Selling Your Home

During summer months many people sell their home and move to a new location. Many of those individuals will make a profit on the sale and still will not have to pay a single dime of additional income tax to the IRS.

Generally, you have made a profit if the selling price of your home is greater than the price you paid to purchase the home. That profit, considered a capital gain, is subject to income tax. However, under certain circumstances the law allows you to exclude all or part of that gain from your income – that is, you may not have to pay tax on the profit.

This exclusion—up to $250,000 for individuals and $500,000 for married taxpayers filing joint returns—is not a once in a lifetime event. The exclusion may be claimed each time that you sell your main home, but generally no more often than once every two years.

To qualify, you must meet both the ownership and use tests.

• Ownership Test: You must have owned the home for at least 2 years in the 5-year period ending on the date of the sale.
• Use Test: You must have lived in the home as your main home at least 2 years during the 5-year period ending on the date of the sale.

If you and your spouse file a joint return and both meet the use test, you normally will be able to claim the exclusion for married couples even if the ownership test is met by only one of you.

If you do not meet these tests, you may still be allowed to exclude a reduced amount of the gain realized on the sale of your home. But you must have sold the home for other specific reasons such as serious health issues, a change in your place of employment, or certain unforeseen circumstances such as a divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.

If you are entitled to exclude the entire gain from the sale of your home, you do not need to report the gain on your federal tax return. However, if you are not entitled to exclude the entire amount of the gain, use Schedule D, Capital Gains and Losses, and Form 1040 to report the total gain, the portion that can be excluded, and the portion that is subject to capital gains tax.

For more details and information see IRS Publication 523, Selling Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link:

Link Publication 523, Selling Your Home

Need Help? Find it fast on IRS. Gov – Products and Answers

There is a wealth of free tax information on the IRS Web site, IRS.gov. The IRS has just about everything except the kitchen sink and Shakespearean plays. But even those might have tax implications that can be discovered by a visit to the site.

Individuals and businesses can find answers to almost any question about federal taxes on the web site. During the 2007 filing season, the IRS web site was accessed approximately 150 million times. In fact, during the tax filing season from January through April, IRS.gov is one of the most heavily visited sites on the Internet.

The award-winning IRS Web site has been designed to help you get to the information you need. Helpful links found at the top of the home page will take you directly to topics centered on Individuals, Businesses, Charities and Non-Profits, Government Entities, Tax Professionals, the Retirement Plan Community and Tax Exempt Bonds.

In addition to the latest news coming from the IRS, the homepage can lead you to statistics, news releases and tax tips, local IRS offices, the Taxpayer Advocate Service, and thousands of IRS forms and publications. Frequently asked questions and answers are available or you can use two separate search icons: one by keyword and one by answering “I need to . . .”

There’s much, much more. For example, small business owners and the self-employed will find that there are special products and resources made just for them by selecting from among more than two dozen links. There is even an A-Z find-it-fast link for small businesses and a small business workshop video you can view online.

The best way to learn about the IRS Web site is to take some time to browse through the pages of information that interest you the most. Understanding the tax system may never be easy, but the IRS is constantly working to make it easier to find the information you need on IRS.gov.

You can have the advice of tax experts and all of the resources of the IRS right in the comfort and convenience of your home by visiting IRS.gov. If you don’t have a computer with internet access, many libraries offer this service.

Help Offset Education Costs with Tax Credits and Deductions

It is Back-to-School time and maybe time for a tax break, too. Whether you are paying for a college education or a teacher buying items for your classroom, education credits and deductions can help lower your tax bill.

The Hope Credit, Lifetime Learning Credit or the Tuition and Fees Deduction may help offset the cost of higher education for you, your spouse and your dependents.

The amount of these credits and deductions are based on the qualified education expenses, such as college or vocational school tuition and enrollment fees, that you paid during the year and may be limited by your modified adjusted gross income. Room and board, insurance or personal living expenses are not considered qualified education expenses.

The Hope Credit, which is up to a $1,650 tax credit per student per year, is available for only the first two years of college or vocational school.

The Lifetime Learning Credit, which is up to a $2,000 tax credit per tax return, applies to undergraduate, graduate and professional degree courses and there is no limit to the number of years you can take this credit.

The Tuition and Fees Deduction, which is up to a $4,000 deduction from your income, applies to undergraduate, graduate and professional degree courses. This deduction may be beneficial as the modified adjusted gross income limits are higher than the thresholds for the Hope and Lifetime Learning Credits.

Are you paying Student Loan interest? You may be able to deduct up to $2,500 from your income per tax return. Student Loan interest may be deducted even while your student is in school if you are paying the interest immediately rather than deferring the payments.

You cannot claim the Hope Credit, Lifetime Learning Credit and the Tuition and Fees Deduction for the same student in the same year. You will want to choose the credit or deduction that provides the greatest benefit. However, you can claim the Student Interest Loan deduction and one of these other benefits simultaneously.

Students and parents of students are not the only ones who can claim a Back-to-School tax benefit.

As summer comes to an end, many teachers and other eligible educators are preparing for the start of the new school year. That preparation could include purchasing items for the classroom from personal funds. Be sure to keep your receipts. These out-of-pocket classroom expenses can be deductible.

