Income tax

Tax

Foreign Income

With more and more United States citizens earning money from foreign sources, the IRS reminds people 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. This applies whether a person lives inside or outside the United States.
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Ten Ways to Avoid Problems at Tax Time

Looking for ways to avoid the last-minute rush for doing your taxes? The IRS offers these tips:Organize Your Tax Records. Tax preparation time can be significantly reduced if you develop a system for organizing your records and receipts. Start with the income, deduction or tax credit items that were on last year’s return. Don’t Procrastinate. Resist the temptation to put off your taxes until the last minute.
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Options For Paying Your Taxes

If you do not pay your taxes when due, you may have to pay a failure-to-pay penalty. To avoid this penalty, the IRS suggests several ways to pay your taxes.
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Deductible Taxes

Did you know that you may be able to deduct certain taxes on your federal income tax return? The IRS says you can if you file Form 1040 and itemize deductions on Schedule A. There are three types of deductible non-business taxes:State, local and foreign income taxes; Real estate taxes; and Personal property taxes. 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.
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Early Distributions From Retirement Plans

An early distribution from an Individual Retirement Arrangement (IRA) or a qualified retirement plan need not be a “taxing” experience, according to the IRS.Any payment that you receive from your IRA or qualified retirement plan before you reach age 59½ is normally called an “early” or “premature” distribution. As such, these funds are subject to an additional 10 percent tax. But there are a number of exceptions to the age 59½ rule that you should investigate if you make such a withdrawal.
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Do You Have a Deductible Home Office?

Whether you are self-employed or an employee, if you use a portion of your home for business purposes, you may be able to take a home office deduction, according to the IRS.You can deduct certain expenses if your home office is the principal place where your trade or business is conducted or where you meet and deal with clients or patients in the course of your business.
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Alternative Minimum Tax

Before mailing your federal income tax return, check to make sure you aren’t subject to the alternative minimum tax (AMT). The IRS says that in recent years, more and more people have found themselves subject to the AMT.The tax law gives preferential treatment to some kinds of income and allows special deductions and credits for some kinds of expenses. Taxpayers who benefit from these provisions of the law may have to pay an additional tax called the alternative minimum tax.
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Tax Changes For Business Owners

At tax time, many business owners want to make sure they are aware of the latest changes that could affect their taxes. If you are one of these owners, a good source of information is IRS Publication 334, Tax Guide for Small Business. Publication 334 includes a listing of some tax changes for 2002 returns, plus explanations of the changes. It also includes some of the changes for 2003.
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Tax on Child’s Investment Income

Part or all of a child's investment income may be taxed at the parent's rate rather than the child's rate, according to the IRS. 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 2002, it applies if the child's total investment income for the year was more than $1,500.
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Don't be Taken in by Tax Scams

The IRS reminds taxpayers not to fall victim to a variety of tax scams. These schemes take several shapes, ranging from promises of special tax refunds to illegal ways of “untaxing” yourself. If people think something may be unscrupulous, they can report suspected tax fraud to the IRS at 1-800-829-0433.The IRS urges people to avoid these common schemes:Offshore Transactions. Some people use offshore transactions to avoid paying United States income tax.
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Taxable or Non-Taxable?

Generally, most income you receive is taxable, according to the IRS. But there are some areas where certain types of income are partially taxed or not taxed at all.
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Gift Giving

If you gave any one person gifts valued at more than $11,000 in 2002, it is necessary to report the total gift to the Internal Revenue Service. You may even have to pay tax on the gift.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.You make a gift when you give property, including money, or the use or income from property, without expecting to receive something of equal value in return.
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Tax Assistance For Individuals With Disabilities And Hearing-Impaired

Are you unable to complete your federal income tax return because of a physical disability or hearing impairment? Get help from the IRS through its Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) programs, or through a special TDD phone number available in both English and Spanish.The VITA program has IRS-trained volunteers who provide free tax assistance at neighborhood locations such as churches, schools, libraries and community centers. VITA is aimed at those who may find it difficult to pay for tax assistance.
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Check Your Refund Status

If you have already filed your federal tax return and are due a refund, you have several options for checking on the status of your refund, says the IRS.A new option this year is Where’s My Refund?, an Internet-based service available on the IRS Web site.
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Schedules B and 1

You may be one of about 15 million taxpayers who no longer have to file Form 1040’s Schedule B or Form 1040A’s Schedule 1, according to the IRS.
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Reservists, New Enlistees May Get Deferral For Back Taxes

The IRS reminds reservists called to active duty and new enlistees in the armed forces that they might qualify for a deferral of taxes owed if they can show that their ability to pay taxes was impaired because of their military service. The Soldiers and Sailors Civil Relief Act provides this benefit.The Act covers active duty members of the military services — Army, Navy, Air Force, Marine Corps and Coast Guard. Reservists must be placed on active duty to qualify.
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Retirement Savings Contribution Credit

This tax credit, which will be available only from 2002 through 2006, could help you offset the cost of the first $2,000 contributed to IRAs, 401(k)s and certain other retirement plans, says the IRS.The Retirement Savings Contributions Credit applies to individuals with incomes up to $25,000 ($37,500 for a head of household) and married couples with incomes up to $50,000.
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Clean Fuel Tax Deduction For Hybrid Vehicles

If you are the original owner of a qualifying hybrid vehicle – one that combines an electric motor with a gasoline-powered engine – you may be eligible to claim a one-time tax deduction on your federal income tax return, says the IRS. There are three Toyotas – the 2001, 2002 and 2003 Prius models – and four Hondas – the 2000, 2001 and 2002 Insight and the 2003 Civic Hybrid – that qualify for this tax deduction.The maximum allowable deduction amount is $2,000.
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Education Credits Can Help at Tax Time

Are you footing the costs of higher education for yourself or your family? The IRS says that education tax credits can help offset those costs. The Hope Credit and the Lifetime Learning Credit are education credits you can subtract in full from your federal income tax, not just deduct from your taxable income.The Hope Credit applies only for the first two years of post-secondary education, such as college or vocational school, and it can be worth up to $1,500 per eligible student, per year. It does not apply to graduate and professional-level programs.
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Coverdell Education Savings Accounts Can Make Education Costs Less Taxing

The Coverdell Education Savings Account is an incentive to help parents and students save for education. Up to $2,000 may be contributed to a child’s Coverdell ESA each year; the limit was $500 before 2002. Earnings on contributions will be distributed tax free, provided that they are used to pay the beneficiary’s elementary or secondary school or college education expenses.Any individual who meets adjusted gross income (AGI) requirements can make a non-deductible contribution on behalf of a child under the age of 18.

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