TaxHawk.com's Tax Tips

Visit TaxHawk.com for even more tips.

Tip #76
Surviving Spouse
You can still file a married filing jointly tax return the year your spouse passes away. Filing a joint return almost always provides a bigger refund. If you have a dependent child, then the two years after the year your spouse dies, you can file as a Qualifying Widow(er). If you don't have a dependent, then you would file as either Single or Head of Household based on which criteria you meet in the years following the year your spouse dies.

Tip #77
Hope Credit
A Hope credit of up to $1,500 per student is available for the first two years of college education. The tax credit is 100% of the first $1,000 paid for tuition and eligible class fees, and 50% of the second $1,000 paid for tuition and class fees. Athletic fees, housing costs, student activity fees and books are not eligible expenses for the Hope or Lifetime learning credits. The credit phases out for married taxpayers with adjusted gross income between $88,000 and $108,000. For single taxpayers and others not filing a joint tax return, the adjusted gross income phase out is between $44,000 and $54,000. If your income is too high to take the Hope credit for your child's education expenses, IRS regulations allow your child to claim the Hope credit on his or her own tax return as long as you do not claim your child as a dependent on your tax return. Alternatively, you may still be eligible for the new education deduction which has a higher income limitation

Tip #78
Rollovers of Retirement Distributions
The best way to rollover your IRA, 401(k), or other type or retirement account is to have the rollover distribution be directly rolled over from one plan to the other by your plan administrator. You can obtain the necessary paperwork from your retirement plan administrator to do the direct rollover. If you do a direct rollover, there won't be any taxes withheld from your distribution and the distribution won't be taxable on your tax return. If you don't do a direct rollover and you receive the distribution, then if you want to do a rollover, you need to put the distribution money into another qualified retirement account within 60 days from the day you receive the distribution. Also, if you have taxes withheld from the distribution, you need to come up with the cash to put the full amount of the distribution into the new retirement account to have the full distribution treated as a rollover. EXAMPLE: The taxpayer has $10,000 in a 401(k) account with his old employer. Instead of doing a direct rollover, the plan administrator withholds $2,000 in federal taxes and sends the taxpayer a check for $8,000. If the taxpayer wants to rollover the full $10,000 to his new employer's 401(k) account, he needs to put $10,000 into the new 401(k) account before 60 days have passed. If he only puts in $8,000, then $8,000 will be considered rolled over and $2,000 will be considered taxable income on his tax return.

Tip #79
Meals and Entertainment
Business-related meals and entertainment expenses can be taken as a tax deduction if either one of the following tests are met: (1) the meals or entertainment is directly related to the active conduct of your trade or business or (2) the meals or entertainment is directly before or after a bona fide business discussion. Only 50% of meals and entertainment expenses can be deducted on your tax return. For record keeping, you should write down who you were with and the business relationship, the business reason and business discussion as well as keep the receipt showing the cost, date and location of the meals or entertainment.

Tip #80
Owing the IRS Money
If you owe the IRS money and are not able to pay are not able to pay, you basically have three options. Each of these options can get complicated. Professional tax advice should be sought to best choose the option that meets your tax situation. Remember to file your tax return on time or file an extension even if you don't have the money to pay your tax. The penalty for not filing your return is 5% of your tax liability a month up to a maximum of 25%. The three options are do an Installment Agreement, do an Offer in Compromise, or file bankruptcy. The Installment Agreement is the most common one used. You should probably consult a tax professional to do an Offer in Compromise. You should definitely consult a lawyer who understands taxes to file bankruptcy since your tax liabilities won't be discharged with bankruptcy if you don't do it correctly.

Tip #81
Installment Agreements
If you don't have the cash to pay the taxes you owe, and if you owe less than $10,000 in taxes, you are legally entitled to an installment agreement if you meet certain conditions. Fill out Form 9465 and attach it to your return. In order to minimize your penalties and interest you should pay as much tax as you can when you mail in your tax return. Put down the amount that you can pay each month keeping in mind that the bill must be paid off within 3 years (including interest and penalties). Once the IRS receives your Form 9465, they will contact you with information on how to make the payments.