As an educator, you may be able to deduct up to $250 for expenses paid for the purchase of books, computer equipment and classroom supplies. If you and your spouse are filing a joint return and both are eligible educators, the maximum deduction is $500.

To find out more about the deduction for educator expenses, including who qualifies for this deduction, check out the IRS Web site at IRS.gov. In the search field, type in the key words “educator expenses.”

Additional information on the Hope and Lifetime Learning Credits, Tuition and Fees Deduction and Student Loan Interest Deduction is available in Publication 970, Tax Benefits for Education, found on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Selling Your Home

During summer months many people sell their home and move to a new location. Many of those individuals will make a profit on the sale and still will not have to pay a single dime of additional income tax to the IRS.

Generally, you have made a profit if the selling price of your home is greater than the price you paid to purchase the home. That profit, considered a capital gain, is subject to income tax. However, under certain circumstances the law allows you to exclude all or part of that gain from your income – that is, you may not have to pay tax on the profit.

This exclusion—up to $250,000 for individuals and $500,000 for married taxpayers filing joint returns—is not a once in a lifetime event. The exclusion may be claimed each time that you sell your main home, but generally no more often than once every two years.

To qualify, you must meet both the ownership and use tests.

• Ownership Test: You must have owned the home for at least 2 years in the 5-year period ending on the date of the sale.
• Use Test: You must have lived in the home as your main home at least 2 years during the 5-year period ending on the date of the sale.

If you and your spouse file a joint return and both meet the use test, you normally will be able to claim the exclusion for married couples even if the ownership test is met by only one of you.

If you do not meet these tests, you may still be allowed to exclude a reduced amount of the gain realized on the sale of your home. But you must have sold the home for other specific reasons such as serious health issues, a change in your place of employment, or certain unforeseen circumstances such as a divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.

If you are entitled to exclude the entire gain from the sale of your home, you do not need to report the gain on your federal tax return. However, if you are not entitled to exclude the entire amount of the gain, use Schedule D, Capital Gains and Losses, and Form 1040 to report the total gain, the portion that can be excluded, and the portion that is subject to capital gains tax.

For more details and information see IRS Publication 523, Selling Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link:

Link Publication 523, Selling Your Home

Need Help? Find it fast on IRS. Gov – Products and Answers

There is a wealth of free tax information on the IRS Web site, IRS.gov. The IRS has just about everything except the kitchen sink and Shakespearean plays. But even those might have tax implications that can be discovered by a visit to the site.

Individuals and businesses can find answers to almost any question about federal taxes on the web site. During the 2007 filing season, the IRS web site was accessed approximately 150 million times. In fact, during the tax filing season from January through April, IRS.gov is one of the most heavily visited sites on the Internet.

The award-winning IRS Web site has been designed to help you get to the information you need. Helpful links found at the top of the home page will take you directly to topics centered on Individuals, Businesses, Charities and Non-Profits, Government Entities, Tax Professionals, the Retirement Plan Community and Tax Exempt Bonds.

In addition to the latest news coming from the IRS, the homepage can lead you to statistics, news releases and tax tips, local IRS offices, the Taxpayer Advocate Service, and thousands of IRS forms and publications. Frequently asked questions and answers are available or you can use two separate search icons: one by keyword and one by answering “I need to . . .”

There’s much, much more. For example, small business owners and the self-employed will find that there are special products and resources made just for them by selecting from among more than two dozen links. There is even an A-Z find-it-fast link for small businesses and a small business workshop video you can view online.

The best way to learn about the IRS Web site is to take some time to browse through the pages of information that interest you the most. Understanding the tax system may never be easy, but the IRS is constantly working to make it easier to find the information you need on IRS.gov.

You can have the advice of tax experts and all of the resources of the IRS right in the comfort and convenience of your home by visiting IRS.gov. If you don’t have a computer with internet access, many libraries offer this service.

Why wait until your taxes are due? Summertime is a great time to visit IRS.gov.

¿Habla español? So does the IRS!

Tax information can be difficult to understand in any language; but it can be even more difficult if it is not in your first language. To assist Spanish speakers, the IRS provides a wide range of free products and services.

IRS.gov/Espanol: The IRS Spanish Web site offers tax forms, publications, and information. Interactive applications such as the following are available for individuals:

• The EITC Assistant (Asistente EITC) helps determine your eligibility for EITC.
• The Withholding Calculator (Calculadora para la Retención de Impuestos) that helps ensure that the income tax withheld from your pay check is not too much or too little.

Toll-Free Telephone Assistance is available in Spanish on pre-recorded hotlines and from bilingual IRS representatives:

• The TeleTax line (800-829-4477) has recorded messages in Spanish that are available around the clock, covering more than 100 tax topics.
• The Refund Hotline (800-829-1954) provides information about a refund status in Spanish when caller provides the filing status and the exact refund amount expected.
• The IRS toll-free customer service line (800-829-1040) has Spanish-speaking representatives ready to help taxpayers.

For complete list of contact numbers check IRS.gov.

Many documents available in Spanish: Among the most frequently requested publications available in Spanish are Publication 1(SP), Your Rights as a Taxpayer, Derechos del Contribuyente, and Publication 579(SP), How to Prepare the Federal Tax Return, Cómo Preparar su Declaración de Impuesto Federal. For a list of forms and publications in Spanish search the phrase “Formularios y Publicaciones” on IRS.gov.

