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IRA's
INDIVIDUAL RETIREMENT ARRANGEMENT (IRA)
A married couple filing a joint return can contribute
up to $2,000 to each spouse's IRA, even if one spouse
has little or no earned income if their modified
adjusted income is within certain limits. A single
person or head of household may also contribute up to
$2,000 to an IRA.
INCOME LIMITS FOR IRA's
For married couples filing a joint tax return, the
phase-out range for making deductible contributions to
an IRA begins at $52,000 of adjusted gross income and
ends at $62,000. For singles and head of household,
the phase-out range begins at $32,000 and ends at
$42,000. There is no adjusted gross income limit for
persons not covered by a pension plan.
IRA EARLY WITHDRAWAL
There is no additional 10% tax on early withdrawals
from an IRA if you are buying a first home for
yourself, your children or grandchildren, or if you
are paying higher education expenses for the IRA
owner, spouse, child, or grandchild.
IRA EARLY WITHDRAWAL ADDITIONAL TAX
There is no additional 10% tax on early withdrawals
from an IRA under certain conditions. The IRS will
waive the additional tax when the taxpayer is buying a
first home, or paying higher education expenses for
himself or a qualified family member.
ROTH IRA's
The "Roth" IRA is a nondeductible IRA.
Taxpayers can contribute up to $2,000 to a Roth IRA
within modified adjusted gross income limits. The
earnings on contributions to a Roth account generally
are not taxed when withdrawn from the account.
ROTH IRA
Taxpayers can elect to contribute up to $2,000 to a
Roth IRA. The Roth IRA differs from the traditional
IRA because contributions are not deductible, but when
withdrawn the earnings are not taxable. There are
adjusted gross income limitations, but a taxpayer can
contribute to a Roth IRA even if he is covered by an
employer pension plan.
EDUCATIONAL IRA's #1
Up to $500 per child per year (under age 18) can be
contributed to an Educational IRA if a single
taxpayer's modified adjusted gross income is no more
than $95,000. The modified adjusted gross income limit
is $150,000 for married filing joint taxpayers. This
is a nondeductible IRA, but withdrawals will be
tax-free when used to pay a child's college costs.
EDUCATIONAL IRA's #2
Parents can establish educational IRAs for their
children under the ages of 18. Contributions of up to
$500 per child per year may be made by any individual
(including the child). There is no limit on the number
of educational IRAs that can be established for a
child. However, total contributions for the child
during any tax year cannot be more than $500. There is
no deduction for this IRA, but withdrawals will be
tax-free when used to pay college costs for the IRA
beneficiary.
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DEPENDENTS
CHILD TAX CREDIT #1
Parents will get a $500 credit for a qualifying child
under age 17 at the end of the year. A qualifying
child is your dependent who is a son, daughter,
step-child, adopted child, grandchild or eligible
foster-child. This credit is generally nonrefundable
and can only reduce the taxpayer's income tax.
Families with three or more qualifying children may be
entitled to a credit in excess of their tax liability.
CHILD TAX CREDIT #2
Parents can take a $500 credit for a qualifying child
under age 17. Generally, this is a nonrefundable
credit. The credit begins to phase out for parents who
file married filing joint with adjusted gross incomes
that exceeds $110,000. For singles the phase out
begins at $75,000 and at $55,000 for married filing
separate.
DEPENDENCY TESTS
The IRS considers a person a dependent if the
following criteria are met:
- generally, if that person does not file a joint
return;
- if that person lives in your household or if the
person is a relative that you support;
- if the person is a U.S. citizen or resident, or
a resident of Canada or Mexico for some part of
the calendar year;
- if the person had a gross income less than
$2,800 unless the person is a child under age 19
or a college student under age 24;
- if you provide more than 50% of the person's
support.
CHILD AND DEPENDENT CARE #1
If you're a working parent, or you were working and
are now looking for work, you may be able to claim a
credit for your child care expenses. The credit may be
as much as $720 for the expenses for one qualifying
child, or $1,440 for more than one child, depending on
your adjusted gross income.
CHILD AND DEPENDENT CARE #2
Are you a working parent able to claim a credit for
child care expenses? If so, you must provide the IRS
with the care provider's name, address, and taxpayer
identification number (TIN) which can be a social
security number or an employer identification number (EIN).
