Tax Debt Help – Alimony and your 1040

February 1, 2008 at 6:49 pm (Deductions, IRS, Tax Audit, Tax Preparation, tax advocacy, tax debt help, tax help) (, , , , )

You ladies and sometimes men also, who are recipients of alimony should realize that this is reportable and taxable. It is taxable income for the recipient and is a tax deduction for the payer.

Alimony received is reported on Form 1040 Line 11.

Alimony paid is reported on Form 1040, Line 31. Alimony Received

You must report the full amount of the alimony received or separate maintenance you received during for the tax year.

Please remember that alimony and child support are completely different items. Child support is not reportable or taxable for either the payer or receiver.

Your ex-spouse must report the amount of alimony paid along with your full name and Social Security Number to the IRS.

Failure to Report Alimony

The question is, “What if I don’t report my alimony?”. Well, simply put, failing to report alimony on your tax return will result in an IRS audit. Since alimony paid is a tax deduction for the person paying you the alimony, it is highly probable that the IRS will find out how much alimony you received, and audit your tax return.

According to the IRS, “If you are the spouse or former spouse who is receiving the alimony, you must report the full amount as income on line 11 of Form 1040. If you do not give your social security number to your spouse or former spouse who is making the alimony payments, you may have to pay a $50 penalty.”

Alimony Paid

If you paid alimony or separate maintenance to your ex-spouse, report the total amount of alimony you paid during the year on Form 1040 Line 31. Do not include any child support payments in this figure. You must report your ex-spouse’s full name and Social Security Number on Line 31b, and the amount of alimony on line 31a. Alimony is tax deductible as long as you meet the following six requirements:

  • You and your spouse or former spouse do not file a joint return with each other,
  • You pay in cash (including checks or money orders),
  • The divorce or separation instrument does not say that the payment is not alimony,
  • If legally separated under a decree of divorce or separate maintenance, you and your former spouse are not members of the same household when you make the payment,
  • You have no liability to make any payment (in cash or property) after the death of your spouse or former spouse; and
  • Your payment is not treated as child support.

For further information on the filing requirements of Alimony, check out IRS Tax Topic 452, Alimony Paid

S. Raines, Sr. Financial Advisor/Tax Preparer

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Tax Debt Help – Filing Frivolous Returns

February 1, 2008 at 2:58 pm (IRS, tax advocacy, tax debt help, tax help) (, , , , )

A frivolous return is one that does not contain enough information to calculate any tax. And the return can contain information that obviously shows the tax being claimed is erroneously incorrect. The IRS enacted this penalty in an attempt to lower the incidence rate of tax protest activities. Tax protest activities include:

  • Protesting military expenses by claiming unallowable deductions.
  • Deliberately using the incorrect Tax Table to calculate taxes.
  • Obviously inconsistent information found on tax returns. (Like claiming one exemption, but listing 50 dependents).
  • Crossing out or altering the printed tax form information.
  • Interferring with the administration of federal income tax laws.
  • Deliberately delaying the processing of your income tax return.

What is unique about this tax penalty is the fact it is the only one not based on your tax liability. If you are found filing a frivolous return by the IRS, you will be assessed the penalty immediately. This penalty is added to any other penalty as required by the IRS law. And, you may have to pay $500.

Even if you protest the tax penalty, the IRS requires that you pay it when you receive notice of it.

S. Raines, Sr. Financial Advisor/Tax Preparer

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Tax Debt Help – EITC Awareness Kicks Off Today; Free Tax Help Available

February 1, 2008 at 2:35 pm (IRS News, Tax Preparation, tax advocacy, tax debt help, tax help) (, , , , , )

EITC Awareness Kicks Off Today; Free Tax Help Available

WASHINGTON — The Department of Treasury, the Internal Revenue Service and scores of community partners nationwide today kicked off EITC Awareness Day to promote the refundable tax credit for low-wage workers and options for free tax preparation.

January 31 – designated as EITC Awareness Day by the IRS – also marks the deadline for employers sending Forms W-2 to employees which enable them to file their tax returns. More than 60 percent of tax returns claiming the Earned Income Tax Credit are filed during the month of February.

More than 22.4 million taxpayers received more than $43.7 billion in EITC on their 2006 federal income tax returns. The IRS estimates that approximately one in four eligible taxpayers fails to claim EITC. Eligibility requirements for the credit can be complex. Also, people who have earned income but may not have a filing requirement, non-English speakers, non-traditional families, the homeless, childless workers and rural residents are among those who may not realize they qualify.

“Ensuring that more eligible families receive their EITC is important this year, as it is every year. I encourage people all across America to check to see if you are eligible for the Earned Income Tax Credit,” said Treasury Secretary Henry M. Paulson, Jr.

“Believe it or not, there are many taxpayers who are eligible to receive the Earned Income Tax Credit, but fail to claim it simply because they are not informed.  That is why the many partners involved in today’s effort – from Congress, to state local and community leaders – are so critical,” said U.S. Treasurer Anna Escobedo Cabral. 

“The IRS wants all eligible taxpayers to claim this important tax credit. We also want people to know that free help is available. There are volunteers staffing free tax-help sites nationwide. Free File at IRS.gov offers free software and e-filing. And, many professional tax preparers also donate their time and services to low-income taxpayers,” said Acting IRS Commissioner Linda Stiff.

Many organizations offering free tax help also are encouraging taxpayers to save a little money or open a bank account. The IRS has helped in this effort by creating a split-refund program that allows all taxpayers to divide their refunds among up to three financial accounts, such as checking, savings and retirement.

More than 150 coalitions and partners across the nation will mark EITC Awareness Day with a series of news conferences or news releases promoting this refundable tax credit for low-wage taxpayers. These organizations operate free tax preparation sites for low-income individuals, for seniors and for other eligible taxpayers.

