Five Ways to Offset Education Costs

College can be very expensive. To help students and their parents, the IRS offers the following five ways to offset education costs. 1. The American Opportunity Credit This credit can help parents and students pay part of the cost of the first four years of college. The American Recovery and Reinvestment Act modifies the existing Hope Credit and has been extended for tax years 2011 and 2012., making it available to a broader range of taxpayers. Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. Generally, 40 percent of the credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. 2. The Hope Credit The credit can help students and parents pay part of the cost of the first two years of college. This credit generally applies to 2008 and earlier tax years. However, for tax year 2009 a special expanded Hope Credit of up to $3,600 may be claimed for a student attending college in a Midwestern disaster area as long as you do not claim an American Opportunity Tax Credit for any other student in 2009. 3. The Lifetime Learning Credit This credit can help pay for undergraduate, graduate and professional degree courses – including courses to improve job skills – regardless of the number of years in the program.  Eligible taxpayers may qualify for up to $2,000 – $4,000 if a student in a Midwestern disaster area – per tax return. 4. Enhanced benefits for 529 college savings plans Certain computer technology purchases are now added to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 plan.  For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services. 5. Tuition and fees deduction Students and their parents may be able to deduct qualified college tuition and related expenses of up to $4,000. This deduction is an adjustment to income, which means the deduction will reduce the amount of your income subject to tax. The Tuition and Fees Deduction may be beneficial to you if you do not qualify for the American opportunity, Hope, or lifetime learning credits. You cannot claim the American Opportunity and the Hope and Lifetime Learning Credits for the same student in the same year. You also cannot claim any of the credits if you claim a tuition and fees deduction for the same student in the same year. To qualify for an education credit, you must pay post-secondary tuition and certain related expenses for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit. For more information, see Publication 970, Tax Benefits for Education, which can be obtained online at IRS.gov or by calling the IRS at 800-TAX-FORM (800-829-3676). As with anything you are claiming on your tax return, YOU MUST HAVE RECEIPTS. Make sure if you give your child money for books they get the receipt. Also you need the statement form the school showing what you paid for out of pocket. We believe with the American Opportunity Credit being refundable, you don't have to owe taxes to qualify, audits will be up. If we can be of any assistance please call or come by 865-984-6329.

Ten Tax Tips for Individuals Who Are Moving This Summer

Ten Tax Tips for Individuals Selling Their Home

The IRS has some important information to share with individuals who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Here are ten tips from the IRS to keep in mind when selling your home.

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

For more information about selling your home, see IRS Publication 523, Selling Your Home. This publication is available at www.irs.gov or by calling 800-TAX-FORM (800-829-3676).

Does the IRS Have Money Waiting For You?

If you earned income in the last few years but you didn’t file a tax return because your wages were below the filing requirement, the Internal Revenue Service may have some money for you. The IRS also has millions of dollars in checks that are returned each year as undeliverable.
Here’s what you need to know about these two types of “missing money” and how to claim it:
Unclaimed Refunds
Some people earn income and may have taxes withheld from their wages but are not required to file a tax return because they have too little income. In this case, you can claim a refund for the tax that was withheld from your pay. Other workers may not have had any tax withheld but would be eligible for the refundable Earned Income Tax Credit, but must file a return to claim it.

• To collect this money a return must be filed with the IRS no later than three years from the due date of the return.
• If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury. 
• There is no penalty assessed by the IRS for filing a late return qualifying for a refund.
• Current and prior year tax forms and instructions are available on the Forms and Publications page of www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
• Information about the Earned Income Tax Credit and how to claim it is also available on www.irs.gov.

Undeliverable Refunds
Were you expecting a refund check but didn't get it?

• Refund checks are mailed to your last known address. Checks are returned to the IRS if you move without notifying the IRS or the U.S. Postal Service.
• You may be able to update your address with the IRS on the “Where’s My Refund?” feature available on IRS.gov. You will be prompted to provide an updated address if there is an undeliverable check outstanding within the last 12 months.
• You can also ensure the IRS has your correct address by filing Form 8822, Change of Address, which is available on www.irs.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
• If you do not have access to the Internet and think you may be missing a refund, you should first check your records or contact your tax preparer. If your refund information appears correct, call the IRS toll-free assistance line at 800-829-1040 to check the status of your refund and confirm your address.     

Are Your Social Security Benefits Taxable?

The Social Security benefits you received in 2010 may be taxable. You should receive a Form SSA-1099 which will show the total amount of your benefits. The information provided on this statement along with the following seven facts from the IRS will help you determine whether or not your benefits are taxable.

1. How much – if any – of your Social Security benefits are taxable depends on your total income and marital status.
   
   
2. Generally, if Social Security benefits were your only income for 2010, your benefits are not taxable and you probably do not need to file a federal income tax return.
   
