Sinclair Communications
Sinclair Communications Corporate Main

Bob Sinclair - Sinclair Communications
999 Waterside Drive, Suite 500, Norfolk, Virginia 23510
Office: 757-640-8500, Fax: 757-640-8552
            
David Sinclair - Sinclair Communications
P.O. Box 604, Brownsburg, IN 46112
Office: 317-745-0851

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On average, a tropical storm, or its remnants, can be expected to impact the Old Dominion yearly, with hurricanes expected once every 2.3 years. Many Virginians still vividly remember the devastation caused by Hurricanes Floyd and Isabel. With just these two storms, 148 jurisdictions in Virginia were declared Presidential disaster areas.

With the approach of hurricane season, the Internal Revenue Service encourages taxpayers to safeguard their records as part of National Hurricane Preparedness Week, May 21-27. Some simple steps can help taxpayers and businesses protect financial and tax records in case of hurricanes and other disasters.

In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed.

IRS Mailing Address Changes for Virginians in 2006

Change Affects Nearly One-half of the 3.4 Million Tax Returns Filed by Virginians

RICHMOND — The Internal Revenue Service is urging individual taxpayers and tax professionals in Virginia to be aware of changes that will affect where they send paper tax returns and payments starting in 2006. The change is the result of redistributing workload among IRS processing centers to provide better service to taxpayers.

“The mailing address change affects Virginia paper returns, with and without payments,” IRS spokeswoman Gloria Wajciechowski said. “Individual taxpayers preparing their own individual paper tax returns, and tax professionals with clients living in Virginia, should send paper tax returns to the IRS in Atlanta, Georgia.”

According to Wajciechowski, the change in the IRS tax filing process center is expected to affect almost one-half of the 3.4 million tax returns sent to the IRS by Virginia taxpayers. But, for the nearly 1.7 million Virginians who chose e-file--the fastest, easiest and most accurate way to file their 2004 tax returns—they will not be affected by these changes unless they elect to mail in paper returns during 2006.

For additional details and new mailing addresses for specific tax returns, individuals and tax professionals are encouraged to visit the IRS Web site at www.IRS.gov.

Where To File

You will need Adobe Acrobat Reader installed on your computer in order to view this printable document.

Adobe PDF: Where To File Addresses for Virginia Taxpayers

IRS e-file Marks its 20th Year; Electronic IRS Makes Debut

Over one-half of all VA taxpayers expected to use e-file

RICHMOND — According to IRS spokeswoman Gloria Wajciechowski, Virginians may file their 2005 tax returns electronically beginning January 13 as IRS e-file celebrates its 20th anniversary as the most successful and popular electronic financial programs in the world and the cornerstone of Internal Revenue Service’s modernization efforts.

To mark this milestone of IRS e-file, the IRS today also is launching the Electronic IRS, a centralized source for all IRS electronic options. Taxpayers and tax preparers who click on the Electronic IRS logo, located at IRS.gov, will be taken to a page that contains an overview of all the electronic tasks that can be accomplished online.

“Last year, more than half of the nation’s taxpayers used IRS e-file. This year, we hope even more people will consider filing electronically. It’s the fastest, safest and most accurate way to file your tax return,” said IRS Commissioner Mark W. Everson. “This year, we have our electronic services available in one place at the new Electronic IRS section of our web site. The Electronic IRS provides a gateway to services for both taxpayers and tax preparers and makes these services available 24 hours a day, seven days a week.”

IRS e-file surpassed a benchmark last year when more than 68.4 million tax returns, 52 percent of all returns, were filed electronically. In Virginia more than 1.7 million of the 3.4 million returns filed were filed using some form of e-file. Taxpayers who use IRS e-file and who choose direct deposit can receive their refund in half the time. Also, tax return information is protected through encryption, and an e-filed tax return is far more accurate than a paper return. Taxpayers receive an acknowledgement within 48 hours that the IRS accepted the return.

“Another advantage of IRS e-file is that it allows taxpayers to file their return now and pay later should they owe taxes,” Wajciechowski said. “Taxpayers who e-file now, can select a direct debit from their bank account as late as April 17th and the payment will be considered timely. It also permits taxpayers to file both the federal and most state returns at the same time.”

The IRS began the e-file program in 1986 as a pilot project in three cities: Cincinnati, Ohio, Phoenix, Ariz., and Raleigh-Durham, N.C. That year, there were 25,000 tax returns filed electronically. The e-file program expanded nationwide in 1990 and 4.2 million tax returns were filed. IRS e-file has undergone tremendous growth each year.

Taxpayers may use IRS e-file through their tax preparer, over-the-counter software or Internet programs. The IRS does not charge for e-file, but some tax preparers and software manufactures may charge a fee. IRS Free File, a partnership between the IRS and some software manufacturers, will offer free tax preparation and e-filing for taxpayers earning $50,000 or less. It will be available later this month.

The Electronic IRS is a one-stop option for both taxpayers and tax preparers, providing access to information about e-file and numerous IRS Internet options.

For taxpayers, the Electronic IRS provides access to “Where’s My Refund?” where they can check the status of their refund, find an IRS e-file provider, check their eligibility for the Earned Income Tax Credit, download tax forms, sign up to pay electronically or obtain an employer identification number.

For tax preparers, the Electronic IRS provides access to the register for IRS e-services, to become an authorized e-file provider, to submit electronic inquiries on tax issues or obtain a preparer tax identification number among a host of other tasks.

The Electronic IRS is the gateway to the many IRS electronic options for individuals, large businesses, small businesses, software companies and tax-exempt organizations.

“An IRS priority is to increase the number of electronic options for all its customers,” Wajciechowski advised. “The goal is to provide easier access to the IRS and give people the ability to do more transactions online. Through its modernization efforts and new online product development, the IRS is on its way to provide an all-electronic IRS that expands services to taxpayers and tax preparers.”

New Publication Explains Tax Law Changes Related to Recent Hurricanes

RICHMOND — The IRS has issued a new publication today explaining changes to the tax law and relief provisions available to those affected by Hurricanes Katrina, Rita and Wilma.

Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma, is available on IRS.gov and paper copies will be available in about two weeks.

This new publication will list the disaster areas for each hurricane and explain which areas are eligible for administrative relief from the IRS and which areas receive special tax breaks under recently enacted provisions of the tax law.

The publication provides information for individuals regarding how to claim unreimbursed losses, the tax favored use of retirement savings, and new rules regarding charitable giving.

The publication not only provides information useful to individuals but highlights the changes businesses need to know about, such as a special depreciation allowance for qualified Gulf Opportunity Zone property, an increase in the amount affected businesses can expense instead of depreciating and new net operating loss (NOL) rules for losses in the GO Zone.

Publication 4492, like other IRS forms and publications, is available at IRS.gov.

Hurricane Victims Have More Time to Claim Losses on Prior Year Returns

RICHMOND — “Victims of Hurricanes Katrina, Rita or Wilma wishing to claim disaster-related losses on their prior year federal income tax return will have until October 16, 2006, to make this choice,” IRS spokeswoman Gloria Wajciechowski advised.

Taxpayers suffering disaster-related losses in certain areas of Florida, Alabama, Mississippi, Louisiana and Texas due to the hurricanes can choose to claim those losses on their current or prior year return. The original deadline for choosing this option is the due date of the taxpayer’s current year return.

Wajciechowski offered the following example. Individuals wishing to claim disaster-related losses on their 2004 federal income tax return instead of their 2005 return will have an extra six months, until October 16, 2006, to make this choice. The original deadline for individuals choosing this option was April 17, 2006.

To speed processing of these claims, taxpayers should write the name of the hurricane in red at the top of their return. Those who have already filed their prior year return can make this choice by filing an amended return (Form 1040X for individuals).

An explanation of the liberalized disaster loss rules and special instructions for claiming these losses can be found in Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma. This publication, along with other disaster-related information, is available on IRS.gov or can be obtained by calling the special IRS disaster hotline toll-free at 1-866-562-5227.

“This announcement does not affect the regular tax-filing deadlines for either 2004 or 2005 federal income tax returns,” Wajciechowski advised.

Technical guidance will be available soon in Notice 2006-17, which will appear in Internal Revenue Bulletin 2006-10.

Do You Qualify for the Earned Income Tax Credit?

Over $843 Million in EITC Credits Issued in VA in 2005

RICHMOND, VA -- The Earned Income Tax Credit (EITC) is a tax credit for people who work but do not earn high incomes. For eligible taxpayers, EITC is a valuable tool to lower their taxes or to claim a refund. The IRS wants all eligible taxpayers, but only those who are eligible, to claim the EITC.

“In 2005 more than 474,000 Virginia taxpayers claimed the credit,” IRS spokeswoman Gloria Wajciechowski said. “Over $843 million in Earned Income Tax Credits were issued in VA in 2005. The average check received by a VA taxpayer totaled over $1,700.”

Many taxpayers who qualify for EITC may also be eligible for free tax preparation and electronic filing by participating tax professionals and volunteers. Taxpayers and tax professionals should review the rules before attempting to claim the EITC.

Do You Qualify for EITC?

Online Tool Helps Hurricane Victims with New EITC and ACTC Rules

New Option Could Mean Larger Refunds for Evacuees in VA

RICHMOND, VA -- Special rules for victims of Hurricanes Katrina, Rita and Wilma will ease the eligibility requirements for the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC), allowing people more options to qualify for substantial tax refunds. The Internal Revenue Service has created a special online tool to assist taxpayers.

According to statistics supplied to IRS by the Federal Emergency Management Agency, nearly 13,000 hurricane evacuees are in Virginia.

“For this filing season, hurricane victims who experienced smaller earned incomes in 2005 can elect to compute their EITC and ACTC using their larger 2004 earned incomes,” IRS spokesperson Gloria Wajciechowski said. “The option could result in a larger tax refund.”

The option is limited to individuals who lived in the Hurricanes Katrina, Rita, or Wilma disaster areas. The 2004 earned income also must be higher than the 2005 income to exercise the income option.

The IRS has developed applications on its Web site and disaster telephone hotline to help taxpayers who lost their prior tax records to take advantage of this special election without filing delays. Hurricane victims can access their 2004 earned income amounts using the new Your 2004 Earned Income Option on IRS.gov and entering two shared secrets - personal information known only to the taxpayer and IRS. Taxpayers without web access can use an automated telephone application by calling 866-562-5227.

The income option is part of a broader Katrina Emergency Tax Relief Act of 2005, and the Gulf Opportunity Zone Act of 2005 passed by Congress. The optional income selection does not apply to other items on the tax return, and, if selected for EITC, must apply for ACTC as well.

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low-income working individuals and families. It is intended, in part, to offset the burden of social security taxes and to provide an incentive to work. Individuals must meet certain income limitations and, if claiming a child, must meet certain rules.

