Taxes and IRS News, Regulations, and Scams

Not that you don't have enough to do with the holidays approaching, but the Internal Revenue Service (IRS) is reminding those who are eligible that this is the time to begin planning to take full advantage of their employer’s health flexible spending arrangement (FSA) during 2016.

FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, many employers are offering the option to participate during the 2016 plan year.

If you want to contribute during the new year, you must make this choice again for 2016 -- even if you contributed in this year. Self-employed individuals are not eligible.

How it works

Those who elect to participate may contribute up to $2,550 during the 2016 plan year, the same as in 2015. Amounts contributed are not subject to federal income tax, Social Security tax, or Medicare tax. If the plan allows, the employer may also contribute to your FSA.

Throughout the year, employees can then use the money to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles, and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.

Carryover option

Under the use or lose provision, participating employees must often incur eligible expenses by the end of the plan year, or forfeit any unspent amounts. But under a special rule, employers may -- if they choose -- offer participating employees more time through either the carryover option or the grace period option.

Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year; for example, an employee with $500 of unspent funds at the end of 2016 would still have those funds available to use in 2017.

Under the grace period option, an employee has until 2½ months after the end of the plan year to incur eligible expenses -- for example, March 15, 2017, for a plan year ending on Dec. 31, 2016. Employers can offer either option, but not both, or none at all.

Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA.

More information about FSAs is available in IRS Publication 969.  

Congress can't agree on much, but it seems to agree that being delinquent in paying your income tax -- or being behind in wading through the paperwork -- is grounds for revoking your passport.

This might not sound too bad to most people, but it sounds awful to the 7 million or so Americans living abroad. They need their passport almost daily to attend to chores we take for granted at home. 

They're also likely to have trouble receiving notices from the Internal Revenue Service because of unreliable mail delivery in much of the world and differences in address formats that often don't fit with the IRS' rigid addressing system.

But there it is, buried deep in the massive highway-funding bill, which contains all sorts of provisions that have little or nothing to do with highways. The measure, inserted by nominally tax-hating GOP solons,  has been approved by both the House and Senate and is now in the final moments of being considered by a conference committee before being given final approval.

$50,000 threshold

How much would you have to owe to lose your passport? The bill specifies $50,000 of unpaid taxes, penalties, and interest. That may sound like a lot, but it doesn't take long for penalties and interest to add up. Throw in a year or two of back taxes and any middle-income wage earner or independent contractor could be in trouble.

In the "gig economy," in fact, it's easier than ever to get into trouble with the IRS, since the taxpayer must try to make accurate quarterly payments based on estimated income. Anyone who's done this for more than a few years will tell you it's a recipe for big penalty and interest payments.

Politicians are fond of noting -- sometimes to their detriment -- that more than 40% of Americans pay no income tax at all so Congressional thinking is apparently that it's OK to make up for it by being more penurious with those who do.

The Wall Street Journal says the punitive measure would apply, in most cases, only to those who have been hit with a lien or a levy, something that is not that unusual for the self-employed or for high wage-earners who find themselves in a dispute with the IRS.

If passed in its present form, the measure would take effect Jan. 1 and would apply to existing tax debts. So enjoy the holidays. And pay your taxes. 

If you were born before July 1, 1945, the clock is ticking. Well, that way too, but we're talking about Uncle Sam's clock here.

In this case, you generally are required by the Internal Revenue Service (IRS) to receive payments from your individual retirement arrangement (IRA) and workplace retirement plan by Dec. 31.

Known as required minimum distributions (RMDs), these payments normally must be made by the end of 2015. However, if you are a first-year recipients of these payments -- you reached age 70½ during 2015 -- you can wait until as late as April 1, 2016 to receive your first RMDs.

To clarify, anyone born after June 30, 1944, and before July 1, 1945 is eligible for this special rule. Though payments made to these taxpayers in early 2016 can be counted toward their 2015 RMD, they are still taxable in 2016.

Who else is affected?

The required distribution rules apply to owners of traditional, Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs but not Roth IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b), and 457(b) plans.

An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2015 RMD, this amount is on the 2014 Form 5498 normally issued to the owner during January 2015.

The special April 1 deadline applies only to the RMD for the first year. For all subsequent years, the RMD must be made by Dec. 31. For example, a taxpayer who turned 70½ in 2014 (born after June 30, 1943, and before July 1, 1944) and received the first RMD (for 2014) on April 1, 2015, must still receive a second RMD (for 2015) by Dec. 31, 2015.

Calculating your RMD

The RMD for 2015 is based on the taxpayer’s life expectancy on Dec. 31, 2015, and the account balance on Dec. 31, 2014. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Use the online worksheets on IRS.gov or find worksheets and life expectancy tables to make this computation in the Appendices to Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

For most taxpayers, the RMD is based on Table III (Uniform Lifetime Table) in IRS Publication 590-B. So for a taxpayer who turned 72 in 2015, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than 10 years younger and is the taxpayer’s only beneficiary.

Though the RMD rules are mandatory for all owners of traditional, SEP and SIMPLE IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulations in Publication 575. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

Annual inflation adjustments for more than 50 tax provisions -- including the tax rate schedules and other tax changes -- are in the works for the 2016 tax year.

According to the Internal Revenue Service, the tax items of greatest interest to most taxpayers include the following dollar amounts:

• For tax year 2016, the 39.6% tax rate affects single taxpayers whose income exceeds $415,050 ($466,950 for married taxpayers filing jointly), versus $413,200 and $464,850, respectively. The other marginal rates -- 10, 15, 25, 28, 33 and 35% -- and the related income tax thresholds for tax year 2016 are described in Revenue Procedure 2015-53.
• The standard deduction for heads of household rises to $9,300 for tax year 2016, up $50, from tax year 2015.The other standard deduction amounts for 2016 remain as they were for 2015: $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly
• The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with incomes of $259,400 or more ($311,300 for married couples filing jointly).
• The personal exemption for tax year 2016 rises $50 from 2015 -- to $4,050. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $259,400 ($311,300 for married couples filing jointly). It phases out completely at $381,900 ($433,800 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2016 is $53,900 and begins to phase out at $119,700 ($83,800, for married couples filing jointly for whom the exemption begins to phase out at $159,700). The 2015 exemption amount was $53,600 ($3,400 for married couples filing jointly). For tax year 2016, the 28% tax rate applies to taxpayers with taxable incomes above $186,300 ($93,150 for married individuals filing separately).
• The tax year 2016 maximum Earned Income Credit amount is $6,269 for taxpayers filing jointly who have three or more qualifying children, up $17 from tax year 2015. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
• For tax year 2016, the monthly limitation for the qualified transportation fringe benefit remains at $130 for transportation, but rises $5 from 2015 -- to $255 for qualified parking.
• For tax year 2016 participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,250, up $50 for tax year 2015; but not more than $3,350, $50 more than in tax year 2015. For self-only coverage the maximum out of pocket expense amount remains at $4,450. For tax year 2016 participants with family coverage, the floor for the annual deductible remains as it was in 2015 -- $4,450, however the deductible cannot be more than $6,700, up $50 from the limit for tax year 2015. For family coverage, the out of pocket expense limit remains at $8,150 for tax year 2016 as it was for tax year 2015.
• For tax year 2016, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit rises $1,000 from tax year 2015 -- to $111,000.
• For tax year 2016, the foreign earned income exclusion is $101,300, up $400 from tax year 2015.
• Estates of decedents who die during 2016 have a basic exclusion amount of $5,450,000, compared with a total of $5,430,000 for estates of decedents who died in 2015.

If you're one of those taxpayers who got an extension back in April for filing your federal income tax return, be advised that the clock is ticking

With the extension running out on Oct. 15, the Internal Revenue Service (IRS) is advising you to double-check your return for often-overlooked tax benefits and then file electronically using IRS e-file or the Free File system.

About a quarter of the 13 million taxpayers who requested an automatic six-month extension this year have yet to file. While Oct. 15 is the last day for most people, some still have more time, including members of the military and others serving in combat zone localities who typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.

“If you still need to file, don’t forget that you can still file electronically through October 15,” said IRS Commissioner John Koskinen. “Free File is free tax software that takes the guesswork out of return preparation. Even if you’re filing in the final days, filing electronically remains easy, safe and the most accurate way to file your taxes.”

Check out tax benefits

Before you file, the IRS encourages you to take a moment to see if you qualify for these and other often-overlooked credits and deductions:

• Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit. The special EITC Assistant can help taxpayers see if they’re eligible.
• Savers credit, claimed on Form 8880, for low-and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k).
• American Opportunity Tax Credit, claimed on Form 8863, and other education tax benefits for parents and college students.

Health care tax reporting

While most taxpayers will simply need to check a box on their tax return to indicate they had health coverage for all of 2014, there are also new lines on Forms 1040, 1040A and 1040EZ related to the health care law. Visit IRS.gov/aca for details on how the Affordable Care Act affects the 2014 return.

This includes:

• Reporting health insurance coverage.
• Claiming an exemption from the coverage requirement.
• Making an individual shared responsibility payment.
• Claiming the premium tax credit.
• Reconciling advance payments of the premium tax credit. Properly doing so can help maintain continued eligibility for premium assistance in 2016.

The Interactive Tax Assistant tool can also help a taxpayer determine if he qualifies for an exemption, needs to make a payment, or is eligible for the premium tax credit.

Taxpayers who intend to claim the Health Coverage Tax Credit for 2014 must first file an original 2014 tax return without claiming the HCTC, even if they have no other filing requirement. They can then file an amended return when the IRS issues further HCTC guidance. Updates can be found here.

With young adults heading off -- or back -- to college, this is a good time for parents and students to see if they will qualify for either of 2 college tax credits or other education-related tax benefits when they file their 2015 federal income tax returns.

The American Opportunity Tax Credit or Lifetime Learning Credit is generally available to taxpayers who pay qualifying expenses for an eligible student.

Eligible students include the taxpayer, spouse, and dependents. The American Opportunity Tax Credit provides a credit for each eligible student, while the Lifetime Learning Credit provides a maximum credit per tax return.

Though a taxpayer often qualifies for both of these credits, he or she can only claim one of them for a particular student in a particular year. To claim these credits on their tax return, the taxpayer must file Form 1040 or 1040A and complete Form 8863, Education Credits.

The credits apply to eligible students enrolled in an eligible college, university, or vocational school, including both nonprofit and for-profit institutions. The credits are subject to income limits that could reduce the amount claimed on their tax return.

Are you eligible?

To help determine eligibility for these benefits, taxpayers should visit the Education Credits web page or use the IRS’s Interactive Tax Assistant tool.

Normally, a student will receive a Form 1098-T from his or her institution by Jan. 31 of the following year. (For 2015, the due date is Feb. 1, 2016, because otherwise it would fall on a Sunday.)

This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax credits. Taxpayers should see the instructions to Form 8863 and Publication 970 for details on properly figuring allowable tax benefits.

Tax credit features

Many of those eligible for the American Opportunity Tax Credit qualify for the maximum annual credit of $2,500 per student. Students can claim this credit for qualified education expenses paid during the entire tax year for a certain number of years:

• The credit is only available for four tax years per eligible student.
• The credit is available only if the student has not completed the first four years of postsecondary education before 2015.

Here are some more key features of the credit:

• Qualified education expenses are amounts paid for tuition, fees, and other related expenses for an eligible student. Other expenses, such as room and board, are not qualified expenses.
• The credit equals 100% of the first $2,000 spent and 25% of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
• Forty percent of the American Opportunity Tax Credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student.
• The full credit can be claimed only by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household, and some widows and widowers whose MAGI is $90,000 or more.

The Lifetime Learning Credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American Opportunity Tax Credit, the limit on the Lifetime Learning Credit applies to each tax return, rather than to each student. Also, the Lifetime Learning Credit does not provide a benefit to people who owe no tax.

Though the half-time student requirement does not apply to the lifetime learning credit, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills.

Other features of the credit include:

• Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
• The credit equals 20% of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
• Income limits are lower than under the American Opportunity Tax Credit. For 2015, the full credit can be claimed by taxpayers whose MAGI is $55,000 or less. For married couples filing a joint return, the limit is $110,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $130,000 or more and singles, heads of household, and some widows and widowers whose MAGI is $65,000 or more.
• Eligible parents and students can get the benefit of these credits during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.

Other benefits

There are a variety of other education-related tax benefits that can help many taxpayers. They include:

• Scholarship and fellowship grants -- generally tax-free if used to pay for tuition, required enrollment fees, books, and other course materials, but taxable if used for room, board, research, travel, or other expenses.
• Student loan interest deduction of up to $2,500 per year.
• Savings bonds used to pay for college -- though income limits apply; interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
• Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.
• Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the Earned Income Tax Credit.

The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits.  

Yet another warning from the Internal Revenue Service (IRS) that tax scammers have an ever-evolving array of deceitful tactics to con people.

These schemes -- which can occur over the phone, in e-mails or through letters with authentic looking letterhead -- try to trick you into providing personal financial information or scare you into making a false tax payment that ends up with the criminal.

Thousands of victims, millions of dollars

The Treasury Inspector General for Tax Administration (TIGTA) has received reports of roughly 600,000 contacts since October 2013 and aware of nearly 4,000 victims who have collectively reported over $20 million in financial losses as a result of tax scams.

“We continue to see these aggressive tax scams across the country,” IRS Commissioner John Koskinen said. “Scam artists specialize in being deceptive and fooling people. The IRS urges taxpayers to be extra cautious and think twice before answering suspicious phone calls, emails or letters.”

Scammers posing as IRS agents first targeted those they viewed as most vulnerable, such as seniors, newly arrived immigrants and those whose first language is not English. These crooks have expanded their net and are now targeting virtually anyone.

A new twist

In a new variation, scammers alter what appears on your telephone caller ID to make it seem like they are with the IRS or another agency such as the Department of Motor Vehicles. They use fake names, titles and badge numbers. They use online resources to get your name, address and other details about your life to make the call sound official. They even go as far as copying official IRS letterhead for use in email or regular mail.

The most brazen of the bunch will even provide their victims with directions to the nearest bank or business where the victim can obtain a means of payment such as a debit card. And in another new variation of these scams, con artists may then provide an actual IRS address where the victim can mail a receipt for the payment -- all in an attempt to make the scheme look official.

The most common theme with these tricks seems to be fear. Scammers try to scare people into reacting immediately without taking a moment to think through what is actually happening. They often angrily threaten police arrest, deportation, license revocation or other similarly unpleasant things. They may also leave “urgent” callback requests, sometimes through “robo-calls,” via phone or email. The emails will often contain a fake IRS document with a telephone number or email address for your reply.

It is important to remember the official IRS website is IRS.gov. Don't be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. Don't ever provide personal information, financial or otherwise, to suspicious websites or strangers calling out of the blue.

The “tells”

Here are 5 things scammers often do that the real IRS would never do.

The IRS will never:

• Angrily demand immediate payment over the phone, nor will the agency call about taxes owed without first having mailed you a bill.
• Threaten to bring in local police or other law-enforcement groups to have you arrested for not paying.
• Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
• Require you to use a specific payment method for your taxes, such as a prepaid debit card.
• Ask for credit or debit card numbers over the phone.

What to do

If you think you’re the target of an IRS impersonation scam, here are some actions you can take:

• If you actually do owe taxes, call the IRS at 1-800-829-1040. IRS workers can help you with a payment issue.
• If you know you don’t owe taxes or do not immediately believe that you do, you can report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484.
• If you’ve been targeted by any scam, be sure to contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Add “IRS Telephone Scam” to the comments of your complaint.

In her statutorily mandated mid-year report to Congress, National Taxpayer Advocate Nina E. Olson says the IRS ran a generally successful filing season under difficult circumstances.

“With funding down about 17% on an inflation-adjusted basis since FY 2010, and with the IRS having had to implement large portions of the [ACA] (Obamacare) and the Foreign Account Tax Compliance Act (FATCA) this year without any supplemental funding, sharp declines in taxpayer service were inevitable,” she wrote.

Olson likened the 2015 filing season to “A Tale of Two Cities” saying, “For the majority of taxpayers who filed their returns and did not require IRS assistance, the filing season was generally successful. For the segment of taxpayers who required help from the IRS, the filing season was by far the worst in memory.”

Highlights and lowlights

According to the report:

• The IRS processed 126.1 million individual tax returns compared with 125.6 million last year, and issued 91.8 million refunds (versus 94.8 million last year. The average refund amount was $2,711; it was $2,686 last year.
• The IRS answered only 37% of taxpayer calls routed to customer service representatives overall, and the hold time for taxpayers who got through averaged 23 minutes. That represents a sharp drop-off from the 2014 filing season, when the IRS answered 71% of its calls and hold times averaged about 14 minutes.
• The IRS answered only 39% of calls from taxpayers seeking assistance from the Taxpayer Advocate Service (TAS) on the National Taxpayer Advocate (NTA) Toll-Free hotline, and hold times averaged 19 minutes. TAS serves as the IRS’s “safety net” for taxpayers who are experiencing a financial or systemic hardship as a result of IRS action or inaction.
• Only 17% of calls were answered from taxpayers who called after being notified that their tax returns had been blocked by the Taxpayer Protection Program (TPP) on suspicion of identity theft, and the hold times averaged about 28 minutes. In 3 consecutive weeks during the filing season, the IRS answered fewer than 10% of these calls.
• The tax agency answered only 45% of calls from practitioners who called the IRS on the Practitioner Priority Service line, and hold times averaged 45 minutes.
• The number of “courtesy disconnects” received by taxpayers calling the IRS skyrocketed from about 544,000 in 2014 to about 8.8 million this filing season -- an increase of more than 1,500%. The term “courtesy disconnect” is used when the IRS essentially hangs up on a taxpayer because its switchboard is overloaded and cannot handle additional calls.
• The decline in telephone performance can be attributed largely to three factors: The number of taxpayer calls routed to telephone assistors increased by 41%, the number of calls answered by telephone assistors decreased by 26%, and the average call duration increased by 10%.
• The IRS sharply restricted the availability of paper copies of forms and publications, imposing burden on taxpayers without Internet access or online literacy. The IRS’s own Taxpayer Assistance Centers (TACs) and its Tax Form Outlet Partners such as libraries and post offices did not receive forms until February 28, almost halfway through the filing season. Once a TAC ran out of forms or publications, it could not order more.

Olson says the decline in taxpayer service imposes increased compliance burdens on taxpayers and may lead to erosion in taxpayer trust. “For a tax system that relies on voluntary self-assessment by its taxpayers, none of this bodes well,” she wrote. “In fact, there is a real risk that the inability of taxpayers to obtain assistance from the government, and their consequent frustration, will lead to less voluntary compliance and more enforced compliance.”

Affordable Care Act impact

The report says the most significant new challenge the IRS faced during the 2015 filing season was the processing of tax returns reflecting two central provisions of the ACA -- the Premium Tax Credit (PTC) and the Individual Shared Responsibility Payment (ISRP).

Overall, the report credits the IRS with doing a commendable job implementing those provisions, including by developing or updating information technology systems, issuing guidance, and working with other federal agencies.

The report says there were some significant glitches that occurred during the filing season, but most were not attributable to IRS error. The most significant was the Center for Medicare and Medicaid Services’ issuance of erroneous Forms 1095-A, Health Insurance Marketplace Statement, to about 800,000 individuals who had purchased health insurance from the federal Exchange.

The Treasury Department addressed the mistake by issuing taxpayer-favorable guidance informing taxpayers who had already filed returns based on the incorrect information that they did not need to file amended returns and pledging that the IRS would not pursue the collection of any additional tax based on the updated information in the corrected forms.

The IRS answered about 68% of taxpayer telephone calls on ACA issues that were routed to telephone assistors, which far exceeded the overall average on its customer service lines of about 37%.

The report says a primary ACA focus for TAS during the upcoming year will be to train its Case Advocates to better assist taxpayers requiring assistance, notably on ACA collection activities and the Employer Shared Responsibility Payment provision.

TAS will also continue to participate on internal IRS working groups to present a taxpayer perspective on ACA issues and raise concerns it identifies through its casework and other sources.

Nothing better to do this summer?

The IRS is offering tax tips to help you get a jump start on this year’s taxes. The agency says more than 660,000 subscribers already receive them.

Starting July 1, the IRS began offering its Summertime Tax Tip series which include useful information in English and Spanish. Subscribers receive a new Tip via email three times a week during July and August, and a Tax Tip each weekday during the tax filing season.

Special Edition Tax Tips on important tax topics are issued throughout the year.

Range of topics

IRS Tax Tips are plain language messages that are easy to understand and cover a wide range of topics. They often include links to helpful IRS.gov references, IRS YouTube videos and podcasts.

Topics include:

• Ten things to know about identity theft and your taxes

• Visit IRS.gov this Summer

• Don't fall for phone scams from IRS posers

• Tax Tips about hobbies that earn income

• Tips on the tax effects of divorce or separation

• Back-to-school tips for students and parents paying college expenses

You can sign up to receive IRS Tax Tips automatically each day via email through a free service on www.irs.gov. From the Subscriptions link on the top right of the IRS website, choose “IRS Tax Tips” on the drop-down menu, and then click on “Subscribe.” Click on “more” to subscribe to the IRS Tax Tips in Spanish.

With the tax-filing deadline hours away, there are some things you need to do -- fast. But in your haste, you don't want to do things that can cause you trouble.

To that end, the Internal Revenue Service (IRS) offers the following tips:

File electronically

Doing so, whether through e-file or IRS Free File, vastly reduces tax return errors, as the tax software does the calculations, flags common errors and prompts taxpayers for missing information. And best of all, there is a free option for everyone. Whether filing electronically or on paper, be sure to make a copy of the return.

Check out tax benefits

Take a moment to see if you qualify for these and other often-overlooked credits and deductions:

• Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit. The special EITC Assistant can help you see if your eligible.
• Savers credit, claimed on Form 8880, for low-and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k).
• American Opportunity Tax Credit, claimed on Form 8863, and other education tax benefits for parents and college students. Because limits and special rules apply to each of these benefits, the agency’s Interactive Tax Assistant, available on IRS.gov, can be a very useful tool.

Health care tax reporting

While most taxpayers will simply need to check a box on their tax return to indicate they had health coverage for all of 2014, there are also new lines on Forms 1040, 1040A and 1040EZ related to the health care law. Visit IRS.gov for details on how the Affordable Care Act affects the 2014 return. This includes:

• Reporting health insurance coverage.
• Claiming an exemption from the coverage requirement.
• Making an individual shared responsibility payment.
• Claiming the premium tax credit.
• Reconciling advance payments of the premium tax credit.

The Interactive Tax Assistant tool can also help.

Make the right IRA contribution

Eligible taxpayers have until April 15 to contribute to either a Roth or traditional individual retirement arrangement (IRA) for 2014. A six percent excise tax applies if a taxpayer contributes more than the law allows. Publication 590-A describes the limits in detail and includes examples.

Gifts to Charity

A new law gives taxpayers the option of claiming on their 2014 return cash contributions made by April 15 to charities aiding the families of two slain New York police officers. Details are on IRS.gov.

If claiming a charitable contribution deduction, use the IRS Select Check tool to see if a charity is eligible to receive tax-deductible donations. For donations of $250 or more, taxpayers must obtain a written acknowledgment from the charity before filing a return.

IRS Publication 526 has further details on making gifts to charity, including records to keep. In addition, special reporting requirements generally apply to vehicle donations, and taxpayers wishing to claim these donations must attach any required documents to their return.

Refunds

Most taxpayers claiming refunds now choose to receive them by direct deposit. A taxpayer can choose to deposit a refund in a single account at a bank or other financial institution or allocate it among as many as two or three accounts. See Form 8888 for details.

To avoid a refund delay or misrouting to a wrong account, make sure the financial institution routing and account numbers entered on the return are accurate. After filing, whether or not direct deposit was chosen, track the status of a refund with the Where's My Refund? tool on IRS.gov or IRS2Go.

Special instructions for paper filers

Math errors and other mistakes are common on paper returns, especially those prepared or filed in haste at the last minute. These tips may help those choosing this option:

• Fill in all requested Taxpayer Identification Numbers, usually Social Security Numbers, such as those for any dependents claimed. Check only one filing status and the appropriate exemption boxes.
• When using the tax tables, be sure to use the correct row and column for the filing status claimed and taxable income amount shown.
• Sign and date the return. If filing a joint return, both spouses must sign.
• Attach all required forms and schedules, such as Schedule A for people who itemize their deductions. In addition, attach to the front of the return all Forms W-2 and other forms reflecting withholding.
• Mail the return to the right address. Check Where to File on IRS.gov or the last page of the tax instructions. If mailing on Wednesday, April 15, be sure to do so early enough to meet the scheduled pick-up time and ensure a postmark before the midnight deadline.

Need more time to file?

Avoid a late-filing penalty by requesting a tax-filing extension. There are several ways to do so, including through the Free File link on IRS.gov, or by designating a payment as an extension payment and making it via one of the IRS e-payment methods, including the newest, IRS Direct Pay. Alternatively, taxpayers can file Form 4868. While an extension grants additional time to file, tax payments are still due April 15.

Owe tax?

If so, use IRS Direct Pay or any of several other e-payment options. They are secure and easy and you receive immediate confirmation of your payment. Or, send a check or money order payable to the “United States Treasury,” along with a Form 1040-V payment voucher. Taxpayers who can’t pay by April 15 often qualify to set up a monthly payment agreement with the IRS using the Online Payment Agreement option on IRS.gov.

With the federal income tax-filing deadline just more than a week off, you want to be sure you do whatever you can from to keep being tardy.