If the provider is a daycare center the TIN is their
EIN. If the provider is an individual, the TIN is the
social security number. If the provider is a church or
non-profit group and has no EIN, the words "tax
exempt" can be substituted for the TIN.
CHILD AND DEPENDENT CARE #3
Do you pay someone to come into your home and provide
child care while you work? If you do, you may actually
be an employer who is required to pay employment
taxes. If the person you pay provides care in his or
her home, you would not be considered their employer.
CHILD SUPPORT
Do you pay child support? If you do, can that child be
claimed as a dependent on your tax return? Unless
dependency is covered in your divorce decree, a child
is generally claimed by the custodial parent. The
custodial parent may sign IRS Form 8332 giving the
dependent exemption to the other parent. Child support
is neither income to the recipient, nor a deduction
for the payer.
STANDARD DEDUCTION FOR DEPENDENT ON ANOTHER'S
RETURN
The standard deduction for an individual for whom an
exemption can be claimed on another person's tax
return is generally limited to the greater of (a)
$700, or (b) the individual's earned income for the
year plus $250. In no case can the deduction exceed
the regular standard deduction amount, generally
$4,400.
ADOPTION CREDIT
Taxpayers who pay for adoption expenses may be able to
take a credit for qualified adoption expenses of up to
$5,000 per child or $6,000 for a special needs child.
If the taxpayer's modified adjusted gross income is
over $75,000, the credit begins to be phased out.
FOSTER PARENTS
Are you a designated foster parent or thinking about
becoming one? Foster parents who receive payments from
a state, political subdivision or tax-exempt child
placement agencies may have charitable deductions. If
you spend money to provide support for foster children
that is greater than the nontaxable payments you
receive, you may be able to deduct that amount as an
itemized deduction on Schedule A. You may do this if
you are not making a profit or if you have no profit
motive.
CHILDREN'S INVESTMENT INCOME
Does your child under age 14 have investment income?
If they do, and the total amount is more than $1,400,
part of the amount may be taxed at the parent's rate.
The child may file a tax return, including Form 8615,
or you may be able to file Form 8814 and report your
child's income on your return.
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EDUCATION
STUDENT LOAN-INTEREST PAID
You may be able to deduct up to $2,000 of interest you
pay on a qualified student loan. This applies to loan
interest paid during the first 60 months the interest
payments were required. Only the amount of interest
actually paid in 2000 may be deducted. You cannot
claim the deduction in any tax year in which another
taxpayer claims you as a dependent.
STUDENT LOAN INTEREST
You may be able to claim a deduction of up to $2,000
for interest paid on a qualified student loan. You do
not need to itemize to claim this interest. This
amount is subject to a phase out which begins at
$40,000 of income for a single person, and at $60,000
for a married couple filing a joint return.
HOPE AND LIFETIME CREDITS
There are two nonrefundable tax credits for payments
made for qualified tuition and related expenses for
post-secondary education. You may be able to claim a
Hope credit of up to $1,500 for each eligible student.
You may be able to claim a lifetime learning credit of
up to $1,000 for each family.
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EARNED
INCOME CREDIT
EARNED INCOME CREDIT #1
The earned income credit is a refundable credit for
low-income workers with earned income. The credit is
available for taxpayers with or without children. This
year, the maximum credit if you have two or more
qualifying children is $3,888.
EARNED INCOME CREDIT #2
The earned income credit is a refundable credit for
low-income workers with earned income. The credit is
available for taxpayers with or without children. This
year, the maximum credit if you have one qualifying
child is $2,353.
EARNED INCOME CREDIT #3
The earned income credit is a refundable credit for
low-income workers with earned income. The credit is
available for taxpayers with or without children. This
year, the maximum credit for persons with no
qualifying children is $353.
EARNED INCOME CREDIT #4
Taxpayers will not be eligible for the earned income
credit if the IRS has determined that they have
previously claimed the credit fraudulently or
recklessly. A fraudulent claim results in a 10-year
loss of eligibility. A reckless claim results in a
2-year loss of eligibility.