Keeping Small Businesses in Mind: The Small Business link (Recursos Para Pequeñas Empresas) will lead business owners to information such as “SSA/IRS Reporter”, a newsletter that can be downloaded in English or Spanish. The summer 2007 edition has tips for electronic filers, late filers, tax exempt organizations, employers in economically distressed areas and businesses that are targeted by tax scams.

Other important information for Spanish-speaking business owners can be found in Publication 966(SP), Electronic Choices to Pay All Your Federal Taxes, Opciones Electrónicas para pagar todos sus Impuestos Federales, and Publication 1518(SP) Tax Calendar for Small Businesses, a working tool filled with tax tips and deadline reminders. Form 944(SP), which simplifies reporting requirements for business owners, is now available in Spanish, and when faced with challenges, it is good to know that information on disaster losses is also available in Spanish on IRS Publication 1600(SP).

If you or someone you know speaks Spanish, then think of the IRS when you need tax assistance. We can help! ¡Podemos ayudar!

Links:

• El IRS en Español
• Formularios y Publicaciones
• Recursos Para Pequeñas Empresas

Moving Expenses Related to a New Job May Be Tax Deductible

Did you recently move to another city for a new job or because your old job is now at a new location? A tax break may be coming your way.

How far you moved and the amount of time you spend on the job will have a major impact on whether you qualify for the tax break. Moves that are only short hops and jobs that are short-term or part-time generally do not qualify. However, if you can satisfy the distance and time tests then job-related moving expenses that you incur may be tax deductible.

You will meet the distance test if your new workplace is at least 50 miles further from your former home than your previous workplace was from that home. For example, if your old job was 5 miles from your former home, your new job must be at least 55 miles from that home.

The time test requires you work full-time for at least 39 weeks during the 12 months immediately after your move. If you are self-employed, the time test requires you to work full-time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after your move. You can deduct your moving expenses on your tax return even though you have not met the time test by the date your return is due if you expect to meet the 39-week or the 78-week test as required.

Members of the armed forces do not have to meet these tests if the move was due to a permanent change of station.

Reasonable moving expenses are deductible and include the costs of moving your household goods and personal effects to your new home. You can also deduct the expenses of traveling to your new home, including lodging costs.

Meals eaten while in transit between your old and new homes are not deductible as moving expenses. No part of the purchase price of your new home may be deducted as a moving expense. You cannot claim a moving expense deduction for expenses covered by reimbursements excluded from income.

Additional information on moving expenses, including an extensive list of deductible and non-deductible expenses, can be found in Publication 521, Moving Expenses, on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Link:

• Publication 521, Moving Expenses

Tax Advice for Starting, Operating or Closing a Small Business

To many citizens, running a successful business is part of the American dream. But while they may be experts in their chosen field, few small business owners are tax experts. From starting a new business to operating or even closing a business, the IRS has tax advice for small business owners.

The IRS Web site at IRS.gov has information devoted to the needs and interests of small business owners. Topics on the Web site answer many of the nuts and bolts questions that new or even experienced small business owners might have.

Many business decisions have significant tax implications. The structure and accounting methods you choose can dramatically affect how much tax you pay. Even before you check with your accountant or tax advisor, you can check out the IRS Web site for useful information.

For example, do you know whether your activities are considered hobbies or a business for tax purposes? Who must you inform that you are starting a new business? What structure is best for your business and what records do you need to keep? What does it mean to select an accounting method? All of these topics, plus a handy checklist for starting a business, are found in the section entitled “Starting a Business.”

Even businesses that have been operating for a long time encounter new and unusual tax situations. How do you change the name of your business? What do you need to know when your business grows and you hire employees? The money may be rolling in but what is taxable income and what may not be taxable? Speaking of taxes, just what forms do you need to file and more importantly when do you need to make payments? The answers to these and more than a half-dozen other questions are found in the section entitled “Operating a Business.”

When the time comes to close your business you will want to make sure that it is done properly. For some the closure of a small business may mean creating a different business structure. For others it will mean selling the business. Unfortunately for some it will mean filing for bankruptcy. The section entitled “Closing a Business” includes a handy checklist to make certain you do not leave any loose threads.

No matter what stage your business is in, you will find the tax help you need at IRS.gov in the tab marked Small Business/Self-Employed – Starting, Operating Or Closing a Business – on IRS.gov. Help is also available for business owners who don’t have access to the Internet by calling 1-800-829-3676 and requesting Publication 4591, Small Business Federal Tax Responsibilities; Publication 334, Tax Guide for Small Business; and Publication 1066C, A Virtual Small Business Tax Workshop DVD.

SAVER’S CREDIT FOR RETIREMENT SAVINGS CONTRIBUTIONS

Even though you may be on vacation, the IRS is always at work thinking about taxes!

August and the “Dog Days of Summer” are upon us. Taxes are probably the furthest thing from your mind. But now, months before the end of the year and the start of tax season, is a good time to takes steps to lower your tax bill.

Take the “Saver’s Credit” for example.

One way for low and moderate income Americans to save on taxes is by saving for retirement. If you make voluntary contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit.