According to Wajciechowski, the Additional Child Tax Credit may be available to certain taxpayers if they have three or more qualifying children or if they have earned income that exceeds the base amount for the year. The base amount of earned income needed can be found in the Instructions for Form 8812. The Additional Child Tax Credit is for certain taxpayers who receive less than the full amount of the Child Tax Credit. The Additional Child Tax Credit may give you a refund even if you do not owe any tax.

A qualifying child for both EITC and ACTC purposes must meet certain residency and relationship requirements. However, the new tax relief laws also allow the IRS to grant leeway for victims who were unable to maintain the residency requirement. Generally, a child must live in the same household with the taxpayer for more than half the year.

“Also, for taxpayers living in any of the declared disaster areas, grants from state programs, charitable organizations or employers to cover medical, transportation or temporary housing expenses should not be included in their income and will not affect their eligibility for EITC,” Wajciechowski said.

Additional information about EITC and the ACTC as well as the Child Tax Credit in general is available on IRS.gov by reviewing or downloading Publication 596, Earned Income Credit; Publication 972, Child Tax Credit; Publication 2194, Disaster Losses Kit for Individuals, which details tax relief available to people affected by the hurricanes; and Fact Sheet 2006-12.

A new publication that IRS created--Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma--addresses all tax relief issues for hurricane victims.

IRS Works With Associations to Help Hurricane-Affected Taxpayers

RICHMOND — The Internal Revenue Service announced today an agreement with two tax professional associations to assist taxpayers impacted by Hurricanes Katrina, Rita and Wilma.

“According to statistics supplied to IRS by the Federal Emergency Management Agency, nearly 13,000 hurricane evacuees are in Virginia,” IRS spokeswoman Gloria Wajciechowski said.

Volunteers at IRS’ Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites are now able to refer hurricane-affected taxpayers needing help with relatively complex tax issues to participating members of the American Institute of Certified Public Accountants (AICPA) or the American Association of Attorney-Certified Public Accountants (AAA-CPA) for free return preparation assistance.

“VITA and TCE volunteers are generally not trained to compute Casualty Loss deductions or to complete amended returns for prior years,” Wajciechowski said. “The volunteers can now refer low to moderate-income ($38,000 or less) taxpayers needing such assistance to the AICPA or AAA-CPA for free assistance. Previously, these and other tax professional associations provided such free assistance through official FEMA and other Disaster Recovery Centers. A number of tax professional organizations continue to provide such assistance through these sites.”

Assistance from participating CPAs may be via telephone, mail, e-mail or in some cases, face-to-face.

Taxpayers wishing to take advantage of this free assistance need to first visit a VITA or TCE site. Convenient locations in communities across the country can be found by calling the IRS at 1-800-829-1040 or by calling AARP (the nation’s largest TCE sponsor) at 1-888-AARP NOW (1-888-227-7669).

“We are happy to partner with tax professional associations like the AICPA and AAA-CPA to help deliver the assistance these taxpayers need,” said IRS Director Customer Assistance, Relationships and Education Mark Pursley. “This tax assistance can truly make a difference in people’s lives.”

“Our members recognize that hurricane victims face many challenges. We hope that this service will help by giving the victims one less thing to worry about,” said Barry Melancon, AICPA President and CEO. “We are glad that our partnership with the IRS has been expanded to include a service that many CPAs see as a way to give back to their communities.”

“No matter where you live, technology gives CPAs across the nation the opportunity to volunteer right from our own desk,” said Charles R. Kowal, Partner and Director, Personal Financial Services, Ernst & Young LLP, one of the largest participants in the AICPA initiative. “Technology has made those in the Gulf Region our virtual neighbors, and it’s time to give our neighbors a helping hand.”

Additional information regarding disaster tax relief may be found on the IRS’s Web site at IRS.gov.

Tax Return Preparer Fraud
Virginia Taxpayers Urged to Use Care When Choosing Preparers

What To Do If You Suspect Fraud

IRS Has Over $60 Million for Virginians Who Have Not Filed a 2002 Tax Return

RICHMOND — According to IRS spokeswoman Gloria Wajciechowski, unclaimed refunds totaling more than $60 million are awaiting about 51,500 Virginia taxpayers who failed to file a federal income tax return for 2002. Nationwide, unclaimed refunds totaling over $2 billion are awaiting about 1.7 million people, who failed to file a 2002 federal income tax return. However, in order to collect the money, a return for 2002 must be filed with an IRS office no later than April 17, 2006.

The IRS estimates that half of those in Virginia who could claim refunds would receive more than $575. In some cases, individuals had taxes withheld from their wages, or made payments against their taxes out of self-employed earnings, but had too little income to require filing a tax return. Some taxpayers may also be eligible for the refundable Earned Income Tax Credit.

“We want people to get the refunds they're entitled to,” said IRS Commissioner Mark W. Everson. “We urge taxpayers to double-check their records before the April 17th deadline. Taxpayers can’t get a refund if they don’t file a tax return.”

“In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund,” Wajciechowski said. “If no return is filed to claim the refund within three years, the money becomes property of the U.S. Treasury. For 2002 returns, the window closes on April 17, 2006. The law requires that the return be properly addressed, postmarked and mailed by that date. There is no penalty assessed by the IRS for filing a late return qualifying for a refund.”

The IRS reminds taxpayers seeking a 2002 refund that their checks will be held if they have not filed tax returns for 2003 or 2004. In addition, the refund will be applied to any amounts still owed to the IRS and may be used to satisfy unpaid child support or past due federal debts such as student loans.

By failing to file a return, individuals stand to lose more than refunds of taxes withheld or paid during 2002. Many low-income workers may not have claimed the Earned Income Tax Credit (EITC). Although eligible taxpayers may get a refund when their EITC is more than what they owe in tax, those who file returns more than three years late would be able only to apply it toward the taxes they owe (if any). They would not be able to receive a refund if the credit exceeded their tax.

Generally, individuals qualified for the EITC if in 2002 they earned less than $33,178 and had more than one qualifying child living with them, earned less than $29,201 with one qualifying child, or earned less than $11,060 and had no qualifying child.

Current and prior year tax forms and instructions are available on the Forms and Publications page of the IRS Web site (www.irs.gov) or by calling 1-800-TAX-FORM (1-800-829-3676). Taxpayers who need help also can call the IRS help line at 1-800-829-1040.

IRS Establishes e-Mail Box for Taxpayers to Report Phony e-Mails

RICHMOND -- The Internal Revenue Service announced today that it has established an electronic mailbox for taxpayers to send information about suspicious e-mails they receive which claim to come from the IRS. Taxpayers should send the information to: phishing@irs.gov.

According to IRS spokeswoman Gloria Wajciechowski, the IRS’s new mail box allows taxpayers to send copies of possibly fraudulent e-mails involving misuse of the IRS name and logo to the IRS for investigation. Instructions on how to properly submit one of these communications to the IRS may be found on the IRS Web site at www.irs.gov. Enter the term phishing in the search box in the upper right hand corner. Then open the article titled “How to Protect Yourself from Suspicious E-Mails” and scroll through it until you find the instructions. Following these instructions helps ensure that the bogus e-mails relayed by taxpayers retain critical elements found in the original e-mail. The IRS can use the information, URLs and links in the bogus e-mails to trace the hosting Web sites and alert authorities to help shut down these fraudulent sites.

However, due to the volume the new mailbox is expected to receive, the IRS will not be able to acknowledge receipt or reply to taxpayers who submit their bogus e-mails. The phishing@irs.gov mailbox is only for suspicious e-mails and not for general taxpayer contact or inquiries.

“Taxpayers are reminded to be on the lookout for scam e-mails aimed at tricking the recipients into disclosing personal and financial information that could be used to steal the recipients’ identity and financial assets,” Wajciechowski said.

“The IRS does not send out unsolicited e-mails asking for personal information,” said IRS Commissioner Mark W. Everson. “Don’t be taken in by these criminals.”

The IRS has seen a recent increase in these scams, many of which originate outside the United States. To date, investigations by the Treasury Inspector General for Tax Administration have identified sites hosting more than two dozen IRS-related phishing scams. These scam Web sites have been located in at least 20 different countries, including Argentina, Aruba, Australia, Austria, Canada, Chile, China, England, Germany, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, Poland, Singapore and Slovakia, as well as the United States.

“The current scams claim to come from the IRS, tell recipients that they are due a federal tax refund, and direct them to a Web site that appears to be a genuine IRS site,” Wajciechowski advised. “The bogus sites contain forms or interactive Web pages similar to IRS forms or Web pages but which have been modified to request detailed personal and financial information from the e-mail recipients. In addition, e-mail addresses ending with “.edu” — involving users in the education community — currently seem to be heavily targeted.”

The IRS does not send out unsolicited e-mails or ask for detailed personal information. Additionally, the IRS never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

Tricking consumers into disclosing their personal and financial information, such as secret access data or credit card or bank account numbers, is identity theft. Such schemes perpetrated through the Internet are called “phishing” for information.

The information fraudulently obtained is then used to steal the taxpayer’s identity and financial assets. Typically, identity thieves use someone’s personal data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name and even file fraudulent tax returns.

When the IRS learns of new schemes involving use of the IRS name or logo, it issues consumer alerts warning taxpayers about the schemes.

For more information on phishing (suspicious e-mails) and identity theft, visit the IRS Web site at www.irs.gov.

For information on preventing or handling the aftermath of identity theft, visit the Federal Trade Commission’s Web sites at www.consumer.gov/idtheft and www.OnGuardOnline.gov (and click on Topics).

For schemes other than phishing, please report the fraudulent misuse of the IRS name, logo, forms or other IRS property by calling the Treasury Inspector General for Tax Administration’s toll-free hotline at 1-800-366-4484

Katrina Tax Breaks For Volunteers/Donors

A large number of Virginia taxpayers may qualify for Hurricane Katrina related tax breaks, even if they did not live in the area devastated by Hurricane Katrina.

You don’t have to be a resident of the Gulf Coast states to take advantage of some federal tax breaks when you file your 2005 federal income tax return. Many tax benefits for volunteers and donors could lower tax bills for those who qualify.

Tax benefits for volunteers/donors include:
  • Deduction for those housing displaced individuals
  • Increase in the standard mileage rate for charitable use of vehicles
  • Exclusion from gross income the mileage reimbursements to charitable volunteers
  • Expansion of the Hope and Lifetime Learning credits for eligible students attending certain educational institutions
  • Suspension on the limits on certain charitable contributions made during the last few months of 2005
  • Leave donations programs set up by employers
Exemption for Those Housing Hurricane Katrina Displaced Individuals

The new law provides an additional exemption of $500 in taxable years 2005 and 2006 for each Hurricane Katrina displaced individual claimed by the taxpayer. The total additional exemption claimed for all years cannot exceed: $2,000 for married taxpayers filing jointly, $1,000 for married taxpayers filing separately, and $2,000 for all other taxpayers.

