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| AUDITS - IRS INTERNAL
GUIDELINES
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There are circumstances that cause the IRS to
examine your return more closely. For example, the IRS
may examine your return and request more information if
your itemized deductions exceed any IRS internal
guidelines, or you claim tax shelter losses. Also, if
your business expenses and/or cash charitable
contributions are substantial in relation to your
income, you may receive an audit notice.
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| AUDITS - NOTICES
|
If you receive an audit notice from the IRS, you
need to acknowledge it and respond promptly. You should
consult a tax professional before sending information or
additional money to the IRS. There may be an error in
the amount that IRS claims you owe. Some tax
professionals may even represent you at an audit,
without your actual attendance.
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| AUDITS - RED FLAGS |
There are circumstances that may be red flags. If a
closed corporation of which you are a shareholder has
had its return examined, you may also receive an audit
notice. Are your business expenses or charitable
contributions high in relation to your income? These
circumstances may also prompt an audit.
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ACTUAL EXPENSES OF CAR |
When you use a car for business, you may deduct the
mileage expense by using either the standard mileage
rate or the actual expenses of maintaining the vehicle.
If you take the actual expenses, you can deduct the
depreciation, gas, oil, insurance, tires, licenses,
repairs, etc. If you choose to take actual expenses when
you first start using the car for business, you cannot
change to the standard mileage rate deduction.
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| BUSINESS MILEAGE |
If you use your car for business purposes, you may deduct 44.5 cents per mile for unreimbursed mileage. Be sure to keep a written record of your total mileage and business mileage.
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| OTHER MILEAGE |
In addition to business mileage, did you know that other types of mileage are deductible if you can itemize? If you are involved in charity or volunteer work for a non-profit organization, you can deduct your mileage at 14 cents per mile (up to 32 cents per mile if you incurred during 2006 while providing services to a charity for Hurricane Katrina relief). The mileage to and from a doctor or dentist's office is deductible at 18 cents per mile.
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| PASSENGER AUTOMOBILE LIMITS
- GENERAL |
The IRS defines a passenger automobile as any
four-wheeled vehicle made primarily for use on public
roads that has an unloaded gross vehicle weight of 6,000
pounds or less. The depreciation limit for most
passenger automobiles placed in service in 2006 is
$2,960. This limit must be reduced if the business use
is less than 100%.
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| PASSENGER AUTOMOBILE LIMITS
- TRUCKS & VANS |
The depreciation limit for trucks and vans
(including certain sport utility vehicles) used as
passenger automobiles that were placed in service in
2006 is $3,260. This limit must be reduced if the
business use is less than 100%.
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| SECTION 179 EXPENSING -
SPORT UTILITY VEHICLES |
The maximum section 179 deduction is limited to
$25,000 for certain sport utility vehicles (SUVs)
weighing more than 6,000 pounds, but not more than
14,000 pounds.
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| VEHICLE CREDITS |
The new Alternative Motor Vehicle Credit includes nonrefundable credits for the following: hybrid motor vehicles, advanced lean-burn vehicles, fuel cell vehicles, and alternative fuel vehicles. You must purchase the vehicle for your own use after December 31,2005, and must be the original owner. Also, vehicles must be made by a manufacturer. Passenger automobiles and light trucks are covered. Different rules apply for heavier vehicles.
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| HYBRID AND ADVANCED LEAN-BURN VEHICLES CREDIT |
The maximum credit for hybrid motor vehicles and advanced lean-burn vehicles is $3,400. Credit amounts specific to each qualified vehicle have been set by the IRS. When specific sale criteria have been met, the credit amount will be reduced and eventually phased-out. These credits are available for tax-years 2006 through 2010.
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| FUEL CELL VEHICLES |
The maximum credit for fuel cell passenger automobiles and light trucks is $12,000 for tax-years 2006 through 2009. It is $8,000 for tax-years 2010 through 2014.
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| ALTERNATIVE FUEL VEHICLES |
Alternative fuel vehicles include vehicles fueled by compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid that is at least 85% methanol. The maximum credit for alternative fuel passenger automobiles and light trucks is $4,000. This credit is available for tax-years 2006 through 2010.
As of December 2006, the only vehicles certified by the IRS as Qualified Alternative Fuel Motor Vehicles are the 2005, 2006, and 2007 Honda Civic GX.
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| COMPUTER AND CELLULAR PHONE |
If you purchased a computer or cellular phone and
use it for business, you may be able to claim a
depreciation deduction. Your employer must require you
to have the phone or computer as a condition of
employment, and you must use them for the convenience of
your employer. You must keep a record of the personal
and business use of the computer or phone to determine
the percentage of business use.
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| ENTERTAINMENT |
If you incur entertaining costs for business
reasons, you may be able to deduct 50% of the amount.
The expense must be considered ordinary or necessary to
your profession. Entertainment includes any activity
generally considered to provide entertainment,
amusement, or recreation.
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| JOB-SEEKING EXPENSES |
If you are looking for a job in your current
profession and can itemize your deductions, certain
expenses may qualify as miscellaneous deductions.
Employment agency fees, résumé printing, phone calls,
and mailing expenses are examples of deductible items.
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| JOB-RELATED EXPENSES
|
Some of your job-related expenses that may be
deducted include union dues, job-related magazines and
books, and other related business expenses. Generally,
you must depreciate the cost of tools used in your work.
If your employer requires you to wear work clothes or
uniforms that are not suitable for everyday wear, you
may deduct the cost and upkeep.
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| NATIONAL GUARD AND
RESERVE MEMBERS |
If you are a member of the National Guard or
Reserves and you must travel away from home to perform
your service (such as for a drill or a meeting) in a
location that is more than 100 miles away from your
home, you can take a deduction for related travel
expenses as an adjustment to income, even if you do not
itemize your deductions. Allowable expenses include
expenses for overnight transportation, meals, and
lodging. The amount of the allowable expenses cannot
exceed the amount the federal government pays its
employees for travel expenses.
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| SECTION 179 EXPENSING
- GENERAL
|
If you purchase certain qualifying equipment, you
may deduct the cost by making a section 179 expense
deduction. The maximum section 179 deduction for the year is $108,000.