The Internal Revenue Service (IRS) is offering the following tips:

• File electronically. Filing electronically, whether through e-file or IRS Free File, vastly reduces tax return errors, as the tax software does the calculations, flags common errors and prompts taxpayers for missing information. And best of all, there is a free option for everyone.
• Mail a paper return to the right address. Paper filers should check IRS.gov or their form instructions for the appropriate address where to file to avoid processing delays.
• Take a close look at the tax tables. When figuring tax using the tax tables, taxpayers should be sure to use the correct column for the filing status claimed.
• Fill in all requested information clearly. When entering information on the tax return, including Social Security numbers, take the time to be sure it is correct and easy to read. Also, check only one filing status and the appropriate exemption boxes.
• Review all figures. While software catches and prevents many errors on e-file returns, math errors remain common on paper returns.
• Get the right routing and account numbers. Requesting direct deposit of a federal refund into one, two or even three accounts is convenient and allows the taxpayer access to his or her money faster. Make sure the financial institution routing and account numbers entered on the return are accurate. Incorrect numbers can cause a refund to be delayed or deposited into the wrong account.
• Sign and date the return. If filing a joint return, both spouses must sign and date the return. E-filers can sign using a self-selected personal identification number (PIN).
• Attach all required forms. Paper filers need to attach W-2s and other forms that reflect tax withholding, to the front of their returns. If requesting a payment agreement with the IRS, also attach Form 9465 to the front of the return. Attach all other necessary schedules and forms in the sequence number order shown in the upper right-hand corner.
• Keep a copy of the return. Once ready to be filed, taxpayers should make a copy of their signed return and all schedules for their records.
• Request a Filing Extension. For taxpayers who cannot meet the April 15 deadline, requesting a filing extension is easy and will prevent late filing penalties. Either use Free File or Form 4868. But keep in mind that while an extension grants additional time to file, tax payments are still due April 15.
• Owe tax? If so, a number of e-payment options are available. Or send a check or money order payable to the “United States Treasury.”

You just realized that you're going to have to send Uncle Sam some of your hard earned money to settle up your taxes.

The Internal Revenue Service (IRS) says it’s “easier than ever" to pay taxes electronically, and for those who can’t pay on time, “quick and easy solutions are available.” That may be debatable, but there are some options for you.

Among them:

• IRS Direct Pay. Available at IRS.gov/directpay, this free online tool allows individuals to securely pay their income tax directly and securely from checking or savings accounts without any fees or pre-registration. No need to write a check, buy a stamp or find a mailbox. Payments can even be scheduled up to 30 days in advance, and the tool is available round the clock. Any taxpayer who uses the tool receives instant confirmation that their payment was submitted.
• Electronic Federal Tax Payment System. This free service gives taxpayers a safe and convenient way to pay individual and business taxes by phone or online. To enroll or for more information, call 800-316-6541 or visit www.eftps.gov.
• Electronic funds withdrawal. E-file and e-pay in a single step.
• Credit or debit card. Both paper and electronic filers can pay their taxes by phone or online through any of several authorized credit and debit card processors. Though the IRS does not charge a fee for this service, the card processors do.

Taxpayers who choose to pay by check or money order should make the payment out to the “United States Treasury.” Also, print on the front of the check or money order: “2014 Form 1040”; name; address; daytime phone number; and Social Security number.

To help insure that the payment is credited promptly, also enclose a Form 1040-V payment voucher.

You should file either a regular income tax return or a request for a tax-filing extension by this year’s April 15 deadline to avoid stiff late-filing penalties.

Got the shorts?

Taxpayers who owe, but can’t pay the balance in full, have some options. Some may qualify for payment plans and other relief.

In many cases, those struggling with unpaid taxes qualify for one of several relief programs, including the following:

Most people can set up a payment agreement with the IRS online in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS. With the Online Payment Agreement, no paperwork is required, there is no need to call, write or visit the IRS and qualified taxpayers can avoid the filing of a Notice of Federal Tax Lien if one was not previously filed. Alternatively, taxpayers can request a payment agreement by filing Form 9465. This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.

Some struggling taxpayers may qualify for an offer-in-compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay. To help determine eligibility, use the Offer in Compromise Pre-Qualifier, a free online tool available on IRS.gov. Details on all filing and payment options are on IRS.gov.

With just over 2 weeks to go before the federal tax-filing deadline, a lot of folks are beginning to realize they are nowhere near ready to send in their returns.

Not a problem, says the Internal Revenue Service (IRS). The tax agency says it's actually easy to get more time; in fact, it can even be done online.

Chill out

If you haven’t yet filed, the IRS has this advice: Don’t panic. Taxpayers who need more time to complete their tax return can request an automatic 6-month extension.

The fastest and easiest way to get the extra time is through the Free File link on IRS.gov. In a matter of minutes, anyone, regardless of income, can use this free service to request an extension on Form 4868.

Filing this form gives you until Oct. 15 to file a return. To get the extension, taxpayers must estimate their tax liability on this form and should also pay any amount due.

No free pass

The IRS stresses that a request for an extension will give extra time to file a tax return -- not extra time to pay any taxes owed. By filing either a regular tax return or requesting an extension by the April 15 filing deadline, taxpayers will avoid a stiff penalty -- the late-filing penalty. Taxpayers should file even if they can’t pay the full amount of taxes they owe.

The late-filing penalty, normally 5% per month based on the unpaid tax balance, applies to returns filed after the April 15 filing deadline. In addition, any payment made with an extension request will reduce or eliminate interest and late-payment penalties that apply to payments made after April 15.

The interest rate is currently 3% per year, compounded daily, and the late-payment penalty is normally 0.5% per month.

No need to ask

Some taxpayers get more time to file without having to ask for an extension. These include:

• Taxpayers abroad. U.S. citizens and resident aliens who live and work abroad, as well as members of the military on duty outside the U.S., have until June 15 to file. Tax payments are still due April 15.
• Members of the military and others serving in Afghanistan or other combat zone localities. Typically, taxpayers can wait until at least 180 days after they leave the combat zone to file returns and pay any taxes due. For details, see Extensions of Deadlines in Publication 3, Armed Forces’ Tax Guide.
• People affected by certain recent natural disasters.

With less than a month to go before this year's federal income tax filing deadline, that still leaves plenty of time for identity thieves and other forms of scammer to try and enrich themselves at your expense.

Of course, various forms of IRS scam have existed for almost as long as the IRS itself, but this year, the particular problem of IRS-related identity theft rose to national prominence after Minnesota briefly stopped accepting state tax returns e-filed through TurboTax, because too many scammers were using it to file fraudulent tax returns in the names of legitimate state taxpayers.

Minnesota soon lifted the ban and allowed TurboTax e-filing again – but in the meantime, the revenue commissioners from multiple other U.S. states announced that they would be delaying the payment of state tax refunds in order to double-check for fraud.

Last August, the Government Accountability Office conducted an investigation which concluded that the IRS may have lost $5.8 billion paying out fraudulent tax returns for the 2013 tax filing season. (That loss is limited to the federal level; there's no knowing how many fraudulent returns were paid by income-tax-collecting states.)

The GAO report also noted that for those honest taxpayers whose identities were used to file fraudulent returns, the taxpayers had to wait an average of 300 days to see resolution on their cases.

Earlier this month, U.S. senator Sherrod Brown (D-Ohio) proposed a bill (summary available in downloadable .pdf form here) called the Identity Theft and Tax Fraud Prevention Act of 2015, which, among other things, would:

• call for the IRS to resolve and close identity theft cases within 90 days;
• require the IRS to assign ID victims a “single point of contact” rather than have to explain their entire situation to a brand-new IRS employee who knows nothing of their case, every time they contact the agency;
• give taxpayers the ability to “opt-out” of electronic filing (thus making it impossible for scammers to e-file fraudulent returns in their names);
• inform identity theft victims if the thief who stole their identity has been caught; and
• a few additional protections.

The bill's six co-sponsors, all Democrats, are Bill Nelson of Florida, Benjamin Cardin of Maryland, Dianne Feinstein of California, Amy Klobuchar of Minnesota, and Kirsten Gillibrand and Charles Schumer of New York.

If you turned 70½ during 2014, the clock is ticking.

No, not that way but in terms of receiving your required minimum distribution (RMD) from your Individual Retirement Account (IRA) and workplace retirement plan. You have until Wednesday, April 1.

According to the Internal Revenue Service (IRS), the April 1 deadline applies to owners of traditional IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457 plans.

Additionally, the April 1 deadline applies only to the required distribution for the first year. For all subsequent years, the RMD must be made by Dec. 31. So, if you turned 70½ last year and receive the first required payment on April 1, for example, you must still take the second RMD by Dec. 31, 2015.

Calculating the RMD

Affected taxpayers who turned 70½ during 2014 must figure the RMD for the first year using the life expectancy as of their birthday in 2014 and their account balance on Dec. 31, 2013. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the Appendices to  Publication 590-B.

Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who reached age 70½ in 2014 and turned 71 before the end of the year, for example, the first required distribution would be based on a distribution period of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary.

Exceptions

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD.

Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions. See Tax on Excess Accumulation in Publication 575.

Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

The IRS encourages taxpayers to begin planning now for any distributions required during 2015. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount in Box 12b on Form 5498.

For a 2015 RMD, this amount would be on the 2014 Form 5498 that is normally issued in January 2015.

More information on RMDs, including answers to frequently asked questions, may be found on IRS.gov.

You're a good person -- you contribute to worthwhile charities, right?

The Internal Revenue Service (IRS) says that in order to make sure you claim all those donations when you file your federal tax return you need to make sure you have accurate record.

In particular, this includes insuring you have received required statements for 2 contribution categories: each gift of at least $250 and donations of vehicles.

What the law requires

First, to claim a charitable contribution deduction, donors must get a written acknowledgment from the charity for all contributions of $250 or more -- both cash and property. For the latter, the acknowledgment must include -- among other things -- a description of the items contributed.

In addition, the law requires that taxpayers have all acknowledgments in hand before filing their tax return. These acknowledgments are not filed with the return but must be retained along with other tax records.

Second, special reporting requirements generally apply to vehicle donations, and taxpayers wishing to claim these donations must attach any required documents to their tax return. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale.

This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

The IRS says taxpayers should be sure any charity they are giving to is a qualified organization. Only donations to eligible organizations are tax-deductible. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions.

In addition, churches, synagogues, temples, mosques and government agencies are eligible even if they are not listed in the tool’s database.

Who can claim

Only taxpayers who itemize their deductions on Form 1040 Schedule A can claim gifts to charity. Thus, taxpayers who choose the standard deduction cannot deduct their charitable contributions. This includes anyone who files a short form (Form 1040A or 1040EZ).

A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2014 Form 1040, Schedule A to determine whether itemizing is better than claiming the standard deduction.

Besides Schedule A, taxpayers who give property to charity usually must attach a special form for reporting these noncash contributions. If the amount of the deduction for all noncash contributions is over $500, a properly-completed Form 8283 is required.

Even if you didn't file a federal income tax return for 2011, you may have some money waiting for you.

The Internal Revenue Service (IRS) says it has refunds totaling $1 billion waiting for an estimated 1 million taxpayers. To collect the money, you have to file a 2011 tax return no later than Wednesday, April 15, 2015.

"Time is running out for people who didn’t file a 2011 federal income tax return to claim their refund," said IRS Commissioner John Koskinen. "People could be missing out on a substantial refund, especially students or part-time workers. Some people may not have filed because they didn’t make much money, but they may still be entitled to a refund.”

The IRS estimates half of the potential refunds for 2011 are more than $698.

How it works

In cases where a tax return was not filed, the law provides most taxpayers with a 3-year window of opportunity for claiming a refund. For 2011 tax returns, the window closes this April 15. If no return is filed to claim a refund within 3 years, the money becomes property of the U.S. Treasury.

The law requires the tax return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return that qualifies for a refund.

A reminder: Your check may be held if you haven’t filed tax returns for 2012 and 2013. In addition, the refund will be applied to any amounts still owed to the IRS, or your state tax agency, and may be used to offset unpaid child support or past due federal debts, such as student loans.

A lot at stake

By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2011. Many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC).

For 2011, the credit is worth as much as $5,751. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2011 were:

• $43,998 ($49,078 if married filing jointly) for those with three or more qualifying children,
• $40,964 ($46,044 if married filing jointly) for people with two qualifying children,
• $36,052 ($41,132 if married filing jointly) for those with one qualifying child, and
• $13,660 ($18,740 if married filing jointly) for people without qualifying children.

Current and prior year tax forms and instructions are available on the IRS.gov Forms and Publications page, or by calling toll-free: 800-TAX-FORM (800-829-3676).

Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years: 2011, 2012 or 2013 should request copies from their employer, bank or other payer.

If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by going to IRS.gov. Taxpayers can also file Form 4506-T to request a transcript of their tax return.

Where they are

Individuals who did not file a 2011 return with a potential refund:

* Excluding the Earned Income Tax Credit and other credits.

How would you like some help preparing your federal tax return? How about some FREE help?

You may qualify to get free tax help from Internal Revenue Service (IRS)-trained volunteers through the Volunteer Income Tax Assistance or the Tax Counseling for the Elderly programs.

The tax agency partners with a network of community organizations to offer free tax services at thousands of sites around the country. These are generally located at community and neighborhood centers, libraries, schools, shopping malls and other convenient locations.

VITA and TCE

The Volunteer Income Tax Assistance program (VITA) offers free tax help and return preparation to people who generally make $53,000 or less, people with disabilities, the elderly and limited English-speaking taxpayers.

In addition to VITA, the Tax Counseling for the Elderly (TCE) program offers free tax help and return preparation for all taxpayers, particularly those who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors.

The IRS-certified volunteers who provide tax counseling are often retired individuals associated with non-profit organizations that receive grants from the IRS.

At VITA and TCE tax preparation sites, individuals can receive:

• Free e-file - VITA and TCE provide free electronic filing. E-filing is the safest, most accurate way to file a tax return. Combining e-file with direct deposit is the fastest way to get a refund.
• Tax benefits - Using VITA and TCE can help get all the tax benefits for which a taxpayer is eligible. For example, taxpayers may qualify for the Earned Income Tax Credit, Child Tax Credit or the Credit for the Elderly. Taxpayers can also get help with the new Health Care Law tax provisions.
• Bilingual help - Some VITA and TCE sites provide bilingual help for people who speak limited English.
• Help for military - VITA offers free tax assistance to members of the military and their families. Volunteers help with many military tax issues. These may include the special rules and tax benefits that apply to those serving in combat zones.
• Self-preparation option - At some VITA sites, individuals can prepare their own federal and state tax returns using free web-based software. This is an option if a taxpayer doesn’t have a home computer or need much help. Volunteers are on site to guide. In most cases, this option offers free tax return preparation software and e-filing to people who earn $60,000 or less.

To find a VITA or TCE tax preparation site, visit IRS.gov, search the word “VITA” and click on “Free Tax Return Preparation for You by Volunteers.” You can also download IRS’s mobile app – IRS2Go. Go to “Free Tax Help,” enter the sought ZIP code and select a mileage range.

Site information is also available by calling the IRS at 800-906-9887. To locate the nearest AARP Tax-Aide site, or call 888-227-7669.  

Have you filed your 2014 federal income tax return yet? If not, you have a valuable tool available to help you through the process: Free File.

Available only at IRS.gov/FreeFile, the service makes brand-name tax software products and electronic filing available to most taxpayers for free.

Taxpayers have the option to prepare their return at any time and schedule a tax payment as late as the April 15 deadline. Those who can't meet the April tax filing deadline can use Free File to file a six-month extension.

Through a partnership between the IRS and the Free File Alliance, a consortium of 14 leading tax software companies make their branded products available for free. Since 2003, more than 43 million people have used Free File, saving $1.3 billion based on a conservative $30-fee estimate.

Do you qualify?

Anyone who earned $60,000 or less last year qualifies to choose from among 14 software products. Those who earned more than 60,000 are still eligible for Free File Fillable Forms, the electronic version of IRS paper forms. This more basic Free File option is best for people who are comfortable preparing their own tax return.

More than 70% of all taxpayers -- 100 million people -- are eligible for the software products. Each of the 14 companies has its own special offers, generally based on age, income or state residency. Taxpayers can review each company offer or they can use a “Help Me” tool that will find the software for which they are eligible.

Wondering How to Use Free File? Free File offers easy-to-use products that ask questions and the taxpayer supplies the answers. The software will find the right forms, find the right tax credits and deductions and even do the math. Some companies also offer free state tax return preparation.

Free File also can help taxpayers with the new health care requirements. Most people will simply have to check a box to report health care coverage for the entire year. Learn more at IRS.gov/aca.

Free File will be available through October.

It's been a turbulent weekend for TurboTax — and for state-level taxpayers in general. As of press time, residents of all 50 states are once again allowed to use TurboTax to file their state tax returns, but who knows? That could change as suddenly as this whole mess began.

It all started last Thursday night, when the Minnesota Department of Revenue announced that it would stop accepting returns filed with TurboTax, since scammers using TurboTax had filed fraudulent returns in the name of actual Minnesota taxpayers.

Intuit, which produces TurboTax, initially responded to Minnesota's announcement by establishing a toll-free number affected taxpayers could call. That hotline opened for business at 8 a.m. Central time, Friday morning. Less than an hour later, Intuit announced that it was temporarily suspending e-filing via TurboTax in all 50 states.

However, Intuit's self-imposed nationwide ban lasted less than a day; by Friday evening, Intuit had resumed processing tax returns, presumably with stronger anti-fraud measures in place.

No way to know

But how many fraudulent returns went through before Intuit strenghtened its security? There's no way of knowing. Massachusetts responded to the news by temporarily halting tax refunds out of fear that some of those refund requests might be fraudulent. Revenue commissioner Amy Pitter said that the state currently had about 160,000 tax refunds in the pipeline, and needed to make sure those refund requests were all legitimate.

Massachusetts isn't the only state to delay refunds so it can look for fraudulent returns. On Friday, revenue commissioners from multiple states including Pennsylvania, Georgia, Kentucky, Connecticut, Vermont, Utah and North Dakota all said they would delay state tax refunds in order to look for fraud.

Although tax refunds are being delayed, all states are accepting tax returns via TurboTax. Even Minnesota's Department of Revenue ended its brief ban on Saturday at 3 p.m. Central time.

Janelle Tummel, a spokesperson for Minnesota's DoR, said that “We took this step after Intuit implemented new 'targeted security measures.' We will continue reviewing returns and will remain in contact with the company.” Tummel also said that Minnesota residents who already filed their state taxes through TurboTax need not do anything; the state will contact you if anyone discovers a problem with your return, but otherwise your tax return will go through as it normally would.

If you'd planned on using TurboTax to file your taxes this year, you might need to make other arrangements. Minnesota's state Department of Revenue announced last night that it would no longer accept any tax returns filed through Intuit's TurboTax software, because scammers were apparently using it to file fraudulent returns in the names of legitimate state taxpayers.

The Minnesota DoR posted this announcement on its website:

“Some Minnesota taxpayers have recently found that when they log in to TurboTax to file their tax return, they see that a return has already been filed. Due to this potentially fraudulent activity, we have stopped accepting tax returns submitted using TurboTax. We are still accepting returns filed with Intuit professional preparer products (Lacerte, Intuit Tax Online, and ProSeries).”

The announcement also said that, starting this morning at 8 a.m. Central time (9 a.m. Eastern), Minnesota taxpayers affected by the suspension could call Intuit at 1-800-944-8596 to ask for assistance.

But by Friday morning the problem had grown even worse. Around 9 a.m. Central time, Intuit announced that it was temporarily disallowing e-filing in all states, after at least 17 state tax departments in addition to Minnesota's reported noticeable increases in the number of fraudulent-return complaints they received.

For what it's worth, Intuit's blog post announcing the temporary suspension says “Intuit believes that these instances of fraud did not result from a security breach of its systems and that the information used to file fraudulent returns was obtained from other sources outside the tax preparation process.”

Intuit also said that affected customers who call 800-944-8596 will get “direct access to specially trained identity protection agents who will provide comprehensive support and filing assistance. In addition, Intuit will provide identity protection services and free credit monitoring, as well as provide access to all versions of its software or to the assistance of one of Intuit’s credentialed tax experts who will prepare taxes for affected customers at no expense.”

As of press time, there's no indication if or when Intuit will lift its TurboTax e-filing ban, or if other revenue departments will join Minnesota in disallowing TurboTax at the state level.

Millions of low and moderate-income workers may be missing out on a significant tax credit that can be as much as $6,000.

If you earned $52,427 or less last year, you may qualify for the Earned Income Tax Credit (EITC) for the first time in 2015. About a third of the people eligible for EITC fluctuate each year based on changes to their marital, parental and financial status.

“About 4 out of 5 eligible workers and families get the credit they earned. That leaves millions missing EITC every year,” said Internal Revenue Service (IRS) Commissioner John Koskinen. “It’s an important credit and one of the government’s best tools to fight poverty.”

Last year, almost 28 million eligible workers and families received $66 billion total in EITC, with an average EITC amount of $2,400.

The amount of EITC varies depending on income, family size and filing status. Those who work for someone else or those who run a business or farm and who earned $52,427 or less during 2014 could receive larger refunds if they qualify for the EITC. This could mean up to $496 in EITC for people without children, and a maximum credit of up to $6,143 for those with three or more qualifying children.

The EITC is refundable. That means those eligible may get a refund from the IRS even if they owe no tax or had no taxes withheld from their paycheck.

Workers potentially eligible to claim the credit should visit IRS.gov/eitc to learn if they qualify, how to claim the credit and more. The EITC Assistant will also determine their filing status, if they have a qualifying child or children and estimate the amount of the EITC they could get. If an individual doesn’t qualify for EITC, the Assistant explains why and a summary of the results can be printed.

How to claim the EITC

To get the EITC, workers must file a tax return, even if they are not legally required to file, and specifically claim the credit. Free tax help is available to those eligible for the EITC:

• Free File on IRS.gov Free brand-name tax software walks people through a question and answer format to help them prepare their returns and claim every credit and deduction for which they are eligible. Free File also provides online versions of IRS paper forms, an option called Free File Fillable Forms which is best suited for taxpayers comfortable preparing their own returns.

• Free tax preparation sites EITC-eligible workers can seek free tax preparation at thousands of Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites. Taxpayers can locate the nearest site using a search tool on IRS.gov or through the IRS2go smartphone application.

Documentation required

It is important for taxpayers to bring along all the required documents and information to make sure they get the EITC they deserve. Also, those who bought coverage through the Health Insurance Marketplace should receive Form 1095-A, Health Insurance Marketplace Statement, from their Marketplace in early February.

It’s important to also bring the Form 1095-A to the volunteer site. Any taxpayer who does not receive it by early February should contact their Marketplace, not the IRS. The IRS will not have access to the information on the form.

Like last year, the IRS expects to issue more than 9 out of 10 refunds within 21 days. The IRS reminds taxpayers that the fastest way to get a refund is to e-file their tax return and choose direct deposit. It takes longer to process paper returns. Because of budget cuts resulting in a smaller staff, it may take an additional week or more to process paper returns, meaning that those refunds are expected to be issued in seven weeks or more. Taxpayers can track the status of their refund with the “Where’s My Refund?" tool. l available on IRS.gov or on IRS2go.

The role of Obamacare

The Affordable Care Act requires that a taxpayer and each member of his or her family have qualifying health insurance coverage for each month of the year, qualify for an exemption from the coverage requirement, or make an individual shared responsibility payment when filing a federal income tax return.

If taxpayers bought coverage through the Health Insurance Marketplace, they should receive Form 1095-A, Health Insurance Marketplace Statement from their Marketplace by early February. They should save this form because it has important information needed to complete their tax returns.

If taxpayers are expecting to receive Form 1095-A and has not received it by early February, they should contact the Marketplace where the coverage was purchased. Due to the fact that the IRS does not have this information, it is recommended that taxpayers contact the appropriate marketplace.

Anyone who benefited from advance payments of the premium tax credit must file a federal income tax return. The taxpayer will need to reconcile those advance payments with the amount of premium tax credit they’re entitled to based on actual income. As a result, some people may see a smaller or larger tax refund or tax liability than they were expecting. When filing their returns, taxpayers will use IRS Form 8962, Premium Tax Credit (PTC), to calculate the premium tax credit and reconcile the credit with any advance payments.

The Affordable Care Act requires that a taxpayer and each member of his or her family either has qualifying health insurance coverage for each month of the year, qualifies for an exemption, or makes an individual shared responsibility payment when filing a federal income tax return.

Reporting requirements. Most taxpayers will simply check a box on their tax return to indicate that each member of their family had qualifying health coverage for the whole year. No further action is required. Qualifying health insurance coverage includes coverage under most, but not all, types of health care coverage plans. Taxpayers can use the chart on IRS.gov/aca to find out if their insurance counts as qualifying coverage.

Exemptions. A taxpayer may be eligible to claim an exemption from the requirement to have coverage. If eligible for an exemption, the taxpayer will need to complete the new IRS Form 8965, Health Coverage Exemptions and attach it to their return. The individual must apply for some exemptions through the Health Insurance Marketplace. However, most of the exemptions are easily obtained from the IRS when filing a tax return.

Individual Shared Responsibility Payment. If an individual does not have qualifying coverage or an exemption for each month of the year, they will need to make an individual shared responsibility payment when filing their return for choosing not to purchase coverage. Examples and information about figuring the payment are available on the IRS Calculating the Payment page. More information about the Affordable Care Act and the 2014 income tax return is available at IRS.gov/aca.

Get It right

Taxpayers are responsible for the accuracy of their tax return even if someone else preparers it for them. The rules for EITC are complicated. The IRS urges taxpayers to seek help if they are unsure of their eligibility, whether from a paid tax professional or at a free tax return preparation site. Deliberate errors can have lasting impact on future eligibility to claim EITC and leave taxpayers with a penalty.

Taxpayers should reply promptly to any letter from the IRS requesting additional information about EITC. If taxpayers need assistance or have questions, they should call the number on the IRS letter.

With tax-filing season in high gear, the IRS has issued its annual warnings against thieving scammers who pretend to be IRS agents so they can prey on taxpayers, either by directly stealing money, or indirectly via identity theft.

