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Avoid IRS Scams: Economic Stimulus
Don’t become a victim of this new scam, preying on taxpayers interested in receiving their economic stimulus payments. If you receive an email supposedly coming from the IRS, keep this in mind.
In this scam, a taxpayer receives an email pretending to come from the IRS which tells the recipient he or she is eligible for an economic stimulus payment. The message recommends direct deposit into the taxpayer’s checking or savings account. To receive the payment, recipients must click on a link to complete and submit an online form by a certain date; otherwise, the e-mail warns, payment may be delayed. The form requests personal and financial data, including checking or savings account numbers that the scammers can use to gain access to the accounts.
In reality, the way members of the public receive their economic stimulus payment is to file a tax return with the IRS, not a special form. Additionally, the IRS does not request personal or financial information via email.
Recommendation: Require Electronic Filing
Every year, the Electronic Tax Administration Advisory Committee (ETAAC) presents recommendations tax process improvements to Congress in June. The 14-member ETAAC provides an organized public forum for discussion of electronic tax administration issues and the overriding goal that paperless filing should be the preferred and most-convenient method of filing tax and information returns.
In its recommendation, the ETAAC explains that many professional tax accountants who file tax forms on behalf of clients still do so by paper, and will not electronically file unless mandated to do so. Therefore, the committee is repeating its 2007 recommendation that Congress empower the IRS to require paid preparers who, using tax software, prepare more than fifty individual returns per year to file all returns electronically. This requirement should be buffered by allowing waivers, minimum penalties for non-compliance, and appropriate opt-out provisions.
ETAAC Annual Report to Congress, June 19, 2008.
Form 990 Redesign
Form 990 is one of the most important tax filing reports for a charitable organization. On this form, charities and other non-profits must report the entirety of their fiscal operations. The forms are available to the public for review by investors and prospective contributors. The IRS will be redesigning the form this year, and we’re expecting many questions from the affected organizations.
The Internal Revenue has posted public comments on draft instructions to the 2008 Form 990, the annual return most tax-exempt organizations must use to report information about their operations. The instructions are for the redesigned Form 990 that organizations will file for their 2008 tax year (returns filed in 2009), which was released in final form in December 2007 (IRS News Release IR-2007-2004).
The IRS sought comments from the public on the 2008 Form 990 instructions, in an effort to make sure the final instructions address the needs of the tax-exempt community. The comment period closed on June 1, 2008.
The draft 2008 Form 990 instructions are organized according to a consistent format. There is a general overview of the form or schedule explaining its purpose, an explanation of who must file that particular schedule, and then line-by-line instructions to aid in answering each question on the form or schedule.
The draft instructions also contain a number of new tools designed to make it easier for the organization to answer the questions and to promote more uniform reporting. These tools include a comprehensive glossary of terms; a sequencing list to help organizations determine the order in which to fill out parts of the form; a compensation table to help organizations determine how and where to report items of compensation; and many illustrative examples. These aids were developed in response to comments received last year in connection with the draft Form 990.
File Your Taxes for Free
In many cases, taxpayers meeting certain qualifications are able to file income tax returns online for free. This is a program sponsored by the IRS but usually well hidden from the public. Many of the free file options have income requirements, so choose carefully to ensure that you won’t be in for any surprises after you finish filling out your tax forms online.
Here are the companies offering free services under the Free File Alliance.
CompleteTax: Free federal tax preparation and e-file if your Adjusted Gross Income is $32,000 or less. Form 4868 Extensions offered.
Free TaxACT: Free federal online tax preparation and e-file if your adjusted gross income is $54,000 or less and you are age 19 through 54 years old. Includes Form 982 (Mortgage Forgiveness Debt Relief). Form 4868 Extensions offered.
CitizenTax: Free federal online tax preparation and e-file if your adjusted gross income is $54,000 or less, and you are age 55 or under, and live in AL, AR, AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MT, NC, ND, NE, NJ, NM, NY, OH, OK, OR, PA, RI, SC, TX, UT, VA, VT, WI or WV.
Tax$imple - Deluxe Version: Free federal online tax preparation and e-file if your adjusted gross income is $54,000 or less and you are age 65 years old or younger and you live in the following states: AL, AZ, CA, CO, CT, DC, DE, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, SD, TN, UT, VA, VT, WA, WI, WV, WY. Form 4868 Extensions offered.
123Easytaxfiling: Free federal online tax preparation and e-file if your adjusted gross income is $54,000 or less and you live in the following states: AL, AR, AZ, CA, CO, CT, GA, IA, IL, IN, KY, LA, MA, MD, MI, MN, MO, NC, NE, NJ, NY, OH, OK, OR, PA, SC, VA, WI or WV. Form 4868 Extensions offered.
efiletaxreturns.net: Free federal tax preparation and e-file if your adjusted gross income is between $5,000 and $54,000, and you live in the following states: AL, AR, AZ, CA, CO, CT, DC, DE, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NJ, NM, NY, OH, OK, OR, PA, RI, SC, SD, UT, VA, VT, WI, or WV.