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| SELF-EMPLOYED HEALTH
INSURANCE |
If you are self-employed, you may deduct up to 100%
of your medical insurance costs that cover yourself,
your spouse, and your dependents as an adjustment to
income. To do this, you (and your spouse if filing
jointly) must not be eligible for coverage by an
employer-subsidized health plan.
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| START-UP AND
ORGANIZATIONAL COSTS |
You may be able to claim a deduction of up to $5,000
for start-up and organizational costs. The deduction is reduced by the amount
by which the start-up costs exceed $50,000. If you
cannot deduct all your costs in the first year the
business begins, amortize the remaining costs over 15
years.
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| TRAVEL EXPENSES |
You may be able to deduct business travel expenses
if you must conduct business away from your tax home.
The cost of transportation, lodging, laundry, dry
cleaning, and telephone expenses are some of the
deductible expenses. Generally, meals are only 50%
deductible. If you are subject to the Department of
Transportation hours of service limits, you may be able
to deduct 75% of your meal expenses.
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| TIP INCOME - RECORD OF
TIPS
|
Do you receive tips as part of your income? You must
report all tips as wages on Form 1040. If you receive
tips of $20 or more in one month, you must also keep a
daily record of tips received and give your employer a
written report of your tips for that month by the 10th
day of the next month.
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| TIP INCOME - ALLOCATED
TIPS |
If you receive tip income, and work for a large food
or beverage establishment, your employer may be required
to allocate an amount of tips to you on your Form W-2.
Your employer must allocate tips if the amount of tips
you reported to him is below the IRS required minimum
percentage of gross sales. The difference is called
allocated tips and is in box 8 of your Form W- 2. You
will have to include these allocated tips in your income
and also pay Social Security and Medicare tax on them.
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| UNEMPLOYMENT COMPENSATION |
Have you received unemployment compensation during
the year? You must report unemployment compensation as
income. State and federal unemployment insurance
benefits, and railroad unemployment compensation
benefits, are all considered taxable income. You can
choose to have income tax withheld from any unemployment
compensation you receive.
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| CASUALTY AND THEFT LOSS -
HOME |
Unfortunately, theft and natural disasters such as
floods, tornadoes, and hurricanes occur. The good news
is that you may get a tax break. Damage to your home and
possessions which occurs due to theft, fire, storm, or
another natural disaster is deductible if you itemize
your deductions. The loss must be reduced by any
insurance or other type of reimbursement plus $100, and
then by 10% of your adjusted gross income.
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| CASUALTY AND THEFT LOSS -
AUTO |
If you have been involved in an automobile accident,
the damage to your car may be considered a casualty
loss. This would apply if the loss were not due to your
negligence or the negligence of someone driving your
vehicle. The loss must first be reduced by any insurance
or other reimbursement plus $100, and then by 10% of
your adjusted gross income.
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| CASUALTY AND THEFT LOSS -
PROOF OF CASUALTY OR LOSS |
To deduct a casualty or theft loss, you must be able
to prove that a casualty or theft loss occurred and
provide proof of the amount that you deduct. Each
casualty or theft loss is reduced by any reimbursement
and by $100, and is further reduced by 10% of your
adjusted gross income.
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| CASUALTY AND THEFT LOSS -
FEDERAL DISASTER AREA |
If the President of the United States declares your
area a federal disaster area, you have a choice of which
tax year to deduct a casualty loss. You may deduct the
loss for the year in which it occurred, or you may
choose to amend your previous year's return and deduct
the loss in that previous tax year for a faster refund.
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| SPECIAL BONUS DEPRECIATION
- EXPIRED |
Special bonus depreciation is not available for most
property purchased after 2004. However, if you are located within the Hurricane Katrina disaster area, you may still be eligible for special depreciation.
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| CHANGE OF ADDRESS |
Are you planning a move before the end of the year?
The IRS has its own official change-of- address form,
Form 8822, Change of Address. If you fill it out
and mail it to the appropriate IRS service center, you
should receive your tax booklet at your new address.
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| CHARITABLE
CONTRIBUTIONS - REQUIRED DOCUMENTS |
If you made contributions to a church or
qualified non-profit organization, these contributions
can be deducted as an itemized deduction on Schedule A.
The IRS requires you to keep a written acknowledgement
from the church or organization for any single
contribution of $250 or more made prior to January 1, 2007. Any contribution made after December 31, 2006, must be substantiated either with a bank record or a written communication from the donee organization. You should keep records
and receipts for all other contributions as well.
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| CHARITABLE
CONTRIBUTIONS - DISASTERS |
As you consider making charitable
contributions to assist natural disaster victims, keep
in mind that you can deduct your contributions only if
you make them to a qualified organization.
You can ask any organization whether it is a qualified
organization, or you can investigate by calling the IRS
(toll-free) at 1-877-829-5500 or by checking the online
version of Publication 78, Cumulative List of
Organizations described in Section 170(c) of the
Internal Revenue Code of 1986 on the IRS Web site at
http://apps.irs.gov/app/pub78. Churches and governments are usually qualified organizations even though they are not included in Publication 78.
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| CHARITABLE
CONTRIBUTIONS - VEHICLES |
If you donate a vehicle that has a fair
market value over $500, your deduction depends on what
the charity does with the vehicle. For example, if the
charity immediately sells the vehicle, your deduction
may be limited to the gross proceeds from the sale.
Also, substantiation requirements are stricter than with
other charitable contributions. Charitable contributions
are deducted on Schedule A.
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| CHARITABLE
CONTRIBUTIONS - FAIR MARKET VALUE |
Extra tax deductions may be as close as
your closet. If you donated clothing, toys, furniture,
or other household items to charity, you are allowed to
deduct the fair market value of your donated items.
However, the IRS does not provide a guide to determine
the fair market value. The IRS suggests surveying thrift
and consignment stores for similar items to provide an
indication of the fair market value. An alternative to
surveying thrift and consignment stores, or simply
guessing the value of your items, is the ItsDeductible®
program - available at your local Jackson Hewitt Tax
Service®. Ask your Jackson Hewitt tax representative to
use ItsDeductible* to accurately value your donations in
compliance with IRS guidelines, helping you get the
biggest possible deduction.
Learn more about this service.
*Optional service. Fees may apply.