EARNED INCOME CREDIT #5
The term "foster child" is changed for
purposes of the Earned Income Credit. The foster child
must still be cared for as if the child were your own
and must have lived with you for the entire year. In
addition for tax year 2000, the child must be either
your brother, sister, stepbrother or stepsister (or a
descendent of any such relative) or the child must be
placed with you by an authorized placement agency.
With the changed definition, some taxpayers who had a
qualifying child for 1999 may not have one for 2000.
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FILING
STATUS
FILING STATUS: END OF YEAR
Your filing status depends on whether you are married
or unmarried on December 31st of a tax year. If you
live apart from your spouse and meet certain tests you
may be considered unmarried for the entire year. If
you are divorced under a final decree by the last day
of the year, you are considered unmarried for the
entire year.
FILING STATUS: ANNULLED MARRIAGES
If you obtain an annulment that declares your marriage
never existed, you are considered unmarried for this
and any previous tax years. You must amend your tax
returns for all the tax years not affected by the
statute of limitations for filing a return to show
this change in marital status.
FILING STATUS: HEAD OF HOUSEHOLD
Single or separated taxpayers should check to see if
they qualify for head of household filing status. This
filing status allows a taxpayer to take a higher
standard deduction, possibly be eligible for a lower
tax bracket, and perhaps qualify for the earned income
credit.
FILING STATUS: MARRIED FILING JOINTLY OR MARRIED
FILING SEPARATELY
If you're married, you have a choice of filing status:
married filing jointly or married filing separately.
To be sure that you pay the lowest tax, figure your
return both ways. It's usually advantageous for a
married couple to file jointly. However, if the
husband's and wife's income is about the same, they
may pay more in taxes by filing jointly depending on
the rest of their return.
FILING STATUS: MARRIED FILING A JOINT RETURN
If you're married, you may choose to file married
filing a joint return or married filing a separate
return. On a joint return, you report your combined
income and deduct your combined allowable deductions.
You may file a joint return even if only one spouse
had income.
FILING STATUS: MARRIED FILING A SEPARATE RETURN
A married couple may choose to file separate returns.
This may be advantageous if this results in less tax
liability or if either spouse prefers to be
responsible for his or her own tax liability. If the
couple has been separated during the tax year, one
spouse may qualify as head of household if certain
conditions are met.
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CHARITABLE
CONTRIBUTIONS
CHARITABLE CONTRIBUTIONS #1
Here's a tax tip from Taxation Professionals on
claiming contributions to a church or qualified
non-profit organization. These contributions can be
deducted as an itemized deduction on Schedule A. The
IRS requires you to keep a written acknowledgement
from the church or organization for any single
contribution of $250 or more. You should keep records
and receipts for all other contributions as well.
CHARITABLE CONTRIBUTIONS #2
Extra tax deductions may be as close as your closet.
The fair market value of clothes, furniture, and other
items you donate to qualified organizations can be
claimed as charitable contributions. One way to figure
the fair market value as the amount you might receive
for the item at a garage sale. Another way to
determine fair market value is to base it on a price
advertised for a similar item in the classified ads.
You claim these deductions on Schedule A.
CHARITABLE CONTRIBUTIONS #3
Carefully check out a charity before making a
contribution. Find out whether the organization is
listed with the IRS as a non-profit organization
approved to receive tax-deductible donations. IRS
Publication 78 lists the organizations that IRS
considers qualified.
CHARITABLE CONTRIBUTIONS #4
Have you attended a charity benefit or event lately?
You may be able to deduct the dollar amount that is
more than the fair market value of the event. For
example, you attend a dinner fundraiser for a
qualified non-profit organization and your ticket
price is $65. If the regular price of the restaurant
meal would have been $10, your contribution amount
would be $55.
CHARITABLE CONTRIBUTIONS #5
If you have an American or foreign exchange student
living in your home, you may be able to deduct up to
$50 a month as a charitable deduction on Schedule A.
You must have a written agreement from a qualified
organization that provides the student program. The
student must not be a relative, and must be a
full-time student at the high school level or below.
CHARITABLE CONTRIBUTIONS #6
Not every donation you make to a worthy cause is
deductible as a charitable contribution. If you gave
money to an individual in need, or to an organization
and specified that the contribution was for an
individual, you would not be able to deduct the amount
given. When you donate to non-qualified organizations
such as civic leagues or social clubs, you cannot take
a tax deduction.