H&R Block’s TaxCut Free File: Free federal online tax preparation and e-file if your adjusted gross income is $54,000 or less and you are age 50 or under.
eSmartTax By Liberty Tax Service: Free federal online tax preparation and e-file if your adjusted gross income is $54,000 or less and you are age 50 or under. Includes Form 982 (Mortgage Forgiveness Debt Relief). Form 4868 Extensions offered.
FileYourTaxes.com: Free Federal online tax preparation and e-File if you are age 25 and under with an Adjusted Gross Income between $10,000 and $50,000, or your Adjusted Gross Income is $50,000 or less and you live in the following states: AL, AR, AZ, CA, CO, DC, DE, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MO, MS, NC, NE, NJ, NM, NY, OH, OK, OR, PA, UT, VA, or WI. Includes Form 982 (Mortgage Forgiveness Debt Relief). Form 4868 Extensions offered.
average1040.com: Free federal online tax preparation and e-file if your adjusted gross income is $54,000 or less and you live in AL, AR, AZ, GA, IA, ID, IL, KY, MA, MI, MN, MO, MS, MT, NC, ND, NY, OH, OK, OR, PA, RI, VT or WV.
Online Taxes @ OLT.com: Free tax return preparation and e-file if your Adjusted Gross Income is $54,000 or less and you are age 50 or younger. Includes Form 982 (Mortgage Forgiveness Debt Relief). Form 4868 Extensions offered.
Free1040TaxReturn.com: Free Federal online tax preparation and e-File if your adjusted gross income is $54,000 or less and you are age 76 or under and live in the following states: AL, AR, AZ, CA, CO, CT, DE, HI, GA, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, NC, ND, NE, NJ, NM, NY, OH, OK, PA, SC, UT, VA, VT, WI, or WV. Form 4868 Extensions offered.
TurboTax® Freedom Edition: Free tax return preparation and e-file if your Adjusted Gross Income is $30,000 or less or you will claim EITC, or you are active duty military with an AGI of $54,000 or less. Includes Form 982 (Mortgage Forgiveness Debt Relief). Form 4868 Extensions offered.
ezTaxReturn.com: Free federal tax preparation and e-file if your adjusted gross income is $54,000 or less and you live in: AL, AZ, CA, GA, IL, LA, MA, MI, MS, NC, NJ, NY, OH, PA, VA or WI.
1040NOW.NET: Free federal tax preparation and e-file if your adjusted gross income is $54,000 or less and you are age 72 or under and you live in AL, AR, AZ, CA, CO, CT, DC, DE, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NJ, NM, NY, OH, OK, OR, PA, RI, SC, UT, VA, VT, WI or WV. Includes Form 982 (Mortgage Forgiveness Debt Relief).
TaxSlayer Free Returns.com: Free federal online tax preparation and e-file if your Adjusted Gross Income is $54,000 or less and you are 25 years old or younger or 68 years old or older or active military. Also, your return is free if you qualify for EITC or your AGI is $10,000 or less. Includes Form 982 (Mortgage Forgiveness Debt Relief). Form 4868 Extensions offered.
FreeTaxUSA.com: Free federal online tax prep and e-file if your adjusted gross income is $54,000 or less and you live in AL, AZ, CA, CO, CT, DE, GA, IA, ID, IL, IN, KS, KY, LA, MD, MI, MO, MS, NC, NE, NJ, NM, NV, NY, OH, OK, OR, PA, SC, UT, VA, or WV. Form 4868 Extensions offered.
Free Tax Return: Free federal tax preparation and e-file if your adjusted gross income is $54,000 or less and you live in the following states: AK, AZ, CA, CO, DC, DE, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MI, MN, MT, NC, ND, NE, NH, NM, NV, NY, OH, OR, PA, RI, SC, SD, TN, UT, VA, VT, WI, WV or WY.
Online Tax Pros: Free tax return preparation and e-file if your adjusted gross income is between $11,000 and $54,000. Also provided en Espanol. Form 4868 Extensions offered.
IRS Increases Mileage Rate to 58.5 Cents!
If you deduct the cost of operating your car from your taxes, then the IRS is offering good news. Following increasing gas prices and other operating costs, the IRS has raised the optional deductible rate — the amount per business mile traveled that you can deduct in lieu of tracking your actual operating costs — 8 cents to a total of 58.5 cents per mile.