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| CHARITABLE
CONTRIBUTIONS - TAX-DEDUCTIBLE DONATIONS
|
Carefully check out a charity before
making a contribution. If there is any doubt whether the
organization is listed with the IRS as a non-profit
organization approved to receive tax- deductible
donations, check with the organization or IRS.
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| CHARITABLE CONTRIBUTIONS -
CHARITY BENEFIT OR EVENT |
Have you attended a charity benefit or event lately?
You may be able to deduct the dollar amount that is more
than the fair market value of the event. For example,
you attend a dinner fundraiser for a qualified
non-profit organization and your ticket price is $65. If
the regular price of the meal would have been $10, your
contribution amount would be $55.
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| CHARITABLE CONTRIBUTIONS -
EXCHANGE STUDENTS |
If you have an American or foreign
exchange student living in your home, you may be able to
deduct up to $50 per month as a charitable deduction on
Schedule A. You must have a written agreement from a
qualified organization that provides the student
program. The student must not be a relative and must be
a full-time student at the high school level or below.
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| CHARITABLE
CONTRIBUTIONS - NON-QUALIFIED ORGANIZATIONS |
Not every donation you make to a worthy
cause is deductible as a charitable contribution. If you
gave money to an individual in need, or to an
organization and specified that the contribution was for
an individual, you are not allowed to deduct the amount
given. When you donate to non-qualified organizations
such as civic leagues or social clubs, you cannot take a
tax deduction.
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| CHARITABLE CONTRIBUTIONS -
DATE OF CONTRIBUTION |
You may usually deduct charitable contributions only
in the year that you actually make them. A check that
you mail is considered delivered on the date you mail
it. A contribution charged on a credit card is
deductible in the year you make the charge. The amount
of your deduction may be limited depending on the type
of property given, and the type of organization to which
it is given. Some contributions that you are not able to
deduct in the current year because of adjusted gross
income limits may be carried over to future years.
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| UNIFORM
DEFINITION OF A CHILD |
The Working Families Tax Relief Act of
2004 created a Uniform Definition of a Child effective
starting with tax-year 2005. Tax benefits that are
affected are dependency exemptions, the Head of
Household filing status, the Child and Dependent Care
Credit, the Child Tax Credit, and the Earned Income Tax
Credit. The uniform definition of a child
includes the following:
Child - A natural child, stepchild, adopted
child, or eligible foster child
 Adopted child - A child legally adopted, or
a child lawfully placed by an authorized
placement agency for legal adoption; this child
is treated as a child by blood
- Eligible foster child - A child placed by an
authorized agency or by a judgment, decree, or
other order of any court of competent
jurisdiction
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| ADOPTION CREDIT
|
If you pay for adoption expenses, you
may be able to take a credit for qualified adoption
expenses of up to $10,960 per child. If your modified
adjusted gross income is over $164,410, the credit
begins to be phased out. If your modified adjusted gross
income is $204,410 or more, you do not qualify for the
credit.
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| CHILD AND
DEPENDENT CARE - CHILD CARE EXPENSES |
If you are a working parent, or you were
working and are now looking for work, you may be able to
claim a credit for your child care expenses. The credit
may be as much as $1,050 for the expenses for one
qualifying child or $2,100 for more than one child,
depending on your adjusted gross income.
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| CHILD AND
DEPENDENT CARE - PROVIDER IDENTIFICATION
|
Are you a working parent able to claim a
credit for child care expenses? If so, you must provide
the IRS with the care provider's name, address, and
taxpayer identification number (TIN) which can be a
Social Security number or an employer identification
number (EIN).
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| CHILD AND
DEPENDENT CARE - TYPES OF PROVIDER IDENTIFICATION |
If the care provider is a daycare
center, the taxpayer identification number (TIN) is
their employer identification number (EIN). If the
provider is an individual, the TIN is the Social
Security number. If the provider is a church or
non-profit group and has no EIN, the words "tax exempt"
can be substituted for the TIN.
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| CHILD AND
DEPENDENT CARE - IN-HOME CHILD CARE |
Do you pay someone to come into your
home and provide child care while you work? If you do,
you may actually be an employer who is required to pay
employment taxes. If the person you pay provides care in
their home, you would not be considered their employer.
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| CHILD AND
DEPENDENT CARE CREDIT - COMBAT PAY |
Earned income is calculated two
different ways on Form 2441, Child and Dependent Care
Expenses. The earned income calculation for Form
2441, Page 1 includes certain nontaxable earned income,
including meals and lodging provided for the convenience
of your employer and nontaxable combat pay. This
calculation may affect your Child and Dependent Care
Credit. To calculate the earned income amount for Form
2441, Page 2, you can elect whether or not to include
combat pay as earned income. This calculation may affect
how much of your dependent care benefit is excluded from
your income. You should calculate your return both ways
(including and not including combat pay as earned income
on Form 2441, Page 2) to determine which gives you the
more advantageous result.
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| CHILD AND
DEPENDENT CARE CREDIT - AMENDING RETURNS
|
The 2003 IRS instructions for Form 2441, Child and Dependent Care Expenses, contained an error that may have incorrectly reduced your Child and Dependent Care Credit for those years. This error was corrected in 2004. You may be entitled to an additional refund if you filed Form 2441 for tax-year 2003. Contact a local Jackson Hewitt office to discuss your situation and determine whether amending your return would result in additional tax savings.
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| CHILD SUPPORT |
Do you pay child support? If you do, can
that child be claimed as a dependent on your tax return?
Unless dependency is specified in your divorce decree,
the custodial parent is generally entitled to claim the
child as a dependent. The custodial parent may sign IRS
Form 8332, Release of Claim to Exemption for Child of
Divorced or Separated Parents, allowing the
noncustodial parent to claim the child as a dependent.
Child support is neither income to the recipient, nor a
deduction for the payer.
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| CHILD TAX
CREDIT - QUALIFYING CHILD |
You may qualify for a credit of up to
$1,000 for each qualifying child under age 17 at the end
of the year. A Qualifying Child is your dependent who is
your child, stepchild, adopted child, eligible foster
child or descendent of such, or your sibling,
stepsibling or descendent of such. The individual must
have lived with you for more than half of the year and
must not have provided more than half of their own
support. Generally, the child must be a U.S. citizen or
a U.S. national or resident for some part of the year.
