Facts About Filing 2007 Income Tax Returns, at a Glance

Some important facts about filing your 2007 income tax return:FILING DEADLINE: Tuesday, April 15, 2008.

FILING EXTENSION: automatic six-month extension to Oct. 15, 2008, as long as Form 4868 is filed by the April deadline. But any tax owed must be paid by April 15.

WHAT’S NEW:

–Filing delays until mid-February for taxpayers using any of five specific forms related to the alternative minimum tax: Form 8863, “Education Credits”; Form 5695, “Residential Energy Credits”; Schedule 2 of Form 1040A, “Child and Dependent Care Expenses for Form 1040A Filers”; Form 8396, “Mortgage Interest Credit”; and Form 8859, “District of Columbia First-Time Homebuyer Credit.”

–Deduction for mortgage insurance premiums on home acquisition debt that was new or refinanced in 2007. Only taxpayers with adjusted gross incomes of $100,000 or less take the full deduction, which phases out as income increases.

–Homeowners granted forgiveness of mortgage debt in 2007 don’t have to pay taxes on the amount of that forgiveness, up to $2 million ($1 million for a married person filing a separate return).

–Stricter record-keeping rules for charitable cash donations. All must be backed up by official records such as a check, bank copy of the check, electronic funds transfer record, credit card or credit union statement. A charity’s written acknowledgment also is OK.

–2007 is the last year to claim the credit for certain energy-efficient home improvements, as long as you didn’t use it up for 2006.

–The alternative motor vehicle fuel credit can still be taken for 2007 purchases of certain hybrid and alternative fuel vehicles. But the credit is phasing out or disappearing for many such vehicles as manufacturers reach 60,000 vehicles sold. Check the IRS Web site at http://www.irs.gov for a list of vehicles and credit amounts.

FREE E-FILING: The IRS’ Free File Alliance with tax software companies allows taxpayers with incomes of $54,000 or less to prepare and file returns online for free if they access the tax prep program through the IRS Web site.

AUDITS: The average taxpayer’s chances of an audit are slim. People with high deductions and income face greater odds.

REFUNDS: The IRS will split a taxpayer’s refund into three different financial accounts, such as checking, savings and retirement accounts.

File electronically to get your refund within days if you have your money deposited directly into an account. Paper tax returns and refund checks can take up to eight weeks.

To check refund status, go to the IRS Web site and click on “Where’s My Refund?” on the left. When prompted, enter your Social Security Number, filing status and exact amount of the refund shown on your 2007 return. Or, call 1-800-829-4477. This is also the phone number for recorded information on various tax topics.

IRS FORMS/PUBLICATIONS: Download from the IRS Web site by navigating to “Forms and Publications”; order by mail by calling 1-800-829-3676.

ONLINE TAX HELP: The IRS Web site has links to every tax topic.

PHONE TAX HELP: 1-800-829-1040 for individuals, 1-800-829-4059 (TDD) for those with hearing impairment, 1-800-829-4933 for businesses.

Internal Revenue Service: http://irs.gov

AP

For a bipartisan majority of senators, providing three months or six months of extra unemployment checks to more than 1 million jobless people is a better way to dig the economy out of a recession than just printing tax rebate checks. Some economists agree, and undoubtedly, so do the nearly 1.3 million unemployed workers who face losing an average $282 a week in benefits before June.

But there is strong opposition leading up to a Senate vote in the week ahead on whether to add an extension of jobless benefits to a $161 billion House-passed combination of tax rebates and business tax cuts.

As the economy has slowed, more people have signed up for jobless benefits. The situation can only get worse given the report last week that employers payrolls by 17,000 in January — a job loss not seen since the tail of the last recession in 2003.

The unemployment rate also is on a generally upward trend. It jumped to 5 percent in December, the highest since right after the Sept. 11 attacks in 2001, then dipped to 4.9 percent in January.

Last week, the number of laid off workers filing applications for unemployment benefits soared by 69,000 to 375,000. It was the most new claims in one week since October 2005, when Hurricane Katrina and the other Gulf Coast storms disrupted the economy.

