Eight Facts About Filing Status

Eight Facts About Filing Status 

from www.irs.gov

The first step to filing your federal income tax return is to determine which filing status to use. Your filing status is used to determine your filing requirements, standard deduction, eligibility for certain credits and deductions, and your correct tax. There are five filing statuses: Single, Married Filing Jointly, Married Filing Separately, Head of Household and Qualifying Widow(er) with Dependent Child.

Here are eight facts about the five filing status options the IRS wants you to know so that you can choose the best option for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple’s filing status would be Married Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2010, usually you may still file a joint return with that spouse for the year of death.
6. A married couple may elect to file their returns separately. Each person’s filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2008 or 2009, you have a dependent child and you meet certain other conditions.

Tax Changes for 2011

Tax laws change every year.  Even though it may be hard for the average person to keep track of the annual editions, knowledge of the changes potentially could save a person thousands of dollars in extra expenses.  This article is intended to inform the average taxpayer on what to expect for 2011. 

The most notable feature for the upcoming year is the bill that was just signed into law by President Obama in December, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.  The main component of the bill is to temporarily extend the tax cuts under former President Bush from 2001 and 2003.  The entire package is estimated to save Americans $900 billion over the next 2 years, about $2,000 per year for the typical family.

Income Rates, Standard Deductions and Personal Exemptions

The income tax rates will remain the same for at least 2 more years.  If not for the recent bill, tax rates would have gone up for nearly every bracket.  For example, the 10% bracket would have gone up to 15%.  The 25%, 28%, 33%, and 35% brackets all would increase around an additional 3%.

Standard deductions have increased by small increments.  Individual taxpayers are allowed a $5,800 standard deduction, up from $5,700 and married taxpayers filing jointly are allowed an $11,600 standard deduction, up from $11,400.

The personal exemption will also increase slightly, up $50 to a total of $3,700.  The bill also temporarily repeals the Personal Exemption Phase-Out. The phase-out would reduce personal exemptions for filers above certain thresholds.  For single filers, the threshold is $169,550 and for married couples filing jointly this is $254,350.

Alternative Minimum Tax

Alternative minimum tax (AMT) is a tax that some people have to pay in addition to their regular tax.  The original intent of this tax was to avoid letting high income people use special tax benefits and/or loopholes to pay little or no tax.  It has grown in scope to affect people in lower income brackets even without special benefits.  Each year the government adjusts the requirements for the AMT.  The adjusted exemption amounts for 2010 are $47,450 for individuals and $72,450 for married couples filing jointly.  This will save an additional 21 million households from facing the AMT.

FICA Payroll Tax

The bill allows for a temporary, 1-year reduction of the social security tax (FICA).  The FICA tax has been reduced from 6.2% to 4.2% for employees.  If the taxpayer is self-employed, the rate changes from 12.4% to 10.4%.  This means if earn $50,000/year you will save an extra $1,000.  This reduction is expected to save Americans a total of $111 billion.

Earned Income and Child Tax Credits

The tax credit of $1,000 for each qualifying child has been extended for 2 years.  The credit starts to phase-out once a tax-payer reaches a certain threshold: $75,000/year or over for individuals and $110,000/year or over for married couples filing jointly.  Low income families could even be eligible to receive part of the credit back as a refund if they do not owe any federal taxes.

Tuition Tax Credit

The American Opportunity Tax Credit has also been extended for 2 years.  This credit covers tuition and related costs for the first 4 years of post-secondary education.  The full tax credit of $2,500 is available to individuals earning $80,000/year or less and married couples filing jointly earning $160,000/year or less.  The credit is phased-out for taxpayers over those thresholds.  Up to 40% of the credit is refundable if it exceeds tax liability.    This is expected to benefit over 8 million students and along with the Earned Income and Child Tax credits, save Americans over $40 billion. 

Unemployment Benefits Extension

A big part of the recently passed bill is the extension of unemployment benefits for an additional 13 month period.  Unemployment benefits have started to run out for many people while the country is still experiencing high levels of unemployment.  This feature is expected to benefit 7 million people and cost $56 billion.