CHARITABLE CONTRIBUTIONS #7
You may usually deduct charitable contributions only
in the year that you actually make them. A check that
you mail is considered delivered on the date you mail
it. A contribution charged on a credit card is
deductible in the year you make the charge. The amount
of your deduction may be limited depending on the type
of property given, and the type of organization to
which it is given. Some contributions that you are not
able to deduct in the current year because of adjusted
gross income limits may be carried over to future
years.
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REAL
ESTATE
BASIS OF PROPERTY-GAINS AND LOSSES
When you purchase property, the basis is usually its
cost. Your cost also includes amounts you pay for
sales tax paid on the purchase, commissions, and
freight charges. Keep accurate records of all items
that affect the basis of the property. When the item
is sold, this will help you to determine if you have a
gain or loss.
RENTAL PROPERTY #1
If you're an owner of rental property, you can take
deductions for advertising for tenants, the costs of
signs, cleaning supplies, real estate taxes and
mortgage interest. Some of the other deductions
include landscaping, fees paid to property managers,
and the cost of transportation to and from the rental
property.
RENTAL PROPERTY #2
If you're a landlord, you will have income and
expenses. Rental income includes payments made by an
occupant for the use of property, payments to cancel a
lease, advance rent, and any security deposit used as
a final payment of rent. Some of your expenses such as
rent lost due to a vacancy, are not deductible.
Improvements made to the property must be depreciated
over a prescribed number of years and cannot be
deducted all at once
MOVING EXPENSES
If you've moved at least 50 miles in the last year,
and your move was job-related, you may be able to
deduct the cost of moving your household goods and
your traveling expenses. Allowable expenses are
deductible whether or not you use Schedule A and
itemize your deductions.
REAL ESTATE #1
Your home purchase can be a wonderful tax advantage.
You may be able to itemize your deductions. If so, you
can deduct payments such as mortgage interest, real
estate taxes, and most points paid by you or the
seller in the year of purchase. The earlier in the
year you purchase your home, the more months of
mortgage interest you will have by tax time.
REAL ESTATE #2
The terms repairs and improvements can be confusing as
they apply to the value of your home. A repair or
maintenance expense is not tax deductible, and cannot
be added to the basis of your home. An improvement
adds to the value of your home, and is added to the
basis. Adding vinyl siding and installing a security
system are examples of improvements.
REAL ESTATE-FORM HUD-1 #1
Once you've closed on your new home, keep your closing
papers including the Form HUD-1 in a safe place. When
it's time for tax preparation, the Form HUD-1 is the
document you will need to determine the points and
other deductible closing costs on your tax return.
REAL ESTATE-FORM HUD-1 #2
If you're getting ready to sell your home, it's time
to figure the basis of your property for tax purposes.
If you've saved your Form HUD-1 from closing, you can
add the attorney's fees, surveys, agent's commissions,
title searches, recording fees, and the transfer and
stamp taxes to the basis. You may also add
improvements you have made to the property.
REAL ESTATE REFINANCING #1
When interest rates drop, there's often a mad rush to
refinance home mortgages. Many homeowners assume that
they may also deduct their points. If you use the
proceeds of your new loan to make home improvements,
you generally may deduct the loan points in the year
you refinance. If only a portion of the loan is used
to improve the home, only that portion of points is
deductible in the year paid. The remainder must be
deducted over the life of the loan.
REAL ESTATE REFINANCING #2
Are you thinking about refinancing your home mortgage?
The portion of points paid to refinance a loan not
used to substantially improve your main residence is
generally deductible in equal amounts over the life of
the loan. Any points not deducted by the year the loan
is paid off are generally fully deducted in the payoff
year.
SALE OF A HOME
Homeowners can avoid paying taxes on the first
$250,000 of profits on the sale of a home if they are
single, or $500,000 if they are married. Generally,
you must own and live in the home two of the last five
years.
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MEDICAL
EXPENSES
MEDICAL EXPENSES #1
If you itemize your deductions, you may be able to
deduct medical expenses. You can deduct the amount
that is more than 7.5% of your adjusted gross income.
