USA Individual Income Tax FAQ

Is there a way to file FREE electronic federal tax extension ?

2009-04-15T01:12:00.000-07:00

Well, still TurboTax/Intuit allows FREE electronic filing of Federal extension.

Check this link here: TurboTax Easy Extension

For more information:
http://turbotax.intuit.com/support/kb/general-program-issues/tax-essentials/605.html

How to file federal tax extension?

2009-04-15T01:08:00.000-07:00

You need to file form 4868 to file extension for Federal Tax Return. Form 4868 is available here:

2008 Form 4868

For more, info check this IRS link.

For state extension: Refer your state tax board as each one has its own rules and policies.

I am getting big refund on tax return, am I smart?

2007-04-22T09:42:00.000-07:00

No, most likely you are not! In fact you have lost some money if you are getting money! Some of you won't believe this comment.

I see lots of people feel lucky or smart if they are getting refund from IRS. Or some people compare with others and feel sad if others are getting refund and they are not.

You are getting refund means you overpaid to IRS! And that money was sitting with IRS interest free i.e. you gave loan of your money (refund) to IRS at 0% interest till get refund!

You could be smart if you keep refund or owing IRS amount below $500. This can be achieved predicting your income for each tax year at start of the year. For salaried person, Form W4 decides how much tax is withhold by employer. Click here for Form W4.

In case of salaried employee, at start of each year always try to fill up Form W4 worksheet to see if anything changing for that year.

But some time you get unpredicted one time income like capital gain gain or bonus. In that case you can still refile form W4 again to adjust the tax withholding!

Remember just filling up exemptions number (page 1 of form W4) does not mean you are done. Especially for married joint tax return case, you better do the full worksheet on page 2 & 3 of Form W4 and then decide exemptions number and even you may have to cut extra tax from salary with zero exemptions! This is normally true when a person is earning low salary compared to its spouse.

Use this IRS Tax withhold calculator:
http://www.irs.gov/individuals/article/0,,id=96196,00.html

What if I can not pay the taxes by due date?

2007-04-17T23:33:00.000-07:00

Can I get more time to pay tax money?
What IRS tax payment options?

If for some reason you can not pay income taxes by due date, then you will hit with penalties and start accuring interest. IRS says that file tax returns by due date and pay as much as you can of any taxes they owe to minimize any accrued penalties and interest.

Here is the list of alternative payment options to consider:

Request an Extension of Time to Pay —Based on the circumstances, a taxpayer could qualify for an extension of time to pay. The IRS is willing to allow extensions of time to pay in order to assist in tax debt repayment.

Apply for an Installment Agreement — The IRS may allow taxpayers to pay any remaining balance in monthly installments through an installment agreement.

Pay by Credit Card — Taxpayers can use their credit cards like American Express, MasterCard, Visa or Discover cards to pay the taxes.

For detail information of all these three options, click here for related IRS website link.

Can I file income tax extension by phone?

2007-04-17T15:57:00.000-07:00

Again NO! There is no more extension of income tax filing over the phone. IRS stopped this service(called Telefile program) after August 16, 2005.

Check this IRS link for details:
http://www.irs.gov/irb/2005-17_IRB/ar13.html

Can I file income tax return by phone?

2007-04-17T15:55:00.000-07:00

No! There used to be Telefile program from IRS in past which allowed eligible tax filers to file taxes over the phone.

This telefile program is discontinued after August 16, 2005.
Check this IRS link for details:
http://www.irs.gov/irb/2005-17_IRB/ar13.html

How to get extension for California (CA) state income tax return?

2007-04-17T09:41:00.000-07:00

California gives you an automatic filing extension through October 15, 2007. You don't need to apply for one. Here's what you should do if you can't file by April 17, 2007:

You are due a refund - File your return by October 15, 2007. Choose e-file and direct deposit for the fastest refund.
You have a balance due - Pay the amount you owe by April 17, 2007 to avoid penalties and interest. You can pay online, by credit card, or by check. Then file your return by October 15, 2007. Choose e-file to ensure that we receive your return on time.
You're not sure if you have a balance due - Use the worksheet on form FTB 3519 figure your tax.

For extension for federal tax returns, click here.

How to extend the time for income tax file return?

