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The Alternative Minimum Tax: 7 Quick Tips

By Admin on February 17, 2010

The Alternative Minimum Tax attempts to ensure that anyone who benefits from certain tax advantages pays at least a minimum amount of tax.

Here are seven facts the Internal Revenue Service wants you to know about the AMT and changes to this special tax for 2009.

1. Tax laws provide tax benefits for certain kinds of income and allow special deductions and credits for certain expenses. These benefits can drastically reduce some taxpayers’ tax obligations. Congress created the AMT in 1969, targeting taxpayers who could claim so many deductions they owed little or no income tax.

2. Because the AMT is not indexed for inflation, a growing number of middle-income taxpayers are discovering they are subject to the AMT.

3. You may have to pay the AMT if your taxable income for regular tax purposes plus any adjustments and preference items that apply to you are more than the AMT exemption amount.

4. The AMT exemption amounts are set by law for each filing status.

5. For tax year 2009, Congress raised the AMT exemption amounts to the following levels:

  • $70,950 for a married couple filing a joint return and qualifying widows and widowers;
  • $46,700 for singles and heads of household;
  • $35,475 for a married person filing separately.

6. The minimum AMT exemption amount for a child whose unearned income is taxed at the parents’ tax rate has increased to $6,700 for 2009.

7. If you claim a regular tax deduction on your 2009 tax return for any state or local sales or excise tax on the purchase of a new motor vehicle, that tax is also allowed as a deduction for the AMT.

Taxpayers can find more information about the Alternative Minimum Tax and how it impacts them by accessing IRS Form 6251, Alternative Minimum Tax —Individuals, and its instructions below or by calling 800-TAX-FORM (800-829-3676).

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Missing W-2: Four Steps To Follow

By Admin on February 10, 2010

Getting ready to file your tax return?  Make sure you have all your documents before you start. You should receive a Form W-2, Wage and Tax Statement from each of your employers.  Employers have until February 1, 2010 to send you a 2009 Form W-2 earnings statement. If you haven’t received your W-2, follow these four steps:

1. Contact your employer If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed.  If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address.  After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS If you do not receive your W-2 by February 16th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:

  • Employer’s name, address, city and state, including zip code and phone   number
  • Dates of employment
  • An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2009. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return You still must file your tax return or request an extension to file by April 15, even if you do not receive your Form W-2. If you have not received your Form W-2 by April 15th, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible.  There may be a delay in any refund due while the information is verified.

4. File a Form 1040X On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

Form 4852, Form 1040X, and instructions are available below or by calling 800-TAX-FORM (800-829-3676).

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EITC Awareness Day

By Admin on January 30, 2010

An expanded Earned Income Tax Credit (EITC) means larger families will qualify for a larger credit, offering greater relief for people who struggled through difficult financial times last year, the Internal Revenue Service said today.

The IRS and the Treasury Department marked EITC Awareness Day as their partners nationwide worked to highlight the availability of this important tax credit. EITC, which is in its thirty-fifth year, is one of the federal government’s largest benefit programs for working families and individuals. Last year, nearly 24 million people received $50 Billion in benefits. The average credit was more than $2,000.

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“As part of the economic recovery efforts, there have been important changes to expand EITC to benefit taxpayers,” said IRS Commissioner Doug Shulman. “Today, more than ever, hard-working individuals and families can use a little extra help. EITC can make the lives of working people a little easier.”

Eligibility for EITC depends on earned income and family size, among other tests. However, single people and childless workers also are eligible, although for smaller amounts. For tax years 2009 and 2010, the American Recovery and Reinvestment Act created a new category for families with three or more children and expanded the maximum benefit for this category.

To qualify for the EITC, earned income and adjusted gross income (AGI) for individuals must each be less than:

  • $43,279 ($48,279 married filing jointly) with three or more qualifying children
  • $40,295 ($45,295 married filing jointly) with two qualifying children
  • $35,463 ($40,463 married filing jointly) with one qualifying child
  • $13,440 ($18,440 married filing jointly) with no qualifying children

The maximum credit for tax year 2009 is:

  • $5,657 with three or more qualifying children
  • $5,028 with two qualifying children
  • $3,043 with one qualifying child
  • $457 with no qualifying children

The maximum amount of investment income is $3,100 for tax year 2009. For families, there are also certain requirements for child residency and relationship that must be met. Additional eligibility information is available in FS-2010-11 and on the Web at IRS.gov/EITC.