Tip #82
Offer in Compromise
An offer in compromise is an agreement between a taxpayer and the IRS that resolves the taxpayer's tax liability. The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than a full payment under certain circumstances. If you do not have the ability to pay your full tax bill even if you are given extra time to pay it, consider making an offer in compromise. Basically, the IRS looks at your current assets and your potential future income in determining whether the offer in compromise you propose is acceptable. If all the IRS can get from you is 10 cents on every dollar of tax liability, the IRS will probably accept an offer in compromise of 10 cents on the dollar. The dollar amount of your offer is not important. What is important is the dollar amount the IRS feels it can obtain through its collection efforts. If you offer less than what the IRS feels it can collect, then your offer will be rejected. Use Form 656 as well as Form 433-A (and Form 433-B if you are an owner in a business) in preparing your offer. Send these forms to the IRS separate from your tax return. Form 433-A is a financial statement that lists all of your assets, liabilities, monthly income, and expenses. A qualified tax professional will greatly increase your chances of a successful offer and can help you analyze any potential traps in making an offer in compromise.

Tip #83
Bankruptcy
If you owe federal and state income taxes that you are unable to pay, you may be able to discharge the taxes through bankruptcy, but only if done right and if certain rules are met. Consult a competent attorney who has a good knowledge of the tax laws. The timing of when you file your bankruptcy is crucial. If you file bankruptcy too soon, your tax liabilities will not be discharged.

Tip #84
Educator Expenses
Full-time Kindergarten through 12th grade teachers, counselors or principals can deduct up to $250 for out-of-pocket expenses that they pay for supplies, books, equipment and materials used in their classroom.

Tip #85
Copy of Your Old Tax Return
Call the IRS at 1-800-829-1040 or mail in Form 4506-T to get a free transcript of your old tax return. You can download Form 4506-T from the IRS web site, www.irs.gov. A transcript of a tax return works for most student loan and other type of loan applications where a tax return is needed. However, if you need an exact copy of a previously filed and processed return and all attachments (including Forms W-2), you must complete Form 4506 (PDF), Request for Copy of Tax Return and mail it to the IRS address in the instructions along with a $39 fee for each tax year requested. Copies are generally available for returns filed in the current and past 6 years.

Tip #86
Telephone
Long-distance phone calls related to business, investments, rental properties, or your job are deductible. The basic local phone costs of the first phone line in a residence are considered personal and are not deductible. However, a second phone line or additional telephone services on the first line such as call waiting may be deductible expenses.

Tip #87
Receiving a W-2 or 1099 After Already Filing
If you receive a Form W-2, corrected Form W-2, Form 1099-R, Form 1099-INT, or other types of income records after you have already e-filed or mailed in your tax return, you will need to do an amended return, Form 1040X, to change your tax return. Form 1040X can be downloaded from the IRS web site, www.irs.gov The 1040X can't be e-filed; it has to be mailed in. If you are receiving a refund, you probably want to wait until the IRS sends you your refund before filing the amended return. The IRS often catches the mistake and adjusts your tax return for the unreported income. If the IRS correctly adjusts your return while processing your refund, then you do not need to do an amended return.

Tip #88
Accidentally Overpaying the IRS
If you owe taxes to the IRS and accidentally pay to much to the IRS with your extension payment or tax return, you usually do not have to do anything. The IRS service center should make the correction for you. The IRS Service Center will usually send you a refund of the difference between what you owe and what you sent in. Accidental overpayments of taxes owed can occur several ways. One way is if you pay your taxes owed by either a credit card or electronic funds withdrawal, then incorrectly mail in a check with a Form 1040-V for the tax owed so you end up paying the taxes owed twice.

Tip #89
Travel Expense
Unreimbursed travel expenses while away from your "tax home" for your business or your job are deductible on Schedule C and Schedule A respectively. Your tax home is your regular place of business. You are considered away from your tax home if you are out of the general area of your tax home for a period longer than a normal workday, and you need to sleep or rest. Deductible travel expenses include meals, lodging, transportation, automobile expense, taxi fares, telephone expense, and laundry and dry-cleaning expenses. You can deduct all of your travel expenses for work on a temporary assignment out of town. An assignment is considered temporary if you expect the assignment to last less than a year and it in fact lasts less than a year.

Tip #90
Injured Spouse
When a joint return is filed and only one spouse owes past due federal tax, past-due child support, a federal debt, or state income tax, the other spouse can be considered an injured spouse and can request his or her share of the joint refund. If this situation applies to you, file Form 8379, Injured Spouse Claim and Allocation, to recover your share of the joint refund.

You are considered an injured spouse if you:
(1) Filed a joint tax return
(2) Have reported income (such as wages, interest, etc.)
(3) Have made and reported tax payments (such as federal income tax withheld from wages or estimated tax payments) or claimed the earned income credit or other refundable credit, and
(4) Have an overpayment, all or part of which can be applied against the past-due amount for which you are not liable.