Conclusion

Taxpayers should be aware of the many changes in the tax laws that will affect their tax liabilities and potential refunds.  The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 which has recently been passed will extend many of the tax cuts for an additional 2 years.  The IRS has advised that those who wish to take advantage of these changes in the law wait until mid to late February 2011 to file their tax returns.

 By Lance Collett

Rehan Alimohammad is an Attorney and CPA.  Our office handles all tax law and immigration law issues.  In the past year we have successfully trained over 200 people, including Attorneys, CPA’s, and Enrolled Agents, on how to successfully resolve cases with the IRS and State Tax Agencies.  Please visit our website at www.attorneyrehan.com, or call our offices at (281) 340-2074 or (800) 814-3920.

Disclaimer:  This article is not meant as specific advice regarding a person’s individual case.  An attorney should be consulted.  This article does not create an Attorney-Client relationship.   Any tax information or written tax advice contained herein (including any attachments) is not intended to be and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer.  (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)

Six Important Facts about Dependents and Exemptions

from www.irs.gov

 

Some tax rules affect every person who may have to file a federal income tax return - these rules include dependents and exemptions. Here are six important facts the IRS wants you to know about dependents and exemptions that will help you file your 2010 tax return.

1. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2010 tax return.
2. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you're filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
3. Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the social security number of any dependent for whom you claim an exemption.
4. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Tax Credit payments you received.
5. If you are a dependent, you may not claim an exemption. If someone else - such as your parent - claims you as a dependent, you may not claim your personal exemption on your own tax return.
6. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

Do I have to File a Tax Return?

You must file a federal income tax return if your income is above a certain level; which varies depending on your filing status, age and the type of income you receive.

Check the Individuals section of the IRS website at http://www.irs.gov/ or consult the instructions for Form 1040, 1040A, or 1040EZ for specific details that may help you determine if you need to file a tax return with the IRS this year. You can also use the Interactive Tax Assistant available on the IRS website to determine if you need to file a tax return. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions.

There are some instances when you may want to file a tax return even though you are not required to do so. Even if you don't have to file, here are seven reasons why you may want to:

Federal Income Tax Withheld  You should file to get money back if Federal Income Tax was withheld from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year's tax.

Making Work Pay Credit  You may be able to take this credit if you had earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.

Earned Income Tax Credit  You may qualify for EITC if you worked, but did not earn a lot of money.EITC is a refundable tax credit; which means you could qualify for a tax refund.

Additional Child Tax Credit  This refundable credit may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

American Opportunity Credit  The maximum credit per student is $2,500 and the first four years of postsecondary education qualify.

First-Time Homebuyer Credit  The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. To qualify for the credit, taxpayers must have bought - or entered into a binding contract to buy - a principal residence located in the United States on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed on the home on or before September 30, 2010. If you bought a home as your principle residence in 2010, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.

Health Coverage Tax Credit  Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit worth 80 percent of monthly health insurance premiums when you file your 2010 tax return.

IRS Kicks Off 2011 Tax Season with Deadline Extended to April 18; Taxpayers Impacted by Recent Tax Breaks Can File Starting in Mid- to Late February

from http://www.irs.gov/

WASHINGTON - The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns. The IRS reminded taxpayers impacted by recent tax law changes that using e-file is the best way to ensure accurate tax returns and get faster refunds.

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

The IRS expects to receive more than 140 million individual tax returns this year, with most of those being filed by the April 18 deadline.

The IRS also cautioned taxpayers with foreign accounts to properly report income from these accounts and file the appropriate forms on time to avoid stiff penalties.

"The IRS has made important strides at stopping tax avoidance using offshore accounts," said IRS Commissioner Doug Shulman. "We continue to focus on offshore tax compliance and people with offshore accounts need to pay taxes on income from those accounts."

The IRS also reminded tax professionals preparing returns for a fee that this is the first year that they must have a Preparer Tax Identification Number (PTIN). Tax return preparers should register immediately using the new PTIN sign-up system available through www.IRS.gov/taxpros.

Who Must Wait to File
For most taxpayers, the 2011 tax filing season starts on schedule. However, tax law changes enacted by Congress and signed by President Obama in December mean some people need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems.