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| CHILD TAX
CREDIT - REFUNDABLE CREDIT |
If you receive less than the maximum
$1,000 per qualifying child for the Child Tax Credit
because it is limited to your tax liability, you may be
entitled to receive all or part of your remaining Child
Tax Credit as a refundable Additional Child Tax Credit.
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| CHILD TAX
CREDIT - COMBAT PAY |
Although combat pay is not included in
income for purposes of calculating your federal income
tax, combat pay is included as earned income when
calculating the Additional Child Tax Credit. Because the
amount of this credit is based in part on earned income,
this could mean a higher credit for those with low
taxable income.
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CHILDREN'S INVESTMENT INCOME |
Does your child under age 18 have
investment income? If they do, and the total amount is
more than $1,700, part of the amount may be taxed at the
parent's rate. The child may file a tax return,
including Form 8615, Tax for Children Under Age 18
With Investment Income of More Than $1,700, or you
may be able to file Form 8814, Parents' Election To
Report Child's Interest and Dividends, and report
your child's income on your return.
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| DEPENDENTS
|
To qualify as a dependent an individual must meet the following three tests:
- Cannot be a dependent of another taxpayer
- Cannot file a married filing jointly tax return
- Must be a citizen of the U.S. or a resident of the U.S., Canada, or Mexico during the year
Dependents fall into two specific categories: they are either a qualifying child or a qualifying relative.
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| QUALIFYINF CHILD
|
A qualifying child is any child who meets the following rules:
- Relationship Test - The individual must be a son, daughter, stepchild, foster child, sibling or descendant of either
- Residency Test - The individual must live with you for more than one half of the year
- Age Test - The individual must be under 19 or a full time student under 24
- Support Test - The individual must not provide more than one half of their own support
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| QUALIFYING RELATIVE
|
A qualifying relative is any individual who is not a qualifying child and meets the certain tests. A qualifying relative can be an individual who bears no family relationship as long as they meet the following tests:
- Relationship Test - The individual must be related to you as a child, stepchild, foster child, parent, stepparent, niece, nephew, aunt, uncle, an in-law, or is an individual who lived with you for the entire year and the relationship did not violate state or local law.
- Gross Income Test - The individual's gross income must be less than the exemption amount for the year.
- Support Test - You must provide more than one half of the individual's total support.
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| QUALIFYING
CHILD FOR MORE THAN ONE PERSON |
If you and another taxpayer(s) can claim
the same child as a Qualifying Child, only one person
can claim the following tax benefits (unless the rules
for Children of Divorced or Separated Parents apply):
the dependent exemption, the Head of Household filing
status, the Child and Dependent Care Credit, the Child
Tax Credit, or the Earned Income Credit. If more than
one person claims tax benefits using the same Qualifying
Child, the IRS will use the following tie-breaker rule
to determine who can claim the tax benefits with that
child:
- If more than one taxpayer is a parent of the
Qualifying Child, the parent with whom the child
lived longer during the year will be allowed to
claim the Qualifying Child for the benefit.
- If the Qualifying Child lived with their parents
an equal amount of time, the parent with the highest
AGI will be allowed to claim the Qualifying Child
for the benefit.
- If only one of the taxpayers is a parent of the
Qualifying Child, the parent will be allowed to
claim the Qualifying Child for the benefit.
- If neither of the taxpayers is a parent of the
Qualifying Child, the taxpayer with the highest AGI
will be allowed to claim the Qualifying Child for
the benefit
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| FOSTER PARENTS |
Are you a designated foster parent or
thinking about becoming one? Foster parents who receive
payments from a state, political subdivision, or
tax-exempt child placement agency may have charitable
deductions. If you spend money to provide support for a
foster child that is greater than the nontaxable
payments you receive, you may be able to deduct that
amount as an itemized deduction on Schedule A. You may
do this if you are not making a profit or if you have no
profit motive.
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| STANDARD
DEDUCTION - DEPENDENT ON ANOTHER'S RETURN |
The standard deduction for an individual
for whom an exemption can be claimed on another person's
tax return is generally limited to the greater of (a)
$850, or (b) the individual's earned income for the year
plus $300. In no case can the deduction exceed the
regular standard deduction amount, generally $5,150 for
this year.
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| EARNED INCOME
CREDIT - TWO OR MORE QUALIFYING CHILDREN |
The earned income credit is a refundable
credit for low-income workers with earned income. The
credit is available for taxpayers with or without
children. For 2006, the maximum credit if you have two
or more qualifying children is $4,536.
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| EARNED INCOME
CREDIT - ONE QUALIFYING CHILD |
The Earned Income Credit is a refundable
credit for low-income workers with earned income. The
credit is available for taxpayers with or without
children. For 2006, the maximum credit if you have one
qualifying child is $2,747.
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| EARNED INCOME
CREDIT - NO QUALIFYING CHILDREN |
The Earned Income Credit is a refundable
credit for low-income workers with earned income. The
credit is available for taxpayers with or without
children. For 2006, the maximum credit if you have no
qualifying children is $412.
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| EARNED INCOME
CREDIT - FRAUDULENT OR RECKLESS CLAIM |
You will not be eligible for the Earned
Income Credit if the IRS has determined that you have
previously claimed the credit fraudulently or
recklessly. A fraudulent claim results in a 10-year loss
of eligibility. A reckless claim results in a two-year
loss of eligibility.
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| EARNED
INCOME CREDIT - COMBAT PAY |
Although combat pay is not included in
income when calculating your federal income tax, you
have the option of including combat pay as earned income
when calculating the Earned Income Credit. You should
calculate your return both ways (including and not
including combat pay as earned income for Earned Income
Credit purposes) to determine which way gives you the
more advantageous result.
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| COVERDELL
EDUCATION SAVINGS ACCOUNTS (EDUCATION IRAs) |
An education savings account can be
established for a child under the age of 18. Any
individual (including the child) can make contributions
to the account during the year if they meet certain
income limitations. The total annual contributions per
beneficiary are limited to $2,000. Withdrawals will be
tax-free when used to pay education costs (elementary
school, secondary school, or a post-secondary school
such as a college) for the beneficiary.
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| HOPE AND
LIFETIME LEARNING CREDITS |
There are two nonrefundable tax credits
for payments made for qualified tuition and related
expenses for post-secondary education. You may be able
to claim a Hope Credit of up to $1,6500 for each eligible
student. You may be able to claim a Lifetime Learning
Credit of up to $2,000 for each family.