Formally known as “The Retirement Savings Contributions Credit”, the Saver’s Credit applies to:

• Individuals with incomes up to $25,000 ($37,500 for a head of household)
• Married couples, filing jointly, with incomes up to $50,000
• Persons who are at least age 18, not a full-time student and cannot be claimed as a dependent on another person’s return

You may be able to take the credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans. The amount of the credit is determined by your filing status, your adjusted gross income (AGI), and your other retirement contributions.

The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

When figuring this credit, you must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies for distributions starting two years before the year the credit is claimed and ending with the filing deadline for that tax return.

The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a 401(k) plan are not subject to income tax until withdrawn from the plan.

For more information, review IRS Publication 590, Individual Retirement Arrangements and Form 8880, Credit for Qualified Retirement Savings Contributions which include the instructions. The publication and form can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Help Offset Education Costs with Tax Credits and Deductions

It is Back-to-School time and maybe time for a tax break, too. Whether you are paying for a college education or a teacher buying items for your classroom, education credits and deductions can help lower your tax bill.

The Hope Credit, Lifetime Learning Credit or the Tuition and Fees Deduction may help offset the cost of higher education for you, your spouse and your dependents.

The amount of these credits and deductions are based on the qualified education expenses, such as college or vocational school tuition and enrollment fees, that you paid during the year and may be limited by your modified adjusted gross income. Room and board, insurance or personal living expenses are not considered qualified education expenses.

The Hope Credit, which is up to a $1,650 tax credit per student per year, is available for only the first two years of college or vocational school.

The Lifetime Learning Credit, which is up to a $2,000 tax credit per tax return, applies to undergraduate, graduate and professional degree courses and there is no limit to the number of years you can take this credit.

The Tuition and Fees Deduction, which is up to a $4,000 deduction from your income, applies to undergraduate, graduate and professional degree courses. This deduction may be beneficial as the modified adjusted gross income limits are higher than the thresholds for the Hope and Lifetime Learning Credits.

Are you paying Student Loan interest? You may be able to deduct up to $2,500 from your income per tax return. Student Loan interest may be deducted even while your student is in school if you are paying the interest immediately rather than deferring the payments.

You cannot claim the Hope Credit, Lifetime Learning Credit and the Tuition and Fees Deduction for the same student in the same year. You will want to choose the credit or deduction that provides the greatest benefit. However, you can claim the Student Interest Loan deduction and one of these other benefits simultaneously.

Students and parents of students are not the only ones who can claim a Back-to-School tax benefit.

As summer comes to an end, many teachers and other eligible educators are preparing for the start of the new school year. That preparation could include purchasing items for the classroom from personal funds. Be sure to keep your receipts. These out-of-pocket classroom expenses can be deductible.

As an educator, you may be able to deduct up to $250 for expenses paid for the purchase of books, computer equipment and classroom supplies. If you and your spouse are filing a joint return and both are eligible educators, the maximum deduction is $500.

To find out more about the deduction for educator expenses, including who qualifies for this deduction, check out the IRS Web site at IRS.gov. In the search field, type in the key words “educator expenses.”

Additional information on the Hope and Lifetime Learning Credits, Tuition and Fees Deduction and Student Loan Interest Deduction is available in Publication 970, Tax Benefits for Education, found on the IRS Web site at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Tax Calendar for Small Businesses on IRS.gov

Are you running a small business? Would you like a calendar packed with valuable business tax information? The IRS is offering a free calendar to help you keep track of tax deadlines and important dates throughout the year.

You might be surprised to learn that the IRS publishes a calendar, but like our popular Web site, IRS.gov, the calendar is part of our many services to help owners and operators of small businesses.

The Tax Calendar for Small Businesses and Self-Employed Individuals from the Internal Revenue Service is a 12-month calendar is filled with deadline reminders, important information such as changes in deductible mileage rates and business tips such as how to organize business and travel expenses.

This widely-used special business tax calendar provides the small business owner with a ready resource for meeting his or her tax obligations.

Each page of the calendar highlights different tax issues and tips such as business planning, accounting methods, tracking your records, and protecting your information that are especially relevant to small-business owners. The calendar has room each month to add notes, state tax dates or business appointments.

Topics include information on general business taxes, IRS and Social Security Administration customer assistance, electronic filing and paying options, retirement plans, business publications and forms, common tax filing dates, federal holidays and much more.

The 2007 Tax Calendar for Small Businesses, IRS Publication 1518, is now available in both English and Spanish versions. For an online version of the calendar, visit the Small Business Self-Employed pages on the IRS Web site at IRS.gov. Printed copies of the tax calendar can also be ordered online or by calling (800) 829-3676.

Links:

• Small Business and Self-Employed One-Stop Resource
• Small Business Products Online Ordering

New Rules May Impact Your Charitable Contributions

Did you make a cash contribution to your favorite charity? Have you recently spent a weekend cleaning stuff out of your garage or basement and then donated the items to a local charity?

Charitable contributions can be tax deductible, but you must have the proper records to support your deduction. Due to the Pension Protection Act of 2006 the rules on recordkeeping for charitable contributions became a little more strict beginning in January 2007.

To deduct a charitable cash donation, regardless of the amount, you must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Acceptable bank records would include canceled checks or bank or credit union statements containing the name of the charity, the date and the amount of the contribution.

