December 2008Form W-2 reflects all taxable wages received from your employer/s during the calendar year and all taxes withheld from those wages. The form serves as an annual report that enables to file a personal income tax return with the Internal Revenue Service (IRS) and the state taxing authority. The employer mails out W-2 forms to all employees by no later than January 31 for the year ending on Desember 31.
Form 1042-S is a year-end tax document given to a Non-Resident Alien who: Received wages protected by a tax treaty, or Received a Non-Qualified Scholarship. A 1042-S will be generated for each or all of the above. The 1042-S will indicate the income code, which describes the type of income, the amount of income earned during the year, and taxes withheld if any.
Forms 1099 are income forms that are used to report different types of income paid to taxpayers like consulting fees, pensions, bank interest, stock dividends, sales of stock or other assets, and more.
Form 1098 is a year end statement issued by a bank for mortgage payments a taxpayer makes during the year and can deduct them as expenses on his tax return.
Form 1098-T is a year end statement issued by an educational institution reporting amounts paid for qualifying education tuition and fees which can give tax credits to t/p's.
Form 1098-E is a year end statement issued by a lender reporting interest paid for education loans and can benefit taxpayers on their income tax returns.
The above forms are issued in the name of the recipient / payer with his / her social security number on the statement.
ID numbers
Everyone claimed on a tax return must have a social security number or an ITIN which must exactly match the names on their Social Security or ITIN cards. The IRS does not accept electronic returns with any name/number mismatch, whether for the taxpayer, the spouse or a dependent. It also reduces tax benefits claimed on paper returns when there is a name/number mismatch for either spouse listed on a joint return or for any dependent.
People who change their surnames for any reason - such as marriage - should get updated identification cards, unless they intend to use the former name for legal purposes.
Individual Taxpayer Identification Number (ITIN) is a substitute number for people who are not eligible for a social security number. The IRS issues ITIN’s for federal tax purposes, and ITIN’s should be used for tax reporting only. ITIN’s do not authorize a person to work in the U.S. or provide eligibility for Social Security benefits.
ITIN applicants must show a federal tax purpose for seeking ITIN’s. Most will demonstrate a tax purpose by attaching an original federal tax return to Form W-7, Application for Individual Taxpayer Identification Number, and mailing, with their proof of identity documents, to the IRS address listed in the Form W-7 instructions.
Form SS-5, Application for a Social Security Card, is available from the SSA Website at: www.ssa.gov or by calling 800-772-1213 toll-freer.
Direct Deposit of Refunds
Refund checks can get lost in the mail and replacement refunds take a long time to be issued, refund checks can't be forwarded by the postal service, and overseas mail takes forever. Direct deposits into your bank account of tax refunds, where available, will be more accurate and much faster.
Pay state and local income taxes now: That way you can deduct them on your federal tax return for 2008. Any payments made on a credit card or by check dated before the end of 2008 are eligible. Make your Charitable Contributions and Donations to tax-exempt charitable organizations. Old and unused items cluttering closets can also be donated to a qualified charity or non-profit organization and deducted as charitable contributions.Document your donations by saving receipts, cancelled checks and any letters or correspondence from the charity.
Check the Amount of Your Medical Deductions for 2008: Taxpayers can check to see if they have enough medical deductions to itemize (over 7.5 percent of adjusted gross income) this year. It's not too late to schedule additional dentist or eye doctor appointments. However, it may make sense to "bunch" medical deductions into one year, and plan ahead for 2009.Allowed Medical Deductions include:
Laser eye surgery, doctor-prescribed weight loss programs, and capital expenses for ramps, railings, etc. installed in a home to accommodate disabilities. The IRS allows the cost of smoking-cessation programs as a medical expense, but not the costs of patches and gums. Don't overlook mileage to and from the doctors, hospitals, and the pharmacy at 20 cents a mile.
Buy Supplies Now, If You're Self-Employed: Self-employed taxpayers who use the cash method of accounting can pay bills on or before December 31, to claim the expense on a 2008 return. Sell "loser" stocks. If you have experienced a stock market slide and its effect on your portfolio, there's still time to sell stocks or mutual funds and take the losses to offset your income.Beware of Wash Sales - If you buy the same stock within one month of selling that stock for a loss, your loss will be disallowed under the Wash Sale Rule. The loss is not gone forever, the disallowed loss is added to your cost basis in the new stock position.