This rate will be in effect for all business miles traveled from July 1, 2008 through December 31, 2008. Other mileage rates have increased as well. Here’s the full chart:
| Purpose | Rates 1/1 through 6/30/08 | Rates 7/1 through 12/31/08 |
| Business | 50.5 | 58.5 |
| Medical/Moving | 19 | 27 |
| Charitable | 14 | 14 |
There’s more good news. Many companies use the IRS’s deduction rate for determining how much to reimburse employees for business-related travel. If you expect to be traveling for your employer in the second half of this year, you’ll be able to reclaim more of your travel expenses.
Retired? Disabled Veteran? Don’t Forget to Claim Your Tax Stimulus
In order to qualify for the 2008 Economic Stimulus program, you must file your 2008 tax return, even if you don’t have the need to do so otherwise.
The IRS offered this press release on Thursday, June 19, reminding disabled veterans and retirees that a few minutes of work can earn you $300 or more.
WASHINGTON — The Internal Revenue Service today announced a new summer campaign to reach those retirees and disabled veterans who qualify for the economic stimulus payment but have not filed to claim it. New statistics released today indicate about 74 percent in this group are accounted for in the stimulus payments currently being sent, leaving about 5.2 million potential recipients remaining.
For all taxpayers, the IRS has issued 76.1 million payments worth $63.8 billion based on 2007 tax returns processed so far. The agency expects to issue 124 million payments to Americans by year’s end. Eligible individuals are receiving up to $600 ($1,200 for married couples filing joint returns) plus $300 for eligible children younger than 17.
“The IRS has delivered. Only 70 days after the legislation became law, the IRS started putting the money in the hands of tens of millions of Americans. This summer, we will go the extra mile to help the remaining retirees and disabled veterans get their payments,” said Doug Shulman, IRS Commissioner.
A special stimulus category includes recipients of certain benefits from Social Security and Veterans Affairs who do not normally have a requirement to file a tax return. However, these individuals must file a tax return before Oct. 15 this year to receive their economic stimulus payments. The IRS has accounted for 74 percent of Social Security and Veterans Affairs beneficiaries out of about 20 million initially identified as being potential stimulus recipients. All but 5.2 million of those have been accounted for as either having filed a return, having filed a joint return, or as not being eligible for a stimulus payment (for example, they were claimed as a dependent on another’s return).
Most people only need to file a tax return as they normally do. The IRS will calculate eligibility and the payment amount. However, many retirees and veterans do not normally file a tax return because their benefits are not taxable. This year, they must file in order to receive an economic stimulus payment.
Shulman also stressed to retirees that receiving the stimulus payment should have no impact on other federal benefits currently being received. The stimulus payment is not taxable. Absent any other filing requirements, filing a tax return to receive a stimulus payment does not mean that retirees will have to start filing tax returns again.
The IRS has identified 5.2 million retirees and veterans’ beneficiaries who potentially are eligible for the stimulus payments. Later this summer, the agency will send them a special letter that explains stimulus payment eligibility and how to claim it. The letter will include a sample tax form and an actual tax form that people can complete and mail to the IRS. This will be the second special mailing to reach those individuals.
The IRS also is working with members of Congress, state and local officials and national partners such as AARP, the National Council on Aging, United Way of America, National Disability Institute and others to continue its extensive outreach efforts to the retiree and veterans’ communities through the summer. The IRS will take the lead in coordinating face-to-face free tax preparation sessions with the help of local community partners at locations where these individuals live, work and socialize such as senior housing, Veterans Affairs hospitals and assisted living facilities.
The agency also reminded people that it has more than 400 local Taxpayer Assistance Centers operating normal business hours Monday through Friday. These centers can provide assistance to retirees and veterans trying to receive their payments. A list for addresses and office hours can be found at “Contact My Local Office.”
“Some retirees and others who normally do not file a tax return may be eligible and not know it. And, that’s where we could use the public’s help as well. If you know of a retiree or a disabled veteran who might qualify, please pass along the information to them,” said Shulman.
The Economic Stimulus Act of 2008 generally provided for payments of $600 ($1,200 for married couples filing joint returns or the amount equal to the 2007 net income tax liability, whichever is less, ), plus $300 for each qualifying child. Payments also begin to phase out for individuals with adjusted gross incomes greater than $75,000 ($150,000 married couples filing jointly).
For people who have no tax liability or no tax filing requirement, there is a minimum payment of $300 ($600 for married couples), plus the $300 for each qualifying child. To be eligible for the minimum payment, individuals must have at least $3,000 in qualifying income. Qualifying income includes any combination of earned income, nontaxable combat pay and certain benefit payments from Social Security, Veterans Affairs and Railroad Retirement.