Under the previous rules, records such as personal bank registers, diaries or notes made around the time of the donation could often be used as evidence of cash donations. Personal records like this are no longer sufficient.

Here are some additional tips to help you deduct your charitable contributions on your 2007 federal tax return.

• Charitable contributions are deductible only if you itemize deductions using Form 1040.
• Contributions must be made to a qualified organization.
• Used clothing and household items such as furniture, linens and appliances must be in good condition.
• Vehicle donations are subject to special rules.
• To deduct charitable contributions of items valued at $250 or more you must have a written acknowledgment from the qualified organization.
• To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attach the form to your return.

More information is available on the IRS Web site at IRS.gov. A good resource is IRS Publication 526, Charitable Contributions, found on the web site or by calling 800-TAX-FORM (800-829-3676).

Links:

• Form 8283, Noncash Charitable Contributions
• Publication 526, Charitable Contributions

Business or Hobby? Answer Has Tax Implications

Fishing, Gardening, Golf, Sewing, Woodworking, Horsemanship, Scrap Booking, Stamp and Coin Collecting, etc.

The IRS isn’t trying to spoil your fun but if your favorite activity makes a profit every year or so, there may be tax implications that surprise you.

What is a hobby? Hobbies, also called not-for-profit activities, are those activities that are not pursued for profit. What is a business? Generally, your activity is considered a business if it is carried on with the reasonable expectation of earning a profit.

If you are not sure whether you are running a business or simply enjoying a hobby, here are some of the factors you should consider:

• Do you run the activity in a businesslike manner?
• Does the time and effort you put into the activity indicate an intention to make a profit?
• Do you depend on income from the activity?
• If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
• Have you changed methods of operation to improve profitability?
• Do you or your advisors have the knowledge needed to carry on the activity as a successful business?
• Have you made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Can you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is usually considered a business if it makes a profit during at least three of the last five tax years, including the current year.

An exception is breeding, showing, training or racing horses. Such activity is presumed to be a business if it makes a profit during at least two of the last seven years.

If you are conducting a trade or business you may deduct your ordinary and necessary expenses. An ordinary expense is an expense that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

Losses from a not-for-profit activity (hobby) may not be used to offset other income. It is possible to claim some deductions for hobby activities as itemized deductions on your Form 1040 income tax return. However, there are special rules and limits to the deductions you can claim, and those deductions may not exceed the gross income from your hobby.

Still confused? More information is available on the IRS Web site at IRS.gov. A good resource is Publication 535, Business Expenses, found on the web site or by calling 800-TAX-FORM (800-829-3676).

Corporate e-file

1. Corporate e-file Frequently Asked Questions Updated
________________________________________
Many of the corporate e-file FAQs have been revised, updated, or deleted to reflect changes applicable to tax year 2006 returns. New FAQs have been added, covering:
1. Section B, FAQ 3 - Partnership returns and the 250 return threshold
2. Section C, FAQ 23 – How does a corporation amend an e-filed tax return?
3. Section C, FAQ 24 – How can a corporation submit omitted documents after the return has been e-filed?
4. Section C, FAQ 25 – Why did the post office return this information to me?
5. Section C, FAQ 26 – International Forms 5471, 5472, and 5713 duplicate filing requirement
6. Section C, FAQ 27 – Pre-computed penalty and interest
2. Revised Guidance for Amended and Superseding Corporate Returns
________________________________________
Corporations required to file electronically should carefully review the revised guidance for amended and superseding corporate returns.
Related Links:
1. Amended and Superseding Corporate Returns - Revised 07-26-07
2. e-file for Large and Mid-Size Corporations Home Page

IRS Phone Forums Cover Small Business Tax Issues

Small businesses, payroll companies, and tax professionals can get helpful tax information from monthly phone forums (conference calls) sponsored by the Internal Revenue Service. These phone forums are free and convenient – you can call in from the comfort of your home or office.

The monthly phone forums discuss topics of interest to businesses. Some of the previous issues covered are powers-of-attorney, energy credits, electronic IRS for businesses, Form 1099 and the telephone excise tax refund. A future topic will be identity theft prevention.

The next phone forum will be held on August 15, 2007, and the topic will be “Payroll and Foreign Workers.”

Registration for the phone forums is easy and early registration is encouraged. Phone lines are limited and slots are provided on a first-come, first-served basis. There is no registration or participation fee. Just follow the directions provided on the IRS Web site. Once you register, you will receive the call-in phone number and instructions needed to participate in the phone forum.

Additional information on the upcoming phone forum and future forums can be found on the Business page of the IRS Web site at IRS.gov. In the Search field, type in key words “phone forums” and select the link titled “Small Business Tax Workshops and Phone Forums.” While you are visiting the Web site check out the numerous resources for small businesses that are also found at IRS.gov.

DO YOU OWE MONEY TO THE IRS?

The vast majority of Americans get a tax refund from the IRS each spring, but what do you do if you are one of those who have received a tax bill? What do you do if you owe money to the IRS and can’t pay?