EITC claimants are eligible for free tax preparation services provided at nearly 12,000 volunteer sites nationwide, they can also link to Free File through IRS.gov if they wish to prepare their own returns or many tax professionals also offer free service as part of their pro bono requirements.

The credit was created in 1975 in part to offset the burden of Social Security taxes and to serve as a work incentive. The amount of the credit varies but it is generally determined by income and family size. Some states also have a local version of EITC also can increase a taxpayer’s refund.

For the 2007 tax year, the maximum credit is $4,716 for a family with two or more children; $2,853 for a family with one child and $428 if the taxpayer does not reside with children.

The maximum amount of earned income allowed is higher for tax year 2007 than it was for 2006. Please see Fact Sheet 2008-11 for all eligibility requirements. Generally, a taxpayer may be able to take the credit for tax year 2007 if the taxpayer:

  • has more than one qualifying child and earns less than $37,783 ($39,783 if married filing jointly),
  • has one qualifying child and earns less than $33,241 ($35,241 if married filing jointly), or
  • does not have a qualifying child and earns less than $12,590 ($14,590 if married filing jointly).

The maximum amount of investment income also increased to $2,900 for tax year 2007. For families, there also are certain requirements for child residency that must be met.

Nearly 70 percent of all EITC returns are prepared by a third party or tax professional. The IRS reminds tax professionals that they must perform due diligence when preparing an EITC tax return. To help, the IRS created an EITC Tax Preparer Electronic Toolkit which is available at www.eitcfortaxpreparers.com.

Taxpayers should seek out reputable tax preparers. People should be wary of tax preparers who offer larger refunds based on ETIC fraud or make other enticements based on EITC. False EITC returns have serious consequences and deliberate inaccuracies can result in a lengthy ban on eligibility.

This year, the IRS also will keep 70 Taxpayer Assistance Centers open the first three Saturdays during February to help prepare EITC returns. These will be located in areas underserved by volunteer tax preparation sites.

Tax preparers and taxpayers can find a wealth of information at IRS.gov. Both can use the EITC Assistant at www.irs.gov/eitc which is an easy-to-use interactive tool to help determine if the taxpayer is qualified for EITC. This step-by-step online program helps answer questions about eligibility, filing status, qualifying children and credit amount. The EITC Assistant also is available in Spanish.

In addition to on-line tools, the IRS also produces Publication 596, Earned Income Credit, which explains all the eligibility rules and also includes a worksheet to determine eligibility. The publication is available in English and Spanish.

There also is an electronic press kit for the media available at www.irs-eitc.info. This kit provides state-by-state EITC statistics; lists the states that provide local EITC benefits and provides other information of interest.

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Tax Debt Help – Free Tax Help for Low-Income, Elderly Taxpayers

February 1, 2008 at 2:31 pm (IRS News, Tax Preparation, tax advocacy, tax debt help, tax help) (, , , , , )

IRS Partners Host Free Tax Help for Low-Income, Elderly Taxpayers

WASHINGTON — Nearly 12,000 free tax preparation sites will be open nationwide this year as the Internal Revenue Service continues to expand its partnerships with nonprofit and community organizations performing vital tax preparation services for low-income and elderly taxpayers.

The IRS Volunteer Income Tax Assistance (VITA) Program offers free tax help to people who earn less than $40,000. The Tax Counseling for the Elderly (TCE) Program offers free tax help to taxpayers who are 60 and older.

Today, more than 150 of these partners and local officials will be hosting news conferences or issuing news releases nationwide to highlight the Earned Income Tax Credit and their free tax preparation programs. The EITC is already the government’s largest cash assistance program targeted to low-income Americans. However, not all eligible taxpayers may be aware or claim the credit.

Taxpayers need to bring to the VITA/TCE sites the following items:

  • Photo identification
  • Valid Social Security cards for the taxpayer, spouse and dependents
  • Birth dates for primary, secondary and dependents on the tax return
  • Current year’s tax package, if received
  • Wage and earning statement(s) Form W-2, W-2G, 1099-R, from all employers
  • Interest and dividend statements from banks (Forms 1099)
  • A copy of last year’s federal and state returns, if available
  • Bank routing numbers and account numbers for direct deposit
  • Other relevant information about income and expenses
  • Total paid for day care
  • Day care provider’s identifying number

To file taxes electronically on a Married Filing Jointly tax return, both spouses must be present to sign the required forms.

Trained community volunteers can help eligible taxpayers with all special credits, such as the Child Tax Credit or Credit for the Elderly. Also, many sites have language specialists to assist people with limited English skills.

In addition to free tax return preparation assistance, most sites use free electronic filing (e-filing). Individuals taking advantage of the e-file program will receive their refunds in half the time compared to returns filed on paper — even faster if taxpayers have their refund deposited directly into their bank accounts.

As part of the IRS-sponsored TCE Program, AARP offers the Tax-Aide counseling program at nearly 8,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to people age 60 and older. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP’s Internet site.

The military also partners with the IRS to provide free tax assistance to military personnel and their families. The Armed Forces Tax Council (AFTC) consists of the tax program coordinators for the Army, Air Force, Navy, Marine Corps and Coast Guard. The AFTC 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. Volunteers are trained and equipped to address military specific tax issues, such as combat zone tax benefits and the effect of the EITC guidelines.

If taxpayers owe, they can make a payment April 15 by authorizing an electronic funds withdrawal (direct debit) from a checking or savings account, paying by credit (Discover Card®, American Express®, MasterCard® or VISA® Card), or by check or money order(made out to the United States Treasury) using Form 1040-V, Payment Voucher.

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