The exemption with respect to a specific Hurricane Katrina displaced individual may only be claimed one time by the same taxpayer for all taxable years.

A Hurricane Katrina displaced individual is a person (1) whose main home on Aug. 28, 2005 was in the Hurricane Katrina disaster area, (2) who is displaced from the home, and (3) who is provided housing free of charge in the taxpayer’s main home for a period of 60 consecutive days which ends in the taxable year in which the exemption is claimed. A Hurricane Katrina displaced individual may not be the spouse or any dependent of the taxpayer claiming the exemption.

“In order to claim the additional exemption, the taxpayer must provide the taxpayer identification number of the displaced individual,” Wajciechowski advised. “The exemption is not allowed if the taxpayer receives any rent or other amount from any source in connection with the providing of housing for a displaced individual.”

Increase in the Standard Mileage Rate for Charitable Use of Vehicles to Provide Hurricane Katrina Relief

The new law allows a taxpayer, who uses a vehicle in providing donated services to a charity solely to provide relief related to Hurricane Katrina, to use an increased mileage deduction rate. The rate is 70 percent of the standard mileage rate for business rounded up to the next cent.

Mileage Rate When Providing Donated Services for Hurricane Katrina Relief

Date Rate for Deduction Purposes Rate for Reimbursement Purposes
Aug 25- Aug 31, 2005 29˘ /mile 40.5˘ /mile
Sept 1 – Dec 31, 2005 34˘ /mile 48.5˘ /mile
Beginning Jan 1, 2006 32˘ /mile 44.5˘ /mile

Mileage Reimbursements to Charitable Volunteers Not Taxable

Volunteers, who receive reimbursements for the costs of using their passenger automobiles in connection with providing relief to Hurricane Katrina victims, can exclude from their incomes, the reimbursements received from a charity that are not more than the full business mileage rates. This exclusion applies to automobile usage during the period of Aug. 25, 2005 through Dec. 31, 2005.

Expansion of Educational Credits

The Gulf Opportunity Zone Act provides educational assistance by expanding the Hope and Lifetime Learning credits for students enrolled and paying tuition at eligible educational institutions in the GO Zone for tax years beginning in 2005 or 2006.

The Hope Credit is expanded from a maximum of $1,000 per student to 100 percent of the first $2,000 in eligible expenses plus 50 percent of the next $2,000 – for a maximum of $3,000.

The Lifetime Learning Credit is expanded from 20 percent to 40 percent of the first $10,000 of post-secondary tuition and fees.

Suspension of Charitable Limits for Certain Charitable Contributions

For individuals, the deduction limits for qualified contributions is increased. Generally individual taxpayers can only deduct contributions of up to 50 percent of their adjusted gross income (AGI), but with the special provisions for Hurricane Katrina, that amount can be as high as 100 percent of their AGI.

IRS Encourages Employers to Offer Leave-Based Donation Programs

The IRS is encouraging employers to establish Hurricane Katrina Relief leave donation programs and is providing special tax treatment to support such programs. Under a leave donation program, employees can elect to forgo their vacation, sick or personal leave in exchange for the employer making cash payments to a qualified tax-exempt organization providing relief for victims of Hurricane Katrina.

These programs provide employees with a way to help Hurricane Katrina victims without needing to make a cash contribution. The benefit is available regardless of whether an employee normally takes the standard deduction or itemizes. For employees who have extra vacation, sick or personal leave balances or who just simply want to provide more to the Hurricane Katrina relief effort, a leave donation program makes it easier for them to help the Hurricane Katrina victims go about the difficult task of rebuilding their lives.

The employer may take either a charitable or business deduction for the amount sent to the charity. The amounts contributed are not subject to employment taxes. A leave donation program can be adopted and administered easily. The employer does not need IRS approval to set up a leave donation program, but they must follow certain guidelines. The cash contribution by the employer must be:

Made to a qualified tax-exempt organization;
Dedicated to Hurricane Katrina relief;
Paid to the organization by Dec. 31, 2006

ADDITIONAL INFORMATION AVAILABLE ABOUT HURRICANE KATRINA RELIEF

The IRS has issued Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma that explains changes to the tax law and relief provisions available. This new publication will list the disaster areas for each hurricane and explain which areas are eligible for administrative relief from the IRS and which areas receive special tax breaks under recently enacted provisions of the tax law.

Publication 4492, like other IRS forms and publications, is available at IRS.gov or may be ordered by calling 1-800-TAX-FORM (1-800-829-3676).

Taxpayers who have hurricane-related tax questions can call IRS toll-free at 1-866-562-5227.

Definitions - Gulf Opportunity Zone (GO Zone) includes: Alabama, the following counties: Baldwin, Choctaw, Clarke, Greene, Hale, Marengo, Mobile, Pickens, Sumter, Tuscaloosa, and Washington Counties; Louisiana, the following parishes: Acadia, Ascension, Assumption, Calcasieu, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Pointe Coupee, Plaquemines, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Mary, St. Martin, St. Tammany, Tangipahoa, Terrebonne, Vermilion, Washington, West Baton Rouge and West Feliciana, and Mississippi, the following counties: Adams, Amite, Attala, Claiborne, Choctaw, Clarke, Copiah, Covington, Forrest, Franklin, George, Greene, Hancock, Harrison, Hinds, Holmes, Humphreys, Jackson, Jasper, Jefferson, Jefferson Davis, Jones, Kemper, Lamar, Lauderdale, Lawrence, Leake, Lincoln, Lowndes, Madison, Marion, Neshoba, Newton, Noxubee, Oktibbeha, Pearl River, Perry, Pike, Rankin, Scott, Simpson, Smith, Stone, Walthall, Warren, Wayne, Wilkinson, Winston and Yazoo.

Tax Tips

IRS TAX TIP: SHOULD YOU ITEMIZE?

Ever wonder if you should be itemizing your deductions on your federal income tax return?

You can determine whether you would benefit by itemizing by adding up all of your itemized deductions for items such as medical care, mortgage interest, taxes, charitable contributions, casualty losses, and miscellaneous deductions. If the total amount spent is more than the standard deduction, you can usually benefit by itemizing.

Standard deduction amounts for 2005, based on your filing status, are:

Single - $5,000
Married Filing Jointly - $10,000
Head of Household - $7,300
Married Filing Separately - $5,000

Standard deduction amounts differ for taxpayers age 65 or older or for those taxpayers who can be claimed as a dependent on another person’s tax return.

Check out 1040 Central at IRS.gov for additional information about itemizing your deductions.

IRS TAX TIP: ADVICE FOR CHOOSING A TAX RETURN PREPARER

Taxpayers who pay someone to do their taxes should choose a preparer wisely. If you choose to use a paid tax preparer, it is important that you find a qualified tax professional. Taxpayers are ultimately responsible for everything on their return even when it’s prepared by someone else. While most tax return preparers are professional and honest, taxpayers can use the following tips to choose a preparer who will offer the best service for their tax preparation needs.
  • Ask about service fees. Avoid preparers who claim they can obtain larger refunds than other preparers, or those who guarantee results or base fees on a percentage of the amount of the refund.
  • Plan Ahead. Choose a preparer you will be able to contact after the return is filed and one that will be responsive to your needs.
  • Get References. Ask questions and get references from clients who have used the tax professional before. Were they satisfied with the service received?
  • Research. Check to see if the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association for attorneys. Find out if the preparer belongs to a professional organization that requires its members to pursue continuing education and also holds them accountable to a code of ethics.
  • Determine if the preparer’s credentials meet your needs. Are they an Enrolled Agent, Certified Public Accountant or Tax Attorney? Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals. Other return preparers may represent taxpayers only in audits regarding a return they signed as a preparer.
Report suspected tax fraud and abusive tax preparers to the IRS by calling 1-800-829-0433.

IRS TAX TIP: KEEPING GOOD RECORDS

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good record-keeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience.

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property — should be kept longer.

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:
  • Bills
  • Credit card and other receipts
  • Invoices
  • Mileage logs
  • Canceled, imaged or substitute checks or any other proof of payment
  • Any other records to support deductions or credits you claim on your return.
Good record-keeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

For more information on what kinds of records to keep, see IRS Publication 552, Recordkeeping for Individuals, which is available on IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: 1040 CENTRAL — ONE CLICK AWAY

Don’t wait in line, go on-line. The IRS Web site is home to a great resource for answers to tax questions that arise during the filing season. Access 1040 Central at IRS.gov under the “Individuals” tab and discover user-friendly tools that will make completing your 2005 tax return quick and easy.

No matter which form you use, 1040 Central has the links you’ll need to file your tax year 2005 federal income tax return:
  • Tax law changes. 1040 Central highlights changes in the tax law that directly affect taxpayers
  • Current News. Access the latest IRS News Releases, Tax Tips and customer alerts.
  • Answers to important questions. 1040 Central includes Frequently Asked Questions on a broad range of tax issues.
  • Forms and Publications. 1040 Central also has links to all the tax forms, instructions and publications you may need.
  • Filing Options. 1040 Central links you to information about IRS e-file and Free File. Join the millions of people who already file their tax returns electronically. IRS e-file is the safest and most accurate way to file, the fastest way to get your refund and get your taxes where you want them – done!
  • Check on your refund. Track your refund by clicking on the “Where’s My Refund?” link on 1040 Central.
  • Details about important tax credits. Find information about special tax credits like the Earned Income Tax Credit.

IRS TAX TIP: IRS HAS FREE PUBLICATIONS ON EVERY TOPIC YOU NEED

The IRS has a free publication that answers any tax question you have. Publications on a variety of tax-related topics are available by phone or the Internet at IRS.gov. From students to seniors, first-time home buyers to landlords…everyone can find useful information in IRS forms and publications.

To find what you’re looking for, follow any one of these easy steps:
  • Access the IRS Web site. Click on the Forms and Publications resource page to find what you need. There’s a search feature you can use if you know the topic but not the number of the form or publication.
  • Read Publication 910. The Guide to Free Tax Services identifies the many IRS tax materials and services available. You’ll also find information about accessing tax materials, filing options, tax publications, tax education and assistance programs.
  • Call Toll-free. If you know the name or number of the form or publication you need, call the toll-free Forms and Publications telephone line at 1-800-TAX-FORM (1-800-829-3676) to place your order.
If you still can’t find the information you need, visit IRS.gov or call the IRS toll-free customer service line at 1-800-829-1040.

IRS TAX TIP: GIFT TAXES

If you gave any one person gifts in 2005 that are valued at more than $11,000, you must report the total gifts to the Internal Revenue Service and may have to pay tax on the gifts.

“The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value,” IRS spokeswoman Gloria Wajciechowski said.

Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift.

There are some exceptions to the tax rules on gifts. The following gifts do not count against the annual limit:
  • Tuition or Medical Expenses that you pay directly to an educational or medical institution for someone's benefit
  • Gifts to your Spouse
  • Gifts to a Political Organization for its use
  • Gifts to Charities
“If you are married, both you and your spouse can give separate gifts of up to the annual limit to the same person without making a taxable gift,” Wajciechowski said.

