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Federal Excise Tax Refund Credit Available on 2006 returns

On your 2006 tax return, be sure to take the "federal excise tax refund credit."

The Federal excise tax has been charged on your phone bill for many years. Its historical outgrowth is that it was imposed to help America pay for the cost of the Spanish American War, way back at the end of two centuries ago. The tax is charged on long distance calls.

The IRS has now conceded that the tax should not be charged. As of August 30, 2006, telephone companies are supposed to no longer assess the excise tax.

And, we all get a credit (assuming we had long distance service) on our 2006 tax returns as restitution. This refund applies to individuals and also to businesses.

Businesses have to calculate a formula using form 8913, to determine the amount of the credit due them. The amounts may vary based on the size of the business. Sole proprietors alternatively may take the standard amounts, as below.

For individuals, the credit is taken on line 71 of form 1040. Here are the credit amounts individuals get:

- $30 if you file as a single person with just you as a dependent.

- $40 if you file singly and claim a child or a parent as a dependent.

- $40 if you file as a married couple with no children.

- $50 if you file as married with one child.

- $60 if you file as married with two children.

The maximum you can claim as an individual is $60 -- except if you have retained all your phone bills from Feb 28, 2003 through July 31, 2006, then you can claim the actual tax as it appears on your bills, as your credit (use form 8913 if you claim the actual tax)

BEWARE OF COMMON TYPE TAX FRAUD SCHEMES

New York State Commissioner of Taxation and Finance Andrew S. Eristoff warned residents who are now preparing their income tax returns to beware
of common types of tax fraud schemes. For more information follow this link. http://www.tax.state.ny.us/press/2006/taxtipsfraud.htm

H&R BLOCK REPORTS TAX MISCUES

H&R Block Inc., which provides tax advice to millions of Americans, said on Thursday it had miscalculated its own state taxes, and it posted a drop of nearly 70 percent in its profits in the latest quarter. For details follow this link - http://www.msnbc.msn.com/id/11528461/from/ET/

IRS Streamlines Extension of Time to File for Business Taxpayers

All business taxpayers who previously filed extension forms 8800, 8736, 7004 and 2758 will now only need to file the revised Form 7004, "Application for Automatic 6-Month Extension of Time to File Certain Business Income Tax, Information, and Other Returns,” to request an automatic extension of time to file. The revised Form 7004 grants taxpayers an automatic six-month extension without the need to file intervening forms.
For the 2006 filing season, business taxpayers must file Form 7004 by the due date of the return in order to receive an automatic six–month extension of time to file. The extension period is calculated from the due date of the return.

BEWARE OF DISHONEST TAX PREPARERS

New York State Commissioner of Taxation and Finance Andrew S. Eristoff today advised New York State taxpayers to be cautious when selecting a
preparer for their personal income tax returns.

As the April 17 filing deadline approaches, dishonest tax preparers lure unsuspecting taxpayers by promising to claim deductions and obtain large
refunds that taxpayers may not be eligible to receive. These claims may be backed by fraudulent documentation.

To view the entire document please visit:: http://www.tax.state.ny.us/press/2006/chsprepcare.htm

Exempt Organization's Requirements for E-Filing

On January 12, the IRS released regulations that require certain tax-exempt organizations to file annual exempt organization returns electronically beginning in 2006.

For tax year 2006 returns due in 2007, the regulations require organizations with total assets of $100 million or more to file electronically.

Beginning in 2007, the electronic filing requirement will be expanded to include the annual returns of organizations with $10 million or more. In addition, private foundations and charitable trusts will be required to file Form 990-PF electronically regardless of their asset size.

The electronic filing requirements only apply to entities that file at least 250 returns, including income tax, excise tax, employment tax, and information returns, during a calendar year. Thus, for example, if an organization has 245 employees, it must file Form 990 or Form 990-PF electronically, because each Form W-2 and quarterly Form 941 is considered a separate return; thus the organization files 250 returns (245 W-2's, four 941's, and one 990/990-PF).

IRS Warns of Questionable Deductions for Donated Vehicles

To read the article, click HERE

IRS Warns of e-Mail Scam about Tax Refunds

The Internal Revenue Service recently issued a consumer alert about an Internet scam in which consumers receive an e-mail informing them of a tax refund. The e-mail, which claims to be from the IRS, directs the consumer to a link that requests personal information, such as Social Security number and credit card information.