   
3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status.
   
   
4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.
   
   
5. You can do the following quick computation to determine whether some of your benefits may be taxable:
   • First, add one-half of the total Social Security benefits you received to all your other income, including any tax exempt interest and other exclusions from income.
   • Then, compare this total to the base amount for your filing status. If the total is more than your base amount, some of your benefits may be taxable.
   
   
6. The 2010 base amounts are:
   • $32,000 for married couples filing jointly.
   • $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
   • $0 for married persons filing separately who lived together during the year.
   
   
7. For additional information on the taxability of Social Security benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available on this website or by calling 800-TAX-FORM (800-829-3676). We also would be glad to answer any questions you may have.

Ten Facts from the IRS about Amending Your Tax Return

If you discover an error after you file your tax return, you can correct it by amending your return.  Here are ten facts from the Internal Revenue Service about amending your federal tax return:

1. When to amend a return You should file an amended return if your filing status, your dependents, your total income or your deductions or credits were reported incorrectly.
2. When NOT to amend a return  In some cases, you do not need to amend your tax return.  The IRS usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return.  In these instances, do not amend your return.
3. Form to use Use Form 1040X, Amended U.S. Individual Income Tax Return, to amend a previously filed Form 1040, 1040A or 1040EZ.  Make sure you check the box for the year of the return you are amending on the Form 1040X. Amended tax returns cannot be filed electronically.
4. Multiple amended returns If you are amending more than one year’s tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.
5. Form 1040X The Form 1040X has three columns. Column A shows original figures from the original return (if however, the return was previously amended or adjusted by IRS, use the adjusted figures). Column C shows the corrected figures. The difference between Column A and C is shown in Column B.  There is an area on the back of the form to explain the specific changes and the reason for the change.
6. Other forms or schedules If the changes involve other schedules or forms, attach them to the Form 1040X.
7. Additional refund If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X.  You may cash that check while waiting for any additional refund.
8. Additional tax If you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges.
9. When to file Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
10. Processing time Normal processing time for amended returns is 8 to 12 weeks.

If you need help filing your amended return, give us a call at 865-984-6329. 

Things That Scream "Audit Me" To The IRS

No one looks forward to being audited by the IRS, not the examination part, and not the potential penalties.
The good news is that if you’re smart—and yes, honest—you probably won’t be audited. Here’s a look at some of the most common audit “triggers”: the red flags that are likely to pique the taxman’s interest.


Overstating your deductions. Take legitimate writeoffs, by all means. But overdoing it could well raise the IRS’ antennae.
A common trigger is claiming luxuries as business expenses. If you claim deductions
for things like limousines, boats or extravagant travel, be prepared to back it up. And remember, very often your travel and entertainment expenses are only 50% deductible.

Crying poverty. If you claim your business hasn’t turned a profit for multiple years, or if you claim a large net loss for a certain year, it’s a red flag. Losing money for more than three out of five years suggests
your business may be more of a hobby, and thus not deduction-worthy.

Witholding payroll taxes. Suck it up and pay the taxes. The penalty for not doing so is the amount of payroll taxes you owe—and that can break your business.

Misclassifying your employees. Asserting that your employees are independent contractors—and thus that you don’t need to pay payroll taxes for them—is something that may happen quite by accident. But the IRS regards this as tax evasion, so guard against it.

Making a lot of money. If you file a Schedule C (the self-employment return form used by sole proprietors), and your income is over $100,000, you’re a big fish—or at least a somewhat big one—and your odds of being audited increase. Obviously, you should try to make as much money as possible. Just keep good records.

Claiming a home-office deduction. This is a common red flag. If you intend to write off your home office, be prepared to prove that the office is a well-defined room or area dedicated exclusively to business.
Overpaying relatives. If your office manager spouse pulls down more than office manager salary, it’s going to look fishy. Family members should be paid the same salary as if they were non-family members
with the same experience level, doing the same job.

If You Itemize You Deduction.  Claiming a large charitable deduction on Schedule A could catch the eye of the IRS. If you have cash contributions, make sure you have receipts for these. A cancelled check is not good enough anymore. Also if you make donations of household goods or clothing, make sure they are valued correctly. Fair market value is what someone is will to pay for the item, not what you originally paid.

Claiming Employee Business Expenses. If you have to use your personal vehicle or travel a lot for business you may be able to write off reimbursed expenses on Form 2106. The key is to keep very good records. Mileage logs are a must. Keep all receipts for travel expenses If you are an over the road truck driver, make sure you keep a copy of your log books.


Filing a sloppy return. Filling out a return by hand, making all your numbers extremely round, leaving boxes blank. All of it smells fishy to IRS examiners.