For more information, get the IRS Publication 950, Introduction to Estate and Gift Taxes, IRS Form 709 or 709-A, United States Gift Tax Return, and Instructions for Form 709. They are available at the IRS Web site at IRS.gov in the Forms and Publications section or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: IRS PUBLICATION 17 – FREE TAX GUIDE FOR INDIVIDUALS

Are you facing a lot of different tax questions this year? IRS experts have pulled together an overview of common tax issues in one convenient place — Publication 17, Your Federal Income Tax.

“This updated publication, available on the IRS Web site, IRS.gov, contains a vast array of helpful information for individual taxpayers,” advised IRS spokeswoman Gloria Wajciechowski.

From stock sales to student loans, this 300-page publication holds the answers to many of your questions:
  • Need help deciphering the mysteries of the Roth IRA? Try Chapter 18 for retirement accounts.
  • Do you have a new child in the house? See Chapter 36 for the Child Tax Credit.
  • Are you selling stock for the first time? Check Chapter 17 for capital gains. If you’re unloading losers, information about capital losses are there, too.
  • Do you need to report the profit on your home sale? See Chapter 16 for some good news. Generally, you’ll only need to report the sale of your main home if your gain is more than $250,000 ($500,000 if married filing a joint return).
  • And the best part about Publication 17 is that It’s free,” Wajciechowski said. “To get a copy, visit the IRS Web site at IRS.gov or order it by calling 1-800-TAX-FORM (1-800-829-3676).”

IRS TAX TIP: TAX INFORMATION AVAILABLE IN SPANISH INFORMACIÓN TRIBUTARIA EN ESPAŃOL

According to IRS spokeswoman Gloria Wajciechowski, if you need federal tax information in Spanish, the IRS provides free Spanish-language products and services. Pages on the Internal Revenue Service’s Web site, pre-recorded tax topics, refund information, tax publications and toll-free telephone assistance are all available in the Spanish-language.
  • The Spanish-language page (El IRS en Espańol) on the IRS Web site is located at IRS.gov/espanol. You will find links to tax related information like forms and publications, warnings about tax scams that victimize taxpayers, information on the Earned Income, Child and various other tax credits, and more.
  • TeleTax is a toll-free, automated telephone service available in English and Spanish. TeleTax provides helpful pre-recorded tax topic messages and refund information. You can find a list of over 150 TeleTax topics in the instructions for Form 1040, 1040A or 1040EZ. TeleTax can also help you if it’s been at least four weeks since you filed your tax return and you want to check on the status of your federal refund. Having a copy of the tax return handy will help you respond to the prompts on the automated system. TeleTax is available 24 hours a day, 7 days a week at 1-800-829-4477.
  • Spanish Publications are available by calling 1-800-TAX-FORM (1-800-829-3676) or on the IRS Web site, IRS.gov.
  • Toll-Free Telephone Assistance is available from Spanish-speaking IRS representatives by calling the IRS customer service line at 1-800-829-1040.

IRS TAX TIP: HOW TO GET A COPY OF YOUR TAX RETURN INFORMATION

There are easy and convenient options for obtaining copies of your federal tax return information — tax return transcripts and tax account transcripts — available by phone, mail, or FAX.

“A tax return transcript shows most line items from the tax return (Form 1040, 1040A or 1040EZ) as it was originally filed, including any accompanying forms and schedules,” IRS spokeswoman Gloria Wajciechowski said. “It does not reflect any changes you, your representative or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions such as those offering mortgages and student loans.”

A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income and taxable income. The IRS does not charge a fee for transcripts, which are available for the current and three prior calendar years. Allow two weeks for delivery.

To request either transcript:
  • Phone: Call 1-800-829-1040 and follow the prompts in the recorded message
  • Mail: Complete IRS Form 4506-T, Request for Transcript of Tax Return, and mail it to the address provided on the form for the processing center for the state you lived in when that return was filed
  • FAX: FAX the Form 4506-T to the address provided on the form for the processing center for the state you lived in when that return was filed.
“If you need a photocopy of a previously processed tax return and attachments, complete Form 4506, Request for Copy of Tax Form, and mail it to the IRS address listed on the form for the processing center for the state you lived in when that return was filed,” Wajciechowski said. “There is $39.00 fee for each tax period requested. Copies are generally available for the current and past 6 years.”

Forms 4506-T and 4506 can be found on the IRS Web site at IRS.gov or by calling the IRS forms and publications order line at 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: QUICK AND EASY ACCESS TO IRS FORMS AND PUBLICATIONS

“The Internal Revenue Service has many forms and free publications on a wide variety of topics to help you understand and meet tax filing requirements,” IRS spokeswoman Gloria Wajciechowski said.

If you need IRS materials try one of these easy options:
  • Internet: You can access forms and publications on the IRS website 24 hours a day, 7 days a week, at IRS.gov.
  • Phone: Call 1-800-TAX-FORM (1-800-829-3676) to order current and prior year forms, instructions and publications. You should receive your order within 10 days.
  • Walk-in: During the tax-filing season, many libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly-requested publications. Braille materials are also available. Many large grocery stores, copy centers, and office supply stores have forms you can photocopy or print from a CD.
  • Mail: Send your order for tax forms and publications to National Distribution Center, P.O. Box 8903, Bloomington, IL 61702-8903. You should receive your products within 10 days after we receive your order.

IRS TAX TIP: TIPS FOR RECENTLY MARRIED OR DIVORCED TAXPAYERS

According to IRS spokeswoman Gloria Wajciechowski, newlyweds and the recently divorced should ensure the name on their tax return matches the name registered with the Social Security Administration. A mismatch could unexpectedly increase a tax bill or reduce the size of any refund.
  • For recently married taxpayers, the tax scenario begins when the bride says "I do." If she takes her husband's last name, but doesn't tell the SSA about the name change, a complication may result. If the couple files a joint tax return with her new name, the IRS computers will not be able to match the new name with the Social Security Number.
  • After a divorce, a woman who had taken her husband’s name and made that change known to the SSA should contact the SSA if she reassumes a previous name.
“It's easy to inform the SSA of a name change by filing Form SS-5 at a local SSA office,” Wajciechowski said. “It usually takes two weeks to have the change verified. The form is available on the agency's Web site, www.ssa.gov, by calling 1-800-772-1213 and at local offices. The SSA Web site provides the addresses of local offices.”

Generally, taxpayers must provide SSNs for each dependent claimed on the tax return. For adopted children without SSNs, the parents can apply for an adoption taxpayer identification number (ATIN), by filing Form W-7A with the IRS. The ATIN is used in place of the SSN on the tax return. The form is available on the IRS Web site, IRS.gov, or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: DIRECT DEPOSIT YIELDS FASTER TAX REFUNDS

Want your refund faster? Have it deposited directly into your bank account. More taxpayers are choosing direct deposit as the way to receive their federal tax refunds. More than 52 million people had their tax refunds deposited directly into their bank accounts in 2005. It’s a secure and convenient way to get your money in your pocket faster.
  • Security. The payment is secure — there is no check to get lost. Each year thousands of refund checks are returned by the US Post Office to the IRS as undeliverable mail. Direct deposit eliminates undeliverable mail and is also the best way to guard against having a tax refund stolen.
  • Convenience. There’s no special trip to the bank to deposit a check!
To request direct deposit, follow the instructions for “Refund” on your tax return.

“If you want an even faster refund, try e-file,” IRS spokeswoman Gloria Wajciechowski said. “Taxpayers who file electronically get their refunds in about half the time as those who file paper returns. And, if you e-file and select the direct deposit option, the refund will normally be in your bank account in less than two weeks.”

A word of caution — some financial institutions do not allow a joint refund to be deposited into an individual account. Check with your bank or other financial institution to make sure your direct deposit will be accepted. Also, make sure you have the correct nine-digit routing number and your account number when selecting direct deposit.

For more information about direct deposit of your tax refund, check the instructions for your tax form. This and other helpful tips are available in IRS Publication 17, Your Federal Income Tax. To get a copy, visit the Forms and Publications section of the IRS Web site, IRS.gov, or call 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: MOVING SOON? LET THE IRS KNOW

“If you changed your home or business address, notify the IRS to ensure that you receive any refunds or correspondence,” IRS spokeswoman Gloria Wajciechowski advised. “While the IRS uses the Postal Service’s change of address files to update taxpayer addresses, notifying the IRS directly is still a good idea.”

There are several ways to do this.
  • On your tax return. You may correct the address legibly on the mailing label that comes with your tax package or write the new address in the appropriate boxes on your tax return when you file.
  • Form 8822. You may use Form 8822, Change of Address, to submit an address or name change at any time during the year.
  • Verbal Notification. If an IRS employee contacts you about your account, you may verbally provide a change of address.
  • Written Notification. To give written notification, write to the IRS center where you file your return and provide your new address. The addresses for the IRS centers are listed in the tax instructions. In order to process an address change, the IRS will need your full name, old and new addresses, and your social security number or employer identification number, and signatures. If you filed a joint return, you should provide the same information for both spouses. If you filed a joint return and have since established separate residences, you each should notify the IRS of your new addresses.
“It's also a good idea to notify your employer, and any former employers, of your new address so that you can get your W-2 forms on time,” Wajciechowski said.

If you change your address after filing your return, don't forget to notify the post office at your old address so your mail can be forwarded.

You should also notify the IRS if you make estimated tax payments and you change your address during the year. You should mail a completed Form 8822, Change of Address, or write the IRS center where you file your return. You can continue to use your old pre-printed payment vouchers until the IRS sends you new ones. However, do not correct the address on the old voucher.

You can download Form 8822, Change of Address at the IRS Web site, IRS.gov, or order by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: E-FILE – THE SMART WAY TO DO TAXES

Every year, more taxpayers discover the benefits of filing their tax return electronically. Whether you use a professional tax preparer authorized by the IRS or do it yourself on a home computer, there are many reasons to consider e-filing your tax return this year.
  • Fast. No more last minute trips to the Post Office - just hit Send!
  • Accurate. The electronic filing program checks for errors and necessary information, increasing the accuracy of your return and reducing the need for correspondence with the IRS to clarify errors or omissions.
  • Easy. The computer software leads you step-by-step. You can usually file a state tax return at the same time you electronically file your federal return.
  • Quicker Refunds. Generally, when you file electronically, your refund will be issued in about half the time it would take if you filed a paper return. Those who choose direct deposit will get their refund in even less time.
  • Peace of mind. Once the return is accepted for processing, the IRS electronically acknowledges receipt of the return.
  • Payment options. With electronic filing, you can file your return early but wait to pay any balance due by the April deadline. You can also pay electronically, using a credit card, electronic funds withdrawal or, in some cases, the Electronic Federal Tax Payment System.
“The IRS is again offering taxpayers, with adjusted gross incomes of $50,000 or less, the opportunity to prepare and electronically file their tax returns for free through the Free File Alliance, a partnership between the IRS and private-sector software companies,” Wajciechowski advised. “For information on taxpayer eligibility, access the Free File Web page on the IRS Web site at www.IRS.gov.”

