Tax-Time Errors Filers Should Avoid

Mistakes on tax returns mean they take longer to process, which in turn, may cause your refund to arrive later. The IRS cautions against these nine common errors so your refund is timely.

1. Incorrect or missing Social Security Numbers When entering SSNs for anyone listed on your tax return, be sure to enter them exactly as they appear on the Social Security cards.
2. Incorrect or misspelling of dependent’s last name When entering a dependent’s last name on your tax return, ensure they are entered exactly as they appear on their Social Security card.
3. Filing status errors Make sure you choose the correct filing status for your situation. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) With Dependent Child. See Publication 501, Exemptions, Standard Deduction, and Filing Information to determine the filing status that best fits your needs.
4. Math errors When preparing paper returns, review all math for accuracy. Or file electronically; the software does the math for you!
5. Computation errors Take your time. Many taxpayers make mistakes when figuring their taxable income, withholding and estimated tax payments, Earned Income Tax Credit, Standard Deduction for age 65 or over or blind, the taxable amount of Social Security benefits, and the Child and Dependent Care Credit.
6. Incorrect bank account numbers for Direct Deposit If you are due a refund and requested direct deposit review the routing and account numbers for your financial institution.
7. Forgetting to sign and date the return An unsigned tax return is like an unsigned check – it is invalid. And, remember on joint returns both taxpayers must sign the return.
8. Incorrect Adjusted Gross Income information Taxpayers filing electronically must sign the return electronically using a Personal Identification Number. To verify their identity, taxpayers will be prompted to enter their AGI from their originally filed 2009 federal income tax return or their prior year PIN if they used one to file electronically last year. Taxpayers should not use an AGI amount from an amended return, Form 1040X, or a math error correction made by IRS.
9. Claiming the Making Work Pay Tax Credit Taxpayers who file Form 1040 or 1040A will use Schedule M to figure the Making Work Pay Tax Credit. Completing Schedule M will help taxpayers determine whether they have already received the full credit in their paycheck or are due more money as a result of the credit. Taxpayers who file Form 1040-EZ should use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Credit.

How to Start Your Small Business Retirement Plan

The IRS Employee Plans Division will host a free webinar on April 7 to provide information on which retirement plan is right for your small business.

Claim your FREE membership now!

Seven Facts about Injured Spouse Relief

If you file a joint return and all or part of your refund is applied against your spouses’ past-due federal tax, state income tax, child or spousal support or federal nontax debt, such as a student loan, you may be entitled to injured spouse relief.

Here are seven facts the IRS wants you to know about claiming injured spouse relief:

1. To be considered an injured spouse, you must have made and reported tax payments, such as federal income tax withheld from wages or estimated tax payments, or claimed a refundable tax credit, such as the earned income credit or additional child tax credit on the joint return, and not be legally obligated to pay the past-due amount.
2. If you live in a community property state, special rules apply. For more information about the factors used to determine whether you are subject to community property laws, see IRS Publication 555, Community Property.
3. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund you may request your portion of the refund by filing Form 8379, Injured Spouse Allocation.
4. You may file form 8379 along with your original tax return or your may file it by itself after you are notified of an offset.
5. You can file the Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left corner of the Form 1040, 1040A, or 1040EZ. IRS will process your allocation request before an offset occurs.
6. If you are filing Form 8379 by itself, it must show both spouses' social security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form.
7. Do not use Form 8379 if you are claiming innocent spouse relief. Instead, file Form 8857, Request for Innocent Spouse Relief.  This relief from a joint liability applies only in certain limited circumstances. IRS Publication 971, Innocent Spouse Relief, explains who may qualify, and how to request this relief.

For more information about the Injured Spouse and Innocent Spouse Relief, visit www.IRS.gov.

Links:

• Publication 555, Community Property
• Form 8379, Injured Spouse Allocation
• Applying for Innocent Spouse Relief
• Publication 971, Innocent Spouse Relief 

Tax Refund Withholdings and Offsets

If you owe money because of certain delinquent debts, the IRS or the Department of Treasury's Financial Management Service (FMS), which issues IRS tax refunds, can offset or reduce your federal tax refund or withhold the entire amount to satisfy the debt.

