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Archive for July, 2011

Six Things to Know About the Expanded Adoption Tax Credit

July 28th, 2011

If you are adopting a child in 2011, the Internal Revenue Service encourages
you to familiarize yourself with the adoption tax credit. The Affordable Care
Act increased the amount of the credit and made it refundable, which means it
can increase the amount of your refund.

Here are six things to know about this valuable tax credit:

  1. The adoption tax credit, which is as much as $13,170,
    offsets qualified adoption expenses making adoption possible for some
    families who could not otherwise afford it. Taxpayers who adopt a child in
    2010 or 2011 may qualify if you adopted or attempted to adopt a child and paid
    qualified expenses relating to the adoption.
  2. Taxpayers with modified adjusted gross income of more
    than $182,520 in 2010 may not qualify for the full amount and it phases
    out completely at $222,520. The IRS may make inflation adjustments for
    2011 to this phase-out amount as well as to the maximum credit amount.
  3. You may be able to claim the credit even if the
    adoption does not become final. If you adopt a special needs child, you
    may qualify for the full amount of the adoption credit even if you paid
    few or no adoption-related expenses.
  4. Qualified adoption expenses are reasonable and
    necessary expenses directly related to the legal adoption of the child who
    is under 18 years old, or physically or mentally incapable of caring for
    himself or herself. These expenses may include adoption fees, court costs,
    attorney fees and travel expenses.
  5. To claim the credit, you must file a paper tax return
    and Form 8839, Qualified Adoption Expenses, and you must attach documents
    supporting the adoption. Documents may include a final adoption decree,
    placement agreement from an authorized agency, court documents and the
    state’s determination for special needs children. You can still use IRS
    Free File to prepare your return, but it must be printed and mailed to the
    IRS, along with all required documentation. Failure to include required
    documents will delay your refund.
  6. The IRS is committed to processing adoption credit
    claims quickly, but it also must safeguard against improper claims by
    ensuring the standards for this important credit are met. If your return
    is selected for review, please keep in mind that it is necessary for the
    IRS to ensure the legal criteria are met before the credit can be paid. If
    you are owed a refund beyond the adoption credit, you will still receive
    that part of your refund while the review is being conducted.

Tax Tips from the IRS for Students Starting a Summer Job

July 21st, 2011

School’s out and many students will be starting summer jobs. The Internal
Revenue Service reminds students that not all the money you earn may make it to
your pocket. That’s because your employer must withhold taxes.

Here are six things the IRS wants students to be aware of when they start a
summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s
Withholding Allowance Certificate. This form is used by employers to determine
the amount of tax that will be withheld from your paycheck. If you have
multiple summer jobs, make sure all your employers are withholding an adequate
amount of taxes to cover your total income tax liability. To make sure your
withholding is correct, use the Withholding Calculator on

2. Whether you are working as a waiter or a camp counselor, you may receive
tips as part of your summer income. All tips you receive are taxable income and
are therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings
you receive from self-employment – including jobs like baby-sitting and lawn
mowing – are subject to income tax.

4. If you have net earnings of $400 or more from self-employment, you will
also have to pay self-employment tax. This tax pays for your benefits under the
Social Security system. Social Security and Medicare benefits are available to
individuals who are self-employed the same as they are to wage earners who have
Social Security tax and Medicare tax withheld from their wages. The
self-employment tax is figured on Form 1040, Schedule SE.

5. Food and lodging allowances paid to ROTC students participating in
advanced training are not taxable. However, active duty pay – such as pay
received during summer advanced camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or
distributor. You are a direct seller and treated as self-employed for federal
tax purposes if you meet the following conditions:

  • You are in the business of delivering newspapers.
  • All your pay for these services directly relates
    to sales rather than to the number   of hours worked.
  • You perform the delivery services under a written
    contract which states that you will not be treated as an employee for
    federal tax purposes.

10 Tips to Ease Tax Time for Military

July 20th, 2011

Military personnel have some unique duties, expenses and transitions. Some
special tax benefits may apply when moving to a new base, traveling to a duty
station, returning from active duty and more. These tips may put military
members a bit “at ease” when it comes to their taxes.