More information about e-filing is available on the IRS Web site at IRS.gov. You will also find a withholding calculator and worksheet, along with Form W-4, Employee’s Withholding Allowance Certificate, on the Web site. You may obtain Form W-4 from your employer, on the Web at IRS.gov, or by calling the IRS at 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: WHAT TO DO IF YOU HAVEN’T FILED YOUR 2004 RETURN

The failure to file a federal tax return can be costly — whether you end up owing more or missing out on a refund.

“There are several reasons taxpayers don’t file their taxes,” IRS spokeswoman Gloria Wajciechowski said. “Perhaps they didn’t know they were required to file. Maybe, they just kept putting it off and simply forgot. Whatever the reason, it’s best to file the tax return as soon as possible. If taxpayers need help, even with a late return, the IRS is ready to assist.”

Here are some things to consider:
  • Failure to File penalty: If you owe taxes, a delay in filing may result in a "failure to file" penalty, also known as the “late filing” penalty, and interest charges. The longer you delay, the larger these charges grow.
  • Losing your Refund: There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether. The deadline for claiming refunds is three years after the return due date.
  • EITC: Individuals who are entitled to the Earned Income Tax Credit must file their return to claim the credit even if they are not otherwise required to file.
Whether or not you must file a tax return will depend upon a number of factors, including your filing status, age, and gross income.

For more information on how to file a tax return for a prior year, visit the IRS Web site at IRS.gov, call the IRS Tax Help Line for Individuals at 1-800-829-1040 or visit your local IRS office.

IRS TAX TIP: BEWARE OF TAX SCAMS

“Don’t fall victim to tax scams,” warns IRS spokeswoman Gloria Wajciechowski. “These schemes take several shapes, ranging from promises of large tax refunds to illegal ways of “untaxing” yourself.”

If you think a promise of an unusually large refund or a proposal to avoid taxes may be unscrupulous, report it to the IRS by using IRS Form 3949-A, Information Referral. You can download Form 3949-A from the IRS Web site at IRS.gov, or call 1-800-829-3676 to order it. Send the completed form, or a letter detailing the alleged fraudulent activity, to Internal Revenue Service, Fresno, CA 93888.

Beware of these common schemes:

Return Preparer Fraud: “Dishonest tax return preparers can cause many headaches for taxpayers who fall victim to their ploys,” Wajciechowski said. “Such preparers derive financial gain by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Taxpayers should choose carefully when hiring a tax preparer. As the saying goes, if it sounds too good to be true, it probably is. No matter who prepares your tax return you are ultimately responsible for its accuracy and for any tax bill that may arise due to a questionable claim.”

Identity Theft: It pays to be choosy when it comes to disclosing personal information. Identity thieves have used stolen personal data to access financial accounts, run up charges on credit cards and apply for new loans. The IRS is aware of several identity theft scams involving taxes or scammers posing as the IRS itself. The IRS does not use e-mail to contact taxpayers about issues related to their accounts. If you have any doubt whether a contact from the IRS is authentic call 1-800-829-1040 to confirm it.

Frivolous Arguments: Promoters have been known to make outlandish claims that the Sixteenth Amendment concerning congressional power to establish and collect income taxes was never ratified; that wages are not income; that filing a return and paying taxes are merely voluntary; and that being required to file Form 1040 violates the Fifth Amendment right against self-incrimination or the Fourth Amendment right to privacy. Don’t believe these or other similar claims. Such arguments are false and have been thrown out of court. Taxpayers have the right to contest their tax liabilities in court but no one has the right to disobey the law.

Wajciechowski offers four tips for avoiding tax scams:
  • Always look over the tax return to ensure that all information entered is correct. You are responsible and liable for the content of your tax return.
  • Be cautious of anyone who promises you a bigger refund without knowing your tax situation—they could be misleading you.
  • Be extremely cautious when disclosing personal information.
  • Remember, if it sounds too good to be true, it probably is!
For more information about these and other tax scams visit the IRS Web site at IRS.gov.

IRS TAX TIP: CHECK OUT FREE FILE

If you have access to a computer and the Internet you may be eligible to prepare and file your 2005 federal tax return electronically—for free. Free File is an easy way to file your taxes and get your refund in half the time.

According to IRS spokeswoman Gloria Wajciechowski, the IRS and the Free File Alliance, a private-sector consortium of tax software companies, continue their partnership to help taxpayers electronically prepare and file their federal tax returns for free. Free File made its debut during the 2003 filing season as a way to provide free services to moderate and low-income taxpayers. For the 2006 filing season 93 million taxpayers will be eligible for these free tax services.

Taxpayers access Free File through the IRS Web site at IRS.gov. Each company sets its own criteria for free usage. The criteria varies but often is based on income, state residency and age.

“Filing electronically is fast, accurate and secure,” Wajciechowski said. “Last year more than half of all taxpayers filed their tax returns electronically including 5 million who used Free File through the IRS website. The benefits of using Free File are identical to those of e-filing.”

Benefits include:
  • Reduced tax return preparation time
  • Faster refunds
  • Accuracy of return
  • Acknowledgement of return receipt
For more information on Free File, check out the IRS Web site at IRS.gov.

IRS TAX TIP: PAY YOUR TAXES ELECTRONICALLY WITH EFTPS

“If you are going to owe taxes when you file your federal tax return, consider paying through the Electronic Federal Tax Payment System,” IRS spokeswoman Gloria Wajciechowski advises. “EFTPS is a fast, easy, convenient and secure service provided free by the Department of Treasury.”
  • EFTPS is available to both individual and business taxpayers. With EFTPS, you can pay all your federal tax payments through the internet or by telephone. These payments include corporate, excise and employment taxes as well as your 1040 quarterly estimated tax payments.
  • EFTPS is convenient and flexible. It allows individual taxpayers to schedule payments up to 365 days—and businesses up to 120 days—in advance of the payment due date. With the ability to schedule payments in advance, you can avoid missing deadlines and incurring penalties. Scheduled payments can be cancelled up to 48 hours before the scheduled payment due date.
  • EFTPS is available around-the clock. The electronic payment system and a live Customer Service representative are available 24 hours a day, 7 days a week. Other features include an immediate, printable acknowledgement number which acts as a receipt for your payment.
After you enroll in EFTPS, you will receive a confirmation package by mail. In a separate mailing you will receive an EFTPS Personal Identification Number (PIN) with instructions for activating your enrollment. Employers who apply for and receive a new Employer Identification Number and have a federal tax obligation are automatically enrolled in EFTPS Express Enrollment to make their Federal Tax Deposits.

For more information, or to enroll in EFTPS, visit EFTPS.gov or call EFTPS Customer Service at 1-800-555-4477.

IRS TAX TIP: MISSING YOUR FORM W-2?

You should receive a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your federal tax return. Employers must furnish this record of 2005 earnings and withheld taxes no later than January 31, 2006 (if mailed, allow a few days for delivery).

“If you do not receive your Form W-2, contact your employer to find out if and when the W-2 was mailed,” IRS spokeswoman Gloria Wajciechowski said. “If it was mailed, it may have been returned to your employer because of an incorrect address. After contacting your employer, allow a reasonable amount of time for your employer to resend or to issue the W-2.”

If you do not receive your W-2 by February 15th, contact the IRS for assistance at 1-800-829-1040. When you call, have the following information handy:
  • The employer's name and complete address, including zip code, the employer’s identification number (if known), and telephone number,
  • Your name and address, including zip code, Social Security number, and telephone number; and
  • An estimate of the wages you earned, the federal income tax withheld, and the dates you began and ended employment.
If you misplaced your W-2, contact your employer. Your employer can replace the lost form with a “reissued statement.” Be aware that your employer is allowed to charge you a fee for providing you with a new W-2.

You still must file your tax return on time even if you do not receive your Form W-2. If you cannot get a W-2 by the tax-filing deadline, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement, but it will delay any refund due while the information is verified.

“If you receive a corrected W-2 after your return is filed and the information it contains does not match the income or withheld tax that you reported on your return, you must file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return,” Wajciechowski said.

Forms 4852 and 1040X and their instructions are available on the IRS Web site, IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: MISSING A FORM 1099?

“If you receive certain types of income, you may get a Form 1099 for use with your federal tax return,” IRS spokeswoman Gloria Wajciechowski said. “Form 1099 is an information return provided by the payer of the income. You should receive your Form 1099-series information returns by January 31, 2006.”

If you have not received an expected Form 1099 by a few days after that, contact the payer. If you still do not receive the form by February 15th, call the IRS for assistance at 1-800-829-1040.

According to Wajciechowski, in some cases, you may obtain the information that would be on the Form 1099 from other sources. For example, your bank may put a summary of the interest paid during the year on the December or January statement for your savings or checking account. If you are able to get the accurate information needed to complete your tax return, you do not have to wait for the Form 1099 to arrive.

Generally, you will not need to attach a 1099-series form to your return, except when you receive a Form 1099-R that shows income tax withheld. You should keep a copy of all the 1099s that you receive with your tax records for the year. There are several different forms in this series, including:
  • Form 1099–B, Proceeds From Broker and Barter Exchange Transactions
  • Form 1099–DIV, Dividends and Distributions
  • Form 1099–INT, Interest Income
  • Form 1099–MISC, Miscellaneous Income
  • Form 1099–OID, Original Issue Discount
  • Form 1099–R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
  • Form SSA–1099, Social Security Benefit Statement
If you file your return and later receive a Form 1099 for income that you did not fully include on that return, you should report the income and take credit for any income tax withheld by filing Form 1040X, Amended U.S. Individual Income Tax Return. Form 1040X and instructions are available on the IRS Web site at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: WHAT INCOME IS TAXABLE? NONTAXABLE?

“Generally, most income you receive is taxable,” advised IRS spokeswoman Gloria Wajciechowski. “But there are some situations when certain types of income are partially taxed or not taxed at all. A complete list is available in IRS Publication 525, Taxable and Nontaxable Income.”

