the qualifications of the preparer. I have seen several errors on prior year returns that appear to be due to the tax preparer’s lack of knowledge with the tax laws and/or lack of knowledge regarding how to complete a form or what attachments need to be made or how to construct the attachments. The sad part is that most of these clients never had the slightest idea that their tax return may have been prepared incorrectly. Every taxpayer always assumes their return is easy and just like everyone else’s.
When I bring a taxpayer’s attention to the fact that their prior year return contains errors they are usually shocked. I asked them what the preparer told them when they reviewed the return and the answer is always the same, “My prior preparer never reviewed my return with me. They just told me where to sign.”
When I ask why they selected the person to be their tax preparer, the answers are usually:
Thus, I have determined the biggest mistakes taxpayers make when choosing a preparer includes the following:
Thanks Gina. For more from Gina please visit her blog (Tax Tips Blog) http://glgcpa.com/blog
Again, I want to invite any and all guest post on this subject. I want to hear from all bloggers or just readers with their own input. Let’s see what you see I am missing. If you have some words of wisdom on this subject please let us share it with everyone, if it is something that has already been covered, so what, I am looking for others to tell what they know or have learned about finding a paid preparer. Repetition drives the point home.
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