Every January, the IRS releases a list of the most common tax-related scams from the previous year. On Friday, the agency kicked off the weekend with an announcement reminding everyone that “Phishing remains on the IRS 'Dirty Dozen' list of tax scams” for this year's tax-filing season.

Of course, phishing scams aren't remotely limited to the IRS; pretty much every genuine company or government agency in existence has scammers operating in its name somewhere. But there's enough phishers posing as federal tax agents that the IRS website has an entire page dedicated exclusively to letting taxpayers “Report phishing and online scams.”

The IRS urges all taxpayers to:

Report all unsolicited email claiming to be from the IRS or an IRS-related function to phishing@irs.gov. Recent scams have used the Electronic Federal Tax Payment System (EFTPS) to attract potential victims.  Also, if you've experienced any monetary losses due to an IRS-related incident, please report it to the Treasury Inspector General Administration (TIGTA) and file a complaint with the Federal Trade Commission (FTC) through their Complaint Assistant to make the information available to investigators.

Fake emails from the IRS usually fall into one of two categories: those claiming you must pay taxes, and those claiming you're owed a refund. The “false refund” messages are often attempts to steal your personal information so the scammers can commit identity theft; the email might, for example, request your Social Security and bank account numbers, ostensibly to deposit a tax refund into your account.

The message might also be loaded with malware, and the scammers want you to click on links or download attachments in order to install that malware onto your computer. (Of course, you should never download attachments or click on links in any unsolicited emails, no matter who they're supposedly from.)

Back taxes

On the other hand, you might instead receive emails — or even phone calls — claiming that you owe back taxes to the IRS. In such instances, the caller or email writer will not only demand payment from you, but will threaten you with arrest and imprisonment if you don't pay immediately.

You can be confident that such a message is not actually from an IRS agent. As the IRS' “Report Phishing” page says (with the italicized bold-print word lifted form the original): “The IRS doesn't initiate contact with taxpayers by email, text messages or social media channels to request personal or financial information. This includes requests for PIN numbers, passwords or similar access information for credit cards, banks or other financial accounts.”

The threat of immediate consequences is another tipoff that the message isn't from the IRS: yes, the agency really does go after delinquent taxpayers, and even puts people in prison for non-payment. But the IRS, when going after tax scofflaws, does not demand payment over the phone or via email. Nor would a legitimate IRS agent demand payment in cash, via a pre-paid money card or some other untraceable source.

And, while the IRS does impose deadlines on people, and has the right to say “Pay up by a certain time or face consequences,” that time is always at least several days in the future. You'll never hear an IRS agent tell you “Pay up right now, or you'll be arrested right now.”

For the most part, IRS agents don't threaten people with arrest at all — because, quite frankly, they don't need to. Unlike scammers, real IRS agents know they have the law on their side. Scammers, by contrast, make scary-sounding threats in hopes of pressing your panic button long enough for your fear to override your good sense: “Act now pay now right now, don't calm down and especially don't stop to think how very unlikely it is that you could be a tax scofflaw bad enough that you're headed for prison right now, yet until five seconds ago you had no idea.”

What to do

If you get a phone call or any other communication from someone claiming to be from the IRS, and you don't want to hang up for fear of possibly offending a genuine IRS agent, the IRS says that you should “Record the employee's name, badge number, call back number and caller ID if available.” (If the so-called IRS agent refuses to give you this information, that alone guarantees you're talking to a scammer.)

Once you have this information, the agency says, you should “[c]all 1-800-366-4484 to determine if the caller is an IRS employee with a legitimate need to contact you.” If it was, then call the agent back. Otherwise, the IRS requests that you report the scam attempt by sending an email to phishing@irs.gov, with “IRS Phone Scam” as the subject. You might also consider calling your local police to let them know about the phone-scam attempt in their jurisdiction.

Are you ready to file your 2014 federal income tax return? Probably not. But if you are, the Internal Revenue Service (IRS) is ready for you.

The tax agency is touting what it calls “a growing array of online services,” including features it says will help you understand how the Affordable Care Act (Obamacare) will affect you tax time, along with the availability of the Free File program.

The IRS expects to receive about 150 million individual income tax returns this year, with more than 4 out of 5 returns filed electronically. The Free File program opens today, and the agency will begin accepting and processing all tax returns on Tuesday, Jan. 20.

Obamacare kicks in

This year’s return will include new questions to incorporate provisions of the Affordable Care Act (ACA). The majority of taxpayers -- more than 80% -- will simply need to check a box to verify they have health insurance coverage. For the minority of taxpayers who will have to do more, useful information and tips regarding the premium tax credit, the individual shared responsibility requirement and other tax features of the ACA may be found at IRS.gov/aca.

“Our employees will be working hard again this season to help the nation’s taxpayers,” IRS Commissioner John Koskinen said. “We encourage people to use the tools and information available on IRS.gov, particularly given the long wait times we anticipate on our phone lines. As always, taxpayers can benefit by filing electronically.”

Free File ready for business

Taxpayers can begin preparing their returns using the Free File system today. Available only at IRS.gov, Free File offers two filing options:

Brand-name software, offered by IRS’ commercial partners to about 100 million individuals and families with incomes of $60,000 or less; or

Online fillable forms, the electronic version of IRS paper forms available to taxpayers at all income levels and especially useful to people comfortable with filling out their own returns.

E-file, when combined with direct deposit, is the fastest way to get a refund. More than 3 out of 4 refund recipients now choose direct deposit. People who e-file make fewer mistakes, and it costs nothing for those who choose Free File.

In all, 14 software companies will be participating in this year’s Free File program.

Taxpayers who purchase their own software can also choose e-file, and most paid tax preparers are now required to file their clients’ returns electronically. In addition to Free File, commercial software companies also are currently available for taxpayer use.

The IRS will begin accepting and processing all returns -- whether e-file, Free File or paper tax returns -- on Jan. 20.

Like last year, the IRS expects to issue more than 9 out of 10 refunds within 21 days.  

Using the “short form” is the quickest and easiest way to file your tax returns and millions of taxpayers use it. But with that form you can't itemize deductions, you must take the Standard Deduction.

At some point taxpayers may have deductible expenses and think they should drop the short form and go with the standard Form 1040, so that they can take advantage of those deductions.

But sometimes they shouldn't. According to the Internal Revenue Service (IRS), you should only itemize deductions if your total deductions are greater than the standard deduction amount.

Standard Deduction

For the 2014 tax year, the standard deduction for a single taxpayer is $6,200 and $12,400 for a married couple filing jointly. That's what a taxpayer may deduct from their income without itemizing any expenses.

That means if a couple purchased a home at the beginning of 2014 with a mortgage of $140,000, they probably paid a little more than $5500 in mortgage interest last year. They could itemize deductions and write off the $5,500.

But just because they can, doesn't mean they should. If they itemize they can't take the Standard Deduction. If the mortgage interest is the only deductible expense they have, they're taking a $5,500 deduction and giving up a $12,400 one.

Consider all deductions

That said, there may be several other expenses you incurred through the year that could also be write-offs, if you itemize deductions. Besides mortgage interest on your home, you can also deduct the taxes paid.

If you have significant uninsured casualty or theft losses, that could add to the deduction total. If you have large uninsured medical or dental expenses or large un-reimbursed employee business expenses, itemizing may be in your best interest.

The key number is the standard deduction. You probably shouldn't itemize if your total expenses don't exceed it.

Tax bracket

A secondary consideration is your tax bracket. If you are in a high tax bracket, a deduction is worth more than if you are in a low bracket.

Here's an example. John and Loretta have a taxable income of $80,000. That puts them in the 25% bracket, meaning they pay 25% of their income in taxes.

George and Linda earned $195,000. That puts them in the 33% tax bracket.

Each dollar of itemized deductions will save John and Loretta 25 cents while George and Linda will realize 33 cents.

When it's not obvious

Sometimes the decision to itemize or not is not that obvious. That's when you should seek help from tax experts. They may lean toward itemizing because, frankly, filling out the long form and itemizing usually results in higher fees than just filing with the short form.

But TurboTax says 1 out of 4 taxpayers will end up paying less in taxes when they itemize. The company points out that other considerations, like age, can affect your bottom line tax.

H&R Block notes there might be cases when your itemized deductions are less than your standard deduction, but it still makes sense to itemize. It says you might want to do this if itemizing on your state return provides a savings that more than makes up the difference on your federal return.

Meanwhile, the IRS says it will begin accepting returns electronically on Jan. 20. Paper tax returns will begin processing at the same time.

If you use your car, van, pickup or panel truck for business purposes, you'll like this: Starting Nan. 1, the optional standard mileage rate is rising to 57.5 cents per mile from 56 cents in 2014.

At the same time it made than announcement, the Internal Revenue Service (IRS) said the amount you are allowed for medical or moving purposes is dropping 0.5 cent from 2014 -- to 23 cents in 2015 per mile driven. And the amount per mile driven in service of charitable organizations will be 14 cents.

How it's figured

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

Prohibitions

A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously).

Details on these and other special rules are in Revenue Procedure 2010-51, the instructions to Form 1040 and various online IRS publications including Publication 17, Your Federal Income Tax.

Besides the standard mileage rates, Notice 2014-79, posted on IRS.gov, also includes the basis reduction amounts for those choosing the business standard mileage rate, as well as the maximum standard automobile cost that may be used in computing an allowance under a fixed and variable rate plan.

Uncle Sam wants his bite out of your retirement savings.

And to make sure he gets it, the Internal Revenue Service (IRS) is reminding taxpayers born before July 1, 1944 that they generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by Dec. 31.

These RMDs, or required minimum distributions, normally must be made by the end of the year. But a special rule allows first-year recipients of these payments -- those who reached age 70½ during 2014 -- to wait until as late as April 1, 2015 to receive their first RMDs.

That means that those born after June 30, 1943 and before July 1, 1944 are eligible for this special rule. Though payments made to these taxpayers in early 2015 can be counted toward their 2014 RMD, they are still taxable in 2015.

Who must take an RMD?

The required distribution rules apply to owners of traditional IRAs -- but not Roth IRAs -- while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.

An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2014 RMD, this amount was on the 2013 Form 5498 normally issued to the owner during January 2014.

The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by Dec. 31.

So, a taxpayer who turned 70½ in 2013 (born after June 30, 1942 and before July 1, 1943) and received the first required payment on April 1, 2014 must still receive the second RMD by Dec. 31, 2014.

Calculating the RMD

The RMD for 2014 is based on the taxpayer’s life expectancy on Dec. 31, 2014, and the account balance on Dec. 31, 2013. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Use the online worksheets on IRS.gov or find worksheets and life expectancy tables to make this computation in the Appendices to Publication 590.

For most taxpayers, the RMD is based on Table III (Uniform Lifetime) in the IRS publication on IRAs. If the taxpayer turned 72 in 2014, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than 10 years younger and is the taxpayer’s only beneficiary.

Though the RMD rules are mandatory for all owners of traditional IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can -- if their plan allows -- wait until April 1 of the year after they retire to start receiving these distributions.

Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

With the end of the year within shouting distance, many individuals and businesses are making year-end gifts to charity in order to ease their tax burden.

The Internal revenue Service (IRS) reminds you that several important tax law provisions have taken effect in recent years.

Here are some of the changes you should keep in mind:

Rules for charitable contributions of clothing and household items

• Household items include furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.
• Donors must get a written acknowledgment from the charity for all gifts worth $250 or more. It must include, among other things, a description of the items contributed.

Guidelines for gifts of money

• A taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.
• Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
• These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Don't forget

Here are some additional reminders to help you plan your holiday and year-end gifts to charity:

• Qualified charities. Check that the charity is eligible. Only donations to eligible organizations are tax-deductible. Select Check, a search able online tool available on Misgovern, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations. That is true even if they are not listed in the tool’s database.
• Year-end gifts. Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2014 count for 2014, even if the credit card bill isn’t paid until 2015. Also, checks count for 2014 as long as they are mailed in 2014.
• Itemize deductions. For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule Acan claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction. This includes anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2014 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
• Record donations. For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rulesapply for a contribution of $250 or more.
• Special Rules. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

If the amount of a taxpayer’s deduction for all non cash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.

Could your retirement plan use a little help?

The Internal Revenue Service (IRS) says low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2014 and years ahead.

The saver’s credit helps offset part of the first $2,000 workers contribute to IRAs and 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

It's not too late

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2014 tax return. You have until April 15, 2015, to set up a new individual retirement arrangement or add money to an existing IRA for 2014.

However, elective deferrals (contributions) must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, or the Thrift Savings Plan for federal employees.

Workers who are unable to set aside money for this year may want to schedule their 2015 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

• Married couples filing jointly with incomes up to $60,000 in 2014 or $61,000 in 2015;
• Heads of Household with incomes up to $45,000 in 2014 or $45,750 in 2015; and
• Married individuals filing separately and singles with incomes up to $30,000 in 2014 or $30,500 in 2015.

Filing status matters

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may -- in fact -- be zero for some taxpayers.

A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

In tax year 2012, the most recent year for which complete figures are available, saver’s credits totaling $1.2 billion were claimed on more than 6.9 million individual income tax returns. Saver’s credits claimed on these returns averaged $215 for joint filers, $165 for heads of household and $127 for single filers.

The saver’s credit supplements other tax benefits available to those who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

The rules

Other special rules that apply to the saver’s credit include the following:

• Eligible taxpayers must be at least 18 years of age.
• Anyone claimed as a dependent on someone else’s return cannot take the credit.
• A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
• Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2014, this rule applies to distributions received after 2011 and before the due date, including extensions, of the 2014 return. Form 8880 and its instructions have details on making this computation.

While you haven't even filed your federal income tax return for 2014 yet, here's something to look forward to next year.

The Internal Revenue Service (IRS) has announced annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes for 2015.

Details about these annual adjustments may be found in Revenue Procedure 2014-61.

The items for tax year 2015 of greatest interest to most taxpayers include the following dollar amounts:

• The tax rate of 39.6% affects singles whose income exceeds $413,200 ($464,850 for married taxpayers filing a joint return), up from $406,750 and $457,600, respectively. The other marginal rates -- 10, 15, 25, 28, 33 and 35% -- and the related income tax thresholds are described in the revenue procedure.
• The standard deduction rises to $6,300 for singles and married persons filing separate returns and $12,600 for married couples filing jointly -- up from $6,200 and $12,400, respectively, for tax year 2014. The standard deduction for heads of household rises to $9,250, up from $9,100.
• The limitation for itemized deductions to be claimed on tax year 2015 returns of individuals begins with incomes of $258,250 or more ($309,900 for married couples filing jointly).
• The personal exemption for tax year 2015 rises to $4,000, up from the 2014 exemption of $3,950. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $258,250 ($309,900 for married couples filing jointly). It phases out completely at $380,750 ($432,400 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2015 is $53,600 ($83,400, for married couples filing jointly). The 2014 exemption amount was $52,800 ($82,100 for married couples filing jointly).
• The 2015 maximum Earned Income Credit amount is $6,242 for taxpayers filing jointly who have 3 or more qualifying children -- up from a total of $6,143 for tax year 2014. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
• Estates of those who die during 2015 have a basic exclusion amount of $5,430,000 -- up from a total of $5,340,000 for estates of people who died in 2014.
• For 2015, the exclusion from tax on a gift to a spouse who is not a U.S. citizen is $147,000 -- up from $145,000 for 2014.
• For 2015, the foreign earned income exclusion breaks the six-figure mark, rising to $100,800 -- up from $99,200 for 2014.
• The annual exclusion for gifts remains at $14,000 for 2015.
• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) rises to $2,550 $50 dollars more than in 2014.
• Under the small business health care tax credit, the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,800 for tax year 2015 -- up from $25,400 for 2014.

From the Internal Revenue Service (IRS) -- word that you'll be able to sock more money away for retirement next year.

Because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment, many of the pension plan limitations will change for 2015. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.

What it means

• The contribution (elective deferral) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,500 to $18,000.
• The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $5,500 to $6,000.
• The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $61,000 and $71,000 -- up from $60,000 and $70,000 in 2014. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $98,000 to $118,000 -- up from $96,000 to $116,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $183,000 and $193,000 -- up from $181,000 and $191,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly -- up from $181,000 to $191,000 in 2014. For singles and heads of household, the income phase-out range is $116,000 to $131,000 -- up from $114,000 to $129,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $61,000 for married couples filing jointly -- up from $60,000 in 2014; $45,750 for heads of household -- up from $45,000; and $30,500 for married individuals filing separately and for singles -- up from $30,000.

It's only September, so filing your 2014 federal income tax return is probably way down on your list of things to think about.

But, with another school year now underway it's not too early to see if you qualify for either of 2 college tax credits or any of several other education-related tax benefits.

The American opportunity tax credit and lifetime learning credit are generally available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the taxpayer and his or her spouse and dependents.

The American opportunity tax credit provides a credit for each eligible student, while the lifetime learning credit provides a maximum credit per tax return. Though a taxpayer often qualifies for both credits, he or she can only claim one of them for a particular student in a particular year. Claimed on Form 8863, these credits are available to all taxpayers -- both those who itemize their deductions on Schedule A and those who claim a standard deduction.

The right option

For those eligible -- including most undergraduate students, the American opportunity tax credit will generally yield the greater tax savings. Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school.

Both credits are available for students enrolled in an eligible college, university or vocational school -- including both nonprofit and for-profit institutions. Neither credit can be claimed by a nonresident alien, a married person filing a separate return or someone claimed as a dependent on another person’s return.

Normally, students will receive a Form 1098-T from their institution by the end of January of the following year (Jan. 31, 2015 for calendar year 2014). This form will show information about tuition paid or billed along with other information.

However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax credits. Taxpayers should see the instructions to Form 8863 and Publication 970 for details on properly figuring allowable tax benefits.

American opportunity tax credit

Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Students can claim this credit for qualified educational expenses paid during the entire tax year for a certain number of years:

• The credit is only available for 4 tax years per eligible student.
• The credit is available only if the student has not completed the first 4 years of post-secondary education before 2014.

Here are some more key features of the credit:

• Qualified education expenses are amounts paid for tuition, fees and other related expenses for an eligible student. Other expenses, such as room and board, are not qualified expenses.
• The credit equals 100% of the first $2,000 spent and 25% of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
• The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
• Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student.

Lifetime learning credit

The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Also, the lifetime learning credit does not provide a benefit to people who owe no tax.

Though the half-time student requirement does not apply to the lifetime learning credit, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.

The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.

Income limits are lower than under the American opportunity tax credit. For 2014, the full credit can be claimed by taxpayers whose MAGI is $54,000 or less. For married couples filing a joint return, the limit is $108,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $128,000 or more and singles, heads of household and some widows and widowers whose MAGI is $64,000 or more.

Taxpayer help

You can use the IRS’s Interactive Tax Assistant tool to help determine if you are eligible for these benefits. Eligible parents and students can get the benefit of these credits during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.

There are a variety of other education-related tax benefits that can help many taxpayers. They include:

• Scholarship and fellowship grants — generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
• Student loan interest deduction of up to $2,500 per year.
• Savings bonds used to pay for college — though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
• Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.

Burger King is flirting with Tim Horton, the Canadian coffee-and-doughnuts giant. It's a lust-driven relationship, egged on by Burger King's hunger to reduce its American tax burden.

The two are talking about an "inversion," in which Burger King would basically acquire Tim Horton and become a Canadian company, thereby cutting the taxes it pays to Uncle Sam each year.

This has become rather controversial lately. President Obama recently called companies that abandon their U.S. headquarters "corporate deserters" and some large companies, most notably Walgreen, have backed off plans to sail away from their American roots.

Consumers don't like the idea either. In fact, some of the most vocal consumers on social media think that corporate tax rates aren't high enough and should be boosted.

A modest proposal

But many economists take a different view. Writing in the New York Times recently, Harvard economist N. Gregory Mankiw noted that the American corporate tax rate is much higher than other countries -- and, even more significantly, taxes all earnings of U.S.-based companies, even when the earnings come from overseas. No other advanced country does this.

Going a bit further, Mankiw proposes what at first sounds like a radical solution but is in fact one that has been talked about for decades as the answer to many of the tax inequities currently plaguing the U.S. economy: a consumption tax.

The first steps: repeal the corporate income tax entirely and scale back the personal tax rate.

Mankiw says it's important "to acknowledge that corporations are more like tax collectors than taxpayers. The burden of the corporate tax is ultimately borne by people — some combination of the companies’ employees, customers and shareholders."

A consumer tax is basically just what it sounds like -- a tax that's applied every time money changes hands. When you buy a car, order a grande triple latte or pay your divorce lawyer, the consumption tax kicks in. It's similar to the value-added tax (VAT) common throughout Western Europe.

Income is not taxed, so if you leave your money in the stock market, in corporate bonds or a savings account -- where it is available to support business expansion and jobs creation -- you pay no tax on the interest and dividends. 

Whenever this is proposed, critics say it would amount to a tax on the poor. The answer to this, says Mankiw, is "to use some revenue from the consumption tax to fund universal fixed rebates — sometimes called demogrants" for those whose income falls below a certain amount.

The chief benefit of such a system is, obviously, it encourages savings and investment. By eliminating the corporate tax, it's logical to assume it would also create jobs by encouraging U.S. corporations to keep their headquarters -- and the home-office executive staff -- in the United States, paying hefty salaries that would in turn produce lots of VAT revenue.

Mankiw admits, as have others who've floated similar proposals, that the likelihood of any such thing happening is close to zero. But it never hurts to float a good idea, in hopes that one may plant a seed that eventually germinates.

Or, as Mankiw conlcudes: "A better tax system is within reach, and ... only politics stands in the way." 

Last April, the Internal Revenue Service (IRS) put out a warningabout scammers claiming to be from the tax agency, demanding payment of some back taxes or penalties they claimed you owe. Well, the hustlers are still at it.

The IRS and the Treasury Inspector General for Tax Administration (TIGTA) continue to hear from people who have received such calls.

Based on the 90,000 complaints received through its telephone hotline to date, TIGTA has identified approximately 1,100 victims who have lost an estimated $5 million from these scams.

"There are clear warning signs about these scams, which continue at high levels throughout the nation,” said IRS Commissioner John Koskinen. “Taxpayers should remember their first contact with the IRS will not be a call from out of the blue, but through official correspondence sent through the mail. A big red flag for these scams are angry, threatening calls from people who say they are from the IRS and urging immediate payment. This is not how we operate. People should hang up immediately and contact TIGTA or the IRS.”

What you need to know

Additionally, it is important for taxpayers to know that the IRS:

• Never asks for credit card, debit card or prepaid card information over the telephone.
• Never insists that taxpayers use a specific payment method to pay tax obligations
• Never requests immediate payment over the telephone and will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior notification of IRS enforcement action involving IRS tax liens or levies.

Potential phone scam victims may be told that they owe money that must be paid immediately to the IRS or that they are entitled to big refunds. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy.

Other characteristics of these scams include:

• Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
• Scammers may be able to recite the last four digits of a victim’s Social Security number.
• Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
• Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
• Victims hear background noise of other calls being conducted to mimic a call site.
• After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

What to do

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

• If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue, if there really is such an issue.
• If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to TIGTA at 1.800.366.4484.
• If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Add "IRS Telephone Scam" to the comments of your complaint.

The Internal Revenue Service(IRS) has announced adopted what it calls a "Taxpayer Bill of Rights" that it says “will become a cornerstone document to provide the nation's taxpayers with a better understanding of their rights.”

According to the tax agency, the document takes the “multiple existing rights embedded in the tax code” and groups them into 10 broad categories, making them more visible and easier for taxpayers to find on its website.

In addition, Publication 1, "Your Rights as a Taxpayer," has been updated and will be sent to millions of taxpayers this year when they receive IRS notices on issues ranging from audits to collection. They will also be publicly visible in all IRS facilities for taxpayers and employees to see.

Extensive discussions

The IRS released the “Taxpayer Bill of Rights” following extensive discussions with the Taxpayer Advocate Service, an independent office inside the IRS that represents the interests of U.S. taxpayers

“Congress has passed multiple pieces of legislation with the title of ‘Taxpayer Bill of Rights,’” said National Taxpayer Advocate Nina E. Olson. “However, taxpayer surveys conducted by my office have found that most taxpayers do not believe they have rights before the IRS and even fewer can name their rights. I believe the list of core taxpayer rights the IRS is announcing today will help taxpayers better understand their rights in dealing with the tax system.”

Enumerating the “Rights”

The tax code includes numerous taxpayer rights, but they are scattered throughout the code, making it difficult for people to track and understand. Similar to the U.S. Constitution’s Bill of Rights, the “Taxpayer Bill of Rights” contains 10 provisions. They are:

1. The Right to Be Informed

2. The Right to Quality Service

3. The Right to Pay No More than the Correct Amount of Tax

4. The Right to Challenge the IRS’s Position and Be Heard

5. The Right to Appeal an IRS Decision in an Independent Frum

6. The Right to Finality

7. The Right to Privacy

8. The Right to Confidentiality

9. The Right to Retain Representation

10. The Right to a Fair and Just Tax System

The “rights” have been incorporated into a redesigned version of Publication 1, a document that is routinely included in IRS correspondence with taxpayers. The publication initially will be available in English and Spanish, and updated versions will soon be available in Chinese, Korean, Russian and Vietnamese.

The IRS has also created a special section of IRS.gov to highlight the 10 “rights.” The web site will continue to be updated with information as it becomes available, and taxpayers will be able to easily find the “Bill of Rights” from the front page..

Today may mark the official end of the 2014 filing income tax season, but that doesn't mean the tax scam season is over.

The Internal Revenue Service (IRS) is again warning consumers to guard against sophisticated and aggressive phone scams targeting taxpayers -- including recent immigrants -- as reported incidents of this crime continue to rise nationwide.