Another new provision adds to the definition of a “qualifying child:” The child must be younger than the person claiming the child unless the child is totally and permanently disabled any time during the year. The child cannot have filed a joint return other than to claim a refund. Also new for 2009, if a qualifying child can be claimed by either a parent or another person, the other person must have an AGI higher than the parent in order to claim the child for EITC purposes.

Historically, one in four eligible taxpayers fails to claim the EITC, which is why the IRS and its free tax preparation partners host an annual EITC Awareness Day. This year, there are 68 news conferences being held around the country. Community coalitions and IRS partners nationwide also are also issuing 128 news releases, writing letters to the editor and using social media tools to spread the word about EITC.

Typically, people who fail to claim the EITC include workers without qualifying children, people whose earned income falls below the threshold required to file a tax return, farmers, rural residents, people with disabilities and nontraditional families such as grandparents raising grandchildren. People must file a tax return to claim the EITC.

EITC-eligible taxpayers also can seek assistance at the 400 IRS Taxpayer Assistance Centers nationwide. To assist EITC taxpayers, 167 IRS assistance centers will offer Saturday service on Jan. 30, Feb. 6 and Feb. 20.

There is an online EITC Assistant also available on IRS.gov which can help taxpayers and tax preparers determine eligibility.

More than 65 percent of EIC returns are prepared by a third party. The IRS urges taxpayers to choose a reputable tax preparer to avoid problems that come with an inaccurate tax return. The agency also urges tax preparers to follow due diligence requirements when preparing an EIC tax return.

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IRS Qualifies Haiti As A Disaster

By Admin on January 23, 2010

The Internal Revenue Service today issued guidance that designates the earthquake in Haiti in January 2010 as a qualified disaster for federal tax purposes. The guidance allows recipients of qualified disaster relief payments to exclude those payments from income on their tax returns. Also, the guidance allows employer-sponsored private foundations to assist victims in areas affected by the January 2010 earthquake in Haiti without affecting their tax-exempt status.

Charities usually fall into one of two categories — public charities or private foundations. Under the tax law, a private foundation that is employer-sponsored may make qualified disaster relief payments to employees affected by a qualified disaster. These payments generally include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. Again, these payments would not be included in the individual recipient’s gross income.

Qualified disasters include Presidential declared disasters and any other event that the Secretary of the Treasury determines to be catastrophic. The IRS has determined that the earthquake in Haiti that occurred this month is an event of catastrophic nature for purposes of the federal tax law.

The IRS will presume that qualified disaster relief payments made by a private foundation to employees and their family members in areas affected by the earthquake in Haiti to be consistent with the foundation’s charitable purposes.

Haiti Donations Guidance (pdf)

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New Homebuyer Credit Form 5405 Released

By Admin on January 16, 2010

The IRS released the new tax form that eligible homebuyers need to claim the first-time homebuyer credit this tax season and announced processing of those tax returns will begin in mid-February. The IRS also announced new documentation requirements to deter fraud related to the first-time homebuyer credit.

The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.

With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related Form 5405 instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.

The IRS expects to start processing 2009 tax returns claiming the homebuyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit.

Some of these early taxpayers claiming the homebuyer credit may see tax refunds take an additional two to three weeks.

In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

  • A copy of the settlement statement showing all parties’ names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
  • For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.
  • For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:

  • Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
  • Property tax records or
  • Homeowner’s insurance records.

The IRS also reminded homebuyers that the new documentation requirements mean that taxpayers claiming the credit cannot e-file electronically and must file paper returns. Taxpayers can still file taxes online to prepare their returns, but the returns must be printed out and mailed to the IRS, along with all required documentation.