Check your retirement accounts: See if your 401(K) plan offers an opportunity to "catch up" with additional contributions before year's end. Contributions to Individual Retirement Accounts (IRA's) for 2008 can be made until April 15, 2009.
The deductible amount for a contribution to a traditional IRA is up to $5,000 per person, and up to $6,000 per person age 50 or older.
Amended Tax Returns
Amended tax returns can be filed if there are additional refunds to be received. Amendments for the year 2005 can still be filed until April 15, 2009.
Basic Information on the Stimulus Payment
What is it? It's an economic stimulus payment that more than 130 million households will receive starting in May. It's not taxable, and it won't reduce your 2007 or 2008 refund or increase the amount you owe when you file your 2008 return.
Are you eligible? You're eligible if you have a valid Social Security Number (SSN) and show qualifying income of at least $3,000 on your federal tax return. Both people listed on a "married filing jointly" return must have valid SSNs to qualify for the payment — if only one has a valid SSN, neither can receive the payment.
Can you use an ITIN instead of an SSN? Taxpayers with an Individual Taxpayer Identification Number (ITIN) instead of an SSN are not eligible to receive a stimulus payment.
Not eligible at the current time? If your circumstances change and you become eligible after you file your 2007 federal tax return, you can always file an amended return using Form 1040X. If you're not eligible this year but you become eligible next year, you can claim the economic stimulus payment next year on your 2008 tax return.
How do you get it? Just file a federal tax return for 2007, even if you normally don't have to because your income usually doesn't meet the filing threshold. You can't get it if you don't file.
How much will you get? The actual amount depends on the information contained on your tax return. Eligible individuals will receive between $300 and $600. Those who are eligible and file a joint return will receive a total of between $600 and $1,200. Those with children will get an additional $300 for each qualifying child. To qualify, a child must be eligible under the Child Tax Credit and have a valid Social Security number. We have various examples for you to check out.
The payments phase out at certain income levels, so those with higher incomes may receive a reduced payment or even no payment.
How will you receive the payment? Be sure to choose direct deposit when you file your tax return, even if you aren't due a regular tax refund on your tax return. That way, the stimulus payment will go right to your bank account. Otherwise, you will get a check in the mail.
The “Dirty Dozen” Tax Scams for 2008
The Internal Revenue Service issued its 2008 list of the 12 most egregious tax schemes and scams, highlighted by Internet phishing scams and several frivolous tax arguments.
Topping this year’s list of scams is phishing, which encompasses numerous Internet-based ploys to steal financial information from taxpayers. New to the “Dirty Dozen” this year is a scheme, which IRS auditors discovered, that relates to unreasonable and/or excessive fuel tax credit claims.
“Taxpayers should be wary of scams and promises to avoid paying taxes that seem too good to be true,” Acting IRS Commissioner Linda Stiff said. “There is no secret formula that can eliminate a person’s tax obligations. People should be wary of anyone peddling any of these scams.”
Tax schemes can lead to problems for both scam artists and taxpayers. Tax return preparers and promoters also risk significant penalties, interest and possible criminal prosecution.
The IRS urges taxpayers to avoid these common schemes:
1. Phishing
Phishing is a tactic used by Internet-based thieves to trick unsuspecting victims into revealing personal information they can then use to access the victims’ financial accounts. These criminals use the information obtained to empty the victims’ bank accounts, run up credit card charges and apply for loans or credit in the victims’ names. Phishing scams often take the form of an e-mail that appears to come from a legitimate source. Some scam e-mails falsely claim to come from the IRS. To date, taxpayers have forwarded many thousands of these scam e-mails, reflecting thousands of different schemes, to the IRS. The IRS never uses e-mail to contact taxpayers about their tax issues. Taxpayers who receive unsolicited e-mail that claims to be from the IRS can forward the message to a special electronic mailbox, phishing@irs.gov, using instructions contained in an article titled “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes.” Remember that for the genuine IRS Web site be sure to use .gov. Don't be confused by internet sites that end in .com, .net, .org, or other designations instead of .gov - beware of fraud.