Some common examples of items that are not included in your income are:
  • Adoption Expense Reimbursements for qualifying expenses
  • Child support payments
  • Gifts, bequests and inheritances
  • Workers' compensation benefits
  • Meals and Lodging for the convenience of your employer
  • Compensatory Damages awarded for physical injury or physical sickness
  • Welfare Benefits
  • Cash Rebates from a dealer or manufacturer
Examples of items that may or may not be included in your income are:
  • Life Insurance If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.
  • Scholarship or Fellowship Grant. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
These examples are not all-inclusive. For more information, visit the IRS Web site at IRS.gov to view or download Publication 525 from the Forms and Publications section or call 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: GUIDELINES FOR ROTH IRA CONTRIBUTIONS

Taxpayers confused about whether they can contribute to a Roth IRA should consider guidelines based on the following categories:
  • Income Limits: “To contribute to a Roth IRA, you must have compensation (e.g., wages, salary, tips, professional fees, bonuses),” IRS spokeswoman Gloria Wajciechowski said. “These limits vary depending on your filing and marital status.
  • Age There is no age limitation for Roth IRA contributions.
  • Contribution Limits In general, if your only IRA is a Roth IRA, the maximum 2005 contribution limit is the lesser of your taxable compensation or $4,000 ($4,500 if 50 or older). The maximum contribution limit phases out depending on your modified adjusted gross income.
  • Spousal Roth IRA You can make contributions to a Roth IRA for your spouse provided you meet the income requirements.
  • Time Contributions to a Roth IRA can be made at any time during the year or by the due date of your return for that year (not including extensions).
  • Roth IRA contributions are not tax deductible and are not reported on your tax return,” Wajciechowski advised. “On the other hand, you do not include it in your gross income, and therefore are not taxed on, any qualified distributions or distributions that are a return of your regular Roth IRA contributions or that are rolled over into another Roth IRA.”
For complete information and definitions of terms, get Publication 590, Individual Retirement Arrangements. Visit the IRS Web site at IRS.gov, or call 1-800-TAX-FORM (1-800-829-3676) to request a free copy of the publication.

IRS TAX TIP: CHANGES TO TAX LAW FOR 2005

“Taxpayers should make sure they are aware of important changes to the tax law before they complete their 2005 federal income tax forms,” IRS spokeswoman Gloria Wajciechowski said. “Here are some significant changes that may affect you when completing your 2005 federal tax return.”
  • Donating Cars to Charity - Beginning in 2005, if you donate a car to a qualified charitable organization, your deduction is generally limited to the gross proceeds from its sale by the organization.
  • Uniform Definition of a Qualifying Child - Beginning in 2005 one definition of a qualifying child will apply for each of the following tax benefits: dependency exemption, head of household filing status, Earned Income Tax Credit, Child Tax Credit and Credit for Child and dependent care expenses.
  • Exemption Amount - The amount you can deduct for each exemption has increased to $3,200. You lose all or part of your exemption benefits if your adjusted gross income is above a certain amount. The amount at which the phaseout begins depends on your filing status.
  • Traditional IRA Income Limits - If you have a traditional individual retirement account and are covered by a retirement plan at work, the amount of income you can have and not be affected by the deduction phaseout increases. The amounts vary depending on filing status.
  • Standard Deduction - The standard deduction for taxpayers who do not itemize deductions on Schedule A of Form 1040 is, in most cases, higher for 2005. The amount depends on your filing status, whether you are 65 or older or blind and whether an exemption can be claimed for you by another taxpayer.
  • Earned Income Tax Credit - The maximum amount of income you can earn and still get the credit increases in 2005. The income limits depend on your filing status and the number of children you have.
For more information, visit the IRS Web site at IRS.gov. Also, see Publication 553, Highlights of 2005 Tax Changes, and the instruction book for Form 1040.

IRS TAX TIP: CAN YOU USE SCHEDULE C-EZ?

According to IRS spokeswoman Gloria Wajciechowski, your business may be eligible to use the abbreviated Schedule C-EZ instead of the longer Schedule C when reporting business profit and loss on your 2005 Form 1040 federal income tax return. The maximum deductible business expense threshold for filing Schedule C-EZ is $5,000.

Schedule C-EZ, Net Profit from Business (Sole Proprietorship), is the simplified version of Schedule C, Profit or Loss from Business (Sole Proprietorship).

Schedule C-EZ:
  • Contains an instruction page and a one-page form with three short parts — General Information, Figure Your Net Profit, and Information on Your Vehicle.
  • Includes a simple worksheet for figuring the amount of deductible expenses. If that amount does not exceed $5,000, you should be able to use the C-EZ instead of Schedule C.
Schedule C:
  • Contains two pages and is divided into five parts — Income, Expenses, Cost of Goods Sold, Information on Your Vehicle, and Other Expenses.
  • Requires more detailed information than the C-EZ. The instruction package is nine pages long.
  • Must be used when deductible business expenses exceed $5,000.
“Using Schedule C-EZ can save time and money and reduce paperwork burden for newly-eligible businesses,” Wajciechowski said. “More information about Schedule C-EZ and reporting net profit for sole proprietorships can be found on the IRS Web site at IRS.gov.” Schedule C and C-EZ can be downloaded at IRS.gov or ordered by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: DEDUCTING STATE AND LOCAL SALES TAX

If you itemize your taxes, you may choose to deduct state and local sales taxes instead of state and local income taxes.

“The State and Local General Sales Tax Deduction Worksheet in the 2005 Form 1040 instruction booklet will help you determine your sales tax deduction amount in lieu of saving receipts throughout the year,” IRS spokeswoman Gloria Wajciechowski said.

You also may be able to add the state and local general sales tax paid on certain specified items, such as:
  • A motor vehicle, but only up to the amount of tax paid at the general sales tax rate, and
  • An aircraft, boat, home building materials, or a home (including mobile or prefabricated) if the tax rate is the same as the general sales tax rate.
The deduction is claimed on line 5 of Form 1040, Schedule A, checking box B to indicate the amount represents sales tax.

“While this deduction will mainly benefit taxpayers with a state or local sales tax but no income tax — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — it may give a larger deduction to any taxpayer who paid more in sales taxes than income taxes,” Wajciechowski advised. “For example, if you purchased a new car, boosting your sales tax total, or claimed tax credits, lowering your state income tax.”

You may download the 2005 Form 1040 Instructions from the IRS Web site at IRS.gov, or order it by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: ARE YOUR SOCIAL SECURITY BENEFITS TAXABLE?

RICHMOND – “How much, if any, of your social security benefits are taxable depends on your total income and marital status,” IRS spokeswoman Gloria Wajciechowski said. “Generally, if social security benefits were your only income, your benefits are not taxable and you probably do not need to file a federal income tax return.”

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. Your taxable benefits and modified adjusted gross income are figured in a worksheet in the Form 1040A or Form 1040 Instruction booklet.

Before you go to the instruction book, do the following quick computation to determine whether some of your benefits may be taxable:
  • First, add one–half of the total social security 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.
The 2005 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
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 the IRS Web site at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: PAYING OR RECEIVING ALIMONY?

RICHMOND – According to IRS spokeswoman Gloria Wajciechowski, if you were recently divorced and are paying or receiving alimony under a divorce decree or agreement, you need to consider the tax implication for your 2005 federal income tax return.

Here are the general guidelines:
  • Alimony payments received from your spouse or former spouse are taxable to you in the year you receive them. Because no taxes are withheld from alimony payments, you may need to make estimated tax payments or increase the amount withheld from your paycheck.
  • Alimony payments you make under a divorce or separation instrument are deductible if certain requirements are met. Any payments not required by such a decree or agreement do not qualify as deductible alimony payments.
  • Child support is never deductible. “If your divorce decree or other written instrument or agreement calls for alimony and child support, and you pay less than the total required, the payments apply first to child support,” Wajciechowski advised. “Any remaining amount is then considered alimony.”
If you paid or received alimony you must use Form 1040. You cannot use Form 1040A or Form 1040EZ. If you received alimony, you must give the person who paid the alimony your social security number or you may have to pay a $50 penalty.

For more information, including rules for divorces and separations before 1985, get Publication 504, Divorced or Separated Individuals, available on the IRS Web site at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: TIPS ARE SUBJECT TO TAXES

RICHMOND -- Do you work at a hair salon, barber shop, casino, golf course, hotel or restaurant or drive a taxicab? The tip income you receive as an employee from those services is taxable income.

Here as some tips about tips:
  • Tips are taxable. “Tips are subject to federal income, social security and Medicare taxes, and may be subject to state income tax as well,” IRS spokeswoman Gloria Wajciechowski said. “The value of non–cash tips, such as tickets, passes or other items of value, is also income and subject to federal income tax.”
  • Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip–splitting arrangement with fellow employees.
  • Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
  • Keep a running daily log of your tip income. “You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income,” Wajciechowski said. “For a free copy of Publication 1244, call the IRS toll free at 1-800-TAX-FORM (1-800-829-3676).”
For more information, check out IRS Publication 531, Reporting Tip Income, or Publication 3148, Tips on Tips. They are available by calling 1-800-TAX-FORM (1-800-829-3676) or by going to the IRS Web site at IRS.gov.

IRS TAX TIP: GAMBLING INCOME AND LOSSES

RICHMOND – “Gambling winnings are fully taxable and must be reported on your tax return,” advised IRS spokeswoman Gloria Wajciechowski. “Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse and dog races and casinos, as well as the fair market value of prizes such as cars, houses, trips or other noncash prizes.”

Depending on the type and amount of your winnings, the payer might provide you with a Form W-2G and may have withheld income federal taxes from the payment.

Here are some general guidelines on gambling income and losses:
  • Reporting winnings: The full amount of your gambling winnings for the year must be reported on line 21, Form 1040. You may not use Form 1040A or 1040EZ.
  • Deducting losses: If you itemize deductions, you can deduct your gambling losses for the year on line 27, Schedule A (Form 1040). You cannot deduct gambling losses that are more than your winnings.
“It is important to keep an accurate diary or similar record of your gambling winnings and losses,” Wajciechowski said. “To deduct your losses, you must be able to provide receipts, tickets, statements or other records that show the amount of both your winnings and losses.”

For more information see IRS Publication 529, Miscellaneous Deductions, or Publication 525, Taxable and Nontaxable Income, both available on the IRS Web site, IRS.gov, or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: TAX FACTS ABOUT CAPITAL GAINS AND LOSSES

RICHMOND – “Almost everything you own and use for personal purposes, pleasure or investment is a capital asset,” IRS spokeswoman Gloria Wajciechowski advised. “When you sell a capital asset, the difference between the amounts you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only capital losses on investment property, not personal property.”

Here are a few tax facts about capital gains and losses:
  • Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.
  • Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
  • Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.
  • The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2005, the maximum capital gains rates are 5%, 15%, 25% or 28%.
  • If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
For more information about reporting capital gains and losses, get Publication 17, Your Federal Income Tax, and Publication 550, Investment Income and Expenses, available on the IRS Web site at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: DEFERRAL OF BACK TAXES FOR MILITARY

RICHMOND – “Reservists called to active duty and enlistees in the armed forces may qualify for a deferral of taxes owed if they can show that their ability to pay taxes was affected by their military service,” IRS spokeswoman Gloria Wajciechowski said.