People not otherwise required to file an income tax return should file Form 1040A with basic information to ensure they receive the economic stimulus payment. This information includes name; address; dependents, if any; amount of qualifying income (which must be $3,000 or more); direct deposit information and signatures. Forms 1040A and instructions are available at the IRS Web site.
Although, your payment can be made by check, the IRS urges people to use direct deposit to ensure a speedy delivery.
The types of Social Security benefits that are considered qualifying income include retirement, disability and survivor payments. Supplemental Security Income (SSI) is not qualifying income. The types of Veterans Affairs benefits that are considered qualifying income include disability compensation, disability pension and survivor payments. Qualifying Railroad Retirement payments include the social security equivalent portion of Tier 1 benefits.
Eligible individuals including their qualifying children, must have valid Social Security numbers. Also, people cannot be claimed or be eligible to be claimed as a dependent on someone else’s tax return. People with Individual Taxpayer Identification Numbers, except for the spouses and qualifying children of military personnel, are not eligible.
Business Structure: Limited Liability Company
A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute.
LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
Owners of an LLC are called members. Since most states do not restrict ownership, members may include individuals, corporations, other LLCs and foreign entities. There is no maximum number of members. Most states also permit “single member” LLCs, those having only one owner.
A few types of businesses generally cannot be LLCs, such as banks and insurance companies. Check your state’s requirements and the federal tax regulations for further information. There are special rules for foreign LLCs.
For additional information on the kinds of tax returns to file, how to handle employment taxes and possible pitfalls, refer to Publication 3402, Tax Issues for Limited Liability Companies.
Business Structure: Subchapter S Corporation
The Subchapter S corporation is a variation of the standard corporation. The S corporation allows income or losses to be passed through to individual tax returns, similar to a partnership. The rules for Subchapter S corporations are found in Subchapter S of Chapter One of the Internal Revenue Code.
An S corporation has the same corporate structure as a standard corporation. It is a legal entity, chartered under state law, and is separate from its shareholders and officers. There is limited liability for corporate shareholders. The difference is that the corporation files an election on Form 2553, Election by a Small Business Corporation, to be treated differently for federal tax purposes.
Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. It is treated in the same way as a partnership, in that generally taxes are not paid at the corporate level.
An S corporation files Form 1120S, U.S. Corporation Income Tax Return for an S Corporation. The income flows through to be reported on the shareholders’ individual returns. Schedule K-1, Shareholder’s Share of Income, Credits and Deductions, is completed with Form 1120S for each shareholder. The Schedule K-1 tells shareholders their allocable share of corporate income and deductions. Shareholders must pay tax on their share of corporate income, regardless of whether it is actually distributed.
Business Structure: Corporation
A corporate structure is more complex than other business structures. It requires complying with more regulations and tax requirements. It may require more accounting tax preparation services than the sole proprietorship or the partnership.
Corporations are formed under the laws of each state and are subject to corporate income tax at the federal and state level. In addition, any earnings distributed to shareholders in the form of dividends are taxed at individual tax rates on their personal tax returns.
The corporation becomes an entity that handles the responsibilities of the organization. Like a person, the corporation can be taxed and can be held legally liable for its actions. If you organize your business as a corporation, you are not personally liable for the debts of the corporation.
When you form a corporation, you create a separate tax-paying entity. Unlike sole proprietors and partnerships, income earned by a corporation is taxed at the corporate level using corporate tax rates. Regular corporations are called C corporations because Subchapter C of Chapter One of the Internal Revenue Code is where you find general tax rules affecting corporations and their shareholders.
A corporation files Form 1120 or 1120-A, U.S. Corporation Income Tax Return. If a shareholder is an employee, he pays income tax on his wages, and the corporation and the employee each pay one half of the social security and Medicare taxes and the corporation can deduct its half. A corporate shareholder pays only income tax for any dividends received.
Business Structure: Partnership
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.
A partnership does not pay any income tax at the partnership level. Partnerships file Form 1065, U.S. Return of Partnership Income, to report income and expenses. This is an information return. The partnership passes the information to the individual partners on Schedule K-1, Partner’s Share of Income, Credits, and Deductions. Partnerships are often referred to as pass-through or flow-through entities for this reason.
Each partner reports his share of the partnership net profit or loss on his personal Form 1040 tax return. Partners must report their share of partnership income even if a distribution is not made.
Partners are not employees of the partnership and so taxes are not withheld from any distributions. Like sole proprietors, they generally need to make quarterly estimated tax payments if they expect to make a profit.
General partners must pay self-employment tax on their net earnings from self-employment assigned to them from the partnership. Net earnings from self- employment include an individual’s share, distributed or not, of income or loss from any trade or business carried on by a partnership.
Limited partners are subject to self-employment tax only on guaranteed payments, such as professional fees for services rendered.