2007-04-17T09:16:00.000-07:00

Today is last day to file income tax return. If you have not filed yet, you may be better off by filiing extension. Filiing extension is more easy when you are getting money back from IRS.

But today is last day to pay IRS with NO PENALTY if you owe money to IRS.

Please be aware that an extension of time to file your return does not grant you any extension of time to pay your tax liability. If you are not able to file your federal individual income tax return by the due date, you may be able to get an automatic 6-month extension of time to file. To do so, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return (51K) Adobe PDF, by the due date for filing your calendar year return (usually April 15) or fiscal year return.

Visit IRS web site for detail information on this, click here.

What is my income tax bracket? How much is my income tax?

2007-04-15T21:21:00.000-07:00

Check these IRS links to find out about your federal income tax bracket and more.

2006 Federal Tax Rate Table

2007 Federal Tax Rate Table

Check your state's web site for state income tax rate table. Here is example of California CA state:

CA Tax Calculator, Table and Rates
2006 California Tax Tables and California Rate Schedules

What are ways to cut the taxes?

2007-04-15T20:21:00.000-07:00

Most popular question asked by common person!

Here is the list of things which may help to reduce the income taxes. It is NOT necessary that those apply to your case.

Invest in retirement accounts - 401k, Traditional IRA but remeber tax is deferred not eliminated.
Buy home and deduct mortgage interest deduction, & real estate tax deduction.
Get generous, donate your clothing and household items to charity.
Instead of short term capital gain, make it long term capital gain by holding security for 12 months or more.
If you want to avoid state taxes completely, then move and start working in states like Florida where there are no state taxes.
Use your employer's Flexible spending account benefit (if any) for any medical or dental or dependent care cost. Here you may save your tax percentage of the cost.
Pay your mortgage payment of next year's first month early. (eg. instead of 1 Jan, pay 31st Dec). This way you can get deduction in current year.
Pay real estate taxes early.
You can deduct Medical expenses only if it exceeds 7.5% of your adjusted gross income (AGI). So have calculated planning of your Dental & Medical expenses from start of the year to get this deduction.

NOTE: You may be subject to AMT. If AMT applies to you then many of above ways will not reduce your taxes.

Can I claim my spouse as dependent on my joint income tax return?

2007-04-15T01:32:00.000-07:00

NO! Your spouse is never considered as dependent when you are filiing a income tax married jointly.

References:
IRS Publication 501,
IRS Topic 354 - Dependents

Is the mortgage interest and property tax on a second residence deductible?

2007-04-14T13:38:00.000-07:00

The mortgage interest on a second home which you use as a residence for some portion of the taxable year, is generally deductible if the interest satisfies the same requirements for deductibility as interest on a primary residence. Real estate taxes paid on your primary and second residence are, generally, deductible. Deductible real estate taxes include any state, local, or foreign taxes on real property levied for the general public welfare. Deductible real estate taxes do not include taxes charged for local benefits and improvements that increase the value of the property. For more information, refer to Publication 17, Your Federal Income Tax for Individuals, Chapter 24; Tax Topic 503, Deductible Taxes; and Publication 530, Tax Information for First-Time Home Owners.

References:

Publication 936, Home Mortgage Interest Deduction
Publication 530, Tax Information for First-Time Homeowners
Publication 17, Your Federal Income Tax for Individuals
Tax Topic 503, Deductible Taxes
Tax Topic 505, Interest Expense

What are the limits for deducting interest paid on a student loan?

2007-04-14T12:54:00.001-07:00

The maximum deductible interest on a qualified student loan is $2,500 per return. If you are a taxpayer whose return status is married filing jointly, you are allowed to deduct the full $2,500 only when your modified adjusted gross income (MAGI) is $100,000 or less. If your MAGI is more than $105,000, but less than $135,000, the amount of your student loan interest deduction is gradually reduced. The instructions for Form 1040 (PDF) show you how to compute the deduction. If your MAGI is $135,000 or more, you are not able to take any deduction.

For those whose filing status is single, head of household, or qualifying widow(er), the full $2,500 deduction is allowed for MAGI levels equal to or below $50,000. For MAGI between $50,000 and $65,000, the deduction amount is gradually reduced. The Form 1040 Instructions show you how to compute the deduction. If your MAGI amount is $65,000 or more, there is no deduction.