2. Scams Related to the Economic Stimulus Payment
Some scam artists are trying to trick individuals into revealing personal financial information that can be used to access their financial accounts by making promises relating to the economic stimulus payment, often called a “rebate.” To obtain the payment, eligible individuals in most cases will not have to do anything more than file a 2007 federal tax return. But some criminals posing as IRS representatives are trying to trick taxpayers into revealing their personal financial information by falsely telling them they must provide information to get a payment. For instance, a potential victim is told by phone or e-mail that he or she is eligible for a rebate but must provide a bank account number (or similar information) to get the payment. If the target is unwilling, the victim is then told that he cannot receive the rebate unless the information is provided. The IRS urges taxpayers to be extra-vigilant. The IRS will not contact taxpayers by phone or e-mail about their stimulus payment.
3. Frivolous Arguments
Promoters of frivolous schemes encourage people to make unreasonable and unfounded claims to avoid paying the taxes they owe. Most recently, the IRS expanded its list of frivolous legal positions that taxpayers should stay away from. Taxpayers who file a tax return or make a submission based on one of these positions on the list are subject to a $5,000 penalty. The most recent update of the list of frivolous positions includes: misinterpretation of the 9th Amendment to the U.S. Constitution regarding objections to military spending, erroneous claims that taxes are owed only by persons with a fiduciary relationship to the United States, a nonexistent “Mariner’s Tax Deduction” related to invalid deductions for meals and the misuse of the fuel tax credit (see below). The complete list of frivolous arguments is on the IRS Web site at www.irs.gov.
4. Fuel Tax Credit Scams
The IRS is receiving claims for the fuel tax credit that are unreasonable. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable. Fraud involving the fuel tax credit was recently added to the list of frivolous tax claims, potentially subjecting those who improperly claim the credit to a $5,000 penalty.
5. Hiding Income Offshore
Individuals continue to try to avoid paying U.S. taxes by illegally hiding income in offshore bank and brokerage accounts or using offshore debit cards, credit cards, wire transfers, foreign trusts, employee leasing schemes, private annuities or life insurance plans. The IRS and the tax agencies of U.S. states and possessions continue to aggressively pursue taxpayers and promoters involved in such abusive transactions.
6. Abusive Retirement Plans
The IRS continues to uncover abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers are using to avoid the limitations on contributions to Roth IRAs. Taxpayers should be wary of advisers who encourage them to shift appreciated assets into Roth IRAs or companies owned by their Roth IRAs at less than fair market value. In one variation of the scheme, a promoter has the taxpayer move a highly appreciated asset into a Roth IRA at cost value, which is below annual contribution limits even though the fair market value far exceeds the amount allowed.
7. Zero Wages
Filing a phony wage- or income-related information return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer also may submit a statement rebutting wages and taxes reported by a payer to the IRS. Sometimes fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme.
8. False Claims for Refund and Requests for Abatement
This scam involves a request for abatement of previously assessed tax using Form 843, “Claim for Refund and Request for Abatement.” Many individuals who try this have not previously filed tax returns. The tax they are trying to have abated has been assessed by the IRS through the Substitute for Return Program. The filer uses Form 843 to list reasons for the request. Often, one of the reasons given is "Failed to properly compute and/or calculate Section 83-Property Transferred in Connection with Performance of Service."
9. Return Preparer Fraud
Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their schemes. These scam artists make their money by skimming a portion of their clients’ refunds and charging inflated fees for return preparation services. They attract new clients by promising large refunds. Some preparers promote the filing of fraudulent claims for refunds on items such as fuel tax credits to recover taxes paid in prior years. Taxpayers should choose carefully when hiring a tax preparer, especially one who promises something that seems too good to be true.
10. Diguised Corporate Ownership
Some people are going as far as forming domestic shell corporations in certain states for the purpose of disguising the ownership of a business or financial activity. Once formed, these anonymous entities can be used to facilitate underreporting of income, non-filing of tax returns, engaging in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance.
11. Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust.
12. Abuse of Charitable Organizations and Deductions
The IRS continues to observe the misuse of tax-exempt organizations. Misuse includes arrangements to improperly shield income or assets from taxation, attempts by donors to maintain control over donated assets or income from donated property and overvaluation of contributed property. In addition, IRS examiners are seeing an upturn in instances where taxpayers try to disguise private tuition payments as contributions to charitable or religious organizations.
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