The IRS encourages you to pay the full amount of your tax liability on time. If you get a bill for late taxes you are expected to promptly pay the tax owed including any additional penalties and interest. It is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS. You can also pay the bill with your credit card. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

You can pay the balance owed by credit card, electronic funds transfer, check, money order, cashier’s check, or cash. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also www.officialpayments.com) or Link2Gov at 888-729-1040 (also www.pay1040.com). To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System (EFTPS) by calling 800-555-4477 or 800-945-8400 (also www.eftps.gov).
An installment agreement may be requested if you cannot pay the liability in full. This is an agreement between you and the IRS for the collection of the amount due in monthly installment payments. To be eligible for an installment agreement you must first file all returns that are required and be current with estimated tax payments. If you are an employer you must be current with your federal tax deposits.
If you owe $25,000 or less in combined tax, penalties, and interest, you can request an installment agreement using the web-based application, Online Payment Agreement (OPA), found on the Internet at IRS.gov. Or, you can complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS. The IRS will inform you within 30 days whether your request is approved, denied, or if additional information is needed.
You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, may need to be completed.
If an agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged.
For more information about installment agreements and other payment options visit the IRS Web site at IRS.gov. IRS Publications 594 and 966 also provide additional information regarding your payment options. These publications and Form 9465 can be obtained on the IRS.gov Web site or by calling 800-TAX-FORM (800-829-3676).

REQUEST TELEPHONE TAX REFUND BY AMENDING YOUR RETURN

Maybe you filed your federal tax return, received a refund and even spent the last penny before realizing that you missed out on a one time opportunity to request the Telephone Excise Tax Refund! Luckily, some opportunities do call twice.

You can still request the telephone tax refund even if you filed a 2006 return but missed this unique refund. Simply file an amended return using Form 1040X.
The one-time refund of previously collected federal telephone excise taxes is owed to just about anyone who paid a phone bill in the last several years. You are eligible if you paid long-distance excise taxes on landline, cell phone, Voice over Internet Protocol (VoIP), or bundled service that was billed for the period after Feb 28, 2003 and before Aug 1, 2006. (Bundled service is local and long-distance under a plan that does not separately list the charges.)

Eligible taxpayers have two options: requesting the actual amount of federal excise tax paid based upon your telephone bills for this period; or requesting the standard refund that ranges from $30-$60 based upon the number of exemptions you are entitled to claim on an individual income tax return. To amend your return, use the most recent version of IRS Form 1040X and enter the credit on line 15. If you have received an initial refund check you may cash it while waiting for any additional refund.

Eligible taxpayers have two options: requesting the actual amount of federal excise tax paid based upon your telephone bills for this period; or requesting the standard refund that ranges from $30-$60 based upon the number of exemptions you are entitled to claim on an individual income tax return.

To amend your return, use the most recent version of IRS Form 1040X and enter the credit on line 15. If you have received an initial refund check you may cash it while waiting for any additional refund.

Form 1040X must be filed on paper and can be printed from the IRS Web site IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

PAY YOUR TAXES ELECTRONICALLY - USE EFTPS

If you owe federal taxes, consider paying through EFTPS, the Electronic Federal Tax Payment System. EFTPS is a fast, easy, convenient and secure service provided free by the Department of Treasury.

• EFTPS is available to both individual and business taxpayers. With EFTPS, you can pay all your federal tax payments through the internet or by telephone. These payments include corporate, excise and employment taxes as well as your 1040 quarterly estimated tax payments.
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  EFTPS is convenient and flexible. It allows individual taxpayers to schedule payments up to 365 days—and businesses up to 120 days—in advance of the payment due date. With the ability to schedule payments in advance, you can avoid missing deadlines and incurring penalties. Scheduled payments can be cancelled up to 48 hours before the scheduled payment due date.
• 
  EFTPS is available around-the clock. The electronic payment system and a live Customer Service representative are available 24 hours a day, 7 days a week. Other features include an immediate, printable acknowledgement number which acts as a receipt for your payment.

After you enroll in EFTPS, you will receive a confirmation package by mail. In a separate mailing you will receive an EFTPS Personal Identification Number (PIN) with instructions for activating your enrollment. Employers who apply for and receive a new Employer Identification Number and have a federal tax obligation are automatically enrolled in EFTPS Express Enrollment to make their Federal Tax Deposits.

For more information you can visit IRS.gov. Click on the e-file logo and look for "Electronic Payment Options" and the EFTPS logo. To enroll, visit EFTPS.gov or call EFTPS Customer Service at 800-555-4477.

Need to Change Your Federal Tax Withholding?

Need to Change Your Federal Tax Withholding?
IRS Has an On-Line Calculator That Can Help

Did you have too little or too much federal tax withheld from your pay in 2006 – owing money or getting a large refund when you filed your tax return? Have you recently experienced a lifestyle change such as marriage, divorce, new child, home purchase or retirement? Did you start a new job? If any of these situations apply, you may want to adjust your federal tax withholding with your employer. The withholding calculator, on the IRS Web site at IRS.gov can help you figure the correct amount of federal withholding and provide information you can use to complete a new Form W-4, Employee’s Withholding Allowance Certificate.

Before you begin, you need to have a few items handy:

• Your most recent pay stubs.
  
• Your most recent federal income tax return.

Here are some tips for using the withholding calculator:

• Fill in all information that applies to your situation.
  
• Estimate when necessary. Remember, the results are only as accurate as the information you input.
  
• Check out the information links embedded in the program whenever you have a question.
  