The Servicemembers Civil Relief Act, which provides this benefit, covers:
  • Active duty members of the military services — Army, Navy, Air Force, Marine Corps and Coast Guard
  • Commissioned officers of the uniformed services, Public Health Service and the National Oceanic and Atmospheric Administration,
  • Reservists placed on active duty,
  • National Guard personnel called to active duty by the president of the United States.
The deferral applies to taxes due before or during military service, and extends the payment deadline to 180 days after the military service ends. No interest or penalty accrues during the deferral period.

“The taxpayer must apply for the deferral, as it is not automatic,” Wajciechowski said. “When applying, the taxpayer must show how the military service affected their ability to pay. A taxpayer must also have received a notice of tax due, or have an installment agreement with the IRS, before applying for the deferral.”

The deferral does not extend the deadline for filing any tax returns. However, taxpayers in the armed forces may get extra time to file under other provisions, such as being stationed overseas, in a combat zone, in a qualified hazardous duty area, or if they are serving in direct support of a combat zone.

Details of applying for the tax payment deferral and information on a wide range of tax issues affecting members of the military are in IRS Publication 3, Armed Forces’ Tax Guide, which is available on the IRS Web site, IRS.gov, or by calling 1-800-TAX-FORM (1-800-829-3676). Additional information on tax issues affecting the military, including information on what areas are considered combat zones, can be found on IRS.gov on the Individuals page under the Military tab.

IRS TAX TIP: TAXES ON EARLY DISTRIBUTIONS FROM RETIREMENT PLANS

RICHMOND – According to IRS spokeswoman Gloria Wajciechowski, payments that you receive from your IRA or qualified retirement plan before you reach age 59˝ are normally called ‘early’ or ‘premature’ distributions. These funds are subject to an additional 10 percent tax and must be reported to the IRS.

There are a number of exceptions to the age 59˝ rule if you make an early withdrawal. Some exceptions apply only to IRAs, some only to qualified retirement plans, and some to both.

In addition to the 10 percent tax on early distributions, you generally must include the distribution in your income. If you received a distribution from an IRA, other than a Roth IRA, to which you made any nondeductible contributions, the portion of the distribution attributable to those contributions is not taxed. If you received a qualified distribution from a Roth IRA, none of the distribution is taxed. If you received a distribution from any other qualified retirement plan, the portion of the distribution attributable to your cost, not including pre-tax contributions, is not taxed.

“A ‘rollover” is a way to avoid paying tax on early distributions,” Wajciechowski said. “Generally, a rollover is a tax-free transfer of cash or other assets from an IRA or qualified retirement plan to another eligible retirement plan. An eligible retirement plan is a traditional IRA, a qualified retirement plan, or a qualified annuity plan. You must complete the rollover within 60 days after the day you received the distribution. The amount you roll over is generally taxed when the new plan pays you or your beneficiary.”

For more information see IRS Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), Publication 575, Pension and Annuity Income, or Publication 590, Individual Retirement Arrangements (IRAs), available on IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: INCOME FROM FOREIGN SOURCES

RICHMOND -- Many United States citizens earn money from foreign sources. These taxpayers must remember that they must report all such income on their tax return, unless it is exempt under federal law.

“U.S. citizens are taxed on their worldwide income,” IRS spokeswoman Gloria Wajciechowski said. “This applies whether a person lives inside or outside the United States. The foreign income rule also applies regardless of whether or not the person receives a Form W-2, Wage and Tax Statement, or a Form 1099 (information return).”

Foreign source income includes earned and unearned income, such as:
  • Wages and tips
  • Interest
  • Dividends
  • Capital Gains
  • Pensions
  • Rents
  • Royalties.
“An important point to remember is that citizens living outside the U.S. may be able to exclude up to $80,000 of their 2005 foreign source income if they meet certain requirements,” Wajciechowski said. “However, the exclusion does not apply to payments made by the U.S. government to its civilian or military employees living outside the U.S.”

For more information, check out IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. It’s available on the IRS Web site at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: TAX RATES FOR A CHILD’S INVESTMENT INCOME

RICHMOND – According to IRS spokeswoman Gloria Wajciechowski, part or all of a child's investment income may be taxed at the parent's rate rather than the child's rate. Because a parent's taxable income is usually higher than a child's income, the parent's top tax rate will often be higher as well. This special method of figuring the federal income tax only applies to children who are under the age of 14. For 2005, it applies if the child's total investment income for the year was more than $1,600. Investment income includes interest, dividends, capital gains, and other unearned income.

To figure the child's tax using this method, fill out Form 8615, Tax for Children Under Age 14 With Investment Income of More Than $1,600, and attach it to the child's federal income tax return.

Alternatively, a parent can, in many cases, choose to report the child's investment income on the parent's own tax return. Generally speaking, this option is available if the child's income consists entirely of interest and dividends (including capital gain distributions) and the amount received is less than $8,000. However, choosing this option may reduce certain credits or deductions that parents may claim.

“These special tax rules do not apply to investment income received by children who are age 14 and over,” Wajciechowski said. “In addition, wages and other earned income received by a child of any age are taxed at the child's normal rate.”

More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Form 8615 are available on the IRS Web site at IRS.gov in the Forms and Publications section. You may also order them by calling the IRS at 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: IRS TOLL-FREE HELP

RICHMOND – “Free tax help from the IRS is just a phone call away,” advised IRS spokeswoman Gloria Wajciechowski. “The IRS provides various services through its toll-free telephone numbers. Some of these services are available 24 hours a day.”
  • Ask questions about your tax return. You can call the IRS Tax Help Line for Individuals customer service line, 1-800-829-1040, to get answers to your federal tax questions.
  • Order forms and publications. Call 1-800-TAX-FORM (1-800-829-3676). Copies of forms, publications and other helpful information are also available around-the-clock at the IRS Web site at www.irs.gov.
  • Check the status of your refund. Call the Refund Hotline at 1-800-829-1954. You will need to know your filing status and the exact whole-dollar amount of your expected refund. TeleTax, the automated refund line, at 1-800-829-4477 is available around the clock and will also let you check the status of your income tax refund. Automated refund information is generally available four to five weeks after you have filed your tax return. You can also check the status of your refund at IRS.gov by clicking on Where’s My Refund? This service is available 24 hours a day, seven days a week.
  • Recorded tax information: The TeleTax line at 1-800-829-4477 has recorded messages covering more than 100 tax topics. Topics include items such as Who Must File?, Highlights of Tax Changes, Education Credits, Individual Retirement Accounts, Earned Income Tax Credit, What to Do if You Can't Pay Your Tax and more.
  • Hearing-impaired individuals with access to TTY/TDD equipment. Call 1-800-829-4059 to ask questions or to order forms and publications. This number is answered only by TTY/TDD equipment.
The IRS Tax Help Line, Refund Hotline, and the TTY/TDD numbers are available from 7:00 a.m. to 10:00 p.m. (local time) on weekdays. Alaska and Hawaii will follow Pacific Time.

The same information that’s offered on the IRS tollfree telephone lines is also available on the Internet at www.IRS.gov, 24 hours a day, seven days a week

IRS TAX TIP: THE EARNED INCOME TAX CREDIT

RICHMOND – According to IRS spokeswoman Gloria Wajciechowski, millions of Americans forfeit critical tax relief each year by failing to claim the Earned Income Tax Credit, a federal tax credit for low-to-moderate income individuals who work. Taxpayers who qualify and claim the credit could owe less federal tax, owe no tax or even receive a refund.

In 2004, more than 21 million taxpayers received approximately $39 billion in EITC. However, the IRS estimates 25 percent of people who qualify for the credit do not claim it. At the same time, there are millions of Americans who have claimed the credit in error, many of whom simply don’t understand the criteria.

“This year it’s even easier to determine whether you qualify for the EITC,” Wajciechowski said. “The EITC Assistant, an interactive tool available on IRS.gov, removes the guesswork from eligibility rules. Just answer a few simple questions about yourself, your children, your living situation and your income to find out if you qualify and estimate the amount of your EITC. You will see the results of your responses right away. Taxpayers, tax professionals, employers, community groups and public service organizations are encouraged to use the EITC assistant which is available in both English and Spanish.”

The EITC is based on family size and the amount of your earned income. If you have children, they must meet the relationship, age and residency requirements. Additionally, you must file a tax return to claim the credit.

If you were employed for at least part of 2005 and at least age 25, but under age 65, you may be eligible for the EITC based on these general requirements:
  • You earned less than $11,750 ($13,750 if married filing jointly) and did not have an any qualifying children
  • You earned less than $31,030 ($33,030 if married filing jointly) and have one qualifying child
  • You earned less than $35,263 ($37,263 if married filing jointly) and have more than one qualifying child
For more information about the EITC, go to IRS.gov or see Publication 596, Earned Income Credit, which contains eligibility criteria and instructions for claiming the tax credit. Copies of the publication are available in English and Spanish and can be found on IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: FREE TAX HELP FOR THE MILITARY

RICHMOND – “If you, or your spouse, are a member of the military, you may be eligible to receive free assistance with the preparation and filing of your federal tax return,” IRS spokeswoman Gloria Wajciechowski advised. “The U.S. Armed Forces participate in the Volunteer Income Tax Assistance Program. The Armed Forces Tax Council oversees the operation of the military tax programs worldwide, and serves as the main conduit for outreach by the IRS to military personnel and their families. The AFTC consists of tax program coordinators for the Marine Corps, Air Force, Army, Navy and Coast Guard.”

Military-based VITA sites provide free tax advice, tax preparation, return filing and other tax assistance to military members and their families. The volunteer assistors are trained to address military-specific tax issues, such as combat zone tax benefits.

Military commanders support the program by detailing members of the military to prepare returns and by providing space and equipment for tax centers. The IRS supports these efforts by providing tax software and training.

To receive this free assistance, you should bring the following records to your military VITA site:
  • Valid photo identification
  • Social Security cards for you, your spouse and dependents or a social security number verification letter issued by the Social Security Administration
  • Birth dates for you, your spouse and dependents
  • Current year’s tax package, if you received one
  • Wage and earning statement(s) -Form W-2, W-2G, 1099-R
  • Interest and dividend statements (Forms 1099)
  • A copy of last year’s federal and state tax returns, if available
  • Bank routing numbers and account numbers for direct deposit
  • Total amount paid for day care
  • Day care provider’s identifying number
  • Other relevant information about income and expenses
According to Wajciechowski, if your filing status is Married Filing Jointly and you wish to file your tax return electronically, both you and your spouse should be present to sign the required forms. If it isn’t possible for both to be present, a valid power of attorney that allows tax preparation can be used to sign and file the return.