There is no deduction if you file as married filing separately, if you are claimed as a dependent, or if the loan is from a related party or a qualified employer plan. For more information, refer to Publication 970, Tax Benefits for Education, Chapter 4; Tax Topic 505, Interest Expense; and Tax Topic 513, Educational Expenses .

References:

Publication 970, Tax Benefits for Education
Tax Topic 505, Interest Expense
Tax Topic 513, Educational Expenses

How do I claim an educational expense on my return?

2007-04-14T12:53:00.001-07:00

Employees, generally, must complete Form 2106 (PDF), Employee Business Expenses, or Form 2106-EZ (PDF), Unreimbursed Employee Business Expenses, when job-related educational expenses are involved. Educational expenses are deducted as miscellaneous deductions on Form 1040, Schedule A (PDF), Itemized Deductions. Alternatives to educational expense deductions should also be considered, such as the Lifetime Learning and Hope Credits, as discussed in Publication 970, Tax Benefits for Education, Chapter 2 and 3.

Self-employed individuals include educational expenses as deductions on Form 1040 Schedule C (PDF), Profit or Loss From Business; Form 1040, Schedule C-EZ (PDF) , Net Profit From Business; or Form 1040, Schedule F (PDF), Profit or Loss From Farming. For more information, refer to the forms, instructions, and publications listed above plus Tax Topic 513, Educational Expenses, and Tax Topic 605, Education Credits.

References:

Tax Topic 513, Educational Expenses
Publication 970, Tax Benefits for Education
Tax Topic 605, Education Credits
Form 1040, Schedule A (PDF), Itemized Deductions
Form 1040, Schedule C (PDF), Profit or Loss From Business
Form 1040, Schedule C-EZ (PDF), Net Profit From Business
Form 1040, Schedule F (PDF), Profit or Loss From Farming

Can I deduct the cost of classes I need for work?

2007-04-14T12:50:00.001-07:00

In some cases, you may be able to deduct the cost of classes you need for work. This deduction, however, would be subject to the 2 percent of AGI limitation, along with most other miscellaneous itemized deductions you list on Form 1040, Schedule A (PDF), Itemized Deductions.

To be deductible, your expenses must be for education that:

(1) Maintains or improves skills required in your present job, or

(2) Serves a business purpose and is required by your employer, or by law, to keep your present salary, status, or job.

However, these same expenses are not deductible if:

(1) The education is required to meet the minimum educational requirements of your job, or

(2) The education is part of a program that will lead to qualifying you in a new trade or business.

Educational expenses, related to your present work, that are incurred during periods of temporary absence from your job may also be deductible provided you return to the same job or same type of work. Generally, absence from work for one year or less is considered temporary.

For more information, refer to Publication 970, Tax Benefits for Education, Chapter 12; and Tax Topic 513, Educational Expenses.

References:

Publication 970, Tax Benefits for Education

Tax Topic 513, Educational Expenses

Form 8863 (PDF), Education Credits (Hope and Lifetime Learning Credits)

What types of educational expenses are deductible?

2007-04-14T12:19:00.002-07:00

Deductible educational expenses include amounts spent for tuition, books, supplies, laboratory fees, and similar items. They also include the cost of correspondence courses, as well as formal training and research you do as part of an educational program. Transportation and travel expenses to attend qualified educational activities may also be deductible. For more information, refer to Publication 970, Tax Benefits for Education; Chapter 12 and Tax Topic 513, Educational Expenses.

References:

Tax Topic 513, Educational Expenses
Publication 970 Tax Benefits for Education

How can I check the status of my amended return?

2007-04-14T12:19:00.001-07:00

You will need to contact our assistance line at (800) 829-1040 to receive information on the processing of your amended return. Amended/corrected returns are processed as quickly as possible. However, it could take 8 to 12 weeks to process an amended return.

References:

Form 1040X (PDF), Amended U.S. Individual Income Tax Return
Tax Topic 308, Amended

Can you send an amended tax return electronically?

2007-04-14T12:18:00.001-07:00

No, an amended return must be filed on a paper Form 1040X (PDF), Amended U.S. Individual Income Tax Return, and mailed to your servicing center for processing. You may submit the form after the IRS processes your original return.