Some taxpayers - including those who itemize deductions on Form 1040 Schedule A - will need to wait to file. This includes taxpayers impacted by any of three tax provisions that expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act Of 2010 enacted Dec. 17. Those who need to wait to file include:

Taxpayers Claiming Itemized Deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes (add link to Schedule A). In addition, itemized deductions include the state and local general sales tax
deduction that was also extended and which primarily benefits people living in areas without state and local income taxes. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

Taxpayers Claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students - covering up to $4,000 of tuition and fees paid to a post-secondary institution - is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit extended last month and the Lifetime Learning Credit.

Taxpayers Claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23 and Form 1040A, Line 16.

In addition to extending those tax deductions for 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act also extended those deductions for 2011 and a number of other tax deductions and credits for 2011 and 2012 such as the American Opportunity Tax Credit and the modified Child Tax Credit, which help families pay for college and other child-related expenses.  The Act also provides various job creation and investment incentives including 100 percent expensing and a two-percent payroll tax reduction for 2011.  Those changes have no effect on the 2011 filing season.
The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the recent tax law changes. In the interim, taxpayers affected by thesetax law changes can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes. Additional information will be available at http://www.irs.gov/.

For taxpayers who must wait before filing, the delay affects both paper filers and electronic filers. The IRS urges taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax law changes and ensure accurate tax returns. 

Except for those facing a delay, the IRS will begin accepting e-file and Free File returns on Jan. 14. Additional details about e-file and Free File will be announced later this month.

Many Ways to Get Assistance
The IRS is also continuing to focus on taxpayer service. Taxpayers with questions should check the IRS website at http://www.irs.gov/, call our toll-free number or visit a taxpayer assistance center.
This is also the first filing season that tax packages will not be mailed to individuals or businesses. There are still many options for taxpayers to get paper forms and instructions if they need them. In recent years, fewer and fewer taxpayers received these mailings. Last year, only 8 percent of individuals who filed tax returns received tax packages in the mail. Taxpayers can still get any forms and instructions they need online at http://www.irs.gov/, or they can visit local IRS offices or participating libraries and post offices.

In addition, individuals making $49,000 or less can use the Volunteer Income Tax Assistance program for free tax preparation and, in many cases, free electronic filing. Individuals age 60 and older can take advantage of free tax counseling and basic income tax preparation through Tax Counseling for the Elderly.

IRS Free File provides options for free brand-name tax software or online fillable forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $58,000 or less can choose from approximately 20 commercial software providers. There's no income limit for Free File Fillable Forms, the electronic version of IRS paper forms, which also includes free e-filing.

Check for a Refund
Once taxpayers file their federal return, they can track the status of their refunds by using the "Where's My Refund?" tool, located on the front page of http://www.irs.gov/. Taxpayers can generally get information about their refunds 72 hours after the IRS acknowledges receipt of their e-filed returns, or three to four weeks after mailing a paper return.

Taxpayers need to provide the following information from their tax returns: (1) Social Security Number or Individual Taxpayer Identification Number, (2) filing status, and (3) the exact whole dollar amount of your anticipated refund. If the U.S. Postal Service returns the taxpayer's refund to the IRS, the individual may be able to use "Where's My Refund?" to change the address the IRS has on file, online.

Also, taxpayers may complete a Form 8822, Change of Address, and send it to the address shown on the form. They may download Form 8822 from http://www.irs.gov/ or order it by calling 800-TAX-FORM. Generally, taxpayers can file an online claim for a replacement check if more than 28 days have passed since the IRS mailed their refund.

Tax Season Starts on Time for Most Taxpayers; Those Affected by Late Tax Breaks Can File in Mid- to Late February

From http://www.irs.gov/

WASHINGTON - Following last week's tax law changes, the Internal Revenue Service announced today the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.

The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week's changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job
Creation Act of 2010 that became law on Dec. 17.

People claiming any of these three items - involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A - will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

"The majority of taxpayers will be able to fill out their tax returns and file them as they normally do," said IRS Commissioner Doug Shulman. "We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season."

The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.

The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.

Taxpayers will need to wait to file if they are within any of the following three categories:
Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.

Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students - covering up to $4,000 of tuition and fees paid to a post-secondary institution - is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.

Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.

For those falling into any of these three categories, the delay affects both paper filers and electronic filers.

The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.