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| EDUCATOR
EXPENSES - TUITION PAYMENT VERIFICATION |
Students attending eligible higher education institutions need more than Form 1098-T, Tuition Payments Statement, if challenged to prove paid educational expenses. Receipts from the educational institution showing the amount actually paid for tuition and fees is adequate for verification. Canceled checks or bank statements are also good records. If payments included amounts charged other than tuition and fees, you should save a copy of billing documents from the school that break down the charges individually.
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| EDUCATOR
EXPENSES - DEDUCTION |
If you are an elementary or secondary
school teacher, instructor, counselor, principal, or
aide and you have worked at least 900 hours during a
school year, you may deduct the cost of books, supplies,
computer equipment (including software and services),
and other materials used in the classroom. You may
deduct up to $250 of these expenses directly against
your income, without itemizing deductions. Remaining
expenses can be deducted as a miscellaneous itemized
deduction on Schedule A, subject to the 2% of adjusted
gross income limit.
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| TUITION AND
FEES DEDUCTION |
Instead of claiming the Hope Credit or
Lifetime Learning Credit, you can claim a tax deduction
for qualified higher education expenses. You can take a
deduction of up to $4,000 for qualified tuition and
related expenses as an adjustment to income, even if you
do not itemize your deductions. Certain restrictions
apply.
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| QUALIFIED
TUITION PROGRAM |
A Qualified Tuition Program (QTP) allows
you to prepay a student's college tuition or contribute
to a higher education savings account. Contributions are
not tax deductible, but distributions will be tax-free
if the distributions are used to pay for qualified
higher education expenses.
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|
EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE |
You may be able to exclude up to $5,250
on your return for employer-provided educational
assistance. The eligible education includes
undergraduate and graduate courses.
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| STUDENT LOAN INTEREST |
| You may be able to claim a
deduction of up to $2,500 for interest paid on a
qualified student loan. Only the amount of interest
actually paid during the year may be deducted. You
cannot claim the deduction in any tax year in which another taxpayer claims you as a dependent. You do not
need to itemize to claim this interest. This amount is
subject to a phaseout, which begins at $65,000 of income
for a single person, and at $135,000 for a married
couple filing a joint return.
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| ESTATE AND GIFT
TAXES |
You can generally give money or property
to another person without any tax consequences provided
the amount does not exceed $12,000 per year. If this
amount is exceeded, it must be reported on a gift tax
return. The unified credit effectively exempts from tax
the first $2,000,000 of such cumulative transfers of
gifts.
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| ELECTRONIC
FILING |
Electronic filing, or e-file,
reduces the time it takes to get your tax refund and reduces common errors such as mathematical errors. You must have a valid Taxpayer Identification Number (TIN) for every person included on the return.
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| AMENDED RETURNS |
What happens if you filed a tax return
and later realize that you omitted income or overlooked
some deductions? You can amend your return by filing
Form 1040X, Amended U.S. Individual Income Tax Return.
Generally, you must file your amended return within
three years after the date you filed your original
return. You cannot change your filing status from
Married Filing Jointly to Married Filing Separately
after the due date of the original return.
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| EXTENSIONS -
FILING |
Do you need more time to file? By filing
an extension, you can generally postpone filing your
return until October 15. Filing an extension does not
give you additional time to pay any tax you may owe. If
you do not pay the tax due by April 16, 2007 you will
accrue penalty and interest charges. Complete IRS Form
4868, Application for Automatic Extension of Time To
File U.S. Individual Income Tax Return, to file for
an automatic six-month extension. If you file Form 4868,
you will have until October 15, 2007 to file your tax
return.
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| EXTENSIONS -
ELECTRONIC FILING |
The IRS offers electronic filing of
extension applications. The IRS will process Form 4868,
Application for Automatic Extension of Time to File
U.S. Individual Income Tax Return, through noon on
April 16, 2007. Paper requests for extension must be
postmarked by April 16, 2007. By filing an extension,
you generally postpone the filing date of your return
until October 15, 2007.
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| FILING STATUS -
ANNULLED MARRIAGES
|
If you obtain an annulment that declares
your marriage never existed, you are considered
unmarried for this and any previous tax years. You must
amend your tax returns for all the tax years not
affected by the statue of limitations for filing a
return (usually three years) to show this change in
marital status.
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| FILING STATUS -
END OF YEAR |
Your filing status depends on whether
you are married or unmarried on December 31 of a tax
year. If you live apart from your spouse and meet
certain tests you may be considered unmarried for the
entire year. If you are divorced under a final decree by
the last day of the year, you are considered unmarried
for the entire year.
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| FILING STATUS -
HEAD OF HOUSEHOLD |
If you are single or separated, check to
see if you qualify for the Head of Household filing
status. This filing status allows you to take a higher
standard deduction, possibly be eligible for a lower tax
bracket, and perhaps qualify for the Earned Income
Credit.
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| FILING STATUS -
MARRIED FILING JOINTLY OR MARRIED FILING SEPARATELY
|
If you are married, you have a choice of
filing statuses: Married Filing Jointly or Married
Filing Separately. To be sure that you pay the lowest
tax, calculate your return both ways. It is usually
advantageous for a married couple to file jointly.
However, if both of your incomes are about the same, you
may pay more in taxes by filing jointly depending on the
rest of your return.
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| FILING STATUS -
MARRIED FILING JOINTLY |
If you are married, you may choose to
file Married Filing Jointly or Married Filing Separately
return. On a joint return, you report your combined
income and deduct your combined allowable deductions.
You may file a joint return even if only you (or your
spouse) had income.
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| FILING STATUS -
MARRIED FILING SEPARATELY |
If you are married, you may choose to
file separate returns. This may be advantageous if this
results in less tax liability or if either of you
prefers to be responsible only for your own tax
liability. If you were separated during the entire last
half of the tax year, one of you may qualify as Head of
Household if certain conditions are met.
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| HOUSEHOLD
EMPLOYEES |
Are you a household employer? You might
be if you hired a housekeeper or a care provider for
your dependent and the person provided services in your
home. If you have a household employee, you may be
required to withhold Social Security and Medicare taxes,
federal unemployment tax, and federal income tax.