An “aggressive” scam

People have reported a particularly aggressive phone scam in the last several months in which immigrants are frequently targeted. Potential victims are threatened with deportation, arrest, having their utilities shut off, or having their driver’s licenses revoked. Callers are frequently insulting or hostile -- apparently to scare their potential victims.

Potential victims may be told they are entitled to big refunds, or that they owe money that must be paid immediately to the IRS. When unsuccessful the first time, sometimes phone scammers call back trying a new strategy.

Other characteristics of this scam include:

• Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
• Scammers may be able to recite the last four digits of a victim’s Social Security number.
• Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
• Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
• Victims hear background noise of other calls being conducted to mimic a call site.
• After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

What to do

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

• If you know you owe taxes or you think you might owe taxes, call the IRS at 1.800.829.1040. The IRS employees at that line can help you with a payment issue -- if there really is such an issue.
• If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.
• If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Add "IRS Telephone Scam" to the comments of your complaint.

Taxpayers should be aware that there are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

Taxpayers should be vigilant against phone and email scams that use the IRS as a lure. The agency does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

The IRS also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

The IRS will always send taxpayers a written notification of any tax due via the U.S. mail, and never asks for credit card, debit card or prepaid card information over the telephone.

For more information or to report a scam, go to www.irs.gov and type "scam" in the search box.

Do you still trot down to the mailbox to send in your federal income tax return?

If so, you are in a distinctly shrinking minority

The Internal Revenue Service (IRS) says that as of March 28, it has received 82 million returns through e-file -- roughly 91% of returns filed this year. That means only 8.3 million of you, or 9%, are filing on paper.

The tax agency says it expects to receive about 148 million individual income tax returns this year and projects that only 23 million will be on paper -- down 7% from last year’s total of 25 million paper returns.

More efficient filing

IRS says e-file has accomplished many goals, including reducing the amount of paper the government must process, allows it to be more efficient and use valuable resources to address other critical work.

The agency notes that e-file is the safest, fastest and easiest way to submit individual tax returns.

Since 1990, taxpayers have e-filed more than 1 billion Form 1040 series tax returns safely and securely.

Tax facts

Following is a summary of how the 2014 tax season is shaping up.

Yes, it's hard to believe that it's already April. It seems like only yesterday we were shivering through the polar vortex.

But the tax-filing vortex is looming dead ahead, on April 15. If you haven't yet started on your taxes, chances are you aren't going to be ready.

Fortunately, you can get an extension, giving yourself a few more months to file. There are a few steps you need to take in order to do that, including paying the Internal Revenue Service (IRS) any additional tax you might owe.

But if you haven't done your taxes yet, how do you know whether you owe the IRS more money, and how much? Good question.

Do you owe additional tax?

First, if you haven't gotten around to preparing your tax return, chances are you will owe additional tax. The reason is simple. If you were getting a refund, it's a strong likelihood that you would have filed by now. Most people getting refunds file as soon as they can.

So, you think you'll owe additional tax, but how much?

To answer that question, check your W-2 form (what your employer withheld from your paycheck last year), 1099 form or records of quarterly estimated tax payments to see how much money you have already given to the IRS toward your 2013 tax liability.

Next you need to estimate how much tax you should have paid. This isn't always easy, especially if your income changed significantly from previous years.

If you think things are pretty much the same as previous years, review previous tax returns. Look at the total amount of tax that you paid to the IRS and see how that compares to previous years.

Ballpark it

Using that information, estimate how much more that what you have already paid that you owe. Go to the IRS website and download Form 4868, which has spaces to enter that information.

To save time you may want to file electronically by going to Free File and filling out Form 4868 online. You can use a credit card to pay the tax and, a few clicks later it's done.

The extension gives you an additional six months in which to file your 2013 tax return. If you don't think you can afford to pay all of the tax you owe, the IRS will work with you.

Payment plan

According to the tax collection agency most people who owe additional tax can set up a payment plan within a few minutes. Taxpayers who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to 72 months.

This appears to be one of the easiest options for buying more time to pay. There is no paperwork to fill out and no need to call, write or visit the IRS.

Taxpayers can also request a payment agreement by filing Form 9465. This form can be downloaded from IRS.gov and mailed along with a tax return, bill or notice.

Offer in compromise

If you are really struggling you may qualify for what the IRS calls an “offer-in-compromise,” in which the IRS agrees to accept less than what you owe.

However, be leery of so-called “tax settlement” companies that promise they can arrange this on your behalf. It's not as easy as they make it sound and you may have a better chance of arranging it on your own without having to pay someone.

Whatever you do, don't stick your head in the sand and ignore the April 15 tax-filing deadline. Not filing will be costly.

For letting the deadline pass without filing a tax return or an extension, the IRS will impose a penalty – usually about 5% per month of the unpaid amount. On top of that, the IRS will charge interest on the unpaid balance.

Name any large legitimate business or organization you can think of, and there exist countless scammers fraudulently posing as members of said business or organization in hopes of stealing your money.

The U.S. government is no different, and with the April 15 tax-filing deadline fast approaching, there's a larger-than-usual number of scammers fraudulently posing as tax agents.

The first thing you must remember is that the Internal Revenue Service will never send you an unsolicited email even if you do owe them money. It says so right on the IRS website: “The IRS does not send out unsolicited e-mails asking for personal information. An electronic mailbox has been established for you to report suspicious e-mails claiming to have been sent by the IRS.”

Dialing for dollars

But the latest fake-IRS scammers aren't using email to contact their victims. The Federal Trade Commission put out a bulletin warning potential victims (especially people of south Asian descent) of a despicable new scam wherein thieves posing as IRS agents call victims and threaten them with immediate arrest (and even deportation, in the case of immigrants) unless the victims immediately pay over the phone.

Protecting yourself from this scam is a bit trickier, because you can't necessarily assume “All unsolicited phone calls allegedly from the IRS are scammy,” the way you can about unsolicited emails. And if you get a phone call and hear phrases like “I'm from the IRS” and “you'll be arrested,” it's understandable that even an innocent person might feel scared, maybe even close to panic — but that's exactly what the scammers are counting on. They want your fear to override your good sense, at least long enough to separate you from your hard-earned money.

What to do

If you get such a threatening call, allegedly from the IRS, what can you do? On the one hand, you don't want to give money to scammers, but at the same time, you dare not risk ignoring legitimate messages from the taxman, either.

The main thing you must remember (to protect yourself not only from fake IRS phishers, but all phishers) is to get your own contact information. The FTC reports that the latest batch of fake-IRS scammers mostly called from the phone numbers (321) 352-6893; (202) 803-4825; (585) 310-3285; and (202) 241-2073. If your call comes from one of those numbers, you can pretty much ignore it.

But suppose your call comes from a number you don't recognize — or you find a message on your voicemail, saying they're from the IRS and you'd better call them back or else. Before you call them back, go online and search for the contact information of the IRS office nearest you. Even in a worst-case scenario – you really are in trouble with the IRS, and that's a bona fide IRS agent who just called you – a legitimate IRS agent will give you a name and contact number which you can verify by doing your own independent online search.

Then again, if you really were in trouble with the IRS, you'd have known about it long before any agents picked up the phone to call you — when you owe the IRS money, they first try contacting you through the old-fashioned U.S. Mail.

Not that soon

Also: while the IRS genuinely does have deadlines, and will even tell certain American taxpayers “Give us X dollars by Y date or face nasty legal consequences” … that deadline is never "less than 24 hours from now." The IRS will not contact you out of the blue and tell you “Pay up right now or you'll be in prison before sundown,” nor will the IRS make arrest threats over the phone.

By contrast, the FTC warns that the latest scammers told some of their victims that if they didn't pay up immediately, “an officer will be at your doorstep in 30 minutes.”

These victims were even urged to speak to the fake IRS agent before bothering to call their local police –needless to say, real IRS agents going after real tax scofflaws have no need to keep the police out of the loop, because real IRS agents have the law on their side.

If you really are in trouble with the IRS, you'll know about it long before anyone from the agency gives you a call — you'll have a pile of gimme-money letters from the IRS, chock-full of agent ID numbers and agency-contact numbers that are easily verified by a simple online search.

You're almost too late if you turned 70½ during 2013 and haven't yet received a required minimum distribution (RMD) from your IRAs and workplace retirement plans. The deadline is almost here: Tuesday, April 1, 2014.

That deadline applies to owners of traditional IRAs but not Roth IRAs. Normally, it also applies to participants in various workplace retirement plans, including 401(k), 403(b) and 457 plans.

And, the April 1 deadline applies to the required distribution only for the first year. For all subsequent years, the RMD must be made by Dec. 31. For example, a taxpayer who turned 70½ in 2013 and receives the first required payment on April 1, 2014 must still receive the second RMD by Dec. 31 of this year.

Determining your required distribution

Affected taxpayers who turned 70½ during 2013 must figure the RMD for the first year using their life expectancy on Dec. 31, 2013 and their account balance on Dec. 31, 2012.

The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. Worksheets and life expectancy tables for making this computation can be found in the Appendices to Publication 590.

Most taxpayers use Table III (Uniform Lifetime) to figure their RMD. For a taxpayer who turned 71 in 2013, for example, the first required distribution would be based on a life expectancy of 26.5 years. A separate table, Table II, applies to a taxpayer married to a spouse who is more than 10 years younger and is the taxpayer’s only beneficiary.

Some exceptions

Though the April 1 deadline is mandatory for all owners of traditional IRAs and most participants in workplace retirement plans, some people with workplace plans can wait longer to receive their RMD. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions (See Tax on Excess Accumulations in Publication 575) .

Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.

Start planning now

The IRS encourages taxpayers to begin planning now for any distributions required during 2014. An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner.

Often, the trustee shows the RMD amount in Box 12b on Form 5498. For a 2014 RMD, this amount would be on the 2013 Form 5498 that is normally issued in January 2014.

More information on RMDs, including answers to frequently asked questions, can be found on IRS.gov.

If you haven't filed your federal income tax return yet, you're behind the curve.

The Internal Revenue Service (IRS) says it has received more than half of all the returns it expects to get during 2014. As of March 14, the agency had received more than 75 million individual tax returns and projects that it will receive a total of roughly 149 million by the end of the year.

Help for businesses

Millions of individual tax filers have business income either as sole proprietors or as sub contractors, and also have unreimbursed business expenses. The IRS recently issued Publication 535, Business Expenses, which provides valuable information for these filers. It also contains useful hints for Tax Year 2013, for which many taxpayers are still completing returns and for Tax Year 2014, for which taxpayers are tracking expenses and making financial decisions.

For tax year 2013

Optional safe harbor method. Beginning in 2013, taxpayers can use the optional safe harbor method to determine the deduction for the business use of a home.

Standard mileage rate. Beginning in 2013, the standard mileage rate for the cost of operating a car, van, pickup, or panel truck for each mile of business use is 56.5 cents per mile.

Additional Medicare Tax. Beginning in 2013, a 0.9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than:

• $125,000 if married filing separately,
• $250,000 if married filing jointly, or
• $200,000 if single, head of household, or qualifying widow(er) with dependent child.

Medicare wages and self-employment income are combined to determine if a taxpayer’s income exceeds the threshold. RRTA compensation should be separately compared to the threshold.

For Tax Year 2014

Standard mileage rate. Beginning in 2014, the standard mileage rate for the cost of operating a car, van, pickup, or panel truck for each mile of business use is 56 cents per mile.

Filing season statistics

Go figure.

The Internal Revenue Service (IRS) says it has refunds totaling almost $760 million for an estimated 918,600 taxpayers who didn't even bother to file a federal income tax return for 2010.

There's a catch though: In order to collect the money, your have to file a return for 2010 with the IRS no later than Tuesday, April 15, 2014.

"The window is quickly closing for people who are owed refunds from 2010 who haven't filed a tax return," said IRS Commissioner John Koskinen. "We encourage students, part-time workers and others who haven't filed for 2010 to look into this before time runs out on April 15."

Why not file?

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.

For 2010 returns, the window closes on April 15, 2014. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2010 refund that their checks may be held if they have not filed tax returns for 2011 and 2012. In addition, the refund will be applied to any amounts still owed to the IRS or their state tax agency, and may be used to offset unpaid child support or past due federal debts such as student loans.

Why you should file

By failing to file a return, people stand to lose more than just their refund of taxes withheld or paid during 2010. In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). For 2010, the credit is worth as much as $5,666. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2010 were:

• $43,352 ($48,362 if married filing jointly) for those with three or more qualifying children,
• $40,363 ($45,373 if married filing jointly) for people with two qualifying children,
• $35,535 ($40,545 if married filing jointly) for those with one qualifying child, and
• $13,460 ($18,470 if married filing jointly) for people without qualifying children.

Current and prior year tax forms and instructions are available on the Forms and Publications page of IRS.gov or by calling toll-free 800-TAX-FORM (800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2010, 2011 or 2012 should request copies from their employer, bank or other payer.

If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by going to IRS.gov. Taxpayers can also file Form 4506-T to request a transcript of their tax return.

Your money?

Individuals who did not file a 2010 return with a potential refund:

Using a home computer to file your tax return appears to be catching on.

According to the Internal Revenue Service (IRS) more than 27 million taxpayers have filed their tax returns from home computers so far this year -- up almost 6% from last year.

While these taxpayers used a variety of software products to prepare and e-file their own returns, there are other options. The IRS says you can also prepare and e-file your federal tax return online for free through Free File at IRS.gov. Free File has an option for almost everyone, either through brand-name software or online fillable forms.

The Free File program is a public-private partnership between the IRS and the Free File Alliance, LLC. The Alliance is a consortium of 14 leading tax software providers who make their products available exclusively at www.irs.gov/freefile. All Free File members meet security requirements and use the latest in encryption technology to protect taxpayer information.

Income restrictions

Seventy percent of taxpayers are eligible for easy-to-use Free File software because their income was $58,000 or less in 2013. People who made more than $58,000 and who are comfortable preparing their own returns can use Free File Fillable Forms, the electronic version of IRS paper forms.

Each Free File software provider sets its own criteria for eligibility, generally based on income, age, state residency or military service. However, taxpayers can quickly find a match by using the “help me find Free File software” tool. Or, taxpayers can review all providers and their offers. Some software providers also offer state tax software and display on their landing pages whether it is free or if there is a fee.

Free File Fillable Forms is more basic, similar to completing a paper Form 1040. The program performs some math calculations and provides links to some IRS publications. It also can be filed electronically for free. However, it does not support any state tax returns.

The total number of individual income tax returns e-filed so far this year is 62.2 million. E-file includes both returns filed from home computers and those e-filed by professional tax return preparers.   

Claiming yourself as a dependent provides a nice tax benefit when you fill out your federal return but being able to claim others just makes it nicer. For a typical family there can be a claim for both spouses and claims for each of the children.

Even if you got married on December 31, or had a child on that date, you can still claim the deduction for the entire year. For the 2013 tax year the personal exemption for a dependent is $3,900, up $100 from 2012. Since the total exemptions are deducted from your taxable income, being able to claim someone as a dependent is highly advantageous.

Two types

According to the Internal Revenue Service (IRS) there are two types of dependents – a qualifying child and a qualifying relative. The person you are claiming must be a U.S. citizen, a U.S. national, a U.S. resident, or a resident of Canada or Mexico.

But wait, can you claim a non-related foreign-exchange student who is living with you temporarily? If they fit into any of the above categories, you might.

It's also important that no one else be able to claim them as a dependent. For example, if you contribute more than 50% of Aunt Janet's support, you might be able to claim her as a dependent. But if Aunt Janet is claiming herself as a dependent on her own tax return, you can't. So some coordination among tax preparers is necessary.

Qualifying child

To qualify as a dependent, a child must meet a set of requirements. First, they must be legally related to you, either as your biological son or daughter, or stepchild, eligible foster child or adopted child. If the child is your brother, sister, half brother, half sister, stepbrother, stepsister, or the child of any of them, they may also qualify.

There is also an age requirement. A dependent child must be under age 19 in most cases. If a full time student, they must be under 24. If they are permanently disabled, there is no age limit.

A qualifying child must live with you for more than half the year and, if they have a job it cannot pay more than what you contribute. In other words, what they get from you must be at least 50% of their support.

Qualifying relative

To be a qualifying relative the person must generally live with you at your residence all year round. There are, however, a number of exceptions, which the IRS outlines in Publication 501.

There is also an income limit for a qualifying relative. For the 2013 tax year they cannot earn more than $3,900 in income. As with children, you must be the only one claiming them and you must contribute more than 50% of their support.

Tax credit

In addition to the dependent exemptions, you may be able to claim the child and dependent care tax credit if you paid work-related expenses for the care of a qualifying individual. The credit is usually a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual.

The percentage depends on your adjusted gross income. Work-related expenses qualifying for the credit are those paid for the care of a qualifying individual to enable you to work or actively look for work.

The total expenses that may be used to calculate the credit are capped at $3,000 for one qualifying individual or at $6,000 for two or more qualifying individuals. A tax credit is a much more advantageous tax break than a deduction, since the credit is subtracted from the taxes you owe, not the income used to determine the taxes owed.

Three weeks into the filing season, the Internal Revenue Service (IRS) has received about a third of the individual income tax returns that it expects to receive this year.

According to the agency, nearly 98% of the 49.6 million returns it has received so far have been processed. In fact, IRS says that each week this filing season, it has processed a greater percentage of the returns received than during comparable weeks last year.

Zapping them in

More taxpayers are filing their returns electronically this year. Overall, 46.6 million returns have been e-filed this year, up 1% from the same time last year. As in prior years, the greatest increase is among individuals filing from their home computers. Nearly 22 million returns have been e-filed from home computers this year, according to IRS -- an increase of almost 7% from the same time last year.

And -- the good news for taxpayers -- the IRS has issued more than 40 million tax refunds this year, an increase of more than six% compared to the same time in 2013, with almost 90% of these refunds directly deposited into taxpayers’ accounts.

Here's a breakdown of the filing season so far:

Not everyone qualifies for it. In fact, it's specifically designed for low-income wage earners, which these days includes a lot of people. But if you qualify for the Earned Income Tax Credit (EITC), it could put more money in your pocket at tax time than you would ordinarily receive.

“One-third of the population eligible for EITC changes each year as their personal circumstances change,” said IRS Commissioner John Koskinen. “We want workers who may qualify for EITC for the first time to have all the information they need to get the EITC and get it right.”

Making work more attractive

Congress passed the EITC in 1975 but it has grown over the years into one of the government's largest tools to fight poverty. Its purpose is to make work – especially low-wage work – more attractive.

A lot of factors go into determining the size of of a tax credit, including income, family size and filing status. The IRS has an online tool that can help you find out if you qualify.

As you will quickly see the EITC is designed specifically to help families with children. To qualify this tax year the taxpayer's Adjusted Gross Income for a family with three or more qualifying children must be less than $46,997 – or $52,427 if married and filing a joint return. But for taxpayers with no children, the income limit is $14,590 – or $20,020 if married and filing jointly.

80% are eligible

The Internal Revenue Service (IRS) estimates that four out of five workers and their families get the credit. At the same time, the tax agency says millions miss it because they either don't claim it or they don't file a tax return at all.

To use the IRS' online tool just answer a few questions. The EITC Assistant does the math, helping you both determine whether or not you are eligible and, if you are, how much the tax credit works out to be. If you don't qualify, the Assistant will tell you why.

For the 2013 tax year Treasury Department and IRS have ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes, including eligibility for the EITC.

Last year, the IRS says 27 million people were eligible and received more than $63 billion total in EITC, with an average EITC amount of $2,300. Qualifying families with children receive the most. The EITC for them maxes out at $6,044.

But even couples with no children can get a maximum of $487. What makes this tax break unique it is available to people who owe no taxes. That's why even if you are not required to file a return, because your income is so low, you should anyway.

Professional help

Tax preparers are very familiar with the EITC and competent professionals will be quick to take advantage of it if you qualify. But the IRS urges taxpayers to use only trusted tax preparers, as it as seen a number of false claims in recent years.

For example, scams that create fictitious qualifying children or inflate income levels to get the maximum EITC could land you – not just the tax preparer – in trouble. Besides paying a penalty, you might be prevented from claiming the EITC in the future.

Under the law if you have a claim denied for any reason other than an honest mistake, future claims must be accompanied by Form 8862, insuring your claim will get extra scrutiny.

Feeling a little more flush this year? If you've already filed your 2013 federal income tax return, there may be a good reason.

Tax filing statistics for the 2014 season showing 15% more refunds have been issued this year than during the same period in 2013. Additionally, the Internal Revenue Service (IRS) says the average federal refund is $3,211 -- up $190 from the same period a year ago.

The statistics, covering the period through Feb. 14, show that while the overall number of tax returns filed this year is down slightly )less than a percentage point), nearly 95% of all returns received were filed electronically.

The following table of statistics provides a complete picture

For more information on tax credits available for this filing season and other tax questions, try the Interactive Tax Assistant online tool on the IRS website. Up-to-date refund information can be found by using the Where’s My Refund? tool.    

Taxpayers aren't wasting any time filing their 2013 federal income tax returns, outpacing filings for the same time last year.

The Internal Revenue Service (IRS) says that, as of Feb. 7, it's received 27.3 million returns -- up 2.5% from the same time last year. Electronically filed returns account for almost 96% of those filed so far this year.

Taxpayers, either through tax preparers or from their home computers, have e-filed more than 26 million returns -- up almost 4% from the same time a year ago. As of Feb. 7, taxpayers have filed more than 13 million returns from home computers – a year-over-year increase of 14.7%.

Rising refunds

Refunds are up for 2014, with almost 19.5 million issued this year -- an increase of more than 18% over last year. The average refund as of Feb. 7 is $3,317, up 4.% from 2013. (Refund averages generally have higher dollar values early in the filing season than later in the year.)

Most refunds are directly deposited into taxpayer accounts. Just over 87% all refunds issued were directly deposited as of Feb. 7.

Heading into the Presidents Day weekend, the Internal Revenue Service (IRS) is reminding taxpayers that this holiday period typically marks one of the busiest weeks of the tax filing season for its phone lines.

But you don't have to worry about getting through. There are alternatives to help find answers to commonly asked tax questions.

The agency has several easy-to-use, online tools where you can check the status of your refund, request a copy of a tax transcript or get an answer to tax questions around the clock.

“The entire week of the Presidents Day holiday marks a peak time in the number of calls to the IRS,” said Commissioner John Koskinen, “and we encourage taxpayers to visit IRS.gov as the best place to get quick help.”

Due to limited resources, the IRS has changed the services provided at the toll-free telephone number and IRS Taxpayer Assistance Centers. To save time and find answers faster, a good place to start is 1040 Central for a quick overview. The IRS Services Guide also provides a list of resources.

What to do

Here are some of the most common reasons people call the IRS over Presidents Day holiday week and the faster and easier ways to get answers:

Find your refund

More than 90% of refunds are issued in less than 21 days. IRS representatives will not provide individual refund information before then. Taxpayers can easily find information about their refund by using the Where’s My Refund? tool. It’s available on IRS.gov and on the Smartphone app, IRS2Go. Where’s My Refund? provides taxpayers with the most up-to-date information available. Taxpayers must have information from their current, pending tax return to access their refund information. Refund information is updated just once a day, generally overnight, so there’s no need to check more than once a day.

Getting a W-2

Employers are required to send to their employees a Form W-2, Statement of Earnings, by January 31. Employees should allow enough time for their form to be mailed to their address of record. If form W-2 is not received by mid-February, employees should first contact their employer to ensure they have the correct address on file.

After exhausting all options with the employer, employees may contact the IRS and we will send a letter to the employer. However, it's a good idea to call after Presidents Day week to avoid long wait times.

Need a copy of your tax return or transcript?

Taxpayers can easily order a return or transcript on the IRS.gov website, the IRS2Go Smartphone app or by mailing a completed Form 4506-T. More information on these options is available at IRS.gov.

Ordering a tax return or tax transcript does not mean a taxpayer will get a refund faster. The two are not connected in any way. IRS transcripts are often used to validate income and tax filing status for mortgage, student and small business loan applications and to help with tax preparation.

Answers to tax law questions

Questions about what filing status means, whether to file a tax return or who can be claimed as a dependent? Simply do a keyword search on IRS.gov; use Publication 17, the annual, searchable income tax guide; or the IRS Tax Map, which allows search by topic or keyword for single-point access to tax law information by subject. Taxpayers can even call TeleTax at 1-800-829-4477 for recorded information on a variety of general and business tax topics.

Can’t pay a tax bill?

For taxpayers whose concern isn’t a refund, but rather, a tax bill they can’t pay, the Online Payment Agreement tool can help them determine in a matter of minutes whether they qualify for an installment agreement with the IRS. And those whose tax obligation is even more serious, the Offer in Compromise Pre-Qualifier can help them determine if they qualify for an offer in compromise, an agreement with the IRS that settles their tax liability for less than the full amount owed.

Tax-preparation help

Free tax return help is available nationwide from volunteers and on IRS.gov with Free File. Local community partners operate roughly 13,000 Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites nationwide. Find a location nearby by searching “Free Tax Help” on IRS.gov.

IRS Free File is offered by 14 tax software companies that make their brand-name products available for free to the 70 percent of taxpayers who earned $58,000 or less last year. Free File Fillable Forms is available for households whose earnings are more than $58,000 and are comfortable preparing their taxes.

Taxpayers eager to receive their tax refund are no doubt busy preparing their returns and many have already filed. Now, when does that refund arrive?

It depends. If you filed electronically, you have taken the first step in speeding up your refund. If you have set up direct deposit to receive your money you have taken a second important step. You should get your money within three weeks.

Where's My Refund?

For those who want to track the progress of their refund the IRS offers an online tool called Where's My Refund? You can access it from your desktop or three the free mobile app IRS2GO. 

According to the IRS, Where's My Refund will provide the most up to date information available about your refund. The tool is updated once a day, usually overnight, so you don’t need to check more often.