If the injured spouse lives in a Community Property state, only requirements (1) and (4) need to be met to file Form 8379. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Tip #91
Same Sex Marriages
Same sex marriages are not recognized for federal tax purposes. A same sex couple can't file a joint federal return. If you live in a state that recognizes same sex marriages, you might be able to file your state return using a different filing status than your federal return.

Tip #92
Common Law Marriage
If you are living together in a common law marriage that is recognized in the state where you now live or in the state where the common law marriage began and the marriage is recognized under federal law, then you are considered married for federal tax purposes and can file a joint return.

Tip #93
Newly Married
If you were married during the current tax year, you are considered married for the entire tax year. For example, if you are married on December 5th, you are considered married for the entire year. You would file either a married filing jointly return or a married filing separate return.

Tip #94
College Student and Education Credits
If your child is a full-time student younger than age 24, you can still claim your child as a dependent on your tax return. The education credits, Lifetime Learning Credit or Hope Credit, go onto your tax return if you claim your child as a dependent. If your child claims his own exemption on his tax return, then the education credit goes on your child's tax return. It doesn't matter who actually paid the tuition, the education credits go on the tax return where the child's exemption is claimed. Usually the most tax benefit is received by the parents claiming the dependent and education credit, but if the parent's income is too high to take advantage of the education credit, the child may benefit more by claiming their own exemption and education credit. The child would have to have enough income to have a tax liability to get any benefit from the education credit. The education credit is not a refundable credit, so if the child has low income and has no tax to begin with, then the education credit doesn't do them any good.

Tip #95
Newborn child
You can take a dependent exemption on your tax return for each of your dependents who was alive during some part of the tax year. This includes a baby born in the tax year or a dependent who died during the tax year. So if your child is born on December 31st, you are eligible to claim the full dependent exemption for that year.

Tip #96
Dependents cannot claim exemptions for dependents
If you can be claimed as a dependent on someone else's tax return, you cannot claim any exemptions for dependents. For example, a student living at his parents' home has a two year old daughter. If his parents are eligible to claim the student as a dependent on their tax return, then the student cannot claim his two year old daughter as a dependent on his own tax return. Most likely, the parents would also be eligible to claim the grandchild as a dependent on their tax return too.

Tip #97
Taxable State Refunds
Your state refund is not taxable income if you took the standard deduction on last year's tax return instead of itemizing your deductions on Schedule A. The general rule is that your state refund is taxable if you deducted your state tax payments on last year's tax return. However, if your taxable income was zero or negative on last year's tax return, your state refund may not be taxable even if you deducted state taxes on last year's Schedule A.

Tip #98
Name Change
If your name changes because of marriage, divorce, or other reasons, you need to contact the Social Security Administration. They will issue a new social security card reflecting your new name and automatically send the IRS your new name. To change the name shown on your card, you need to complete SSA Form SS-5, Application for a Social Security Card which you can do on www.ssa.gov. You can also obtain Form SS-5 by calling SSA at 1-800-772-1213 or visiting your local SSA office. Updating your name with the Social Security Administration before you file your tax return prevents delays in processing your tax return. If you are ready to file your tax return and haven't updated your name, you have two choices. First, you can file using your maiden name so that your last name matches the IRS records. Second, you can update your name with the Social Security Administration, then wait about two weeks for your last name to be updated on the IRS records before filing your tax return.

Tip #99
Gambling Losses
Gambling losses are only deductible to the extent of your gambling winnings. Also, they can only be deducted if you itemized your deductions on Schedule A. For example, if you have $4,000 in gambling winnings and $15,000 in gambling losses during the tax year, you would report the $4,000 in gambling winnings on your Form 1040 on the Other Income line. If you itemized your deductions, then you would enter $4,000 in gambling losses on the Schedule A as an Other Miscellaneous Deduction. The other $11,000 in gambling losses can't be deducted.

Tip #100
Estimated Tax Payments
Most people who just have W-2 wages income, don't need to do estimated tax payments. Estimated tax payments are needed if you have large amounts of income where federal and state taxes aren't withheld. Common situations are when you have self-employment income, rental income, or large amounts of investment income. You can make an estimated tax payment several ways. You can mail in Form 1040-ES along with a check to the IRS. You can go online at www.eftps.gov to make an estimated tax payment. The EFTPS online system is free to use. You can pay an estimated tax payment by credit card by going to www.pay1040.com or www.officialpayments.com. Fees are charged for using a credit card to pay estimated tax payments.

Save Time...
          ...File Online