Taxpayers are allowed to deduct unreimbursed medical
and dental expenses for themselves and family members.
MEDICAL EXPENSES #2
Don't overlook any medical deductions for which you
may qualify. Hearing aids, eye glasses, contact
lenses, hospital fees for nursing, physical therapy,
lab tests and x-rays are all deductible. The mileage
to and from a doctor's or dentist's office is
deductible as are bus or taxi costs.
MEDICAL EXPENSES #3
If you file Form 1040 and itemize your deductions, you
may deduct medical expenses that are over 7.5% of your
adjusted gross income. Careful tax planning may allow
you to plan ahead so that you could take more medical
deductions during one tax year instead of spreading
them over two. For example, in a year that you already
have substantial medical expenses, schedule and pay
for your routine doctor, or dentist appointments by
December 31st instead of early in the next year.
SELF-EMPLOYED HEALTH INSURANCE
If you're self-employed, you may deduct up to 60% of
your medical insurance costs that cover yourself, your
spouse, and your dependents as an "Adjustment to
Income" on Form 1040. To do this, the taxpayer
and/or spouse must not be covered by an employer
subsidized health plan.
MEDICAL EXPENSES FOR LONG-TERM CARE
The costs of qualified long-term care services can
generally be included as medical expenses. These costs
include a part of the premiums for qualified long-term
care insurance. Long-term care insurance premiums
covering these qualified services are deductible as
medical expenses (subject to the 7.5% of the adjusted
gross income limit and certain age limitations).
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EMPLOYMENT
JOB SEEKING EXPENSES
If you are looking for a job in your current
profession and can itemize your deductions, certain
expenses may qualify as miscellaneous deductions.
Employment agency fees, resume printing, phone calls,
and mailing expenses are examples of deductible items.
JOB EXPENSES
Some of your expenses that may be deducted include
union dues, job-related magazines and books, and other
related business expenses. Generally, you must
depreciate the cost of tools used in your work. If
your employer requires you to wear work clothes or
uniforms that are not suitable for everyday wear, you
may deduct the cost and upkeep.
TRAVEL EXPENSES
You may be able to deduct business travel expenses if
you must conduct business away from your tax home. The
cost of transportation, lodging, laundry, dry
cleaning, and telephone expenses are some of the
deductible expenses. Generally, meals are only 50%
deductible.
SELF-EMPLOYED-SECTION 179 EXPENSING
If you're self-employed, you may deduct the cost of
certain qualifying equipment by making a section 179
expense deduction. This year the section 179 deduction
has increased to $20,000.
UNEMPLOYMENT COMPENSATION
Have you received unemployment compensation during the
year 2000? You must report unemployment compensation
as income. State and federal unemployment insurance
benefits, and railroad unemployment compensation
benefits are all considered taxable income. You can
choose to have income tax withheld from any
unemployment compensation you receive.
HOME OFFICE DEDUCTIONS IN 2000
Home office deductions cannot be more than your earned
income. If they are higher, you must carry over the
non-deductible expenses to the following year. Form
8829 is used to deduct home office expenses for a
self-employed person.
CHANGES FOR HOME OFFICE
A home office will qualify as the principal place of
business if it is used exclusively and regularly by
the taxpayer to conduct administrative or management
activities of a trade or business, and if there is no
other fixed location of the business where the
taxpayer can conduct these activities.
COMPUTER AND CELLULAR PHONE
If you purchased a computer or cellular phone and use
it for business, you may be able to claim a
depreciation deduction. Your employer must require you
to have the phone or computer as a condition of
employment, and you must use them for the convenience
of your employer. You must keep a record of the
personal and business use of the computer or phone to
determine the percentage of business use.
BUSINESS MILEAGE 2000
If you use your car for business purposes you may
deduct 32.5 cents a mile for unreimbursed mileage
expenses. Be sure that you keep a written record of
your total mileage and business mileage.
ACTUAL EXPENSES OF CAR
When you use a car for business, you may deduct the
mileage expense by using either the standard mileage
rate or the actual expenses of maintaining the
vehicle. If you take the actual expenses, you can
deduct the depreciation, gas, oil, insurance, tires,
licenses, repairs etc. If you choose to take actual
expenses, you cannot change to the mileage deduction
method.