The IRS says nine out of 10 refunds are issued within 21 days of receiving it electronically. However, it's possible your tax return may require additional review and take longer. If so, the tool will help you stay in touch with your progress.

Almost immediately

You can use Where's My Refund to start checking on the status of your return within 24 hours after the tax agency has received your e-filed return or four weeks after you mail a paper return. Where’s My Refund has a tracker that displays progress through three stages:

• Return Received
• Refund Approved and
• Refund Sent

Trying to talk with an IRS representative about your refund will be difficult. For starters, the agency doesn't make representatives available if it has been fewer than 21 days since you filed electronically or less than six weeks since mailing a paper return.

Personalized information

The information you receive through Where's My Refund is personalized, based on the processing of your return. The tool will provide an actual refund date as soon as the IRS processes your tax return and approves your refund. The IRS produced the video below to walk you through the process of using the tool.

Speed estimates are just that – estimates. Sometimes your status may change from “return received” to “refund approved” in just a few days, but it could take longer and a date will not be provided until your refund has gotten a gree light. However, if the tool shows that your return is in the “received” stage, then it is currently being processed.

There are factors that could cause your process to slow down. According to the IRS, mistakes in returns, returns that are incomplete or ones flagged for further review – usually not a good sign – are common reasons your refund could be slow in coming to you.

There was a time when to claim a home office deduction on your federal income tax return was to invite extra close scrutiny from the Internal Revenue Service (IRS). With the explosion in home-based businesses and entrepreneurial start-ups, these deductions are now a lot more common.

Still, the IRS has very strict rules about what constitutes the business use of your home and what doesn't. To avoid running afoul of the tax law make sure you understand and abide by the rules.

The first, and most important criteria, for the write-off of part of your home is how you use it. It must be used “exclusively and regularly as your principal place of business for your trade or business.”

What that means

Exclusively means just what you think it does. The space cannot also have other uses, such as room where the family watches TV or the kids play video games. Regular means it has an ongoing business use.

A spare bedroom that is only used for your seasonal part-time business doing tax returns for people, three and a half months out of the year, might meet the “exclusive” test but not the “regular” test.

Other cases where your home may qualify for a tax deduction include:

• A separate structure used exclusively and regularly in connection with your trade or business that is not attached to your home
• On a regular basis for certain storage use
• For rental use
• As a daycare facility

Tests

Under the principal place of business test, you must make sure that your home is the principal place of your trade or business after considering where your most important activities are performed and most of your time is spent. If you have no other office location, for example, you may be able to deduct part of your home. However, if you do have an office outside the home, you can't.

Deductions may also be taken for business storage purposes when the house is the sole fixed location of the business or for regular use of a residence for the provision of day care services. In these cases exclusive use is not required.

If you qualify for a business use deduction, what exactly do you get to deduct? Deductible expenses include a portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. You can't deduct expenses for lawn care, even if you think it is important to present a pleasing image to clients who may visit the premises.

New Simplified Option

Beginning with the 2013 tax year the IRS offers a Simplified Option for Home Office Deduction that provides a standard deduction of $5 per square foot, capped at 300 square feet. However, this simplified option does not alter any eligibility requirements. 

According to the IRS the business use of home deduction has been computed by allocating the total expenses of the home to the percentage of the home used for business. Typically, this is done by floor space – exclusive and regular business use of 500 square feet of a 2,000 square foot home would allow a 25% write-off. Qualified daycare providers who do not use their home exclusively for business purposes must also figure the percentage based on the amount of time the applicable portion of the home is used for business.

If you are self-employed you claim the business use of your home deduction on Schedule C, Profit or Loss From Business. The deduction itself is first computed on Form 8829. 

Employees can sometimes do it

In rare cases employees of businesses are able to claim the business use deduction, but again, there are strict rules.

The business use of your home must be for the convenience of your employer, not you. For example, if you employer needs you to perform the work off site, the deduction may apply.

You cannot receive any kind of rent from your employer for space in your home in which you do the work.

If maintaining an office at home is merely helpful in the performance of your work, but not required by your employer, the IRS will disallow all claims for the deduction.

No matter where you happen to be while working on your taxes, information from the Internal Revenue Service (IRS) is as close as your smartphone or mobile device. The IRS has just released IRS2Go 4.0, an update to its app with new features, in both English and Spanish.

What taxpayers might find especially useful is a new refund status tracker. It provides taxpayers an easy-to-use feature that allows them to follow their tax return throughout the process. If you're shopping, for example, and wondering when you can expect that refund to hit your bank account, the app can tell you.

Around the clock help

“The new version of IRS2Go provides taxpayers another way to quickly get information and help around the clock,” said IRS Commissioner John Koskinen. “The IRS is focused on providing taxpayers with convenient self-service tools like IRS2Go, which provides details on everything from tax refunds to free tax assistance.”

IRS2GO debuted during the 2011 tax season and since then the IRS says there have been approximately 3.5 million downloads. iPhone and iPod Touch users can update or download the free IRS2Go application by visiting the iTunes App Store. Android users can visit Google Play to download the free IRS2Go app.

The IRS says its newest version of the free mobile app offers a safe way to check on your refund status. You simply enter a Social Security number, which will be masked and encrypted for security purposes. Then you select a filing status and enter the amount of the anticipated refund.

The new refund status tracker has been added so that taxpayers can check their refund status 24 hours after the IRS acknowledges receipt of an e-filed return, or four weeks after mailing a paper return. The IRS says the tool is updated just once a day, usually overnight, so there is no reason to check more than once a day.

Free tax help

The app can also put you in touch with free tax prep providers. The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) Programs offer free tax help for taxpayers who qualify.

This is a new feature of IRS2Go, which will direct taxpayers to the nearest VITA site by simply entering their zip code and selecting a mileage range. By clicking on the directions button within the results, the maps application on the device will load with the address, making it easy to navigate to your desired location.

Taxpayers can also use the app to request their tax account or tax return transcript. The transcript will be delivered via the U.S. Postal Service to their address of record.

Now that the Internal Revenue Service (IRS) has turned on the “open” sign taxpayers may begin filing their returns. As you start to work on your taxes, don't overlook some very attractive deductions.

For example, if you or a dependent attended a college, university or other qualifying educational institution last year you may be able to deduct some of the costs, significantly lowering your tax liability.

Limitations

You may qualify if, at any time during 2013 you paid qualified education expenses for yourself, your spouse, or your dependents. There are some limitations. You cannot claim the deduction if your filing status is married filing separately or if another person can claim an exemption for you as a dependent on his or her tax return. The qualified expenses must be for higher education, such as tuition, fees and books – as long as they are required for attendance – and not living expenses.

There is also a limit on income. If you're an individual taxpayer whose Modified Adjusted Gross Income (MAGI) is more than $80,000 or a married taxpayer with a MAGI over $160,000, you are not eligible.

However, if you can qualify for this deduction you can reduce the amount of your income subject to tax by up to $4,000.

You don't have to itemize

The nice thing about this particular deduction is that it doesn't go on IRS form Schedule A (Form 1040), which is for itemized deductions. Unless you have a lot of deductions, it usually makes sense not to itemize but take the Standard Deduction, which is $6,100 for a single taxpayer in 2013.

Since the education deduction is actually an adjustment to income, you can claim this deduction even if you do not itemize deductions on Schedule A. This deduction may also be beneficial to you if you do not qualify for the American opportunity or lifetime learning credits.

What expenses qualify

According to the IRS, the tuition and fees deduction is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014.

For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 deduction. An academic period includes a semester, trimester, quarter, or other period of study, such as a summer school session, as reasonably determined by an educational institution. In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period.

If you have taken out loans to pay for school, you can claim a tuition and fees deduction for qualified education expenses you paid with the proceeds of the loan. Use the expenses to figure the deduction for the year in which the expenses are paid, not the year in which the loan is repaid. Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account.

If a student withdraws from a class and receives a refund, that refund must be subtracted from the amount you are claiming as a deduction. However, if the qualified expenses are not refunded, you can still claim them, even though the student has withdrawn from the class.

Not all expenses qualify

Sorting out what qualifies for a deduction and what doesn't can be tricky. For example, you can't deduct the cost of insurance, medical expenses – including student health fees – room and board or transportation costs.

These costs are not eligible, even if the institution requires them as a condition of enrollment.

If you've been champing at the bit to file your 2013 federal income tax return, feel free to do so.

The Internal Revenue Service (IRS) has opened the filing season by highlighting a growing array of online services and encouraging taxpayers to check out a variety of tax benefits, such as the often-overlooked Earned Income Tax Credit.

You have until Tuesday, April 15, 2014, to file your 2013 tax returns and pay any tax due. More than 148 million individual tax returns are expected to be filed this year, with more than four out of five now filed electronically.

About three out of four filers typically get refunds because they've had more withheld than they need to, and more than 90% of these refunds are received in less than 21 days, according to the IRS. Last year, taxpayers received an average refund of $2,744.

E-file, when combined with direct deposit, is the fastest way to get a refund, with more than 75% of refund recipients choosing direct deposit.

“Tens of millions of people will file their taxes in the next few weeks, and we encourage taxpayers to visit IRS.gov as the best place to get quick help,” said IRS Commissioner John Koskinen. “We continue to add features and make it more user-friendly to help taxpayers. People can get everything from answers to tax questions about preparing their tax return to checking the status of their refund after they file.”

The IRS began accepting and processing individual tax returns on January 31 after updating tax forms and completing programming and testing of its systems. The agency says it also has updated and strengthened its systems to help protect against refund fraud and identity theft. This annual updating process saw delays in October following the 16-day federal government shutdown.

EITC awareness

Although an estimated four out of five eligible workers and families get the Earned Income Tax Credit (EITC), which helps working families with low and moderate incomes, one in five miss out on it. That’s because either they don’t claim it when filing or they don’t file a tax return at all because their income is below the filing threshold. One-third of the population eligible for EITC shifts each year as their personal circumstances, such as work status or family situation, change and can affect eligibility.

“We urge people to look into EITC. Many people don’t realize they are eligible and simply overlook this credit,” Koskinen said. “There are easy ways to find out more about this credit, either by visiting IRS.gov, or using Free File or a software package. The IRS is working hard to educate people about EITC while also putting in place processes that identify and prevent improper payments.”

Online tools available

Aimed at individuals and families who made $51,567 or less last year, the EITC varies by income, family size and filing status. People can see if they qualify by answering a few questions using the EITC Assistant, a special online tool. Eligible taxpayers can also use another helpful online resource, the VITA Site Locator tool to locate one of nearly 13,000 community-based volunteer tax sites consisting of over 90,000 volunteers that can help them file their return for free.

The EITC Assistant and VITA Site Locator are just two of a growing array of online and automated IRS services that can help taxpayers get the information they need to file their returns and get their refunds quickly.

Tele-Tax, for example, helps taxpayers see if they qualify for various tax benefits, such as the Child Tax Credit and Additional Child Tax Credit for eligible families, the American Opportunity Tax Credit for parents and college students, the saver’s credit for low-and moderate-income workers saving for retirement and energy credits for homeowners making qualifying energy-saving home improvements.

The automated IRS services can also help home-based businesses check out the new simplified option for claiming the home office deduction, a straightforward computation that allows eligible taxpayers to claim $5 per square foot, up to a maximum of $1,500, instead of filling out a 43-line form (Form 8829) with often complex calculations.

Free File

When taxpayers are ready to fill out and file their returns, another online option enables anyone to e-file their returns for free. Free File offers two free electronic filing options: brand-name tax software or online Fillable Forms. Taxpayers who make $58,000 or less can choose free options from 14 commercial software providers. There’s no income limit for the second option, Free File Fillable Forms, the electronic version of IRS paper forms, which is best suited to people who are comfortable preparing their own tax return.

Even after taxpayers file, there are more online tools that can provide them with valuable assistance long after tax season ends. One of the most popular is Where’s My Refund?, a tool that enables taxpayers to track the status of their refund. Initial information will normally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after the taxpayer mails a paper return to the IRS. The system updates every 24 hours, usually overnight, so there’s no need to check more often.

Can't pay?

For taxpayers whose concern isn’t a refund, but rather, a tax bill they can’t pay, the Online Payment Agreement tool can help them determine whether they qualify for an installment agreement with the IRS. And those whose tax obligation is even more serious, the Offer in Compromise Pre-Qualifier can help them determine if they qualify for an offer in compromise, an agreement with the IRS that settles their tax liability for less than the full amount owed.

Another useful year-round tool, the IRS Withholding Calculator, helps employees make sure the amount of income tax taken out of their pay is neither too high nor too low. This tool can be particularly useful to taxpayers who, after filling out their tax returns, find that the refund or balance due was higher than expected.

Other help available

The IRS also offers more than 100 short instructional videos, tax tips and other useful resources year-round through a variety of social media platforms. They include:

YouTube, available in English, Spanish, and American Sign Language.

Several twitter feeds in English and Spanish at @IRSnews, @IRSenEspanol and @IRStaxpros.

Tumblr at www.internalrevenueservice.tumblr.com.

The IRS uses social media tools only to share information with the public, not to answer personal tax or account questions. And the agency reminds taxpayers to never post confidential information, such as a Social Security number, on social media sites.

 If you normally pay someone to prepare your federal and state tax returns, you should have someone lined up by now. But if you haven't gotten around to that yet, you can still find a competent, thorough professional – if you know where to look and what questions to ask.

It's probably not a good idea to walk into the closest franchise storefront tax operation and simply hand over your tax records to whoever happens to be on duty. In some cases they aren't even full-time employees and might not be working there next tax season. Continuity, building a long-term relationship with your tax preparer, is a crucial first step.

The Internal Revenue Service (IRS) also suggests that you choose carefully when hiring an individual or firm to prepare your return. Most return preparers are professional, honest and provide excellent service to their clients, the agency says, but there are always exceptions.

Preparer Tax Identification Numbers

This year, the IRS is reminding taxpayers that they should use only preparers who sign the returns they prepare and enter their Preparer Tax Identification Numbers (PTINs). But regardless of who you choose, remember that you, the taxpayer, are legally responsible for what’s on their tax return even if it is prepared by someone else.

After establishing that your tax preparer is going to be there next season and the season after that, check the individual's qualifications. New regulations require all paid tax return preparers to have a Preparer Tax Identification Number (PTIN).

In addition to making sure they have a PTIN, ask if the preparer is affiliated with a professional organization and attends continuing education classes. It's worth noting the IRS is also phasing in a new test requirement to make sure those who are not an enrolled agent, CPA, or attorney have met minimal competency requirements. Those subject to the test will become a Registered Tax Return Preparer once they pass it.

Sleuthing

Once you are satisfied with the tax preparer's qualification, check into their history. Googling their name, along with “tax preparer” or “accountant” might turn up both flattering and unflattering information. Check their licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Enrollment for enrolled agents.

Next, find out what it's going to cost. This is going to depend on the complexity of your tax return. The fewer forms that are required to go along with your Form 1040, the cheaper it should be. The IRS suggests avoiding preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers.

Also, always make sure any refund due is sent to you or deposited into an account in your name. Under no circumstances, the IRS says, should all or part of your refund be directly deposited into a preparer’s bank account.

E-filing

A good tax preparer will offer electronic filing. In fact, any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return. The IRS strongly encourages electronic returns, along with direct deposit for refunds. The process will go faster and more smoothly if you file electronically.

If the IRS has a question about your return once it is file, will your preparer still be around to help you deal with it? Don't just assume – ask.

Once the return is complete, review it carefully. A paid preparer must sign the return and include his or her PTIN as required by law.

Do you really need a tax preparer? If your tax situation is simple, you might not. The IRS can even help many taxpayers prepare their own returns without the assistance of a paid preparer. Before seeking a paid preparer, taxpayers might consider how much information is available directly from the IRS through the IRS Web site.

Identity theft is already a growing consumer problem. When a hacker assumes your identity they can open up lines of credit in your name and even clean our your bank account.

To add insult to injury, they can even steal your federal income tax refund. In fact, the Internal Revenue Service (IRS) reports this is happening with alarming frequency.

All a hacker needs is your Social Security number. With it, they can file a phony tax return with a made-up W-2 form that shows you are getting a big refund. When the IRS gets the return it processes it, sending out the refund check to the bad guy. The theft isn't discovered until you get around to filing your real return.

Easy money

To the hacker it's easy money. If he has somehow gotten his hands on your actual W-2, you may have a very difficult time getting your money back. In any case, the U.S. taxpayers end up getting victimized as well.

The IRS has stepped up efforts in recent years on finding and prosecuting these specialized identity thieves. In Fiscal Year 2013 the agency began nearly 1,500 criminal investigations related to tax return identity theft, a 66% increase over the previous year. It's better, of course, to stop identity theft before it happens.

“The IRS has taken numerous steps to combat identity theft and protect taxpayers,” the agency said in a statement. “We are continually looking at ways to increase data security and protect taxpayers' identities with assistance from our Identity Protection Specialized Unit. Identity theft cases are among the most complex ones we handle.”

Take action

If you have reason to believe that someone has stolen your personal information you need to take action. For example, you may receive a letter from the IRS stating or learn from a tax professional that you filed more than one tax return, or that someone has already filed a return using your information. You may also learn that you have a balance due, refund offset or have had collection actions taken against you for a year you did not file.

Your identity may also have been stolen if you receive a notification of wages form an employer you have not worked for. If you receive such a letter from the IRS and you suspect your identity has been stolen, respond immediately to the name, address, phone number or fax listed on the IRS letter. Better yet, contact the IRS to determine if the letter is a legitimate IRS letter.

Another tip-off is when you learn that someone is using your Social Security number to seek employment, or for some other purpose not connected to your activities.

People to call

When you find out you have been a victim of identity theft, or suspect that you have been, there is a long list of people to call. First, contact the three credit reporting agencies to place a fraud alert on your credit files. Next, cancel all your credit cards. If someone is using your Social Security number, contact the Social Security Administration.

The IRS asks that you also place it on the list of people to call. Once you do it will place a hold on your account so that the thief will be unable to file a bogus return.

For other identity theft protection tips, check out the IRS video below:

Millions of taxpayers don't dread filing their income tax returns. They might if they owe extra tax, but in most cases taxpayers have over-paid and are due a refund. The sooner they get it, the better.

While the Internal Revenue Service (IRS) isn't in a position to accept your return before January 31, the agency says there is something you can do now to get ready and perhaps speed your refund – select one of 14 free brand-name tax-filing software products at IRS.gov/freefile.

You can then go ahead and complete your tax return online. The Free File companies will hold it until January 31, when they will file it with the IRS.

Tax preparers also getting started

“Many tax preparers and tax software companies are now open for return preparation, including Free File,” said IRS Commissioner John Koskinen. “If you plan to get a head start on your taxes, remember to e-file. If you want to save money and time, just use Free File to prepare and e-file your federal return at no charge.”

January 31 is the earliest the IRS can accept a return because the agency is conducting a number of system checks. As that date approaches Koskinen said taxpayers should use the time to get prepared. He says the IRS is a good source of helpful information.

“Free File is just one of the many services available through IRS.gov to help people with their taxes,” Koskinen said. “Additional services include Where’s My Refund for timely updates on refunds, YouTube videos with quick tax tips, and many other ways of getting information. We encourage taxpayers to explore IRS.gov as tax season approaches.”

Video tutorials

Among the YouTube videos on the site is this one, offering tips for choosing a tax preparer.

For those who normally do their taxes themselves, Free File is a no-cost way to do your federal tax returns either by using brand-name software or tax forms you can fill out online. The Free File software is available now to more than 100 million individuals and families that earn $58,000 or less. That's about 70% of taxpayers.

The IRS says nearly 40 million taxpayers have used Free File since it was introduced in 2003. The agency estimates these taxpayers have saved more than an estimated $1.2 billion by using the free tool.

How to use it

According to the IRS, it's simple to use. At IRS.gov/freefile, select the “Free File Software” button. Your choices of software will be determined in large part by your income, state residency and age. If your income is $58,000 or less, there should be at least one software you can use.

Want to see some reviews before selecting one? Simply select the “Help Me Find Free File Software” tool. After making your selection you'll be directed to the software company's website to begin preparing your return.

Fillable forms

What if your income is over $58,000? You can still file electronically using the IRS' online fillable forms. Instead of filling out the paper forms you can call up the appropriate tax forms on your screen, using your keyboard to fill in the data.

This service is available starting January 31. Once you complete and review your forms, you can then submit them electronically to the IRS.

This option also helps with math but not with step-by-step assistance that the commercial software programs provide. Instructions for filling out the form can be found on the IRS website. State tax return preparation is not available using this option.

Filing electronically will help speed up your refund but so will using direct deposit. Doing both will put you near the head of the line. Once the IRS begins processing returns, it expects to issue more than 90% of refunds in fewer than 21 days.

The Internal Revenue Service (IRS) needs to adopt a comprehensive Taxpayer Bill of Rights.

So says National Taxpayer Advocate Nina E. Olson in her 2013 annual report to Congress. The report also says the tax agency -- go figure -- needs more money.

“A Taxpayer Bill of Rights would serve as an organizing principle for tax administrators in establishing agency goals and performance measures, provide foundational principles to guide IRS employees in their dealings with taxpayers, and provide information to taxpayers to assist them in their dealings with the IRS,” the report says.

The advocate has long recommended adoption of the guidelines. In a prior report, Olson analyzed the IRS’s processing of applications for tax-exempt status and concluded its procedures violated eight of the ten taxpayer rights she has proposed. The 2013 report argues that the rationale for a Taxpayer Bill of Rights is much broader.

“Taxpayer rights are central to voluntary compliance,” the report says. “If taxpayers believe they are treated, or can be treated, in an arbitrary and capricious manner, they will mistrust the tax system and be less likely to comply with the laws voluntarily. If taxpayers have confidence in the fairness and integrity of the system, they will be more likely to comply.”

The report calls on the IRS to take the taxpayer rights that already exist and group them into ten broad categories, modeled on the U.S. Constitution’s Bill of Rights. The report says the “simplicity and clarity” of a thematic, principle-based Taxpayer Bill of Rights would help taxpayers understand their rights in general terms.

Mo money

Olson also expressed deep concern that the IRS is not adequately funded to serve taxpayers, pointing out that the agency annually receives more than 100 million telephone calls from taxpayers and that -- in fiscal year 2013 -- it could answer just 61% of calls from taxpayers seeking to speak with an IRS customer service representative.

“The year 2013 was a very challenging one for the IRS. Because of sequestration, the IRS’s funding was substantially cut, which translated into a reduction in taxpayer service,” Olson said in releasing the report. “And because of the 16-day government shutdown, the agency could not complete preparations for the upcoming tax filing season on time, delaying the date on which taxpayers can first file returns and claim refunds.”

The report reiterates the advocate’s longstanding recommendation that the relevant congressional committees work together to develop new procedures to fund the IRS, with the goal of maximizing tax compliance, particularly voluntary compliance, with due regard for protecting taxpayer rights and minimizing taxpayer burden.

Anytime I am asked if I do my own income taxes, I respond that I would no more do that than I would do my own appendectomy.

But, for those who insist on doing it themselves, the Internal Revenue Service (IRS) is offering several instructional YouTube videos to help them get ready for the upcoming filing season, which begins on Jan. 31.

There are several options available to help taxpayers prepare for the 2014 tax season and get their refunds -- if any -- as easily as possible. Many software companies are expected to begin accepting tax returns in January and hold those returns until the IRS systems open on Jan. 31. This includes the Free File partners that offer their software for free. 

Since the IRS will not process any tax returns before Jan. 31, there's no advantage to filing on paper before the opening date. Taxpayers will receive their tax refunds much faster by using e-file or Free File with the direct deposit option.

In addition, the IRS has short and informative YouTube videos on a number of tax-related topics in English, Spanish and American Sign Language (ASL). The channels have received nearly 6.5 million views:

• IRS Videos
• ASL Videos
  
• Multilingual Videos
  

Specific videos that taxpayers may view to help them get ready over the coming weeks include:

• Do-It-Yourself Free Tax Preparation ─ Helps taxpayers find free help from certified volunteers to electronically file tax returns. Taxpayers interested in helping their own communities can also watch a video to learn about becoming involved in the Volunteer Income Tax Assistance or Tax Counseling for the Elderly programs.
• Do I Have to File a Tax Return? ─ Learn about the requirements for filing a tax return, including income limits and age, and why taxpayers may want to file even if they don't have to.
• How to Get 1040 Forms ─  Provides tips on the quickest way to get the various 1040 forms on IRS.gov.
• Tax Scams ─  Offers some tips on how to protect personal information and avoid becoming a tax scam victim.
• Record-keeping ─  Learn which financial and tax files to keep and how long to keep them.
• Changed Your Name After Marriage or Divorce? ─  Find out what you need to do if you have changed your name before you file your tax return.
• Choosing a Tax Preparer ─ Hear some useful tips for choosing a reputable tax preparer.

The IRS uses social media tools and platforms to share the latest information on tax changes, initiatives, products and services. Among these are the IRS2Go phone application, YouTube, Tumblr, Twitter and Facebook. To protect taxpayer privacy, the IRS only uses social media tools to share public information, not to answer personal tax or account questions. It advises taxpayers to never post confidential information, like a Social Security number, on social media sites.

A listing is available on IRS.gov.

If you plan to prepare your own federal income tax return, or even if you are paying someone to do it, it will be helpful to know about every possible tax break you are entitled to this year. To help, the Internal Revenue Service has just issued Publication 17, a comprehensive guide to tax preparation. 

The guide provides details on a wide range of features of the tax law that might enable you to trim your tax bill. For example, the American Opportunity Tax Credit (APTC) could provide a boost for parents and college students.

Education tax credit

The APTC provides a credit of up to $2,500 per eligible student. It's limited to families with a Modified Adjustable Gross Income (MAGI) of up to $180,000 or $90,000 for single taxpayers. It's available only if the student had not completed the first four years of postsecondary education before 2013.