Here are seven important facts the IRS wants you to know about tax refund offsets:

1. If you owe federal or state income taxes your refund will be offset to pay those taxes. If you had other debt such as child support or student loan debt that was submitted for offset, FMS will take as much of your refund as is needed to pay off the debt, and send it to the agency authorized to collect the debt. Any portion of your refund remaining after an offset will be refunded to you.
2. You will receive a notice if an offset occurs. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency.
3. You should contact the agency shown on the notice if you believe you do not owe the debt or you are disputing the amount taken from your refund.
4. If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing IRS Form 8379, Injured Spouse Allocation. Attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ or file it by itself after you are notified of an offset.
5. If you file a Form 8379 with your return, write "INJURED SPOUSE" at the top left corner of the Form 1040, 1040A, or 1040EZ. IRS will process your allocation request before an offset occurs.
6. If you are filing Form 8379 by itself, it must show both spouses' social security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the Service Center where you filed your original return.
7. The IRS will compute the injured spouse's share of the joint return for you. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.

Follow the instructions on Form 8379 carefully and be sure to attach the required forms to avoid delays. If a notice is not received contact the Financial Management Service at 800–304–3107, Monday through Friday from 7:30AM to 5 PM (Central Time).

For assistance with completing Form 8379, call the IRS toll-free number 800-829-1040.

Link:

Form 8379, Injured Spouse Allocation

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Health Insurance Tax Breaks for the Self-Employed

Here is some information from the IRS about a special tax deduction for the self-employed. You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are one of the following:

The insurance plan must be established under your business.

For more information see IRS Publication 535, Business Expenses, available at http://www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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Six Facts about Choosing the Standard or Itemized Deductions

When filing your federal income tax return, taxpayers can choose to either take the standard deduction or to itemize their deductions. The IRS has put together the following six facts to help you choose the method that gives you the lowest tax.

Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than your standard deduction, you can usually benefit by itemizing.

1. Standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2010, they are:

• Single     $5,700
• Married Filing Jointly   $11,400
• Head of Household   $8,400
• Married Filing Separately  $5,700
• Qualifying Widow(er)  $11,400

2. Some taxpayers have different standard deductions The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether an exemption can be claimed for you by another taxpayer. If any of these apply, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. The standard deduction amount also depends on whether you plan to claim the additional standard deduction for a loss from a disaster declared a federal disaster or state or local sales or excise tax you paid in 2010 on a new vehicle you bought before 2010. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.

3. Limited itemized deductions Your itemized deductions are no longer limited because of your adjusted gross income.

4. Married Filing Separately When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.

5. Some taxpayers are not eligible for the standard deduction They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.

6. Forms to use The standard deduction can be taken on Forms 1040, 1040A or 1040EZ.  If you qualify for the higher standard deduction for new motor vehicle taxes or a net disaster loss, you must attach Schedule L. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

These forms and instructions may be downloaded from the IRS website at http://www.irs.gov800-829-3676). or ordered by calling 800-TAX-FORM (

 

Links:

• Publication 17, Your Federal Income Tax (PDF 2.3MB)
• Schedule A, Itemized Deductions (PDF) 

Small Business Bookkeeping Tips

Having a bookkeeper on your in-house team is ideal, but
not all small businesses can afford to have one. If this
is the case, you can do it yourself or utilize some of
the employees you may already have to do the bookkeeping
tasks.

It’s important to keep your personal and business finances
separate in order to keep things straight when it comes to
tax time. Don’t confuse yourself more by trying to mix the
two together.

You want to keep thorough records of business transactions
and accounts receivables. When tax time rolls around, you
can just use these to add up the figures instead of spending
time shuffling through scraps of paper in a shoebox.

Balance the books right away. Don’t wait for several
transactions to occur and then decide to balance them.
Some business owners put it off and then the task seems
insurmountable.

Be sure to check your financial statements often to determine
where you’re spending too much or too little. You may discover
if there are ways to cut costs in your small business or if
there are ways to budget some extra items into your business.

Always keep up to date on the new tax laws and regulations.
Don’t wait until tax time to check them out. There may be
something you can use now that would help you save money when
it’s time to file your taxes.

Always keep copies of all of your invoices in case the
originals get lost. If using computer software, make sure
you back up all of your files so that you have a copy in
case something unforeseen should happen.

Research all of the possible tax deductions you can use in
your business. Some items are deductible in full, while others
take depreciation into account.  Also, the tax strategy will
be different for small businesses operating out of the home
versus brick and mortar businesses that are independent from
the household.

A bookkeeper can take the headaches away for you to some degree, and you don’t have to hire one onto your staff.  If you can’t quite afford one yet, then take pleasure in knowing that all is
not lost with the vast amount of do-it-yourself resources
available to the small business owner.

IRS Has $1.1 Billion for People Who Have Not Filed a 2007 Income Tax Return.

Refunds totaling more than $1.1 billion may be waiting for nearly 1.1 million people who did not file a federal income tax return for 2007, the Internal Revenue Service announced. However, to collect the money, a return for 2007 must be filed with the IRS no later than Monday, April 18, 2011.