The National Employment Law Project estimates that 1.28 million people now collecting unemployment checks will be unable to find a job in the next six months and thus lose that help.

The plan before the 100-member Senate will need 60 votes to prevail. It would cost $14 billion and extend unemployment payments for 13 weeks nationwide to people whose 26 weeks of regular benefits have run out.

People without jobs in states where the unemployment rate has averaged 6.5 percent or more for three months could qualify for an additional 13 weeks of benefits, or 52 weeks altogether. Only Michigan would qualify for the extra 13-week extended benefits now; more states could join it if the job market continues to worsen.

AP

Year after year, the IRS sees Americans committing the same sorts of mistakes on their returns. Many of these errors are easy to avoid; some are more complicated.

Your income-tax return can inflict a special kind of pain when you make a mistake. Even a simple error can cost you time, aggravation, stress and, yes, money. So doing your return dispassionately and carefully is a must.

The Internal Revenue Service says taxpayers make some mistakes again and again. (I see them a lot, too.) If you can keep from making them, you’ll avoid much of that lost time, aggravation, stress and lost cash.

Here, according to the IRS, are the 10 most common taxpayer mistakes:

Claiming the wrong filing status

Sorry, you can’t just choose to file single or married. Your marital status is determined as of Dec. 31. Anything before that date really doesn’t matter for tax purposes. You file either jointly or married filing separately. You may qualify for “head of household,” but you have to satisfy all the requirements. You don’t qualify just because you consider yourself the head of your household.Claiming the wrong status could kill your eligibility for the child tax credit, the earned-income credit and exemptions for dependents. Check out the instructions for Form 1040 for detailed information to help you select your correct filing status.

Omitting or using wrong Social Security numbers

The Social Security numbers you list for your dependents, the earned-income credit and the child tax credit must match your dependents’ Social Security cards. Otherwise, the IRS computers will reject your credits and deductions.If you’re still doing your return by hand, put down that stone tablet you’re reading and pay attention. Make sure your handwriting is legible, at least on your tax return. Although to be fair, I suspect that many of these mistakes attributed to taxpayer error actually result from bad inputting by the IRS.

Failing to use correct forms and schedules

Think of the IRS as a vast bureaucracy that responds to the dictates of an outdated computer system for audit direction. You don’t want to anger the computer gods.

If you file your employee business expenses on Schedule A without attaching Form 2106, the computer’s going to click. The more the computer clicks, the more likely that you will get audited.So, be nice to the computer. Correctly file all of the appropriate forms.

Failing to sign and date the return

This one is easy. If you don’t sign the return, you haven’t filed. Both spouses must sign a joint return. If you haven’t filed, you’re going to be subject to all kinds of penalties, not to mention interest on any amounts not paid in full.The only reason not to sign the return is if the numbers on it would constitute perjury. Do you think the IRS wouldn’t notice?

Claiming ineligible dependents

When the IRS started requiring Social Security numbers for claimed dependents, millions of dependents disappeared. I suspect most of them sulked back to their doghouses, flew to their bird cages or jumped back into their aquariums.In any case, the qualification criteria to claim a dependent are technical and very specific. With nontraditional families, there are the exceptions, the exclusions to the exceptions, the exceptions when the exclusions don’t apply and the special rules for the third Wednesday each month.

You’ll have to meet each of at least four qualifications. Follow the flowchart in the instructions for your Form 1040. But it’s not simple.

Misusing — or not using — the earned-income credit

This one I blame on Congress. It’s a provision to help the poorest in our nation, but lawmakers designed it to be one of the most convoluted provisions in our tax code.It’s so bad that the IRS reports failure to claim the earned-income credit as its No. 6 top taxpayer mistake and incorrectly claiming the credit as No. 7.

Lots of crooks — and unwitting but misinformed taxpayers — illegally claim the credit. Many of those whom the credit was designed to aid lack the tax sophistication or the dollars necessary to hire a professional to claim those dollars.