References:

Form 1040X Instructions and Form 1040X (PDF), Amended U.S. Individual Income Tax Return and Instructions
Tax Topic 308, Amended returns

How do I fill out the amended return Form 1040X?

2007-04-14T12:17:00.001-07:00

Form 1040X (PDF), Amended U.S. Individual Income Tax Return, is designed with three columns. Column A is used to show the figures from the original return. However, if you previously amended that return or it was changed by the IRS, enter the adjusted amounts. Column C is used to show the correct figures. The difference between the figures in Columns A and C is shown in Column B. On the back of the form you need to explain the specific changes being made on the return and the reason for each change. If the changes involve another schedule or form, attach it to Form 1040X (PDF). Be sure to enter the year of the return you are amending at the top of the form as required.

References:

Form 1040X (PDF), Amended U.S. Individual Income Tax Return and Instructions
Tax Topic 308, Amended returns

What should I do if I made a mistake on my federal return that I have already filed?

2007-04-14T12:16:00.000-07:00

It depends on the type of mistake that was made. Many mathematical errors are caught in the processing of the tax return itself. If you did not attach a required schedule the service will contact you and ask for the missing information.

If you did not report all your income or did not claim a credit, you are entitled to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return. Include copies of any schedules that have been changed or any Form W-2 (PDF) you did not include. The Form 1040X (PDF) should be submitted after you receive your refund or by the due date of the return, whichever, is earlier. Generally, to claim a refund, the Form 1040X (PDF) must be received within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.

References:

Form 1040X (PDF), Amended U.S. Individual Income Tax Return
Tax Topic 308, Amended returns

Need Individual Tax Forms like 1040, 1040EZ, 4868 etc?

2007-04-06T11:06:00.000-07:00

This is Tax season and some of you are looking for Tax forms.

If one has computer & Internet connection, then all forms are readily available online FREE of charge at IRS web site.

Here are the few links for some Tax forms for Individual income tax filer:

1040 - Schedules: C, D, E, EIC, SE. See 1040 instructions.

1040A - Schedules: 1, 2, 3, EIC. For filers under $50,000 in taxable income.
See 1040A instructions and eligibility guidelines.

1040EZ - Individuals with no dependents and taxable income less than $50,000.
See 1040EZ instructions and eligibility guidelines.

Form 4868 - Extension of income Tax Filing. Must file by due date of return which is 17 Apr (for 2007).

More forms available at the IRS web site.

Now if you do not have computer or Internet connection, then you can obtain tax forms at IRS offices or some times your public library may offer it too.

Need more time to prepare your federal tax return?

2007-04-05T11:10:00.000-07:00

Extension of Time to File Your Tax Return

Please be aware that an extension of time to file your return does not grant you any extension of time to pay your tax liability. If you are not able to file your federal individual income tax return by the due date, you may be able to get an automatic 6-month extension of time to file. To do so, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return (51K) Adobe PDF, by the due date for filing your calendar year return (usually April 15) or fiscal year return.

Visit IRS web site for detail information on this, click here.

Last Minute Tax Tips

2007-04-05T00:23:00.001-07:00

I am going to kick off my first post with last minute tax tips as only ~12 days left for income tax return to be filed. I just filed my income tax return last weekend using a turbo tax software.

Here are the tips for filing last minute:

Very obvious one, do not wait till last day of return, act now and finish your return. :-)
Consider filing electronically instead of using paper tax forms.
Taxpayers filing paper returns should also double-check that they have correctly figured the refund or balance due and have used the right figure from the tax table.
This year you have 2 extra days for filing return as deadline is 17th Apr 2007 (not 15th Apr 2007).
File an Extension! If time left is not enough and/or you have to rush like crazy to file income tax return, you can postpone filing of your income tax return by filing extension with IRS and state tax agencies.
If you are getting significant refund back, then it is better you file income tax return as possible.
If you owe money to IRS or/and state tax agencies then you have pay that money to them before deadline (17th Apr 07) even though you are filing extension. If you don't, then IRS imposes penalty and interest on it.
If you are due a refund, consider direct deposit to receive your refund in the quickest and safest manner.

You can refer IRS web site for more detail tips, click here.