It's available only for four tax years per eligible student, including any years the Hope credit was claimed. To be eligible, students must be pursuing a four-year degree or other recognized education credential. Also, the student must be enrolled at least half-time for at least one academic period that began during the tax year.

You may be able to claim this credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014.

For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit.

Child tax credit

The child tax credit is a credit that may reduce your tax by as much as $1,000 for each of your children who meet qualifications. The additional child tax credit is a credit you may be able to take if you are not able to claim the full amount of the child tax credit.

To qualify, a child must be a son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them who was under the age of 17 at the end of 2013. They have to have lived with your for more than half of 2013 and provided no more than half of their own support. They also have to be a U.S. citizen, a U.S. national, or a resident of the United States.

Although a child may be your dependent, you may only claim a child tax credit or additional child tax credit for a dependent who is a citizen, national, or resident of the United States. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.

Earned income tax credit

The Earned Income Tax Credit (EITC) is available to low income taxpayers. In fact, most recipients don't earn enough money to owe taxes. For 2013 the eligibility limits have been raised.

You may be able to take this credit if:

• You have three or more qualifying children and you earned less than $46,227 ($51,567 if married filing jointly),
• You have two qualifying children and you earned less than $43,038 ($48,378 if married filing jointly),
• You have one qualifying child and you earned less than $37,870 ($43,210 if married filing jointly), or
• You do not have a qualifying child and you earned less than $14,340 ($19,680 if married filing jointly).

Your adjusted gross income also must be less than the amount in the above list that applies to you.

Meanwhile, for higher income wage earners there is a new Medicare tax, outlined in Publication 17.

Beginning in 2013, a 0.9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than $125,000 if married filing separately, $250,000 if married filing jointly, or $200,000 for any other filing status.

Santa hasn't even made his rounds yet and already Uncle Sam is on your doorstep with his hand out.

The Internal Revenue Service (IRS) has just announced that it plans to open the 2014 filing season on Jan. 31. The tax agency says this will allow it adequate time to program and test its tax processing systems. The annual process for updating IRS systems saw significant delays in October following the 16-day federal government shutdown.

“Our teams have been working hard throughout the fall to prepare for the upcoming tax season,” IRS Acting Commissioner Danny Werfel said. “The late January opening gives us enough time to get things right with our programming, testing and systems validation. It’s a complex process, and our bottom-line goal is to provide a smooth filing and refund process for the nation’s taxpayers.”

Shutdown produces delays

The government closure meant the IRS had to change the original opening date from Jan. 21 to Jan. 31 -- one day later than the 2013 filing season opening following tax law changes made by Congress on Jan. 1 under the American Taxpayer Relief Act (ATRA). The extensive set of ATRA tax changes affected many 2012 tax returns, resulting in the late January opening.

The October shutdown came during the peak period for preparing IRS systems for the 2014 filing season. Programming, testing and deployment of more than 50 IRS systems is needed to handle processing of nearly 150 million tax returns. Updating these core systems is a complex, year-round process with the majority of the work beginning in the fall of each year.

About 90 percent of IRS operations were closed during the shutdown, with some major work streams closed entirely during this period, putting the IRS nearly three weeks behind its tight timetable for being ready to start the 2014 filing season. There are additional training, programming and testing demands on IRS systems this year in order to provide additional refund fraud and identity theft detection and prevention.

Filing options

The IRS notes that several options are available to help you prepare for the 2014 tax season and get any refund you have coming as easily as possible. New year-end has been added to the IRS website.

In addition, many software companies are expected to begin accepting tax returns in January and hold those returns until the IRS systems open on Jan. 31. More details will be available in January.

The IRS emphasized that it will not process any tax returns before Jan. 31, so there is no advantage to filing on paper before the opening date. Taxpayers will receive their tax refunds much faster by using e-file or Free File with the direct deposit option.

The April 15 tax deadline is set by statute and will remain in place. However, the IRS reminds taxpayers that anyone can request an automatic six-month extension to file their tax return. The request is easily done with Form 4868, which can be filed electronically or on paper.

IRS systems, applications and databases must be updated annually to reflect tax law updates, business process changes and programming updates in time for the start of the filing season.

The end of the year, besides bringing holiday merrymaking, should also include a little tax planning. There are receipts to find and records to review – not just for the upcoming tax season but for the year ahead.

In 2014 your tax liability might change, for no other reason than you move into a different tax bracket. In the coming year your income doesn't have to rise or fall for that to happen. The current six tax brackets will expand to seven.

Here is how the new tax brackets break down:

• 10% – Single earning less than $9,075, married filing jointly earning less than $18,150 or head of household earning less than $12, 950
• 15% – Single earning $9,076 - $36,900, married filing jointly earning $18,151 - $73,800 or head of household earning $12,951-$49,400
• 25% – Single earning $36,901-$89,350, married filing jointly earning $73,801-$148,850 or head of household earning $49,401-$127,550
• 28% – Single earning $89,351-$186,350, married filing jointly earning $148,851-$226,850 or head of household earning $127,551-$206,600
• 33% – Single earning $186,351-$405,100, married filing jointly earning $226,851-$405,100 or head of household earning $206,601-$405,100
• 35% – Single earning $405,101-$406,750, married filing jointly earning $405,101-$457,600 or head of household earning $405,101-$432,200
• 39.6% – Single earning $406,751 and above, married filing jointly earning $457,601 and above or head of household earning $432,201 and above

The above numbers, of course, reflect taxable income – the amount after you take all applicable deductions and credits. They are also marginal tax rates, meaning the first $9,075 your earn as a single taxpayer is taxed at 10% and the rest is taxed at the higher rates as your income rises through the brackets.

Last-minute 2013 tips

If you plan an end of the year donation to a charity, the Internal Revenue Service reminds you that this is the last year to take advantage of a special Individual Retirement Account (IRA) provision. If you do it before December 31, taxpayers age 70 ½ or older can directly transfer tax-free up to $100,000 to an eligible charity.

This option, first available in 2006, can be used for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the money must be transferred directly by the IRA trustee to the eligible charity. Distributed amounts may be excluded from the IRA account-holder's income, resulting in lower taxable income for the IRA owner. However, if the IRA owner excludes the distribution from income, no deduction, such as a charitable contribution deduction on Schedule A may be taken for the distributed amount.

If you plan to take a tax deduction by donating clothing and household goods to a charity, remember that the items must be in “good used condition” or better. If the donated item is worth $500 or more it doesn't have to meet this test, as long as the taxpayer includes a qualified appraisal of the item with the return.

Donors must also get a written acknowledgement from the charity for all gifts worth $250 or more that includes, among other things, a description of the items contributed. Household items include furniture, furnishings, electronics, appliances and linens.

Making a cash donation? To claim it you'll need a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

A sophisticated phone scam targeting taxpayers, including recent immigrants, is making the rounds throughout the country.

According to the Internal Revenue Service (IRS) the targets are told they owe money to the tax agency and must pay promptly through a pre-loaded debit card or wire transfer. Any taxpayer who refuses to cooperate is then threatened with arrest, deportation or suspension of a business or driver’s license. In many cases, the caller becomes hostile and insulting.

“This scam has hit taxpayers in nearly every state in the country. We want to educate taxpayers so they can help protect themselves. Rest assured, we do not and will not ask for credit card numbers over the phone, nor request a pre-paid debit card or wire transfer,” says IRS Acting Commissioner Danny Werfel. “If someone unexpectedly calls claiming to be from the IRS and threatens police arrest, deportation or license revocation if you don’t pay immediately, that is a sign that it really isn’t the IRS calling.”

In actuality, Werfel notes, the first IRS contact with taxpayers on a tax issue is likely to occur via mail

Recognizing the scam

Other characteristics of this scam include:

• Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
• Scammers may be able to recite the last four digits of a victim’s Social Security Number.
• Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
• Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
• Victims hear background noise of other calls being conducted to mimic a call site.
• After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim.

What to do

If you get a phone call from someone claiming to be from the IRS, here’s what you should do:

• If you know you owe taxes or you think you might owe taxes, call the IRS at 800-829-1040. The IRS employees at that line can help you with a payment issue -- if there really is such an issue.
• If you know you don’t owe taxes or have no reason to think that you owe any taxes (for example, you’ve never received a bill or the caller made some bogus threats as described above), then call and report the incident to the Treasury Inspector General for Tax Administration at 800-366-4484.
• If you’ve been targeted by this scam, you should also contact the Federal Trade Commission and use their “FTC Complaint Assistant” at FTC.gov. Add "IRS Telephone Scam" to the comments of your complaint.

This isn't the only scam targeting taxpayers. There are other unrelated scams (such as a lottery sweepstakes) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

The IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels. The agency also does not ask for PINs, passwords or similar confidential access information for credit card, bank or other financial accounts. Recipients should not open any attachments or click on any links contained in the message. Instead, forward the e-mail to phishing@irs.gov.

It's only November, but already the Internal Revenue Service (IRS) is saying “Happy New Year” with the announcement of changes in benefits for 2014 for more than 40 tax provisions. It's all because of the annual inflation calculations which were announced earlier in the week.

Revenue Procedure 2013-35 provides details about these annual adjustments.

The changes

Here are a few of the changes of greatest interest to most taxpayers:

• The tax rate of 39.6% affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35% -- and the related income tax thresholds are described in the revenue procedure.
• The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly -- up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100 from $8,950.
• The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
• The personal exemption rises to $3,950 from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, compared with a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
• Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
• The annual exclusion for gifts remains at $14,000 for 2014.
• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains at $2,500.
• The foreign earned income exclusion rises to $99,200 for tax year 2014 from $97,600, for 2013.
• The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014; it was $25,000 for 2013.

Blame the government shutdown. The Internal Revenue Service (IRS) is.

The tax agency says because of the 16-day closure this month, there will be a delay of approximately one to two weeks to the start of the 2014 filing season to allow adequate time to program and test tax processing systems.

The original start date of the 2014 filing season was Jan. 21. The one- to two-week delay means the IRS will start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4.

Your responsibility

The late start to the filing season doesn't mean you can let the April 15 deadline slide. That date is set by statute and will remain in place. However, anyone can request an automatic six-month extension to file their tax return. The request is easily done with Form 4868, which can be filed electronically or on paper.

The agency will not process paper tax returns before the start date, which will be announced in December. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.

Bad timing

IRS processes, applications and databases must be updated annually to reflect tax law updates, business process changes and programming updates in time for the start of the filing season.

The government closure came during the peak period for preparing for the 2014 filing season. Programming, testing and deployment of more than 50 IRS systems is needed to handle processing of nearly 150 million tax returns. Updating these core systems is a complex, year-round process with the majority of the work beginning in the fall of each year.

About 90 percent of IRS operations were closed during the shutdown, with some major workstreams closed entirely, putting the agency nearly three weeks behind its tight timetable for being ready to start the 2014 filing season. There are additional training, programming and testing demands on IRS systems this year in order to provide additional refund fraud and identity theft detection and prevention.

Acting Commissioner Danny Werfel says the IRS is exploring options to shorten the expected delay, but notes that, “Readying our systems to handle the tax season is an intricate, detailed process, and we must take the time to get it right.”  

There may be a partial shutdown of the government, but the Internal Revenue Service (IRS) doesn't care. It wants your money.

In a recently issued bulletin, the tax agency is “reminding” people who requested a six-month extension to file their tax return care that a check is due by October 15.

According to the IRS, “The current lapse in federal appropriations does not affect the federal tax law, and all taxpayers should continue to meet their tax obligations as normal.” In other word, keep sending it in.

Many of the more than 12 million individuals who requested an automatic six-month extension earlier this year have yet to file their Form 1040 for 2012.

Not all are affected

While Oct. 15 is the last day for most people to file, some groups still have more time, including members of the military and others serving in Afghanistan or other combat zone localities who typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.

Also, people with extensions in parts of Colorado affected by severe storms, flooding, landslides and mudslides also have more time -- until Dec. 2, 2013, to file and pay.

Shutdown reminders

Taxpayers are encouraged to file their returns electronically using IRS e-fileor the Free Filesystem to reduce the chance of errors.

Taxpayers can file their tax returns electronically or on paper. Payments accompanying paper and e-filed tax returns will be accepted and processed as the IRS receives them. Tax refunds will not be issued until normal government operations resume.

IRS operations are limited during the shutdown, with live assistors on the phones and at Taxpayer Assistance Centers unavailable. However, IRS.gov and most automated toll-free telephone applications remain operational.

Tax software companies, tax practitioners and Free File remain available to assist with taxes during this period.

Many of the more than 12 million taxpayers who requested an automatic six-month extension this year have yet to file -- and the deadline is approaching:  October 15 for most people.

Others though, including members of the military and others serving in Afghanistan or other combat zone localities, typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.

People with extensions in parts of  Colorado affected by severe storms, flooding, landslides and mudslides also have more time  -- until Dec. 2, 2013, to file and pay.

Check out tax benefits

Before filing, the IRS encourages taxpayers to take a moment to see if they qualify for these and other often-overlooked credits and deductions:

• Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit. The special EITC Assistant can help taxpayers see if they’re eligible.

• Savers credit, claimed on Form 8880, for low-and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k).

• American Opportunity Tax Credit, claimed on Form 8863, and other education tax benefits for parents and college students.

• Same-sex couples, legally married in jurisdictions that recognize their marriages, are now treated as married, regardless of where they live. This applies to any return, including 2012 returns, filed on or after Sept. 16, 2013. This means that they generally must file their returns using either the married filing jointly or married filing separately filing status. Further details are on IRS.gov.

E-filing: fast, easy and sometimes free

The IRS urges taxpayers to choose the speed and convenience of electronic filing. IRS e-file is fast, accurate and secure, making it an ideal option for those rushing to meet the Oct. 15 deadline. The tax agency verifies receipt of an e-filed return, and people who file electronically make fewer mistakes too.

Everyone can use Free File, either the brand-name software, offered by IRS’ commercial partners to individuals and families with incomes of $57,000 or less, or online fillable forms, the electronic version of IRS paper forms available to taxpayers at all income levels.

Taxpayers who buy their own software can also choose e-file, and most paid tax preparers are now required to file their clients’ returns electronically.

Anyone expecting a refund can get it sooner by choosing direct deposit. Taxpayers can choose to have their refunds deposited into as many as three accounts. See Form 8888 for details.

Payment options

Taxpayers can e-pay what they owe, either online or by phone, through the Electronic Federal Tax Payment System (EFTPS), by electronic funds withdrawal or with a credit or debit card.

There is no IRS fee for any of these services, but for debit and credit card payments only, the private-sector card processors do charge a convenience fee. For those who itemize their deductions, these fees can be claimed on next year’s Schedule A Line 23. Those who choose to pay by check or money order should make the payment out to the “United States Treasury”.

Taxpayers with extensions should file their returns by Oct. 15, even if they can’t pay the full amount due. Doing so will avoid the late-filing penalty, normally five percent per month, that would otherwise apply to any unpaid balance after Oct. 15. However, interest, currently at the rate of 3 percent per year compounded daily, and late-payment penalties, normally 0.5 percent per month, will continue to accrue.

In the eyes of the federal government, all marriages are created equal when it comes to taxes.

Both the Treasury Department and the Internal Revenue Service (IRS) have ruled that same-sex couples -- legally married in jurisdictions that recognize their marriages -- will be treated as married for federal tax purposes.

And, it doesn't matter whether the couple lives in a jurisdiction that recognizes same-sex marriage or one  that does not.

In line with the high court

The ruling implements federal tax aspects of the June 26 Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act.

Under that ruling, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

Exceptions

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country will be covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status.

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

An element of time

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012.

Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.

Additionally, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.

What to do

Taxpayers who want to file a refund claim for income taxes should use Form 1040X, Amended U.S. Individual Income Tax Return.

Taxpayers who wish to file a refund claim for gift or estate taxes should file Form 843, Claim for Refund and Request for Abatement. For information on filing an amended return, see Tax Topic 308, Amended Returns, available on IRS.gov, or the instructions to Forms 1040X and 843. Information on where to file your amended returns is available in the instructions to the form.

Treasury and the IRS will begin applying the terms of Revenue Ruling 2013-17 on Sept. 16, 2013, but taxpayers who wish to rely on the terms of the Revenue Ruling for earlier periods may choose to do so, as long as the statute of limitations for the earlier period has not expired.

In the wake of the continuing scandal surrounding its handling of reviews of tax-exempt applications, the Internal Revenue Service (IRS) -- in the person of Principal Deputy Commissioner Danny Werfel -- has come out with a report that it says is designed to fix the problems.

According to an agency release, the three-part report cites actions to “hold management accountable and identifies immediate steps to help put the process for approving tax-exempt applications back on track.” Also included are actions Werfel says are needed to protect and improve wider IRS operations, ranging from compliance areas to taxpayer service.

“It is critical that the IRS takes steps to ensure accountability, address the problems uncovered in recent weeks and improve the operations of the IRS to continue to carry out our critical mission on behalf of the public,” Werfel said. “We have made a number of changes already, more are in the works and even more will develop as we move forward.”

As might be expected from the agency that maintains the problem stems from a rogue group in the distant outpost of Cincinnati, Ohio, the initial review “shows no signs of intentional wrongdoing by IRS personnel or involvement by parties outside the IRS in the activities described in the recent Treasury Inspector General for Tax Administration (TIGTA) report.

Still, the report notes that investigations are continuing, and that the IRS “is committed to a full fact-finding effort to provide the public answers to these and other important questions.”

“The IRS is committed to correcting its mistakes, holding people accountable, and establishing control elements that will help us mitigate the risks we face,” Werfel said. “This report is a critical first step in the process of restoring trust in this critical institution. We have more work in front of us, but we believe we are on the right track to move forward.”

Fixes

The report, “Charting a Path Forward at the IRS: Initial Assessment and Plan of Action,” covers three primary areas:

Accountability. This covers the “steps being taken to ensure accountability for the mismanagement” described in last month’s TIGTA report:

• The report finds that “significant management and judgment failures” occurred, as outlined in the TIGTA report. These contributed to the “inappropriate treatment” of taxpayers applying for tax- exempt status.
• To address this, new leadership has been installed across all five executive management levels in the chain of command connected to these matters. In addition, the IRS has empaneled an “Accountability Review Board” to provide recommendations within 60 days (and later as needed) on any additional personnel actions that should be taken.

Fixing the Problems with the Review of Applications for Tax-Exempt Status. This part covers several process improvements underway to ensure that taxpayers are treated appropriately and effectively in the review of applications for tax-exempt status:

• The report outlines a new voluntary process to help certain applicants gain fast-track approval to operate as a 501(c)(4) tax-exempt entity if they are being reviewed for advocacy questions and have been in the application backlog for more than 120 days. This self-certification process allows them “a streamlined path” to tax-exempt status if they certify they will operate within specified limits and thresholds of political and social welfare activities. In addition, the IRS has added new technical and program staff to assist with reviewing 501(c)(4) applications.
• The IRS also suspended the use of any “be-on-the-lookout,” or BOLO lists in the application process for tax-exempt status. This lists had contained such read flag raisers as “liberty,” and “patriot.”

Review of IRS Operations and Risks. The report identifies a series of actions to ensure taxpayers that selection criteria across the IRS are appropriate and that taxpayers are aware of how they can seek assistance if they have concerns about the IRS. The report further outlines steps underway that it says will ensure that critical program or operational risks within the IRS are identified early, raised to the right decision-makers and shared timely with key stakeholders:

• The report calls for establishing what's termed an Enterprise Risk Management Program to provide a common framework for capturing, reporting and addressing risk areas across the IRS. This is expected to improve timeliness in bringing information to the attention of the IRS commissioner and other leaders as well as key stakeholders to help prevent future instances of inappropriate treatment or mismanagement.
• Although the agency claims there is no current evidence that selection criteria in other IRS organizations is inappropriate, the nature of the problems identified in the tax-exempt application process warrants a review of certain process controls within the IRS. The IRS will initiate a comprehensive, agency-wide review of compliance selection criteria. Results will be shared with the Department of the Treasury, the IRS Oversight Board, and the Chairpersons of the House Ways and Means Committee and the Senate Finance Committee.
• The IRS will initiate additional internal and external education and outreach about the role of the National Taxpayer Advocate in assisting taxpayers in resolving problems they encounter with the IRS.

It's hurricane season and for folks living along the Atlantic and Gulf coasts time to hope for the best and prepare for the worst.

Those preparations usually mean taking care that your house and other property are secure enough to survive whatever Mother Nature may send. But, there's something else you need to take care of -- something that may have long-lasting implications: your tax records.

The Internal Revenue Service  (IRS) is passing along these few simple steps to take that may prevent headaches down the road:

Backup your records electronically

Taxpayers should keep a set of backup records in a safe place and store them away from the original set.

Keeping a backup set of records -- including, for example, bank statements, tax returns, insurance policies, etc., -- is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet.

Even if the originals are provided only on paper, they can be scanned into an electronic format. With documents in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them to a CD or DVD.

Document valuables

Another step to prepare for disaster is to photograph or videotape the contents of your home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help you compile a room-by-room list of belongings.

A photographic record can help prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Update emergency plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Check on fiduciary bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

Help from IRS

If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.

Back copies of previously-filed tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return. Alternatively, transcripts showing most line items on these returns can be ordered on-line, by calling 1-800-908-9946 or by using Form 4506T-EZ, Short Form Request for Individual Tax Return Transcript  or Form 4506-T, Request for Transcript of Tax Return.     

Boston area taxpayers and others affected by Monday’s explosions are being granted a three-month tax filing and payment extension.

The Internal Revenue Service (IRS) says this relief applies to all individual taxpayers who live in Suffolk County, Mass., including the city of Boston. Also included are victims, their families, first responders, others affected by the attack who live outside Suffolk County and taxpayers whose tax preparers were adversely affected.

“Our hearts go out to the people affected by this tragic event,” said IRS Acting Commissioner Steven T. Miller. “We want victims and others affected by this terrible tragedy to have the time they need to finish their individual tax returns.”

Deadline moved to July

Under the relief, eligible taxpayers have until July 15, 2013, to file their 2012 returns and pay any taxes normally due April 15. No filing and payment penalties will be due as long as returns are filed and payments are made by July 15, 2013. By law, interest -- currently at the annual rate of 3% compounded daily -- will still apply to any payments made after the April deadline.

The extension is automatic for anyone living in Suffolk County and no action is necessary to obtain relief. However, eligible taxpayers living outside Suffolk County can claim this relief by calling 1-866-562-5227 starting Tuesday, April 23, and identifying themselves to the IRS before filing a return or making a payment. Eligible taxpayers who receive penalty notices from the IRS can also call this number to have these penalties abated.

Eligible taxpayers who need more time to file their returns may receive an additional extension to Oct. 15, 2013, by filing Form 4868 by July 15, 2013.

Your taxes are due in a couple of days and you're in a panic. Be very careful.

In your haste to meet the deadline, you could make a mistake that could delay the processing of your return and your refund, if you have one coming.

The Internal Revenue Service (IRS) offers these tips for avoiding some common errors:

• File electronically. When you use e-file or IRS Free File the tax software does the calculations, flags common errors and prompts taxpayers for missing information. And best of all, there is a free option for everyone.
• Mail a paper return to the right address. Be sure to check the appropriate mailing address at the IRS website  or your form instructions to avoid processing delays.
• Take a close look at the tax tables. When figuring tax using the tax tables, make sure you're using the correct column for the filing status claimed.
• Fill in all requested information clearly. Double-check any information you enter on the tax return -- including Social Security numbers, taking the time to be sure it is correct and easy to read. Also, check only one filing status and the appropriate exemption boxes.
• Review all figures. Software catches and prevents many errors on e-file returns, but math errors are common on paper returns.
• Get the right routing and account numbers. Direct deposit of a federal refund into one, two or even three accounts is convenient and allows faster access to your money. Be sure the financial institution routing and account numbers entered on the return are accurate. Wrong numbers can hold up a refund or cause it to be deposited into the wrong account.
• Sign and date the return. Both spouses must sign and date a joint return. E-filers can sign using a self-selected personal identification number (PIN).
• Attach all required forms. Paper filers need to attach forms -- including the W-2 -- that reflect tax withholding, to the front of their returns. If requesting a payment agreement with the IRS, also attach Form 9465 or Form 9465-FS to the front of the return. All other necessary schedules and forms should be attached in sequence number order shown in the upper right-hand corner.
• Keep a copy of the return. Be sure to make a copy of your signed return and all schedules for your records.
• Request a Filing Extension. If you can't meet the April 15 deadline, request a filing extension. It's is easy and will prevent late filing penalties. Either use Free File or Form 4868. But remember that while an extension gives you extra time to file, tax payments are still due April 15.
• Owe tax? If so, there are a number of e-payment options. Or just send a check or money order payable to the “United States Treasury.”

If the Justice Department gets its way, Mo’ Money Taxes, a Memphis-based tax-preparation chain, will soon be out of business.

The government has filed a civil injunction lawsuit seeking to shut down the company, which at one time operated as many as 300 offices in 18 states. The company and its owners -- Markey Granberry and Derrick Robinson, and store manager Eumora Reese -- are accused of creating and maintaining a business environment that encourages the preparation of fraudulent federal income tax returns.

Fraudulent tax prep

According to the suit, Mo’ Money Taxes’ managers, licensees and employees prepare fraudulent returns that cause their customers to incorrectly report their federal tax liabilities and underpay their taxes and charge customers bogus and unconscionably high fees.

The complaint contends the defendants encourage Mo’ Money preparers to:

• Falsely claim the earned-income credit;
• Claim improper filing status;
• Claim bogus education credits;
• Improperly prepare returns using paystubs rather than employer-issued W-2 forms;
• Fabricate bogus W-2 forms;
• File tax returns without customers’ consent;
• Sell false and deceptive loan products; and
• Charge deceptive and unconscionable fees.