  1. Moving Expenses If you are a member of
    the Armed Forces on active duty and you move because of a permanent change
    of station, you can deduct the reasonable unreimbursed expenses of moving
    you and members of your household.
  2. Combat Pay If you serve in a
    combat zone as an enlisted person or as a warrant officer for any part of
    a month, all your military pay received for military service that month is
    not taxable. For officers, the monthly exclusion is capped at the highest
    enlisted pay, plus any hostile fire or imminent danger pay received.
  3. Extension of Deadlines The time for taking
    care of certain tax matters can be postponed. The deadline for filing tax
    returns, paying taxes, filing claims for refund, and taking other actions
    with the IRS is automatically extended for qualifying members of the
  4. Uniform Cost and Upkeep If military regulations
    prohibit you from wearing certain uniforms when off duty, you can deduct
    the cost and upkeep of those uniforms, but you must reduce your expenses
    by any allowance or reimbursement you receive.
  5. Joint Returns Generally, joint
    returns must be signed by both spouses. However, when one spouse may not
    be available due to military duty, a power of attorney may be used to file
    a joint return.
  6. Travel to Reserve Duty If you are a member of
    the US Armed Forces Reserves, you can deduct unreimbursed travel expenses
    for traveling more than 100 miles away from home to perform your reserve
  7. ROTC Students Subsistence allowances
    paid to ROTC students participating in advanced training are not taxable.
    However, active duty pay – such as pay received during summer advanced
    camp – is taxable.
  8. Transitioning Back to
    Civilian Life

    You may be able to deduct some costs you incur while looking for a new
    job. Expenses may include travel, resume preparation fees, and
    outplacement agency fees. Moving expenses may be deductible if your move
    is closely related to the start of work at a new job location, and you
    meet certain tests.
  9. Tax Help Most military
    installations offer free tax filing and preparation assistance during the
    filing season.

IRS Urges Taxpayers to Avoid Becoming Victims of Tax Scams

July 19th, 2011

The Internal Revenue Service encouraged taxpayers to guard against
being misled by unscrupulous individuals trying to persuade them to file false
claims for tax credits or rebates.

The IRS has noted an increase in tax-return-related scams, frequently
involving unsuspecting taxpayers who normally do not have a filing requirement
in the first place. These taxpayers are led to believe they should file a
return with the IRS for tax credits, refunds or rebates for which they are not
really entitled. Many of these recent scams have been targeted in the South and

Most paid tax return preparers provide honest and professional service, but
there are some who engage in fraud and other illegal activities.
Unscrupulous promoters deceive people into paying for advice on how to file
false claims. Some promoters may charge unreasonable amounts for preparing
legitimate returns that could have been prepared for free by the IRS or IRS sponsored
Volunteer Income Tax Assistance partners. In other situations, identity theft
is involved.

Taxpayers should be wary of any of the following:

  • Fictitious claims for refunds or rebates based on
    excess or withheld Social Security benefits.
  • Claims that Treasury Form 1080 can be used to transfer
    funds from the Social Security Administration to the IRS enabling a payout
    from the IRS.
  • Unfamiliar for-profit tax services teaming up with
    local churches.
  • Home-made flyers and brochures implying credits or
    refunds are available without proof of eligibility.
  • Offers of free money with no documentation required.
  • Promises of refunds for “Low Income – No Documents Tax
  • Claims for the expired Economic Recovery Credit Program
    or Recovery Rebate Credit.
  • Advice on claiming the Earned Income Tax Credit based
    on exaggerated reports of self-employment income.

In some cases non-existent Social Security refunds or rebates have been the
bait used by the con artists.  In other situations, taxpayers deserve the
tax credits they are promised but the preparer uses fictitious or inflated
information on the return which results in a fraudulent return.

Flyers and advertisements for free money from the IRS, suggesting that the
taxpayer can file with little or no documentation, have been appearing in
community churches around the country. Promoters are targeting church
congregations, exploiting their good intentions and credibility. These schemes
also often spread by word of mouth among unsuspecting and well-intentioned
people telling their friends and relatives.

Promoters of these scams often prey upon low income individuals and the

They build false hopes and charge people good money for bad advice.  In
the end, the victims discover their claims are rejected or the refund barely
exceeds what they paid the promoter.  Meanwhile, their money and the
promoters are long gone.