Losing receipts

Receipts can mean deductions and tax savings. So, hunt down all those charitable organizations to which you contributed and make them give you a receipt for the donation. If you made more than one donation, get a receipt for each one. The receipt needs the date, the amount, the name of the charity. No receipt means no deduction.We’re not done yet. Start hunting down receipts for medical expenses. Perhaps you spent enough on health care that your expenses exceed the 7.5% income threshold. The total expenses that exceed 7.5% of your adjusted gross income are deductible. And don’t forget: These can include health insurance premiums.

And don’t forget the paperwork to prove property tax and mortgage deductions.

Failing to report domestic workers

Even if you don’t want to be a Supreme Court justice or the U.S. attorney general, you still have to pay the payroll taxes on your nanny, housecleaner or in-home caregiver.Sorry, it’s the law. If you pay $1,500 or more in 2007 (or $1,600 in 2008) to any one household employee, you’re going to have to withhold, and match, both Social Security (6.2%) and Medicare (1.45%) taxes. You must file Schedule H to compute and report the liability.

You’ll owe federal unemployment taxes if you pay wages of $1,000 or more in any calendar quarter to household employees. You may also owe state employment and disability taxes.

If you pay certain related parties, or employees under age 18 who qualify, you may escape liability. See Publication 926 for details.

Failing to report all income

You can’t avoid reporting all of your income just because you don’t get a W-2 form or a 1099. Not all income is reported on 1099s. That doesn’t excuse you from having to pay tax on it. The fact that there’s no reporting to the IRS doesn’t prevent the agency from auditing your receipts and reconciling your bank deposits with your reported income.Unreported income can lead to civil and criminal sanctions. I don’t care how lucky you feel. The potential consequences aren’t worth the risk.

Failing to check for the alternative minimum tax

The AMT, or “awfully mean tax,” was created to catch high-income taxpayers who used allowable deductions and credits to wipe out too much tax liability. It’s an alternative computation of your tax, with different deductions, add-backs and flat rates.You pay the higher of your regular tax or that computed under the AMT.

Unfortunately, because it hasn’t been updated to reflect inflation since the original bill was passed, the AMT has been projected to hit about 19 million families in 2007, including 64% of households earning $100,000 to $200,000.

You might not think you’re a victim, at least until you get that letter from the IRS with penalties and interest. The IRS has an AMT estimation calculator on its Web site, but, to be sure, run through Form 6251.

MSN Money

Tests for Claiming the Earned Income Tax Credit for 2007

To claim the earned income tax credit you must:–File a tax return, even if you didn’t make enough in 2007 to be obligated to do so.

–Have a valid Social Security number.

–Have earned income from employment or self-employment.

–Not use the filing status of married, filing separately.

–Be a U.S citizen or resident alien all year, or a nonresident alien married to a U.S. citizen or resident alien and filing a joint return.

–Not be a qualifying child of another person.

–Not file Form 2555 or 2555-EZ, which are related to foreign earned income.

To claim the credit if you do not have a qualifying child, you must:

–Be at least 25 but under age 65 at the end of the year.

–Live in the United States more than half the year.

–Not qualify as a dependent of another person.

Your 2007 earned income and adjusted gross income must each be less than:

–$37,783 ($39,783 married filing jointly) with two or more qualifying children.

–$33,241 ($35,241 married filing jointly) with one qualifying child.

–$12,590 (14,590 married filing jointly) with no qualifying children.

–Investment income in 2007 must be $2,900 or less.

Maximum EITC credit for 2007:

–$4,716 with two or more qualifying children.

–$2,853 for one qualifying child.

–$428 with no qualifying child.

Who is a qualifying child? It depends on the child’s relationship to you, their age and their residency.

–RELATIONSHIP: Your son, daughter, stepchild, eligible foster child or a descendant of any of them (for example, your grandchild); brother, sister, half brother, half sister, stepbrother, stepsister or a descendant of any of them (for example, your niece or nephew); adopted child or descendant of adopted child.

–AGE: A child who meets the above definition and is under age 19 at the end of 2007; a full-time student who meets the definition and is under 24 at the end of 2007; someone permanently and totally disabled, regardless of age.

–RESIDENCY: A child who meets the above tests and lived with you in the United States for more than half of 2007.

See IRS Publication 596, “Earned Income Credit,” available in English and Spanish, for more details.

AP