ENTERTAINMENT
If you incur entertaining costs for business reasons,
you may be able to deduct 50% of the amount. The
expense must be considered ordinary or necessary to
your profession. Entertainment includes any activity
generally considered to provide entertainment,
amusement, or recreation.
TIP INCOME #1
Do you receive tips as part of your income? You must
report all tips as wages on Form 1040. If you receive
tips of $20 or more in one month, you must also keep a
daily record of tips received, and give your employer
a written report of your tips for that month by the
10th day of the next month.
TIP INCOME #2
If you receive tip income, and work for a large food
or beverage establishment, your employer may be
required to allocate an amount of tips to you on your
W-2. Your employer must allocate tips if the amount of
tips you reported to him is below the IRS required
minimum percentage of gross sales. The difference is
called allocated tips and is in box 8 of your W-2. You
will have to include these allocated tips in your
income and also pay social security and Medicare tax
on them.
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CASUALTY
AND THEFT LOSS
CASUALTY AND THEFT LOSS #1
Unfortunately, theft and natural disasters such as
floods, tornadoes, and hurricanes occur. The good news
is that you may get a tax break. Damage to your home
and possessions, which occurs due to theft, fire,
storm, or other natural disaster is deductible if you
itemize your deductions. The loss must be reduced by
any insurance or other type of reimbursement plus
$100, and then by 10% of your adjusted gross income.
CASUALTY AND THEFT LOSS #2
If you've been involved in an automobile accident, the
damage to your car may be considered a casualty loss.
This would apply if the loss were not due to your
negligence or the negligence of someone driving your
vehicle. The loss must first be reduced by any
insurance or other reimbursement plus $100, and then
by 10% of your adjusted gross income.
CASUALTY AND THEFT LOSS #3
You must be able to prove that a casualty or theft
loss did occur in order to deduct it, and provide
proof of the amount that you claim. Each casualty or
theft loss is reduced by any reimbursement and by
$100, and is further reduced by 10% of your adjusted
gross income.
CASUALTY AND THEFT LOSS #4
If the President declares your area a federal disaster
area, you have a choice of which tax year to claim a
casualty loss. You may claim the loss for the year in
which it occurred, or you may choose to amend your
previous year's return and claim the loss in that
previous tax year for a quicker refund.
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AUDITS
AUDIT NOTICES
If you receive an audit notice from the IRS, you need
to acknowledge it and respond promptly. You should
consult a tax professional before sending information
or additional money to the IRS. There may be an error
in the amount that IRS claims you owe. Some tax
professionals may even represent you at an audit,
without your actual attendance.
AUDITS #1
The IRS is conducting fewer audits now than ever, but
there are circumstances that cause the IRS to examine
your return more closely. For example, the IRS may
examine your return and request more information if
your itemized deductions exceed any IRS internal
guidelines, or you claim tax shelter losses. Also, if
your business expenses and/or charitable contributions
of cash are substantial in relation to your income,
you may receive an audit notice.
AUDITS #2
The IRS is conducting fewer audits now than ever, but
there are circumstances that may be red flags. If a
closed corporation of which you are a shareholder has
had its return examined, you may also receive an audit
notice. Are your business expenses or charitable
contributions high in relation to your income? These
circumstances may also prompt an audit.
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FILING
YOUR RETURN
E-FILE/ELECTRONIC FILING
Electronic filing or e-file reduces the time it
takes to get your tax refund, but you must have a
valid social security number for every person included
on the return. If you qualify to e-file, you
may also be able to get a loan on your tax refund in
two days or less by getting a Refund Anticipation
Loan.
AMENDING
What happens if you've filed a tax return, and later
realize that you've omitted income, or overlooked some
deductions? You can amend your return by filing Form
1040X. Generally, you must file your return within 3
years after the date you filed your original return.
You cannot change your filing status from married
filing jointly to married filing separately after the
due date of the original return.
FILING AN EXTENSION
Are you thinking of filing an extension? By filing an
extension, you postpone filing your return until
August 15th. However, if you don't pay any part of the
tax due by April 16th, you will accrue penalty and
interest charges. Complete IRS Form 4868 to file for a
four-month extension.
