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).