• Print out the final screen that summarizes your input and the results. Use it to complete a new Form W-4 (if necessary) and give the completed W-4 to your employer. Keep the print of the final screen and a copy of your new W-4 with your tax records.

For many people, the withholding calculator is a great tool that can simplify the process of determining your withholding. However, if you are subject to the alternative minimum tax or self-employment tax or if your current job will end before the end of the year, you will probably achieve more accurate withholding by following the instructions in Publication 919, How Do I Adjust My Tax Withholding, which is available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

New Rules for Small Tax-Exempt Organizations - Many May Now Have to File an Annual Notice

Beginning in 2008, small tax-exempt organizations that were previously not required to file a return may be required to file an annual electronic notice. The notice is Form 990-N, Electronic Notice (e-Postcard) for Tax Exempt Organizations Not Required to File Form 990 or 990-EZ, and the new filing requirement applies to tax years beginning after December 31, 2006.

The electronic notice (or e-Postcard) is a provision of the Pension Protection Act of 2006 and applies to small tax-exempt organizations – organizations not required to file Form 990 or 990-EZ because their gross receipts are normally $25,000 or less. Not all small tax-exempt organizations will have to file the e-Postcard. Some exceptions are organizations included in a group return and private foundations required to file Form 990-PF. Also, the e-Postcard requirement does not apply to churches, their integrated auxiliaries, and conventions or associations of churches.

The Internal Revenue Service started mailing letters to small tax-exempt organizations in July 2007. The letters notify these organizations of their potential requirement to file the e-Postcard. IRS is developing an electronic filing system for the e-Postcard and will publicize filing procedures when the system is completed and ready for use. There will not be a paper Form 990-N.

It’s very important that organizations required to file the e-Postcard do so each year or they risk losing their tax-exempt status. The Pension Protection Act requires the IRS to revoke the tax-exempt status of any organization that does not meet its annual filing requirement for three consecutive years.

If you would like more information on the e-Postcard, including notification of when the filing system is ready, sign up for Exempt Organization’s EO Update, an e-mail newsletter that highlights new issues and activities affecting exempt organizations. To subscribe, go to www.irs.gov/eo and click on “EO Newsletter.” Information on tax-exempt organizations, including the e-Postcard, can be found on the IRS Web site at IRS.gov.

Deducting "Other" Business Expenses

Some tax deductions are not mentioned by name on a tax form but can still be quite valuable to a taxpayer. If you own a trade or business, you can deduct a number of expenses under the broad category of “other.”

In general, taxpayers may deduct ordinary and necessary expenses incurred in the conducting of a trade or business. An ordinary expense is common and accepted in the taxpayer’s trade or business. A necessary expense is appropriate for the business.

Although many common expenses are deducted on designated lines of the tax schedule, some expenses may not fit into a particular category. Taxpayers can deduct these as “other” expenses. A breakdown of “other” expenses must be listed on line 48 of Form 1040 Schedule C. The total is then entered on line 27.

Examples of “other” expenses include:

• Amortization of certain costs, such as pollution-control facilities, research and experimentation, and intangibles including goodwill.
• Bad debts. Business bad debts must be directly related to sales or services provided by the business, must have been previously included in income and must be worthless (non-recoverable). If a taxpayer deducts a bad debt expense and later recovers it, the amount must be included in income in the year collected.
• Business start-up costs. These are costs related to creating an active trade or business, or investigating the creation or acquisition of an active trade or business. Generally these costs are amortized. However, taxpayers who started a business in 2006 may elect to deduct up to $5,000 of certain start up costs, subject to limitations. Refer to chapter 7 of Publication 535, Business Expenses, for more information.
• Gulf Opportunity (GO) Zone clean-up costs. Fifty percent of qualified clean-up costs for the removal of debris from, or the demolition of structures on, real property located in the GO Zone which are paid or incurred in 2006 are deductible as “other” expenses. The property must be held for use in a trade or business, for the production of income, or as inventory.

Personal, living and family expenses, do not qualify as deductible “other” business expenses.

Further information is available in IRS Publication 535, Business Expenses available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676)

Keeping Good Tax Records

In a tax emergency, would you be ready? Well–organized records not only help you prepare your tax return. They also help you answer questions if your return is selected for examination or prepare a response if you are billed for additional tax.

Fortunately, you don’t have to keep all tax records around forever. There are laws known as statutes of limitations that impact how long you must keep receipts, canceled checks, and other documents that support an item of income or a deduction on your return.

Generally, for questioning the amount of tax you reported or making an assessment of additional tax, the IRS has 3 years from the date you filed the return. For filing a claim for credit or refund, you generally have 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later. For either purpose, returns filed before the due date are treated as filed on the due date. There is no statute of limitations when a return is fraudulent or when no return is filed.

You should keep some records indefinitely, such as property records. You may need them to prove the amount of gain or loss if the property is sold.

Generally, income tax returns should be kept for 3 years from the date the return was filed. They could help you prepare future tax returns or amend a return.

For more information on recordkeeping requirements for individuals, order Publication 552, Recordkeeping for Individuals.

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

If you are in business, there is no particular method of bookkeeping you must use. However, you must clearly and accurately show your gross income and expenses. The records should substantiate both your income and expenses.

Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses. The publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Parents Can Get Credit for Sending Kids to Day Camp

Here’s a tax break for the busy summer. Many working parents must arrange for care of their children under 13 years of age during the school vacation period. A popular solution — with a tax benefit — is a day camp program.