ELECTRONIC FILING OF EXTENSIONS
The IRS offers electronic filing of extension
applications. The IRS will process Form 4868 Application
for Automatic Extension of Time to File U.S.
Individual Income Tax Return through April 16th.
By filing an extension, you postpone the filing date
of your return until August 15th.
INSTALLMENT AGREEMENT
Taxpayers who owe but cannot pay their full tax
liability by April 16th should consider the IRS
installment plan. To do this, the taxpayer must
complete Form 9465 Installment Agreement Request,
and attach it to the front of their tax return. If the
IRS approves the request, the taxpayer will be charged
a $43 fee and interest on any unpaid balance. The
taxpayer should make the payments large enough so that
the balance due will be paid off by the due date of
the next return.
RECORD KEEPING
It's a good idea to keep your previous tax returns, as
well as other important documents that have affected
your income and deductions for at least 3 years. If
you need a copy of a prior year return, you can obtain
it for a fee from the IRS by filing Form 4506.
GETTING COPIES OF PAST TAX RETURNS
If you're buying a home, your mortgage banker may ask
for copies of several prior years' tax returns. If you
cannot locate them, file Form 4506 with the Internal
Revenue Service immediately. For a fee, the IRS will
mail you copies of your past returns. This can take up
to 60 calendar days.
ESTIMATED TAXES
Taxpayers who expect to owe at least $1,000 in taxes
after subtracting withholding and credits are usually
required to pay estimated quarterly taxes. For
estimated tax purposes, the year is divided into four
payment periods. Payments are generally due on April
15th, June 15th, September 15th, and January 15th of
the next year.
ESTIMATED TAX PENALTY
If you did not pay enough tax either through
withholding or by making estimated tax payments, you
will have an underpayment of estimated tax, and you
may have to pay a penalty. There will be no penalty
for underpayment unless the amount you owe is $1,000
or more.
$3 PRESIDENTIAL ELECTION CAMPAIGN
Do you usually mark "yes" or "no"
to the box that asks you if you'd like to contribute
$3 to the Presidential Election Campaign? If you do
choose "yes", it will not change the tax you
pay or the refund you will receive. This fund was set
up to help pay the expenses of presidential election
campaigns.
CHANGE OF ADDRESS
Are you planning a move before the end of the year?
The IRS has its own official change-of-address form,
Form 8822. If you fill it out and mail it to the
appropriate IRS service center, you should receive
your tax booklet at your new address.
JANUARY 31st DEADLINE FOR GETTING W-2's
The IRS requires employers to mail W-2's to their
employees by January 31st. If a worker doesn't receive
a W-2 by that date, he should contact his employer. If
a W-2 is not provided by that date, the worker may use
payroll stubs to determine the income from that
employer for income tax purposes.
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MISCELLANEOUS
WITHHOLDING
Taxpayers who are employed and who receive large
refunds should consider adjusting their withholding
amounts with their employers. Instead of waiting until
the end of the year to receive a big refund, the
taxpayer can complete a new W-4, give it to their
employer, and have less withholding tax taken out of
their paycheck. If income or employment circumstances
change, it might also be to the taxpayer's advantage
to revise their W-4 at that time.
NONTAXABLE INCOME
There are certain types of income that are not taxed
and do not have to be used to determine your taxable
income. These include child support payments, military
allowances, veteran's benefits, welfare benefits and
workers' compensation. A cash rebate that you received
for a car purchase is not considered taxable income.
SOCIAL SECURITY NUMBERS
If you are getting married and changing your name, be
sure that you notify the Social Security
Administration. If you have a baby, the hospital may
provide social security application forms for your
child. You must have a valid social security number
for every person included on the tax return in order
to electronically file with the IRS.
MISCELLANEOUS EXPENSES #1
Various expenses fall in the category of miscellaneous
deductions. Job-hunting, job travel, union dues, tax
preparation and safety deposit box fees are all types
of miscellaneous deductions. If you itemize, you can
claim the amount of miscellaneous deductions that is
over 2% of your adjusted gross income.
MISCELLANEOUS EXPENSES # 2
Various expenses fall in the category of miscellaneous
deductions. Appraisal fees for casualties, theft
losses or charitable contributions, depreciation on
home computers used for investments, and fees to
collect taxable income are all types of miscellaneous
deductions. If you can itemize, you can claim the
amount of miscellaneous deductions that is over 2% of
your adjusted gross income.