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| INDIVIDUAL
RETIREMENT ARRANGEMENT (IRA) - CONTRIBUTIONS
|
You can contribute up to $4,000 to your
IRA (or $4,000 to your spouse's IRA if married filing
jointly). If you or your spouse is age 50 or older,
there is an additional "catch-up" contribution of up to
$1,000 allowed.
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| INDIVIDUAL
RETIREMENT ARRANGEMENT (IRA) - EARLY WITHDRAWAL |
There is no additional 10% tax on early
withdrawals up to $10,000 in your lifetime from an IRA
if you are buying a first home for yourself, your
children, or your grandchildren, or if you are paying
higher education expenses for the IRA owner, spouse,
child, or grandchild.
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| INDIVIDUAL
RETIREMENT ARRANGEMENT (IRA) - ROLLOVER |
The IRS may waive the 60-day requirement
for rollovers from pensions or IRAs if you suffer a
casualty, disaster, or other event beyond your
reasonable control that prevents meeting the 60- day
rule.
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| RETIREMENT
SAVINGS CONTRIBUTIONS CREDIT |
There is a credit for a percentage (50%,
20%, or 10%) of up to $2,000 of contributions you make
to an employer elective deferral plan or IRAs. You must
be age 18 or older to claim the credit. In addition, you
cannot be a student as defined in the dependency tests
or claimed as a dependent on another's return. Any
distribution from a retirement plan any time in the
preceding two tax years, in the current tax year, or any
day up until the due date of the current year's return
will reduce the amount available for the credit. This
credit is in addition to any deduction or exclusion for
the contribution.
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| ROTH IRA
|
You can elect to contribute up to $4,000
to a Roth IRA. If you are age 50 or older, there is an
additional "catch-up" contribution allowable of $1,000.
The Roth IRA differs from the traditional IRA because
contributions are not deductible, but when withdrawn the
earnings are not taxable.
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| ROTH 401(K)
|
New for 2006, if you are eligible to participate in a 401(k) or 403(b) plan through your employer you may designate a portion of your elective deferral to be treated as a Roth contribution. These contributions will be treated as regular income on Form W-2. Distributions from these accounts will be tax-free under the same provisions as a Roth IRA.
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| Itemized Deductions
(Limits) |
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| ITEMIZED
DEDUCTIONS - LIMITS |
Your income may limit the total amount
of itemized deductions you can take. In 2006, if your
adjusted gross income is over $150,500($75,250 if
Married Filing Separately), your total itemized
deductions may be reduced.
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| ITEMIZED
DEDUCTIONS - PHASEOUTS |
By 2008, personal exemptions will no longer be phased out. For 2006, one-third of the amount that would have been phased out will be allowed as a personal exemption.
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| DEDUCTING COST
OF TICKETS |
If you were lucky enough to win money in
a lottery, you can deduct the cost of your losing
tickets for that calendar year as an itemized deduction
up to the amount of your winnings. If a husband and wife
file a joint return, their gambling winnings and losses
are pooled so that the losses of one spouse are
deductible against the winnings of the other up to the
amount of winnings.
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| SHARING A
WINNING LOTTERY TICKET |
Who will pay the taxes when you win the
lottery pool? Form 5754, Statement by Persons
Receiving Gambling Winnings, has been provided by
the IRS to alleviate the problem of reporting multiple
ownership of lottery tickets. The form is prepared by
the person who actually receives the winnings and it
identifies all those entitled to a share of the
winnings. The federal taxes should already have been
withheld by the lottery.
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| AMOUNTS SUBJECT
TO SOCIAL SECURITY AND MEDICARE TAXES |
For 2006, the total wage limit for
amounts subject to Social Security tax is $94,200. There
is no limit for wages subject to Medicare tax.
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| HEALTH
SAVINGS ACCOUNT - DEDUCTION |
If you made contributions to a health
savings account (HSA), you may be able to take a
deduction as an adjustment to income. You may establish
and contribute to an HSA if you are covered by a
high-deductible health plan. Amounts contributed to an
HSA belong to you and are completely portable. Every
year the money not spent stays in the account and gains
interest tax- free, just like an IRA. Unused amounts
remain available for later years (unlike amounts in
Flexible Spending Arrangements that are forfeited if not
used by the end of the year).
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| MEDICAL
EXPENSES - ITEMIZED DEDUCTIONS |
If you itemize your deductions, you may
be able to deduct medical expenses. You can deduct the
amount that is more than 7.5% of your adjusted gross
income. Taxpayers are allowed to deduct unreimbursed
medical and dental expenses for themselves and family
members.
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| MEDICAL
EXPENSES - LONG-TERM CARE |
The costs of qualified long-term care
services can generally be included as medical expenses.
These costs include a part of the premiums for qualified
long-term care insurance. Long-term care insurance
premiums covering these qualified services are
deductible as medical expenses (subject to the 7.5% of
the adjusted gross income limit and certain age
limitations).
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| MEDICAL
EXPENSES - OVERLOOKED DEDUCTIONS |
| Do not overlook any medical deductions
for which you may qualify. Hearing aids, eyeglasses,
contact lenses, hospital fees for nursing, physical
therapy, lab tests, and x-rays are all deductible. The
mileage to and from a doctor or dentist's office is
deductible at 18 cents per mile 2006. Bus and taxi costs incurred for
traveling to and from medical appointments are also
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| MEDICAL
EXPENSES - MAXIMIZE YOUR DEDUCTIONS |
If you file Form 1040 and itemize your
deductions, you may deduct medical expenses that are
over 7.5% of your adjusted gross income. Careful tax
planning may allow you to plan ahead so that you could
take more medical deductions during one tax year instead
of spreading them over two. For example, in a year that
you already have substantial medical expenses, schedule
and pay for your routine doctor or dentist appointments
by December 31 instead of early in the next year.
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| MEDICAL
EXPENSES - WEIGHT CONTROL TREATMENT |
The IRS has recognized obesity as a
medical disease. If you participate in a weight loss
program because your physician diagnoses obesity, you
may be able to deduct it as a medical expense on
Schedule A. General rules for deducting medical expenses
apply.