For more information, review IRS Publication 3, Armed Forces’ Tax Guide, available on the IRS Web site at IRS.gov or order a free copy by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: FREE TAX SERVICES

RICHMOND -- The IRS provides free publications, forms and other tax material and information to help taxpayers meet their tax obligations. Free help is available on the IRS website, by phone, at local IRS offices and at other community locations.
  • IRS.gov: You can access free tax information at IRS.gov. At 1040 Central on the Individuals page, you can obtain forms, instructions and publications, learn about IRS e-file, determine your eligibility for the Earned Income Tax Credit, read about the latest tax changes and find answers to Frequently Asked Questions. You can also check the status of your refund at IRS.gov by clicking on Where’s My Refund, a service available 24 hours a day, seven days a week.
  • Telephone: Call the IRS Tax Help Line for Individuals, 1-800-829-1040, to get answers to your federal tax questions. To order free forms, instructions and publications call 1-800-829-3676. To hear pre-recorded messages covering various tax topics or check on the status of your refund, call 1-800-829-4477. TTY/TDD users may call 1-800-829-4059 to ask tax questions or to order forms and publications.
  • Taxpayer Assistance Centers: When you believe your tax issue cannot be handled online or by phone, and you want face-to-face assistance, you can find help at a local Taxpayer Assistance Center. Locations, business hours and an overview of services are at IRS.gov
  • Other Community Resources: Free tax preparation is available through the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs in many communities. Volunteer return preparation programs provided through IRS and its partners offer free help in preparing tax returns for low- to moderate-income taxpayers. Call 1-800-829-1040 to find the VITA or TCE site nearest you. You may also call AARP — the largest TCE participant — at 1-888-227-7669 (1-888- AARPNOW) or access www.aarp.org to find the nearest Tax-Aide site.
For more information about services provided by the IRS, review Publication 910, IRS Guide to Free Tax Services available at IRS.gov or by calling 1-800-829-3676.

IRS TAX TIP: VOLUNTEER TAX RETURN PREPARATION

RICHMOND -- Are you puzzled by the tax law and which credits and deductions you can take? If so, then why not look into the free, IRS-sponsored, volunteer tax return preparation services? In addition to tax preparation, many also offer free electronic filing of tax returns.

“Volunteer Income Tax Assistance offers free tax help to people whose incomes are $38,000 or less,” IRS spokeswoman Gloria Wajciechowski advised. “Volunteers sponsored by various organizations receive training to prepare basic tax returns in communities across the country. VITA sites are generally located at community and neighborhood centers, libraries, schools, shopping malls and other convenient locations.”

Tax Counseling for the Elderly provides free tax help to people age 60 and older. Trained volunteers from non-profit organizations provide free tax counseling and basic income tax return preparation for senior citizens. Volunteers who provide tax counseling are often retired individuals associated with non-profit organizations that receive grants from the IRS.

AARP Tax-Aide counseling, part of the IRS-Sponsored TCE Program, operates nearly 9,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors can help people of low-to-moderate income with special attention to those aged 60 and older. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP's Web site at www.aarp.org

“Filing your taxes can be easy and free,” Wajciechowski said. “Take advantage of a volunteer assistance program in your area to receive free income tax preparation assistance. To obtain the location, dates and hours of the site closest to you call 1-800-829-1040.”

IRS TAX TIP: ARE YOU ELIGIBLE FOR A TAX CREDIT?

RICHMOND -- Taxpayers should consider claiming tax credits for which they might be eligible when completing their federal income tax returns. A tax credit is a dollar-for-dollar reduction of taxes owed.

“Some credits are refundable – taxes could be reduced to the point that a taxpayer would receive a refund rather than owing any taxes,” IRS spokeswoman Gloria Wajciechowski said.

Below are some of the credits taxpayers could be eligible to claim:
  • The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.
  • The Child and Dependent Care Credit is for expenses paid for the care of children under age 13, or for a disabled spouse or dependent, to enable the taxpayer to work or look for work. For more information, see IRS Publication. 503, Child and Dependent Care Expenses.
  • The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
  • Adoption Credit: Adoptive parents may qualify for a tax credit of up to $10,630 for qualifying expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses. For more information, see the instructions for Form 8839, Qualified Adoption Expenses.
  • Credit for the Elderly or the Disabled: This credit is available to individuals who are either age 65 or older or are under age 65 and retired on permanent and total disability, and who are U.S. citizens or residents. There are income limitations. For more information, see IRS Publication 524, Credit for the Elderly and the Disabled.
“There are other credits available to eligible taxpayers,” Wajciechowski said. “Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check the instructions for Form 1040, the publications and additional information on the IRS web site at www.irs.gov. IRS publications are available on the IRS web site at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).”

IRS TAX TIP: SALE OF YOUR HOME

RICHMOND – “If you sold your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return,” IRS spokeswoman Gloria Wajciechowski said. “This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years.”

To qualify for this exclusion of gain, you must meet ownership and use tests.
  • Ownership Test: During the 5-year period ending on the date of the sale, you must have owned the home for at least 2 years.
  • Use Test: During the 5-year period ending on the date of the sale, you must have lived in the home as your main home at least 2 years.
If you and your spouse file a joint return for the year of the sale, you can exclude the gain if either of you qualify for the exclusion. But both of you would have to meet the use test to claim the $500,000 maximum amount.

“If you do not meet the ownership and use tests, you may be allowed to exclude a reduced maximum amount of the gain realized on the sale of your home if you sold your home due to health, a change in place of employment, or certain unforeseen circumstances,” Wajciechowski advised. “Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.”

If you can exclude all the gain from the sale of your home, you do not report the gain on your federal tax return. If you cannot exclude all the gain from the sale of your home, use Schedule D, Capital Gains and Losses, of the Form 1040 to report it.

For more details and information see IRS Publication 523, Selling your Home, available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: HOW TO AVOID TAX TIME PROBLEMS

RICHMOND -- Are you looking for ways to avoid the last-minute rush for doing your taxes? Here are some stress relieving ideas to help you.
  • Don’t Procrastinate – “Resist the temptation to put off your taxes until the very last minute,” IRS spokeswoman Gloria Wajciechowski advised. “Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.”
  • Visit the IRS Online - In fiscal year 2005, there were more than 176 million visits to IRS.gov and 1.2 billion page views. Anyone with Internet access can also find tax law information and answers to frequently asked tax questions.
  • File Your Return Electronically - More than 68 million taxpayers filed their returns electronically in 2005. Aside from ease of filing, IRS e-file is the fastest and most accurate way to file a tax return. If you’re due a refund, the waiting time for e-filers is half that of paper filers.
  • Don’t Panic if You Can’t Pay. - If you can’t immediately pay the taxes you owe, consider some stress-reducing alternatives. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but the processing companies charge a convenience fee. Electronic filers with a balance due can file early and authorize the government’s financial agent to take the money directly from their checking or savings account on the April due date, with no fee.
  • Request an Extension of Time to File – But Pay on Time – “If the clock runs out, you can get an automatic six month extension of time to file to October 16,” Wajciechowski said. “The extension itself does not give you more time to pay any taxes due. You will owe interest on any amount not paid by the April deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date.”
See IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return for a variety of easy ways to apply for an extension. Form 4868 is available at IRS.gov or by calling 1-800-TAX-FORM (800-829-3676). Taxpayers needing Form 4868 should act soon to be sure they have the item in time to meet the April deadline

IRS TAX TIP: DEDUCTION FOR EDUCATOR EXPENSES

RICHMOND – According to IRS spokeswoman Gloria Wajciechowski, if you are an eligible educator, you may be able to deduct up to $250 of expenses you paid for purchases of books and classroom supplies. These out-of-pocket expenses may lower your 2005 tax bill even if you don’t itemize your deductions.
  • Eligible Educator: The deduction is available if you are an eligible educator in a public or private elementary or secondary school. To be eligible, you must work at least 900 hours during a school year as a teacher, instructor, counselor, principal or aide.
  • Qualifying Expenses: You may subtract up to $250 of qualified expenses when figuring your adjusted gross income. Qualified expenses are unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services) and supplementary materials that you use in the classroom. For courses in health and physical education, expenses for supplies are qualified expenses only if they are related to athletics.
“To be deductible, the qualified expenses must be more than the interest on qualified U.S. savings bonds that you excluded from income because you paid qualified higher education expenses, any distribution from a qualified tuition program that you excluded from income, and any tax-free withdrawals from your Coverdell Education savings account,” Wajciechowski advised.

You can find more information on Educator Expenses in IRS Publication 17, Your Federal Income Tax, under Chapter 19, Education Related Adjustments, which is available on the IRS Web site at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: HOME OFFICE DEDUCTION

RICHMOND -- If you use a portion of your home for business purposes, you may be able to take a home office deduction whether you are self-employed or an employee. Expenses that you may be able to deduct for business use of the home may include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting and repairs.

You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively:
  • As your principal place of business for any trade or business
  • As a place to meet or deal with your patients, clients or customers in the normal course of your trade or business
“Generally, the amount you can deduct depends on the percentage of your home that you used for business,” IRS spokeswoman Gloria Wajciechowski said. “Your deduction will be limited if your gross income from your business is less than your total business expenses.”

If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.

“If you are self-employed, use Form 8829 to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040,” Wajciechowski advised. “There are special rules for qualified daycare providers and for persons storing business inventory or product samples.”

If you are an employee, you have additional requirements to meet. The regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587, Business Use of Your Home, available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: ITEMIZERS CAN DEDUCT CERTAIN TAXES

RICHMOND -- Did you know that you may be able to deduct certain taxes on your federal income tax return? You can receive these deductions if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation.

There are four types of deductible non-business taxes:
  • State and local income or sales taxes: “You can choose to claim a state and local tax deduction for either income or sales taxes on your return,” IRS spokeswoman Gloria Wajciechowski said. “You can deduct any estimated taxes paid to state or local governments and any prior year's state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct actual expenses or use the optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the amount paid at the general sales tax rate.”
  • Real estate taxes: Deductible real estate taxes are usually any state, local or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.
  • Personal property taxes: Personal property taxes are deductible when they are based on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year.
  • Foreign income taxes: Generally, you can take either a deduction or a tax credit for foreign income taxes, but not for taxes paid on income that is excluded from U.S. tax.
According to Wajciechowski, you can find more information on non-business deductions for taxes in IRS Publication 17, Your Federal Income Tax, under Chapter 22, Taxes, which is available at IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676).

IRS TAX TIP: CREDIT FOR RETIREMENT SAVINGS CONTRIBUTIONS

RICHMOND – “If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement, you may be able to take a tax credit,” IRS spokeswoman Gloria Wajciechowski said.

The Retirement Savings Contributions Credit applies to:
  • Individuals with incomes up to $25,000 ($37,500 for a head of household) and married couples, filing jointly with incomes up to $50,000
  • You must also be at least age 18, not a full-time student and you cannot be claimed as a dependent on another person’s return
You may be able to take the credit of up to $1,000 (up to $2,000 if filing jointly) if you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans.

The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.

According to Wajciechowski, when figuring this credit, you must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies for distributions starting two years before the year the credit is claimed and ending