MISCELLANEOUS EXPENSES #3
Various expenses fall in the category of miscellaneous
deductions. Hobby expenses, up to hobby income, can be
taken as miscellaneous deductions. You may also deduct
as miscellaneous deductions legal fees related to
producing or collecting taxable income, doing or
keeping your job, or to collect taxable alimony.
LIMIT ON ITEMIZED DEDUCTIONS
Your income may limit the total amount of itemized
deductions you can take. This year, if your adjusted
gross income is over $128,950 for a married couple
filing jointly, your total itemized deductions will be
affected. If the AGI of a person filing as married
filing separately is over $64,475, his or her total
itemized deductions will be limited.
HOUSEHOLD EMPLOYEES
Are you a household employer? You might be if you
hired a housekeeper or a care provider for your
dependant who provided services in your home. If you
have a household employee, you may be required to
withhold social security and Medicare taxes, Federal
unemployment tax, and Federal income tax.
ESTATE AND GIFT TAXES
You can generally give money or property to another
person without any tax consequences provided the
amount does not exceed $10,000 per year. If this
amount is exceeded, it must be reported on a gift tax
return. The unified estate and gift tax credit
effectively exempts from tax the first $675,000 of
such cumulative transfers of gifts. This credit will
rise in future years. By the year 2006 this credit
will exempt one million dollars.
CAPITAL GAINS
When realizing gains from the sale of stocks, the
holding period for long-term is more than one year.
This holding period for the 10% or 20% rate applies to
all sales in 2000.
PASSENGER AUTO LIMITS
The IRS defines a passenger auto as any four-wheeled
vehicle made primarily for use on public roads that
has a loaded gross vehicle weight of 6,000 pounds or
less. The depreciation limit for such passenger autos
placed in service in 2000 is $3,060. This limit must
be reduced if the business use is less than 100%.
AMOUNTS SUBJECT TO SOCIAL SECURITY AND MEDICARE TAX
In 2000, the total wage limit for amounts subject to
social security tax has increased from $72,600 to
$76,200. There is no wage limit for Medicare taxes.
OTHER MILEAGE 2000
Besides business mileage, did you know that other
types of mileage are deductible if you can itemize? If
you are involved in charity or volunteer work for a
non-profit organization, you can deduct your mileage
at 14 cents a mile. Your mileage to and from your
doctor or dentist and to and from the pharmacy is
deductible at 10 cents a mile.
GAMBLING AND LOTTERY WINNINGS
If you were lucky enough to win money in a lottery,
you can deduct the cost of your losing tickets for
that calendar year as an itemized deduction up to the
amount of your winnings. If a husband and wife file a
joint return, their gambling winnings and losses are
pooled so that the losses of one spouse are deductible
against the winnings of the other up to the amount of
winnings.
SHARING A WINNING LOTTERY TICKET
Who will pay the taxes when you win the lottery pool?
Form 5754 Statement by Persons Receiving Gambling
Winnings has been provided by the IRS to alleviate
the problem of reporting multiple ownership of lottery
tickets. The form is prepared by the person who
actually receives the winnings and it identifies all
those entitled to a share of the winnings. The federal
taxes should already have been withheld by the
lottery.
SALE OF PERSONAL ASSETS
Did you take a loss on the sale of a capital asset
such as a non-business automobile, or your home? You
cannot deduct these losses. If you sold stocks, bonds,
securities, land or investment real estate the loss is
deductible. Losses on the sale of non-personal capital
assets are first used to offset gains, after which up
to $3,000 of the loss can be deducted on this year's
return unless you are married filing separately. Up to
$1,500 of the loss is allowed if you are married
filing separately. The remaining loss, if any, can be
carried forward to next year and subsequent years
until all the loss has been used.
SOCIAL SECURITY EARNINGS LIMITS CHANGED
If you are now 65 or over, you no longer have to pay
back social security benefits because of earning too
much in your job or part-time job. A recent change
allows unlimited earnings at age 65 for those who
reach 65 before 2003. However, with more income, you
may find more of your social security benefits are
taxable.
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