The cost of day camp can count as an expense towards the child and dependent care credit. Expenses for overnight camps do not qualify. If your childcare provider is a sitter at your home, you'll get some tax benefit if you qualify for the credit.

The credit is generally 20% to 35% of non-reimbursed expenses; up to $3000 in expenses for one child and up to $6000 for two or more children. The actual credit is also based on your income.

You figure the credit on up to $3,000 of expenses for one child, $6,000 for two or more children. The credit rate ranges from 20% to 35% of expenses, depending on your income. The 35% rate applies if your income is under $15,000; the 20% rate, if your income is over $43,000.

For more information, check out IRS Publication 503, Child and Dependent Care Expenses available on the IRS Web site, IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Can You Take a Home Office Deduction?

If you plan to run your small business out of your home you may be temped to “write-off” many of your household expenses. But how do you know what is deductible and what is not? The IRS has some advice that may help answer the question: “Can I take a Home Office Deduction?”

Generally, expenses related to the rent, purchase, maintenance and repair of a personal residence are not deductible.

However, if you use part of your home for business purposes you may be able to take a home office deduction. Expenses that can be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation.

In order to claim a business deduction, you must use part of your home:

• Exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or
• On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.

In addition, if you work as an employee you can claim this deduction only if the regular and exclusive business use of the home is for the convenience of your employer and the portion of the home is not rented by the employer.

“Exclusive use” means a specific area of the home is used only for trade or business. “Regular use” means the area is used regularly for trade or business. Incidental or occasional business use is not regular use.

Non-business profit-seeking endeavors such as investment activities do not qualify for a home office deduction, nor do not-for-profit activities such as hobbies.

Example: An attorney uses the den in his home to write legal briefs or prepare clients’ tax returns. The family also uses the den for recreation. The den is not used exclusively in the attorney’s profession, so a business deduction cannot be claimed for its use.

These requirements are discussed in greater detail in Publication 587, Business Use of Your Home available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Gambling Winnings and Losses

Your summer vacation may mean a trip to the casino or the racetrack. What will you owe Uncle Sam if Lady Luck happens to be on your side?

Gambling winnings are fully taxable and must be reported on your tax return.

You must file Form 1040 and include all of your winnings. Gambling income includes, among other things, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips. You can find more information in Publication 525, Taxable and Nontaxable Income.

Anyone who pays your winnings or awards you a prize is required to issue you a Form W-2G if your winnings are subject to Federal income tax withholding or if your winnings are over a certain amount.

However, all gambling winnings must be reported regardless of whether any portion is subject to withholding. In addition, you may be required to pay an estimated tax on your gambling winnings. For information on tax withholding on gambling income, refer to Publication 505, Tax Withholding and Estimated Tax.

If your luck isn’t always so good, you may deduct gambling losses. Losses may be deducted only if you itemize deductions and only if you also have gambling winnings. Claim your gambling losses as a miscellaneous deduction on Form 1040, Schedule A. But remember, the losses you deduct may not be more than the gambling income you report on your return.

Even though you may be on vacation, if you want to deduct losses when you file your return next spring, it is important to keep an accurate diary or similar record of your gambling winnings and losses right now.

To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show both your winnings and losses.

For more information, refer to Publication 529, Miscellaneous Deductions. The publication is available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

ou May Be Eligible for the Advance Earned Income Credit

Why wait? You may be eligible for a tax credit right now that could mean larger paychecks this summer. This benefit is called the Advanced Earned Income Credit or Advance EIC.

If you expect to qualify for the credit in 2007, you may be able to start getting part of the credit with your pay now. Otherwise, you could wait until you file your tax return in 2008.

To receive part of the credit with your pay, you must expect to have at least one qualifying child for the current year, expect to fall within certain income limits, and expect to meet certain other conditions. You cannot get the Advance EIC if you do not expect to have a qualifying child, even if you expect to be eligible to claim the EIC on your current year tax return. To see if you qualify, ask your employer for the current year Form W-5, Earned Income Credit Advance Payment Certificate.

If you qualify, complete Form W–5 and give it to your employer. Your employer will then add the advance earned income credit to your net pay each pay period you are eligible.

You may have only one Form W–5 in effect with a current employer at one time. If you and your spouse are both employed, each of you must file a separate Form W–5.

If your situation changes after you give your employer Form W–5, you must give your employer a new Form W–5. For example, give your employer a new Form W–5 if you no longer expect to qualify for the EIC or you no longer want to get advance payments of the credit with your pay.

Remember, if you receive the EIC with your pay during the current year, you must file Form 1040A or Form 1040 for the current year to report the advance payments you received during the year and to take advantage of any remaining credit. You cannot use Form 1040EZ. The total of the advance payments you receive will be shown on your current year Form W–2.

The current year Form W–5 expires on December 31, 2007. If you expect to be able to claim the credit in advance for the following year, you must give a new completed Form W–5 which is valid for that year to your employer.

For more information about the Advance EIC see IRS Publication 596, Earned Income Credit. This publication (available in both English and Spanish) and Form W-5 can be downloaded from IRS.gov or by calling 800-TAX-FORM (800-829-3676).

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US Tax Returns

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