“The nation’s tax system relies on the integrity of tax preparers,” said Kathryn Keneally, Assistant Attorney General for the Justice Department’s Tax Division. “Most tax preparers are honest. We owe it to them and to all American taxpayers to use appropriate law enforcement tools to stop those who prepare fraudulent tax returns or who lure customers with deceptive loan products.”

The United States previously obtained a permanent injunction against Toney Fields and Trumekia Shaw, who operated a Mo’ Money Taxes location in Nashville.   

There are usually two things people hope for when they prepare their federal income tax return. They hope for a nice refund and they hope not to get audited by the Internal Revenue Service (IRS).

We can't be of much help with the refund but we do have some advice for avoiding an up-close-and-personal session with the nation's tax collection agency.

To begin with, some good news: audits aren't always sweat-producing sessions with an IRS agent at your home or place of business. That's called a field audit and is less common than it once was, mainly because it's gotten expensive.

For people earning under $200,000, field audits totaled 290,000 last year. But there were over a million correspondence audits. Correspondence audits are letters the IRS sends a taxpayer when it has a question about the return. It might ask for an explanation of a claim or request additional documentation. It might simply tell the taxpayer to send additional money. In rare cases, it might tell the filer they paid too much tax.

Joy Taylor, an editor at Kiplinger Personal Finance, has studied the whole tax issue and has come up with a list of the biggest red flags that are likely to trigger an IRS audit. High on the list is claiming a home office deduction.

Home office deduction

The IRS will allow you to claim a portion of your home as business use if you have a business you operate from home, but there are very tight rules that, over the years, tend to have been abused. Your man-cave, for example, doesn't qualify.

“To take a home office deduction you have to use the space exclusively and regularly for business,” Taylor said.

“Regularly” is just as important as “exclusively.” A small room you set aside to market Christmas cards each holiday season won't pass the test. Neither will a space you use exclusively as an office when your employer provides office space at work.

Making too much money

The more money you make, the more likely you are to be audited. Wealthy people tend to have very complex returns. They are likely to take advantage of every tax advantage legally available.

It's also logical for the IRS to give upper-income taxpayers added scrutiny since – let's face it – if there's additional money to be had, chances are there's going to be a lot of it.

Failing to report all taxable income

At the beginning of tax filing season, your employer sends you a W-2 showing how much income you earned. But your stock broker will send you a Form 1099, showing investment income. If you earned outside income, you probably receive other tax documents stating how much you earned.

When the IRS receives your return, it compares what you've reported to what others have reported about your income. This is an easy red flag to avoid by simply reporting all income.

Taking large charitable donations

The tax law allows you to deduct donations to properly identified charitable organizations. But the rules have tightened in recent years, as they have for many other tax breaks.

“The large charitable deduction is like any other large deduction,” Taylor said. “If it's disproportionate to deductions taken by others in the same income category, the IRS computers will single out the return for a closer look.”

Taxpayers need to realize that the level of required documentation goes up, the larger the donation. This is a recent change. For very large donations additional forms have to be submitted with your return.

For any donation, you must have a receipt. Just an entry in your check book or accounting program is not sufficient. And no, you can't deduct the value of the blood you gave to the Red Cross.

For all donations over a few dollars, you must have a letter from the recipient stating that you indeed made the contribution and that you received no services in exchange. If you gave your church $1,200 and got a reserved parking place in return, let's say, the IRS may rule that your donation was in fact not a donation but a service you chose to purchase.

Claiming rental losses

More people have purchased rental property in the last four years for both income and tax advantages. But on the latter, watch out. Trying to claim a loss is risky.

“You generally cannot claim a loss from rental property,” Taylor warns.

You can claim expenses and depreciation, but the total cannot exceed your income.

Claiming 100% business use for a vehicle

Many small businesses use personal vehicles and that's fine – just don't try to claim you use it exclusively for business.

“If they don't have another car they are using for personal use, this is something the IRS will look at,” Taylor said.

Running a cash business

If you have a business in which your customers pay in cash, you can't help that. Just keep in mind it could set you up for an audit. Increasingly, the IRS looks at what's called the “tax gap” – the gap between what the economy should be producing in taxes and what it's actually taking in.

Fairly or unfairly, a small business that's paid with cash is going to get extra scrutiny. Taylor said auditors don't just look at a business' books but also at the owner's lifestyle. A Porsche and a Bentley in the garage on an annual income of $60,000? Not so good.

The IRS also looks closely at big cash transactions.

Failing to report a foreign bank account

In a global economy, it's possible to move money all over the world. When you do, the IRS wants to know about it. Failing to keep the agency in the loop can result in an audit.

“That one is actually huge,” Taylor said.

What to do

Sometimes you can't protect yourself against being audited but you can protect yourself from adverse consequences from an audit. The best advice is to claim only legitimate deductions and keep very good records.

According to Taylor, the IRS audits about one percent of all individual returns and, of course, the percentage is higher if you show any of the above red flags.

If you use an accountant or CPA to file your taxes, they should help you answer any questions the IRS poses in an audit. Keep in mind that accountants are not like attorneys -- they're not sworn to secrecy. Quite the opposite, in fact -- they're required to report any funny business, so don't even think of involving your CPA in any off-the-books scheme you've dreamed up.

For most people, few things are more annoying than the annual chore of filling out their federal income tax return. For the majority of taxpayers, the numbers are pretty much the same every year so it's mostly an exercise in drudgery -- collecting the information and trying to figure out which number goes where.

It's not really necessary, of course. The Internal Revenue Service already knows how much you made and has a pretty good idea of what deductions and incidental income you're going to claim, based on your past returns and the information submitted by your employer, bank, mutual fund, credit cards and so forth.

So why doesn't the IRS just send you a draft version of your tax return for your review? If everything is correct, you could check a box and collect your refund or authorize your bank to pay any additional amount you owe.

Good question, right? Well, here's the answer: the IRS doesn't do this because lobbyists for the computer and tax-software industries have managed to kill Congressional legislation that would have authorized the IRS to relieve taxpayers of the annual exercise, according to a ProPublica report.

You can thank TurboTax

The non-profit investigative news organization reports that Intuit, the publisher of TurboTax, and a computer industry group called the Computer & Communications Industry Association (CCIA) have managed to kill two pieces of legislation that would have authorized so-called "return-free filing," claiming that it would amount to a "massive expansion of the U.S. government through a big government program." H&R; Block refused to comment but ProPublica said disclosure forms indicated that it has lobbied against at least one return-free bill.  

It's not hard to understand why these companies don't want the government making life easier for taxpayers.

After all, consumers currently shell out a lot of hard-earned money to commercial tax preparers and publishers of tax-preparation software, money that they could save if they didn't have to prepare a return from scratch. There's lots of money at stake:  TurboTax products and services made up 35 percent of Intuit's $4.2 billion in total revenues last year, according to the company's filings with the Securities and Exchange Commission.

The CCIA has constructed a website that claims to "provide information and resources that demonstrate how 'Return Free' will put taxpayers at risk for fraud and identity theft, cost the taxpayers millions of dollars in a time of exploding debt and deficits, and rob taxpayers of the tax refund for which they are entitled."

Advocates stress that return-free filing would be voluntary and that it would be suitable only for taxpayers with relatively simple returns. They say that return-free filing would save consumers time and money, since they would not have to pay TurboTax, H&R; Block or other commercials preparers to help them with their returns and would not have to wait as long for their refunds. 

Profitable for politicians too

Opposition is coming not only from industry groups but also from political conservatives, who portray return-free filing as an intrusion into citizens' private lives.

Grover Norquist, founder of Americans for Tax Reform, has said the IRS wants to "socialize all tax preparation in America" to get higher tax revenues.

But much of the political opposition is bipartisan and driven more by pressure from industry groups than by allegiance to any particular ideology or rabid dedication to consumer protection.

For example, one of the bills to block return-free filing was introduced several years ago by Reps. Eric Cantor, R-Va., the conservative House majority leader, and Zoe Lofgren, D-Calif., a liberal stalwart whose district includes Silicon Valley. Intuit's political committee and employees have contributed to both Cantor and Lofgren.

Cantor has said that he "doesn't believe the IRS should be in the business of filling out your tax returns for you."

The ProPublica report was co-produced with National Public Radio.

If you have requested an extension for filing your 2012 federal tax return, you may be getting a break from the Internal Revenue Service.

The agency is providing late-payment penalty relief to individuals and businesses who asked for the extension because they are attaching to their returns forms that couldn’t be filed until after January.

The relief applies to the late-payment penalty -- normally 0.5 percent per month -- charged on tax payments made after the regular filing deadline. This relief applies to any of the forms delayed until February or March, primarily due to the January enactment of the American Taxpayer Relief Act.

Covered forms

Taxpayers using forms claiming such tax benefits as depreciation deductions and a variety of business credits qualify for this relief. A complete list of eligible forms can be found in Notice 2013-24.

Individuals and businesses qualify for this relief if they properly request an extension to file their 2012 returns. Taxpayers who are eligible need not make any special notation on their extension request, but as usual, must properly estimate their expected tax liability and pay the estimated amount by the original due date of the return.

The return must be filed and payment for any additional amount due must be made by the extended due date. Interest still applies to any tax payment made after the original deadline.

There's a lot of money lying around out there. And some of it may have your name on it

The Internal Revenue Service (IRS) says refunds totaling just over $917 million may be waiting for an estimated 984,400 taxpayers who did not file a federal income tax return for 2009. But -- there's a catch: To collect the money, you have to file a return for 2009 with the IRS no later than Monday, April 15, 2013.

The IRS says that half the potential refunds for 2009 are more than $500.

Didn't file?

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, Uncle Sam keeps the money.

For 2009 returns, the window closes on April 15, 2013. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2009 refund that their checks may be held if they have not filed tax returns for 2010 and 2011. In addition, the refund will be applied to any amounts still owed to the IRS or their state tax agency, and may be used to offset unpaid child support or past due federal debts such as student loans.

More than a refund at stake

By failing to file a return, people stand to lose more than refund of taxes withheld or paid during 2009. In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). For 2009, the credit is worth as much as $5,657. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2009 were:

• $43,279 ($48,279 if married filing jointly) for those with three or more qualifying children,
• $40,295 ($45,295 if married filing jointly) for people with two qualifying children,
• $35,463 ($40,463 if married filing jointly) for those with one qualifying child, and
• $13,440 ($18,440 if married filing jointly) for people without qualifying children.

Current and prior year tax forms and instructions are available here or by calling toll-free 800-TAX-FORM (800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2009, 2010 or 2011 should request copies from their employer, bank or other payer.

If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS or by calling 800-829-1040.

The Internal Revenue Service (IRS) has finished updating its tax-processing systems. And that means all remaining individual and business taxpayers can now file their 2012 federal income tax returns.

Over the weekend, the IRS completed reprogramming and testing of its systems for tax-year 2012 including all remaining updates required by the American Taxpayer Relief Act (ATRA) enacted by Congress in January. The final step clears the way for those claiming residential energy credits on Form 5695  and various business tax credits and deductions to file their returns.

Phasing in

The IRS began accepting 2012 returns in phases as it worked quickly to update various forms and instructions and made critical adjustments to its processing systems to reflect the current law. As a result, the agency began accepting most returns filed by individual taxpayers on Jan. 30. Additional returns could be accepted in February. All remaining returns, affecting in relative terms the smallest group of taxpayers, can now be filed.

With less than six weeks to go before this year’s April 15 deadline, the IRS reminds taxpayers that the best way to file an accurate return is to e-file, choose direct deposit if expecting a refund and take advantage of the wide variety of tax-filing and tax-help resources available on IRS.gov.

People who need more time to finish their returns can easily get an automatic six-month tax-filing extension by going to Free File or filing Form 4868.

Do you qualify for either of two college education tax credits or any of several other education-related tax benefits? Now might be a good time to check it out.

In general, the American opportunity tax credit, lifetime learning credit and tuition and fees deduction are available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the primary taxpayer, the taxpayer’s spouse or a dependent of the taxpayer.

Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in a particular year. The benefits are available to all taxpayers -- both those who itemize their deductions on Schedule A and those who claim a standard deduction. The credits are claimed on Form 8863 and the tuition and fees deduction is claimed on Form 8917.

Tax credit extension

The American Taxpayer Relief Act, enacted Jan. 2, 2013, extended the American opportunity tax credit for another five years until the end of 2017. The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013. The lifetime learning credit did not need to be extended because it was already a permanent part of the tax code.

For those eligible -- including most undergraduate students -- the American opportunity tax credit will yield the greatest tax savings. Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school. For others, especially those who don’t qualify for either credit, the tuition and fees deduction may be the right choice.

All three benefits are available for students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. None of them can be claimed by a nonresident alien or married person filing a separate return. In most cases, dependents cannot claim these education benefits.

Normally, a student will receive a Form 1098-T from their institution by the end of January of the following year. This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax benefits. Taxpayers should see the instructions to Forms 8863 and 8917 and Publication 970 for details on properly figuring allowable tax benefits.

American opportunity tax credit

Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:

• The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
• Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
• The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
• The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
• Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. Other education-related credits and deductions do not provide a benefit to people who owe no tax.

Lifetime learning credit

The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

• Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
• The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
• Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose MAGI is $52,000 or less. For married couples filing a joint return, the limit is $104,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $124,000 or more and singles, heads of household and some widows and widowers whose MAGI is $62,000 or more.

Tuition and fees deduction

Like the lifetime learning credit, the tuition and fees deduction is available for all levels of post-secondary education, and the cost of one or more courses can qualify. The annual deduction limit is $4,000 for joint filers whose MAGI is $130,000 or less and other taxpayers whose MAGI is $65,000 or less. The deduction limit drops to $2,000 for couples whose MAGI exceeds $130,000 but is no more than $160,000, and other taxpayers whose MAGI exceeds $65,000 but is no more than $80,000.

Eligible parents and students can get the benefit of these provisions during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4, claiming additional withholding allowances, and giving it to their employer.

Other benefits

There are a variety of other education-related tax benefits that can help many taxpayers. They include:

• Scholarship and fellowship grants -- generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
• Student loan interest deduction of up to $2,500 per year.
• Savings bonds used to pay for college -- though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
• Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.

The general comparison table in Publication 970 can be a useful guide to taxpayers in determining eligibility for these benefits. Details can also be found in the Tax Benefits for Education Information Center.

If your tax return will be claiming education credits and depreciation for the 2012 tax year, get ready to send it in.

Starting next week, taxpayers will be able to start filing those two forms -- Form 4562, Education Credits on Sunday, Feb 10, and Form 8863, Education Credits on Thursday, Feb. 14,

This step clears the way for almost all taxpayers to start filing their tax returns for 2012. These forms affected the largest groups of taxpayers who weren’t able to file following the Jan. 30 opening of the 2013 tax season.

The IRS will be able to accept the education credits and depreciation forms following the completion of reprogramming and testing of its systems. Work continues on preparing IRS systems to accept the remaining tax forms affected by the American Taxpayer Relief Act (ATRA) enacted by Congress on Jan. 2.

More to come

The IRS also says it will start accepting the remaining forms affected by the January legislation the first week of March. A specific date will be announced later.

Most of those in this group file more complex tax returns and typically file closer to the deadline or obtain an extension. A full list of the forms that will be accepted the first week of March is available here .

Next week’s opening covers two groups of taxpayers using:

• Form 8863, Education Credits. Form 8863 is used to claim two higher education credits -- the American Opportunity Tax Credit and the Lifetime Learning Credit.
• Form 4562, Depreciation and Amortization. Most of the people using the depreciation form tend to file later in the tax season or obtain a six-month extension. Non-1040 business filers using Form 4562 can also file starting Sunday.

For taxpayers using e-file, most software companies are now accepting tax returns with these two forms and will submit them after the IRS begins accepting them next week.

When it comes to preparing your own federal taxes, you have a fast, safe and free option. It’s called Free File, and is available here.

Free File offers brand-name tax software to anyone who earned $57,000 or less last year; that's 70 percent of all taxpayers. If you earned more, there are free online fillable forms. Both options allow you to file returns electronically and use direct deposit, which is the fastest way to get refunds.

Private-public partnership

The nation’s leading tax software companies have partnered with the IRS to make their products available for free. Each company sets its own eligibility criteria, generally based on income, state residency, age, military service or eligibility for the Earned Income Tax Credit (EITC). There is also a software option that is available in Spanish for people who earned $30,000 or less.

Free File does the hard work for you. The software asks questions; you provide the answers. It picks the right forms, does the math and helps you find all the tax benefits for which you are eligible.

All participating Free File partners have been vetted and use the latest in security technology. Some Free File software providers also offer state tax returns for free or for a fee.

Free File fillable forms

Free File fillable forms is the electronic version of IRS paper forms. It’s best for people experienced and comfortable preparing their own returns on paper. It does not support state tax returns.

Some Free File software products also are available in select free tax preparation sites operated by Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE).

Taxpayers can use VITA or TCE computers to access Free File, prepare their own state and federal returns with a trained and certified volunteer on stand-by to help and e-file -- all for free.

The Internal Revenue Service (IRS) is granting taxpayers and tax preparers affected by Hurricane Sandy until Nov. 7 to file returns and accompanying payments normally due today.

The relief applies to taxpayers and tax preparers in an area affected by Hurricane Sandy, which hit the Mid-Atlantic and Northeastern United States this week.

Businesses largely affected

This relief primarily applies to businesses whose payroll and excise tax returns and payments are normally due today. No action is required by the taxpayer; this relief is automatic. Regular federal tax deposits are due according to current rules.

However, the IRS notes that if taxpayers or tax practitioners receive a penalty notice for this period, they can contact the IRS at the number on the notice to request penalty abatement due to reasonable cause on account of the storm.

IRS expects to grant additional filing and payment relief as qualifying disaster declarations are issued by the Federal Emergency Management Agency.  

If you are among those who got an extension for filing your 2011 tax return, the Internal Revenue Service (IRS) wants you to know the clock is ticking.

If your extension runs out on next Monday, Oct. 15, be sure to double-check your return for often-overlooked tax benefits and then file electronically using IRS e-file or the Free File system.

Many of the more than 11 million taxpayers who requested an automatic six-month extension this year have yet to file. Though Oct. 15 is the last day for most people, some still have more time, including members of the military and others serving in Iraq, Afghanistan or other combat zone localities who typically have until at least 180 days after they leave the combat zone to both file returns and pay any taxes due.

People with extensions in parts of Louisiana and Mississippi affected by Hurricane Isaac also have more time -- until Jan. 11, 2013, to file and pay.

Check out tax benefits

IRS encourages taxpayers to take a moment before they file to see if they qualify for these and other often-overlooked credits and deductions:

Benefits for low-and moderate-income workers and families, especially the Earned Income Tax Credit. The special EITC Assistant can help taxpayers see if they’re eligible.

Savers credit, claimed on Form 8880, for low-and moderate-income workers who contributed to a retirement plan, such as an IRA or 401(k.

American Opportunity Tax Credit, claimed on Form 8863, and other education tax benefits  for parents and college students.

E-filing: fast, easy and often free

E-file is fast, accurate and secure, making it an ideal option for those rushing to meet the Oct. 15 deadline. The tax agency verifies receipt of an e-filed return, and people who file electronically make fewer mistakes too.

Everyone can use Free File, either the brand-name software, offered by IRS’ commercial partners to individuals and families with incomes of $57,000 or less, or online fillable forms, the electronic version of IRS paper forms available to taxpayers at all income levels.

Taxpayers who purchase their own software can also choose e-file, and most paid tax preparers are now required to file their clients’ returns electronically.

Anyone expecting a refund can get it sooner by choosing direct deposit. Taxpayers can choose to have their refunds deposited into as many as three accounts. See Form 8888 for details.

Quick and easy payment options

For unemployed workers who filed Form 1127-A and qualified to get an extension to pay their 2011 federal income tax, Oct. 15 is also the last day to pay what they owe, including interest at the rate of 3 percent per year, compounded daily. Doing so will avoid the late-payment penalty, normally 0.5 percent per month.

Taxpayers can e-pay what they owe, either online or by phone, through the Electronic Federal Tax Payment System (EFTPS), by electronic funds withdrawal or with a credit or debit card. There is no IRS fee for any of these services, but for debit and credit card payments only, the private-sector card processors do charge a convenience fee. For those who itemize their deductions, these fees can be claimed on Schedule A, Line 23. Those who choose to pay by check or money order should make the payment out to the “United States Treasury”.

Taxpayers with extensions should file their returns by Oct. 15, even if they can’t pay the full amount due. Doing so will avoid the late-filing penalty, normally five percent per month, that would otherwise apply to any unpaid balance after Oct. 15. However, interest and late-payment penalties will continue to accrue.

Fresh start for struggling taxpayers

In many cases, those struggling to pay taxes qualify for one of several relief programs, including those expanded earlier this year under the IRS "Fresh Start" initiative .

Most people can set up a payment agreement with the IRS on line in a matter of minutes. Those who owe $50,000 or less in combined tax, penalties and interest can use the Online Payment Agreement to set up a monthly payment agreement for up to six years or request a short-term extension to pay. Taxpayers can choose this option even if they have not yet received a bill or notice from the IRS. They can also request a payment agreement by filing Form 9465-FS.

Alternatively, some struggling taxpayers qualify for an offer-in-compromise. This is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.

Generally, an offer will not be accepted if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

Individuals and businesses affected by Hurricane Isaac are getting some relief from the Internal Revenue Service (IRS). 

Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency (FEMA), the IRS has announced that affected taxpayers in Louisiana and Mississippi will receive tax relief, and other locations may be added in coming days based on additional damage assessments. 

Deadlines pushed back 

The tax relief postpones various tax filing and payment deadlines that occurred on or after Aug. 26. As a result, affected individuals and businesses will have until Jan. 11, 2013 to file these returns and pay any taxes due. 

This includes corporations and businesses that previously obtained an extension until Sept. 17 to file their 2011 returns and individuals and businesses that received a similar extension until Oct. 15. It also includes the estimated tax payment for the third quarter of 2012, normally due Sept. 17. 

The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. In addition, the agency is waiving failure-to-deposit penalties for federal employment and excise tax deposits normally due on or after Aug. 26 and before Sept. 10, if the deposits are made by Sept. 10, 2012. Details on available relief, including information on how to claim a disaster loss by amending a prior-year tax return, are available here. 

The tax relief is part of a coordinated federal response to the damage caused by the hurricane and is based on local damage assessments by FEMA. Information on disaster recovery is available here. 

So far, IRS filing and payment relief applies to the following localities: 

• In Louisiana: Ascension, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, St. Bernard, St. Charles, St. John the Baptist and St. Tammany parishes;
• In Mississippi: Hancock, Harrison, Jackson and Pearl counties.

Back in January, as consumers began to file tax returns, some complained that their refunds were delayed. The Internal Revenue Service (IRS) explained the delay was to prevent the growing problem of stolen identity tax returns. But the efforts apparently weren't enough.

While the IRS says it detected 938,664 bogus tax returns, the Treasury Inspector General for Tax Administration (TIGTA) reports finding approximately 1.5 million additional undetected tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion. TIGTA estimates the IRS could issue $21 billion in fraudulent tax refunds over the next five years.

"We found multiple reasons for the IRS's inability to detect billions of dollars in fraud," said J. Russell George, the Treasury Inspector General for Tax Administration. "As identity theft is the most frequent consumer complaint, and at a time when every dollar counts, these results are extremely troubling."

Undermines confidence

George says the fraud on this scale not only results in significant unintended federal outlays but makes the tax collection agency look bad, undermining taxpayer confidence.

In some cases it wasn't just the IRS that was victimized but taxpayers too. For example, a scammer might have filed a phony tax return claiming a big refund, using someone's stolen social security number. When the taxpayers got around to filing, they discovered the IRS had already sent out a refund in their name to someone else.

Many early tax returns were placed on hold when IRS auditors suspected fraud. But apparently there were so many fraudulent returns this year it overwhelmed detection efforts.

When TIGTA investigated the bogus returns, it said it found a number of reasons so many slipped by the IRS. For starters, the IRS had delayed access to third-party income and withholding information. The investigation said these delays make it difficult for the IRS to detect fraudulent tax refunds at the time tax returns are processed. Third parties are not required to submit income and withholding documents to the IRS until March 31, yet taxpayers can begin filing tax returns in mid-January.

Not using third-party information

The investigators also said the IRS has not developed processes to obtain and use the third-party information that is available at the time tax returns are filed.

Finally, the use of direct deposits, including debit cards, to claim fraudulent tax refunds increases the risk that the IRS will not detect identity theft, the investigators said. The IRS continues to allow multiple direct deposits to the same bank account.

The Inspector General's office made a number of recommendations to the IRS for reducing the fraud next year and the tax collection agency said it has taken or will take the corrective actions.

Taxpayers can help too. Filing as soon as you obtain your W-2 form will increase the chances of the IRS processing your return before a bogus one submitted by a scammer. Also, carefully guard your W-2 form and other tax documents.

The halls of Congress are ringing with overblown oratory these days and our TVs and telephones are getting hoarse from all the ads and calls about those rotten millionaires, long-suffering small businesspeople and the hard-working middle class.

Yes, it's the Great Tax Debate of 2012, except it's not much of a debate. It's more like political theater, as each side plays to its base. And meanwhile, backstage, the biggest tax break of them all is about to quietly expire while the actors onstage yell and gesture, running out the clock til Election Day.

We're talking, of course, about the payroll tax which is deducted from the paycheck of every working American every payday. But unlike taxes that go to support the military, industrial farming and Big Oil, the payroll tax goes to fund Social Security, the program that provides a meager payment to working people who have passed into retirement.

And let's be clear about one thing: this is a tax nearly everyone pays. The obvious exceptions are the unemployed and the self-employed. Republicans like to say that 50 percent of Americans don't pay any taxes, by which they mean the income tax. But chances are most of those very same Americans, if they are lucky enough to be employed, are paying the payroll tax.