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2009 EIC Table

By Admin on January 15, 2010

Here is 2009 Publication 596 – Earned Income Credit. The 2009 EIC Table begins on page 46 of the document. You can read it online here or optionally download it to your computer at the bottom of the page. Be sure to read through some of the new Earned Income Credit changes before going straight to the 2009 EIC chart. This is the 2010 EIC chart for the filing of your 2009 taxes.


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Download 2009 EIC Publication 596 The EIC chart / EIC Table starts on page 46.

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Ten Tax Tips for Taxpayers with Children and Students

By Admin on January 15, 2010

Do you have children? Having children or students enrolled in higher education will most likely change your tax situation. Below you will find 10 things you should consider before filing your taxes.

Dependents – In most cases, a child can be claimed as a dependent the first year they were born. There are however a few exceptions to this. Refer to the IRS publication 501 – Exemptions, Standard Deduction, and Filing Information.

Child Tax Credit – For each of your children under age 17, you may be able to take this credit. If you only qualify for a partial credit instead of the full Child Tax Credit, you may be eligible for the Additional Child Tax Credit. Even if you don’t owe any tax, you may still be eligible for the Additional Child Tax Credit which is a refundable credit and may give you a refund. See IRS Publication 972, Child Tax Credit

Child and Dependent Care Credit – If you work or are looking for work and you have to pay someone to care for your child under the age of 13, you may be able to claim this credit. See IRS Publication 503, Child and Dependent Care Expenses.

Earned Income Credit – The EITC or EIC is a great benefit for taxpayers who work and have earned income from wages, self-employment or farming. The EITC reduces the amount of tax you owe and may also give you a refund. See IRS Publication 596, EIC Table to see if you qualify and check your AGI in the EIC table.

Adoption Credit – If you adopted a child you may be eligible for a tax credit covering your qualifying expenses paid to adopt an eligible child. qualifying expenses paid to adopt an eligible child. See the instructions for IRS Form 8839, Qualified Adoption Expenses.

Children with Earned Income – If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.

Children with Investment Income – Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

Student Tax Tips

Coverdell Education Savings Account – This savings account is used to pay qualified educational expenses at an eligible educational institution. Contributions are not deductible, however, qualified distributions generally are tax-free. For more information see IRS Publication 970, Tax Benefits for Education.

Higher Education Credits – Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970.

Student Loan Interest – You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.

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Three Reasons to Prepare and File Your Taxes Using e-File

By Admin on January 12, 2010

Last year, 2 out of 3 tax returns were filed electronically. Was yours? If not, here are three vital reasons to e-file your return.

  1. It’s quick Your tax return will get processed more quickly if you use e-file.  If there is an error on your return, it will typically be identified and can be corrected straight away.  If you file electronically and choose to have your tax refund deposited directly into your bank account, you will have your money in as few as 10 days.
  2. It’s safe When you file a tax return electronically, the IRS is fully committed to protecting your information on our tax processing systems.
  3. It’s time Don’t miss out on the benefits of e-file, 2 out of 3 taxpayers, 95 million, already get the benefits of e-file.

E-file software reduces the chance of making errors when you prepare your return.  But, some people still print the notebook generated return and mail it to the IRS instead of hitting the “Send” button.  By mailing the return, taxpayers miss out on some vital benefits of IRS e-file.

  • With e-file, you get the peace of mind that comes with the electronic receipt you’ll receive notifying you that the IRS received your tax return.
  • Virtually everyone can prepare a return and file it for free.  For the second year, the IRS and its partners are offering the option of Free File Fillable Forms. Another option is Traditional Free File.  About 98 million taxpayers – 70% of all taxpayers – are eligible for the IRS Traditional Free File.  Traditional Free File is a service offered by software companies and the IRS in partnership to grant free tax schooling software and free filing.
  • E-file is available 24 hours a day, seven days a week, from the convenience of your own home.
  • If you owe money to the IRS, e-file also allows you to file your tax return early and delay payment up until the due date.
  • In 37 states and the Constituency of Columbia, you can simultaneously e-file your federal and state tax returns.

Read more about e-file.

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