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| MISCELLANEOUS
EXPENSES #1 |
Various expenses fall in the category of
miscellaneous deductions. Job-hunting, job travel, union
dues, tax preparation, and safety deposit box fees are
all examples of miscellaneous deductions. If you
itemize, you can deduct the amount of miscellaneous
expenses that is over 2% of your adjusted gross income.
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| MISCELLANEOUS
EXPENSES #2 |
Various expenses fall in the category of
miscellaneous deductions. Appraisal fees for casualties,
theft losses or charitable contributions, depreciation
on home computers used for investments, and fees to
collect taxable income are all types of miscellaneous
deductions. If you can itemize, you can deduct the
amount of miscellaneous expenses that is over 2% of your
adjusted gross income.
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| MISCELLANEOUS
EXPENSES #3 |
Various expenses fall in the category of
miscellaneous deductions. Hobby expenses, up to hobby
income, can be taken as miscellaneous deductions. You
may also deduct legal fees related to producing or
collecting taxable income, doing or keeping your job, or
to collect taxable alimony. If you can itemize, you can
deduct the amount of miscellaneous expenses that is over
2% of your adjusted gross income.
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| MOVING EXPENSES
|
If you moved at least 50 miles in the
last year and your move was job-related, you may be able
to deduct the cost of moving your household goods and
your traveling expenses. The standard mileage rate for
moving is 18 cents per mile 2006. Allowable expenses are deductible
whether or not you use Schedule A and itemize your
deductions.
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| NONTAXABLE
INCOME |
There are certain types of income that
are not taxed and do not have to be used to determine
your taxable income. These include child support
payments, military allowances, veterans' benefits,
welfare benefits, and workers' compensation. A cash
rebate that you received for a car purchase is not
considered taxable income.
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| Presidential Election
Campaign Contribution |
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| PRESIDENTIAL
ELECTION CAMPAIGN CONTRIBUTION |
Do you usually mark either the 'Yes' or
'No' check box on your tax return that asks you if you
would like to contribute $3 to the Presidential Election
Campaign? If you do choose to contribute, it will not
change the tax you pay or the refund you will receive.
This fund was set up to help pay the expenses of
presidential election campaigns.
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| BASIS OF
PROPERTY - GAINS AND LOSSES |
When you purchase property, the basis is
usually its cost. Your cost also includes amounts you
pay for sales tax paid on the purchase, commissions, and
freight charges. Keep accurate records of all items that
affect the basis of the property. This will help you to
determine if you have a gain or loss when the item is
sold.
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| HOME
OFFICE - DEDUCTIONS |
Home office deductions cannot be more
than your earned income. If they are higher, you must
carry over the nondeductible expenses to the following
year. Form 8829, Expenses for Business Use of Your
Home, is used to deduct home office expenses for a
self-employed person.
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| HOME
OFFICE - QUALIFICATIONS |
A home office will qualify as the
principal place of business if you use it exclusively
and regularly to conduct administrative or management
activities of your trade or business, and if there is no
other fixed location of the business where you can
conduct these activities.
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| LEGAL FEES FOR
UNLAWFUL DISCRIMINATION CLAIMS |
You may be entitled to an adjustment to income for any attorney fees and court costs for actions settled after October 22, 2004, involving a claim of unlawful discrimination, a claim against the U.S. government, or a claim made under section 1862(b)(3)(A) of the Social Security Act (Medicare fraud claim) that you paid. The deduction is limited to the amount of income you received for the claim. You do not have to itemize deductions to claim these expenses.
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| PAST TAX
RETURNS - GETTING COPIES |
If you are buying a home, your mortgage
banker may ask for copies of several prior years' tax
returns. If you cannot locate them, contact your local
Jackson Hewitt office to request copies for returns
prepared by Jackson Hewitt. Otherwise, you can file Form
4506, Request for Copy of Tax Return, with the
Internal Revenue Service. For a fee, the IRS will mail
you copies of your past returns. This can take up to 60
calendar days.
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| REAL
ESTATE - HOME PURCHASES |
Your home purchase can be a wonderful
tax advantage. You may be able to benefit from itemizing
your deductions. If so, you can deduct payments such as
mortgage interest, real estate taxes, and most points
paid by you or the seller in the year of purchase. The
earlier in the year you purchase your home, the more
months of mortgage interest you will have by tax time.
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| REAL
ESTATE - CLOSING PAPERS |
Once you close on your new home, keep
your closing papers, including the Form HUD-1, in a safe
place. When it is time for tax preparation, the Form
HUD-1 is the document you will need to determine the
points and other closing costs you can deduct on your
tax return.
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| REAL ESTATE -
SELLING YOUR HOME |
If you are getting ready to sell your
home, it is time to calculate the basis of your property
for tax purposes. If you have saved your Form HUD-1 from
closing, you can add the attorney's fees, surveys,
agent's commissions, title searches, recording fees, and
the transfer and stamp taxes to the basis. You may also
add improvements you have made to the property.
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| REAL ESTATE
REFINANCING - LOAN POINTS |
| When interest rates drop, many
people rush to refinance their home mortgages.
Homeowners often assume that they may also deduct their
points. If you use the proceeds of your new loan to make
home improvements, you generally may deduct the loan
points in the year you refinance. If only a portion of
the loan is used to improve the home, only that portion
of points is deductible in the year paid. The remainder
must be deducted over the life of the loan.
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| REAL
ESTATE REFINANCING - HOME IMPROVEMENTS |
Are you thinking about refinancing your
home mortgage? The portion of points paid to refinance a
loan not used to substantially improve your main
residence is generally deductible in equal amounts over
the life of the loan. Any points not deducted by the
year the loan is paid off are generally fully deducted
in the payoff year.
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| REAL
ESTATE - REPAIRS & IMPROVEMENTS |
The terms repairs and
improvements can be confusing as they apply to the
value of your home. A repair or maintenance expense is
not tax deductible and cannot be added to the basis of
your home. An improvement adds to the value of your home
and is added to the basis. Adding vinyl siding and
installing a security system are examples of
improvements.
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| RENTAL
PROPERTY - MISCELLANEOUS DEDUCTIONS
|
If you are an owner of rental property,
you can take deductions for advertising for tenants, the
costs of signs, cleaning supplies, real estate taxes and
mortgage interest. Some of the other deductions include
landscaping, fees paid to property managers, and the
cost of transportation to and from the rental property.