So, no fewer than 122 million working people have been enjoying a few extra bucks in their paycheck since 2011, when Congress temporarily cut the rate to 4.2% from 6.2%, hoping to give the economy a little boost and perhaps mollify restive voters. At the urging of Democrats last year, the tax break was extended to 2012 after the usual warnings that it would spell the end of the world as we know it.

Democrats fall silent

But this time around, the Democrats are remaining mum. The White House, a place where many wealthy people work, constantly preaches its disdain for the wealthy and its love of the common working stiff, but is sitting on its hands this year.

The average family has gained about $934 a year from the tax cut, the Tax Policy Center estimates. The cost to the federal government is estimated at $120 billion a year and, since Congress didn't see fit to trim spending anywhere else to pay for it, that $120 billion has come out of the general fund, which means it goes straight to the deficit.

Economists generally agree the extra money each payday has helped keep the anemic budget crawling ahead. No one seems to talk about how much, or whether, it has helped struggling families. 

Hoping to find out, we conducted a computerized sentiment analysis on about 290,000 consumer postings on social media like Twitter and Facebook over the last year.  We found very little discussion of the topic except last December, when the tax vacation was about to expire. Net sentiment was negative then although it has picked up a bit since then, as shown in this graph:

Those who favored the measure overwhelmingly did so because they felt it would help working Americans, while those who opposed it said that it would not create jobs and would be too costly. See sample verbatim comments at the end of this story.

Those who have enjoyed the extra money have been pretty silent about it, and they may be about to pay the price for their silence, as both parties line up to drive a stake into any proposed extension.

AARP says no

Perhaps surprisingly, one of the biggest opponents of extending the tax break is AARP, the insurance vendor and advocacy organization that purports to represent seniors.

AARP CEO A. Barry Rand went on record as early as May, with a letter to Congress that outlined his objection to extending the tax holiday.

“On behalf of millions of members nationwide and all Americans age 50 and over, I write today to express AARP’s belief that the Congress should not extend the Social Security payroll tax holiday beyond the current year. If economic relief is still a necessity at the end of the year, AARP believes that it should be delivered through other avenues and no longer through the payroll tax system," he said.

Rand said that while AARP originally supported the tax break as a temporary measure to aid struggling families, it has long made it clear that the respite must be temporary.

“AARP made clear that the Social Security payroll tax holiday should have no negative impact on Social Security or its beneficiaries in the short and long-term," he said.

The semantic differences help illuminate who's who here. Advocates of the tax break generally refer to the tax in question as the "payroll tax" while AARP and other seniors' groups call it the "Social Security tax."  Both are right, of course. It is a payroll tax that supports Social Security but how you describe it tends to reflect how you feel about it.

Also siding with AARP are Congressional Republicans, who are seldom on the same page as the giant seniors group. Republicans have never liked the tax cut, they don't like it now and the GOP is being upfront in its opposition to extending it.

Democrats, on the other hand, are keeping a low profile. Their usual allies in the public employee unions are also remaining silent, since for the most part they have no horse in this race. Most public employees are part of state and local retirement systems which are separate from Social Security.

It was just last December that the White House was out in front on the issue.

"Lately, many Americans have asked me if the payroll tax cut will affect Social Security. The answer is simply no," Deputy Assistant to the President Jon Carson said. "While more money stays in workers’ paychecks, the law specifies that Social Security receive every dollar it would have gotten even without the payroll tax cut." 

What now?

So what can we expect this year?

Probably nothing, other than more rhetoric -- President Obama vowing to more severely tax the rich (and, if he spoke more accurately, the upper middle class) and Mitt Romney promising to create jobs by cutting taxes on "job creators," i.e., businesses.

Everyone knows the Tax Code is in desperate need of reform, as it has been for decades. And everyone knows there is an increasingly desperate need to modernize Social Security, as there has been for decades.

And when is all this modernization and reform likely to happen? Why, after the election of course, when it is hoped that the voters will have stopped paying attention and that those who haven't will forget by the next election who it was who gored their ox. 

For now, the political battle continues onstage, the press obsesses over the horse race aspects of the contest and the year slips away. Have a nice day. 

Be careful about following the “advice” you  get about filing for tax credits or rebates. 

The Internal Revenue Service is encouraging taxpayers to guard against being misled by unscrupulous individuals trying to persuade them to file false claims for tax credits or rebates. 

The Internal Revenue Service (IRS) notes there’s been an increase in tax-return-related scams -- frequently involving unsuspecting taxpayers who normally do not have a filing requirement in the first place. 

These taxpayers are led to believe they should file a return with the IRS for tax credits, refunds or rebates for which they are not really entitled. Many of these recent scams have been targeted in the South and Midwest. 

A few bad apples 

Most paid tax return preparers provide honest and professional service, but there are those who engage in fraud and other illegal activities. Unscrupulous promoters deceive people into paying for advice on how to file false claims. 

Some promoters may charge unreasonable amounts for preparing legitimate returns that could have been prepared for free by the IRS or IRS sponsored Volunteer Income Tax Assistance partners. In other situations, identity theft is involved. 

Be careful 

Taxpayers should be wary of any of the following: 

• Fictitious claims for refunds or rebates based on excess or withheld Social Security benefits.
• Claims that Treasury Form 1080 can be used to transfer funds from the Social Security Administration to the IRS enabling a payout from the IRS.
• Unfamiliar for-profit tax services teaming up with local churches.
• Home-made flyers and brochures implying credits or refunds are available without proof of eligibility.
• Offers of free money with no documentation required.
• Promises of refunds for “Low Income – No Documents Tax Returns.”
• Claims for the expired Economic Recovery Credit Program or Recovery Rebate Credit.
• Advice on claiming the Earned Income Tax Credit based on exaggerated reports of self-employment income. 

Empty promises

In some cases non-existent Social Security refunds or rebates have been the bait used by the con artists.  In other situations, taxpayers deserve the tax credits they are promised but the preparer uses fictitious or inflated information on the return, which results in a fraudulent return. 

Flyers and advertisements for free money from the IRS, suggesting that the taxpayer can file with little or no documentation, have been appearing in community churches around the country. Promoters are targeting church congregations, exploiting their good intentions and credibility. 

These schemes also often spread by word of mouth among unsuspecting and well-intentioned people telling their friends and relatives.

Promoters of these scams often prey upon low-income individuals and the elderly. 

They build false hopes and charge people good money for bad advice.  In the end, the victims discover their claims are rejected or the refund barely exceeds what they paid the promoter.  Meanwhile, their money and the promoters are long gone. 

Unsuspecting individuals are most likely to get caught up in scams and the IRS is warning all taxpayers, and those that help others prepare returns, to remain vigilant. If it sounds too good to be true, it probably is. 

Anyone with questions about a tax credit or program should call the IRS toll-free number at 800-829-1040 or visit a local IRS Taxpayer Assistance Center.

The Internal Revenue Service (IRS) commands attention. When you get something in the mail from the tax agency, you can bet you'll open it right away.

That's why the agency is a favorite of scammers who try to trick victims into disclosing personal information. A new scheme is packaged in a spam email with the heading “Report of Foreign Bank and Financial Accounts (FBAR).”

The first line of the email is designed to get your attention and, perhaps, make you drop your guard:

“This is in reference to your 2010 U.S. Individual Income Tax Return we seem to have some discrepancies with your filing.”

Notice there is a missing period after “Return” and “we” is not capitalized, as the first word of a new sentence should be. In addition, the email header, with the IRS logo, has been enlarged and distorted from an original and is a poor copy.

The biggest giveaway that this is not coming from the IRS are instructions in the email to download an attached form, fill it out with account information for all foreign and domestic bank accounts, and to fax it back.

The IRS would never seek sensitive financial information in that way. People who comply with the email will have their accounts emptied by the scammers.

The scam coincides with the recent announcement by the IRS of an effort to collect owed taxes from offshore accounts. Increasingly scammers model their schemes after events in the news so that there might be a slight ring of authenticity with their victims.

The IRS email scam also uses the element of fear. It notes that “it is a crime to evade or defeat the collection of a federal tax."

Consumers who receive this email -- or one like it -- should simply delete it from their inbox. You can also report it to the IRS by calling 1-800-829-3676.

Outdated state laws that permit local governments to sell property through a tax lien foreclosure process if the owner falls behind on property taxes (owing as little as $400) are fueling a second nationwide foreclosure calamity, according to a report from the National Consumer Law Center (NCLC). 

“Homeowners throughout the nation, particularly elderly and people with cognitive challenges, have lost or stand to lose family homes along with long-term equity which may represent their sole savings and security for retirement,” said National Consumer Law Center Attorney John Rao and author of The Other Foreclosure Crisis: Property Tax Lien Sales. “Our report is a wake-up call for states to reform tax sale laws to keep speculators from reaping huge windfalls at the expense of fragile citizens while still ensuring local governments receive much needed tax revenue.”  

Elderly and disabled most at risk 

A tax lien sale may be started over nonpayment of a small delinquent tax bill for a few hundred dollars, and then sold at a tax lien sale for simply the back taxes owed on the property. 

If the homeowner fails to buy back the property, the purchaser acquires the home for very little. Thus a $200,000 home might be sold for as little as $1,200, and then resold for a huge profit. 

Currently, annual tax lien sales total approximately $15 billion nationwide and are on the rise due to the weak job market, depressed home values, and an increase in mortgage foreclosures. Florida had nearly $2 billion in back tax liens and sold $1.8 billion of these liens in 2009. A county in Mississippi doubled the number of properties in its annual tax sale in recent years. Other states at risk include Illinois, New Jersey, New York, and Texas. 

Homeowners most vulnerable are those who have fallen into default because they are incapable of managing their financial affairs, such as individuals suffering from Alzheimer’s, dementia, or other cognitive disorders. 

And one government study found that last year property tax foreclosures in New York City were highly concentrated among low income communities with large black and Latino populations -- groups also targeted by subprime mortgage lenders.

Tax lien sales may increase the number of  vacant and neglected properties, further eroding tax revenue and destabilizing entire communities. 

Windfall for investors 

Individual tax sale purchasers and large investment companies, including Bank of America and JPMorgan Chase, have used the tax sale process as a profit center. Tax liens can yield an incredible rate of return, as high as up to 50 percent. 

Many state laws permit tax lien purchasers to charge homeowners extremely high interest rates and fees to redeem their property in order avoid foreclosure. (For example, redemption penalties in Georgia, Iowa, Mississippi, New Jersey and Texas all exceed 20 percent). For these reasons, tax lien sales are often marketed as “get-rich quick” schemes on Websites. 

Investors take advantage of the fact that the tax sale process is  arcane and rarely understood by homeowners. And states do little to inform homeowners about steps they can take to avoid foreclosure. Very few states have enacted procedures to protect owners’ equity interests or to avoid windfalls to purchasers, and almost no states have updated tax lien laws to reflect current economic conditions or to ensure that proper safeguards exist to avoid unnecessary loss of homeownership.  

Recommendations 

The NCLC report offers the following recommendations that state and municipalities could adopt, which reflect the goals of preserving homeownership and ensuring prompt payment of local taxes: 

• Implement redemption payment programs. Local tax offices should collect redemption payments to eliminate the possibility that an unscrupulous purchaser may thwart the owner’s attempt to redeem. The local tax office should accept partial and installment payments.
• Adequate notice should be given at every stage of the tax sale process. Notifications should be used as a tool to avoid loss of homeownership. Comprehensive notices should use plain language, include information about tax exemptions, abatements and repayment plans, and note the consequences of each stage of the tax sale process. 
• Provide detailed notice of redemption rights. The notice should give all the essential details on how the redemption right can be exercised, including the name and address to which the homeowner can remit payment, itemized costs and the deadline for the redemption payment. 

“The consequences of homeowners not understanding their rights or the process of a tax lien sale is devastating for individuals, families, and communities,” says Rao.  “To date, states have done very little. Will legislators and policymakers now reform their laws to help keep elderly and other homeowners from losing their homes due to a small property tax delinquency? We certainly hope so and the sooner they act to head off this swelling problem, the better.” 

Federal Reserve Chairman Ben Bernanke calls it "the fiscal cliff." Others are calling it "Taxmageddon." Whatever it's called, without new legislation, it will come at the end of the year.

That's when the Bush era tax cuts expire. It's also when deep across-the-board cuts in federal discretionary spending go into effect.

The Bush tax cuts happened so long ago, way back in 2001 and 2003, that many Americans have forgotten the details and have seemingly bought into the notion that they affect only millionaires. A ConsumerAffairs sentiment analysis of about 500,000 postings on social media finds quite a range of emotions.

Over the last year, our analysis found, consumers' net sentiment regarding the tax cuts has been largely negative and now stands around -9%.

But regardless of public sentiment, with the government spending a lot less money, and taxpayers having a lot less money to spend, Bernanke and other economists believe a recession in inevitable. So perhaps the prudent thing for consumers to do is figure out how all this will affect them and get prepared.

Tax rates

The long-running political debate over taxes has created the impression that the "Bush tax cuts" only affected upper income earners, but that's not the case. The tax cuts lowered everyone's taxes. When the rates go back to what they were before 2001, here's what will happen.

The lowest tax bracket -- 10 percent -- will go away. If you are currently in the 10 percent bracket, and assuming you earn the same income, you'll be paying 15 percent of your taxable income -- a rather hefty increase.

If you are currently in the 15 percent bracket, your increase is even bigger, since you'll move into the 25 percent bracket. Those now paying 25 percent of the taxable income will move up to the 28 percent bracket.

Those now in the 28 percent bracket will move to 31 percent, the existing 33 percent bracket will be replaced with a 36 percent bracket and the existing 35 percent bracket will rise to 39.6 percent.

Holiday ending

At the same time, the two percent "tax holiday" for the FICA payroll tax also expires. As a result of all of this, your take home pay -- assuming you don't get a raise -- will go down on January 1. If you're going to need more income to get by, it might be wise to start looking for it now and beefing up your savings.

If you have been frugal and have saved money so as not to be a burden on society and therefore receive taxable income from dividends and the sale of stocks, the tax you pay will also go up. In January the 15 percent tax rate on long-term capital gains and dividends rises to 20 percent. Dividends, meanwhile, will be taxed as ordinary income, meaning at whatever tax bracket you happen to be in.

For that reason, it may be wise to take capital gains in 2012 and move dividend-producing stocks into tax-deferred retirement accounts, if possible.

Spending cuts

At the same time, huge cuts in government spending are locked in unless Congress overrides them with other, more targeted cuts to trim the deficit. This could affect you if you work for the U.S. government or a company that derives much of its income from government contracts or for a company that supplies goods and services to goverment contractors. In other words, it's likely to affect you no matter where you work.

The Defense Department would not be spared the budget knife, so it could easily affect your current or planned military career.

Of course, Taxmageddon doesn't have to happen. But after what promises to be an extremely bitter November election, lawmakers would have to return to Washington and suddenly find a way to compromise. The odds against that happening are significant.

While Taxmageddon would prove to be painful, it might actually turn out for the best in the long run. At least, that's the gist of a report this week from the non-partisan Congressional Budget Office (CBO).

The CBO acknowledged the pain but said raising taxes and cutting spending would put the government on a path toward smaller budget deficits in a very similar way that European nations are approaching "austerity."

The CBO doesn't exactly come out and say it, but suggests that might not be such a bad thing, since the issue must be addressed at some point. By setting up Taxmageddon during last year's bill to raise the debt ceiling, Congress prescribed bitter medicine without having to vote for painful tax hikes and spending cuts.

A big adjustment in tax rates is headed your way at the end of the year, along with huge cuts in government spending that could impact the overall economy.

It's going to happen unless Congress acts. Given Congress' recent history, that's like saying it's probably going to happen.

Last year, when Democrats and Republicans in Congress were once again at an impasse on raising the U.S. government debt ceiling, agreement was reached only after the two sides tacked on another provision: unless Congress approves a serious deficit-reducing package before the deadline, steep across-the-board cuts in all government discretionary spending would automatically kick in January 1, 2013.

Higher tax rates

Also on that date, the Bush tax cuts and the payroll tax "holiday" are set to expire, reverting to their previous higher rates. Federal Reserve Chairman Ben Bernanke has called this perfect storm a "fiscal cliff," worried that slashing spending and raising taxes in a still-weak economy will plunge the country into a recession.

Overnight, the U.S. would move from an effort to stimulate the economy to its own "austerity" plan, the type that citizens of Greece and France recently resisted at the ballot box. Just about every consumer in the U.S. would be affected in some way. Here's how:

• For the last two years the employees' portion of the payroll tax has been reduced from 6.2 percent to 4.2. It goes back to 6.2 percent January 1, amounting to an extra $20 tax withholding from a $1,000 paycheck. Since the payroll tax funds Social Security and Medicare, those entitlement programs have been going even deeper into the red over the last two years.

• Your income tax bracket may rise. The Bush tax cuts not only reduced the tax rate on the wealthiest taxpayers, it also established new, lower tax brackets for just about all taxpayers. Those go away. For example, before the tax cuts, the lowest bracket was 15 percent. The Bush tax cuts established 10 percent as the lowest rate. That expires on January 1. The top rate under the Bush Tax cuts is 35 percent. That gets bumped up to 39.6 percent in January. Nearly everyone will find themselves taxed at a higher rate.

• Lower rates on investment income will reset to their higher levels that were in place prior to 2001. Currently, investors pay only 15 percent on dividends and long-term capital gains. After January the maximum rate on long-term capital gains rises to 20 percent and dividends will be taxed as ordinary income. Retirees who depend on dividend income may feel that change the most -- not the 1% everyone talks about. Other temporary fixes to the tax code installed over the last few years are also set to expire.

• The U.S. government will spend a lot less money. In the absence of a Congressional deficit-cutting package, Pentagon spending will be cut by 10 percent while all discretionary spending will be cut by eight percent. It will be up to various departments to figure out how, so it is possible military veterans and those who receive government benefits could feel the belt-tightening effects. Additionally, economists generally agree that taking that money out of the economy all at once could topple a weak recovery into recession.

Of course, it doesn't have to happen. Republicans and Democrats in Congress could put aside their partisan differences long enough to reach some sort of acceptable compromise that would make gradual changes to taxing spending policy, but that could be a tall order.

There is almost no chance lawmakers would take up the matter before the November elections, meaning the lame duck session would have less than two months -- following what promises to be a bruising and bitter contest -- to come together and reach a compromise.

Chairman Bernanke may have reason to be worried.

Companies that offer services to taxpayers, to help resolve problems with the Internal Revenue Service (IRS), say a handful of companies in their business have given the rest of them an undeserved bad reputation.

"Not all tax problem resolution and mediation firms are created equal," said Michael Rozbruch, founder and CEO of Tax Resolution Services, Co., and part of an association that is working toward regulating the industry to protect consumers. "When some companies make news by doing things the wrong way, it makes the rest of us look really bad—the consumers lose, the legitimate tax debt resolution businesses lose, the taxing agencies lose, and it's just a huge mess that needs to be cleaned up now."

Rozbruch notes his industry began getting unwelcome attention in 2010 when then-California Attorney General Jerry Brown skewered "Tax Lady" Roni Lynn Deutch for purposely "engaging in a scheme to swindle taxpayers." Since then, he says media outlets have started a trend of lambasting tax debt resolution companies across the board.

Authorities shut down firms

"Over the past couple years, nationally recognizable firms such as American Tax Relief (ATR), JK Harris and TaxMasters were either shut down by federal regulators or recently filed for bankruptcy. Additionally, JK Harris and TaxMasters are also under investigation for similar issues that helped to take down the Deutch firm.

Rozbruch criticizes those firms for engaging in what he called the "dubious practice" of not working clients' cases until they were full paid by the consumer, which was generally months after folks hired them, even though they offered their clients payment plans.

Even if Rozbruch is correct about his industry, it would be wise for taxpayers to tread very carefully when considering paid assistance in dealing with the IRS. A number of reputable law firms specialize in tax issues, and they may be a good place to start.

IRS is easier to deal with

At the same time, it is easier to deal with the IRS than it has been in the past and dealing directly with the tax agency should be explored. The objective is to reach an "offer in compromise" that will allow you to settle your tax debt for less than the full amount you owe. Here's what the IRS says about offers in compromise:

It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. We consider your unique set of facts and circumstances:

• Ability to pay;
• Income;
• Expenses; and
• Asset equity.

 "We generally approve an offer in compromise when the amount offered represents the most we can expect to collect within a reasonable period of time," the IRS says on its website. "Explore all other payment options before submitting an offer in compromise. The Offer in Compromise program is not for everyone. If you hire a tax professional to help you file an offer, be sure to check his or her qualifications."

The April 17 federal income tax filing deadline is closing in. If you haven't filed your return by now, you may feel you are under increasing pressure to do so.

Just don't let that pressure force you into making common last-minute filing mistakes.

"Each year, there are many who wait until the final days to file their taxes," said Mark Steber, chief tax officer, Jackson Hewitt Tax Service Inc. "With the last minute rush, it is important to carefully check your tax return prior to filing because even the simplest of mistakes can cause delays in the issuance of a refund."

Common last-minute mistakes

According to Steber here are the top five most common mistakes made when filing a return:

1. Incorrect Filing Status – Choosing a filing status is usually one of the first steps when preparing a tax return, but it can also be a confusing decision that leads many to choose an incorrect status. The wrong filing status can significantly impact the amount of a tax refund or tax liability.
   
2. Providing Incorrect Information – Another common mistake is when taxpayers misspell a name or incorrectly record their Social Security numbers. It is vital to clearly record the correct name, Social Security number and address (including zip code) directly on the return. Names and Social Security numbers for a spouse, dependents and qualifying children should be documented exactly as they appear on their respective Social Security cards. For those who changed their name due to getting married or divorced, or for any other reason, make sure the name used on the return is your legal name.
   
3. Mathematical Errors – Another error on tax returns is bad math, which remains common on paper returns. Making mathematical miscalculations can greatly impact your tax return by reducing your expected refund or positioning you to owe more money than you actually do;
   
4. Claiming Ineligible Exemptions – With so many complex rules, taxpayers often claim exemptions for which they are not eligible. Some examples include claiming a grown child who no longer qualifies as a dependent or claiming an exemption for a live-in significant other.
   
5. Forgetting to Claim Items – In the rush to file, forgetting to claim certain items is a mistake that is made all too often. For example, certain charitable contributions, medical expenses and IRA contributions can all be claimed on a return, if you have the proper documentation.

 Getting an extension

If you don't think you can get your return prepared in time, you may file for an extension, using Form 4868, and get an additional six months to submit your return. However, you needed to pay any additional tax that you owe by the April 17 deadline.

If you file your Form 4868 electronically, the Internal Revenue Service (IRS) says you will receive an acknowledgement or confirmation number for your records and you do not need to mail in Form 4868. If you need to pay additional taxes when filing Form 4868 electronically, you may do so through the outside service provider or through e-file. You can refer to your tax software or tax professional for ways to file electronically using e-file services.
Several companies offer free filing of Form 4868 through the Free File program that you can access on the IRS.gov website. If you wish to file electronically, be sure to have a copy of last year's tax return. You will be asked to provide the Adjusted Gross Income from the return for taxpayer verification.

A second way of requesting an automatic extension of time to file your individual income tax return is to pay part or all of your estimate of income tax due by credit card or debit card. You may pay by phone or Internet through one of the service providers listed on Form 4868. Each service provider will charge a convenience fee based on the amount of the tax payment. At the completion of the transaction, you will receive a confirmation number for your records.

For taxpayers receiving refunds, it's often viewed as a windfall, even though it's their own money the government has been holding for months, interest-free.

Even so, the arrival of a refund was often the occasion of a shopping spree, a new vehicle or maybe a vacation. Not so much, these days.

A new poll from Cricket Communications shows that 50 percent of people expecting a tax refund say they plan to spend the money on bills or other household expenses.

Smarter this year

The survey also noted that more than three-quarters of Americans receiving their refund say they will be "smarter" about how they spend it, with more than half - 55 percent - pledging they are more likely to use refund dollars on practical "needs" instead of "wants."

A number of taxpayers posting at ConsumerAffairs early this year expressed frustration when they didn't receive their tax refunds as quickly as they expected. Many blamed their tax preparer.

“We asked our agent if our taxes would be late, and she said that no everything was fine now with IRS,” James of Sidney, Ohio, wrote in a ConsumerAffairs post. “We still have not received our refund. Why do we have to pay H&R for filing our taxes electronically if we did not get them in a timely manner?”

In most cases, however, tax preparers were not to blame. The Internal Revenue Service's (IRS) enhanced anti-fraud efforts resulted in slowdowns for some refunds to be processed.

Meanwhile, if you find that you need your tax refund in order to meet everyday expenses, it may be a sign that you need to revisit your budget.

Best uses

According to the personal finance company Kiplinger, the five best uses of a tax refund are:

1. Pay off high-interest credit cards
2. Rebuild your emergency fund
3. Add to retirement savings
4. Build savings for college
5. Help your children save for the future

Filed your tax return yet? The deadline is closing in and millions of taxpayers may be cringing over income tax bills they simply can't afford to pay.

Stiffing the Internal Revenue Service (IRS) is never a good idea, but what if you have no money to pay the taxes you owe? Are there any options?

"If you can't pay what you owe all at once, you should still file your tax return and make payment arrangements with the IRS," said Mark Luscombe, and analyst with CCH, a provider of tax, accounting and audit services. "If you don't file because you can't pay, you're immediately facing a failure-to-file penalty as well as interest, additional costs and potentially a tax lien or levy down the road."

Kinder, gentler IRS

Believe it or not, it's a little easier to deal with the IRS on payment issues than it used to be. Last year, the tax agency issued new rules to help soften the blow for taxpayers who can't afford to pay their taxes when owed, including increasing the threshold at which the IRS files a tax lien, as well as expanding the installment and offers in compromise programs to allow more taxpayers to qualify.

But to take advantage of these changes, taxpayers need to act in a timely, forthright manner. There are procedures and specific steps you must take to take advantage of these options.

Fresh Start