Unsuspecting individuals are most likely to get caught up in scams and the
IRS is warning all taxpayers, and those that help others prepare returns, to
remain vigilant. If it sounds too good to be true, it probably is.

IRS Gives Truckers Three-Month Extension; Highway Use Tax Return Due Nov. 30

July 18th, 2011

The Internal Revenue Service advised truckers and other owners of
heavy highway vehicles that their next federal highway use tax return, usually
due Aug. 31, will instead be due on Nov. 30, 2011.

Because the highway use tax is currently scheduled to expire on Sept. 30,
2011, this extension is designed to alleviate any confusion and possible
multiple filings that could result if Congress reinstates or modifies the tax
after that date. Under  temporary and proposed regulations filed today in
the Federal Register, the Nov. 30  filing deadline for Form 2290, Heavy
Highway Vehicle Use Tax Return, for the tax period that begins on July 1, 2011,
applies to vehicles used during July, as well as those first used during August
or September. Returns should not be filed and payments should not be made prior
to Nov. 1.

To aid truckers applying for state vehicle registration on or before Nov.
30, the new regulations require states to accept as proof of payment the
stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year,
ending on June 30, 2011.  Under federal law, state governments are
required to receive proof of payment of the federal highway use tax as a
condition of vehicle registration. Normally, after a taxpayer files the return
and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers
for this purpose.  A state normally may accept a prior year’s stamped
Schedule 1 as a substitute proof of payment only through Sept. 30.

For those acquiring and registering a new or used vehicle during the
July-to-November period, the new regulations require a state to register the
vehicle, without proof that the highway use tax was paid, if the person
registering the vehicle presents a copy of the bill of sale or similar document
showing that the owner purchased the vehicle within the previous 150 days.

In general, the highway use tax applies to trucks, truck tractors and buses
with a gross taxable weight of 55,000 pounds or more. Ordinarily, vans,
pick-ups and panel trucks are not taxable because they fall below the
55,000-pound threshold.

For trucks and other taxable vehicles in use during July, the Form 2290 and
payment are, under normal circumstances, due on Aug. 31. The tax of up to $550
per vehicle is based on weight, and a variety of special rules apply to
vehicles with minimal road use, logging or agricultural vehicles, vehicles
transferred during the year and those first used on the road after July.

Last year, the IRS received about 650,000 Forms 2290 and highway use tax
payments totaling $886 million.

How to Prepare Before a Disaster Strikes

July 11th, 2011

A home disaster can be stressful enough without reconstructing important
records and accounting for belongings. The Internal Revenue Service encourages
taxpayers to safeguard their financial and tax records before disaster strikes.
Listed below are four simple tips for individuals on preparing for a disaster.

  1. Recordkeeping Take advantage of
    paperless recordkeeping for financial and tax records. Many people receive
    bank statements and documents electronically and important documents like
    W-2s and tax returns can be scanned into an electronic format and stored
    on a flash drive or CD in a safe place. Keep it with other essential
    documents like home-closing statements, vehicle titles, insurance records
    and birth, death or marriage certificates and legal paperwork. Some online
    services can automatically back up computer files and store them offsite.
    Regardless of how you save your documents (whether it is electronically or
    on paper) ensure they are safe from the elements, but also encrypted
    and/or locked up to guard against disclosure or theft.
  2. Document Valuables The IRS has disaster
    loss workbooks for individuals that can help you compile a room-by-room
    list of your belongings. One option is to photograph or videotape the
    contents of your home, especially items of greater value. You should store
    the photos or video in a safe place away from the geographic area at risk.
    This will help you recall and prove the market value of items for insurance
    and casualty loss claims in the event of a disaster.
  3. Update Emergency Plans Make sure you have a
    means of receiving severe weather information; if you have a NOAA Weather
    Radio, put fresh batteries in it. Make sure you know what you should do if
    threatening weather approaches or if a fire occurs.  Review your
    emergency plans annually.
  4. Count on the IRS In the event of a
    disaster, the IRS stands ready to help. The IRS has valuable information
    you can request if your records are destroyed. If you have been affected
    by a federally declared disaster, you can receive copies or transcripts of
    previously filed tax returns free of charge by submitting Form 4506,
    Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of
    Tax Return.  Clearly indicate the official name of the disaster in
    red at the top of the form, to expedite processing and waive the usual fee
    for tax return copies.