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| RENTAL PROPERTY
- INCOME & EXPENSES |
If you are a landlord, you will have
income and expenses. Rental income includes payments
made by an occupant for the use of property, payments to
cancel a lease, advance rent, and any security deposit
used as a final payment of rent. Some of your expenses,
such as rent lost due to a vacancy, are not deductible.
Improvements made to the property must be depreciated
over a prescribed number of years and cannot be deducted
all at once.
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| SALE OF A HOME
- GENERAL |
You can avoid paying taxes on the first
$250,000 of profits on the sale of a home if you are
single, or the first $500,000 if you are married.
Generally, you must own and live in the home two of the
last five years. If you did not own and live in the home
two of the last five years, you still may be able to use
a prorated exclusion amount in certain situations (for
example, if you move because of your job).
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| SALE OF A HOME
- LIKE-KIND EXCHANGE |
If you acquired your home in a like-kind
exchange, you can avoid paying taxes on the first
$250,000 of profits on the sale of a home if you are
single, or $500,000 if you are married. Generally, you
must own and live in the home two of the last five
years. If you sold your home after October 22, 2004,
however, you must have lived in the home two of the last
five years and owned the home for the last five years.
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| INSTALLMENT
AGREEMENT |
If you owe but cannot pay your full tax
liability by April 16 2007, consider the IRS installment
plan. To do this, complete Form 9465, Installment
Agreement Request, and attach it to the front of
your tax return. If the IRS approves the request, you
will be charged a fee and interest on any unpaid
balance. You should make the payments large enough so
that the balance due will be paid off by the due date of
your next return.
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| INSTALLMENT
AGREEMENT - ONLINE AGREEMENT |
Many individuals who owe delinquent federal income taxes can now apply online for a payment agreement. Paying taxes on time and in full avoids unnecessary penalties and interest. However, if you cannot pay in full you may request a payment agreement. This new Web-based application allows you or your authorized representative, such as Jackson Hewitt Tax Service, to self-qualify, apply for, and receive immediate notification of approval. You must have filed all required tax returns in order to use the online application. You should also have the following information available:
- Balance due notice from the IRS
- Social Security number of Individual Taxpayer Identification Number
- Personal identification number, which can be established online using the caller identification number from the balance due notice
Three payment options are available: pay in full within 10 days, pay within 120 days, or set up a monthly payment plan (fee applies).
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| RECORDKEEPING
|
It is a good idea to keep your previous
tax returns, as well as other important documents that
have affected your income and deductions for at least
three years. If you need a copy of a prior year return,
contact your local Jackson Hewitt office to request a
copy if that return was prepared by Jackson Hewitt.
Otherwise, you can obtain a copy from the IRS for a fee
by filing Form 4506, Request for Copy of Tax Return.
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| SALE OF
PERSONAL ASSETS |
Did you take a loss on the sale of a
capital asset such as a nonbusiness automobile or your
home? These losses are not deductible. If you sold
stocks, bonds, securities, land, or investment real
estate, the loss is deductible. Losses on the sale of
nonpersonal capital assets are first used to offset
gains, after which up to $3,000 of the loss can be
deducted on this year's return unless you are married
filing separately. Up to $1,500 of the loss is allowed
if you are married filing separately. The remaining
loss, if any, can be carried forward to next year and
subsequent years until all the loss has been used.
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| SOCIAL SECURITY
BENEFITS - EARNINGS LIMITS CHANGED |
If you have reached full retirement age, you do not have to pay back Social Security benefits because of earning too much in your job or part-time job. (If you turned age 65 in 2006, your full retirement age is 65 years and 8 months.) You are allowed unlimited earnings at full retirement age. In the year you reach full retirement age, your earnings for the months prior to attaining full retirement age are limited to $33,240 for 2006 before losing benefits. Earnings in the year before you reach full retirement age, however, are limited to a $12,480 ceiling for 2006 before losing benefits. Under all circumstances, as income increases you may find more of your Social Security benefits are taxable. SOCIAL SECURITY NUMBERS If you are getting married and changing your name, be sure that you notify the Social Security Administration. If you have a baby, the hospital may provide Social Security application forms for your child. You must have a valid Social Security number for every person included on the tax return to electronically file with the IRS.
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| SOCIAL SECURITY
NUMBERS |
If you are getting married and changing
your name, be sure that you notify the Social Security
Administration. If you have a baby, the hospital may
provide Social Security application forms for your
child. You must have a valid Social Security number for
every person included on the tax return to
electronically file with the IRS.
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| STATE & LOCAL
TAXES - ITEMIZED DEDUCTIONS |
You have the option of deducting state
and local general sales taxes instead of state and local
income taxes as an itemized deduction, but you cannot
deduct both. If you choose to deduct state and local
general sales taxes, you can use the actual taxes you
paid during the year or the Optional State Sales Tax
Tables to determine the amount of your deduction. You
should keep your receipts to substantiate any actual
sales taxes you claim.
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| Tax Forms
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All Federal Tax Forms are available to be downloaded at the IRS Website. To download the forms you need, please use the links below:
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| ESTIMATED TAXES
|
If you expect to owe at least $1,000 in
taxes after subtracting withholding and credits, you are
usually required to pay estimated quarterly taxes. For
estimated tax purposes, the year is divided into four
payment periods. Generally, payments are due on April
15, June 15, September 15, and January 15 of the next
year. The first payment for 2007 will be due on April
16, 2007.
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| ESTIMATED TAX -
UNDERPAYMENT PENALTY |
If you did not pay enough tax either
through withholding or by making estimated tax payments,
you will have an underpayment of estimated tax, and you
may have to pay a penalty. Generally, there will be no
penalty for underpayment unless the amount you owe is
$1,000 or more.
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| What to bring to your tax interview
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| What to bring......
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If available, bring the applicable items from this list to your tax interview, to help us prepare a tax return that results in the largest allowable refund for you.
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| WITHHOLDING
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If you are employed and receive large
refunds, consider adjusting your withholding amounts
with your employer. Instead of waiting until the end of
the year to receive a big refund, you can complete a new
Form W-4, give it to your employer, and have less
withholding tax taken out of your paycheck. If income or
employment circumstances change, it might also be to
your advantage to revise your Form W-4 at that time.
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DAC
Tax Service, Inc.