The IRS does not ask for personal identifying or financial information via unsolicited e-mail. Additionally, taxpayers do not have to complete a special form to obtain a refund.

For more information, read the whole story "IRS Warns of e-Mail Scam about Tax Refunds" in the Newsroom section of the IRS.gov Web site.

Law Adds Debtor Tax Responsibilities

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which was effective October 17, adds new tax responsibilities for bankruptcy filers.

Under the new law, debtors must not only comply with filing their returns but also provide copies of the tax returns or risk dismissal or conversion of their case.

Also under BAPCPA, in order to have their plan confirmed, Chapter 13 debtors must file all tax returns for the four-year period before the bankruptcy petition.

Fact Sheet 2005-18, located on the IRS Newsroom page, provides more on this topic.

2006 Inflation Adjustments Widen Tax Brackets, Change Tax Benefits

Personal exemptions and standard deductions will rise, tax brackets will widen and individuals will be able to make larger tax-free gifts in 2006, thanks to inflation adjustments announced on October 31, 2005 by the Internal Revenue Service.

IRS Announces Pension Plan Limitations for 2006

WASHINGTON — The Internal Revenue Service today announced cost-of-living adjustments applicable to dollar limitations for pension plans and other items for tax year 2006.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the IRS commissioner annually adjust these limits for cost of living increases.

Many of the pension plan limitations will change for 2006. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Furthermore, several limitations, set by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), are scheduled to increase at the beginning of 2006.

For example, under EGTRRA, the limitation under section 402(g)(1) on the exclusion for elective deferrals described in section 402(g)(3) is increased from $14,000 to $15,000. This limitation affects elective deferrals to section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.

Click Here for more information.

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,

On April 14, 2005 , Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (S.256), also known as the Bankruptcy Reform Act (the Act), which amends Title 11 of the United States Code. The Act, awaiting the President's signature, addresses many areas of bankruptcy including consumer filings, commercial bankruptcy, and Chapter 12 family farmer reorganization. A key feature in the law is the establishment of a "needs-based" formula that directs debtors to Chapter 7 or Chapter 13 based on their ability to repay creditors.

Major provisions

The Act establishes a means test that determines whether a debtor is eligible for Chapter 7 relief, which generally discharges all unsecured debts, or must file under Chapter 13, which requires debtors to repay certain creditors in installments over three to five years. The intent is to compel debtors who are able to pay at least a portion of their debts to do so. Generally, a Chapter 7 case will be converted to Chapter 13 if the debtor can pay the lesser of (a) $10,000 or (b) the greater of (1) 25 percent of unsecured, non-priority debt or (2) $6,000. A debtor can rebut the means test by demonstrating "special circumstances," and certain "safe harbor" exemptions may apply.

Other major provisions of the Act include:

Consumer Bankruptcy

· New mandatory credit counseling—Debtors must undergo credit counseling within 180 days of the petition filing date, and must complete a personal financial management education course before they can obtain a discharge.

· Time between filings lengthened—A debtor who receives a Chapter 7 discharge can't receive another for eight years (up from six years under prior law). A debtor can't receive a Chapter 13 discharge within four years of a Chapter 7, 11, or 12 discharge, or within two years of a prior Chapter 13 discharge.

· Debtor's disclosure duties modified—Along with the documents mandatory under prior law, debtors must submit copies of tax returns, payroll stubs, and other documents with the petition.

· New creditor notification duty—Debtors must send effective notices to creditors of the bankruptcy filing. Creditors who do not receive such notices are not subject to penalties for violations of the automatic stay.

· Chapter 13 five-year payment plan expanded—Chapter 13 debtors with income over the state median must make payments over a five-year period, generally increasing the total amount they must repay. Debtors with income that is less than the state median will pay over a three-year period.

· Chapter 13 plan payment deductions allowed—A Chapter 13 debtor can deduct from plan payments the costs of health insurance, domestic support obligations, expenses to operate a business, and charitable contributions of up to 15 percent of gross income.

· Retirement savings exemption broadened—Up to $1 million held in tax exempt retirement accounts (including IRAs) is exempted. This cap may be increased if "the interests of justice so require." Prior to the Act, only ERISA qualified pension plans were unreachable by creditors.

· Exemption for education savings—Up to $5,000 per beneficiary held in education savings accounts is exempted, subject to certain IRS requirements.

· New state homestead exemption limits—Debtors who can choose a state homestead exemption over the federal exemption are bound by a prior state of residence for two years after moving to a more generous state. Further, the debtor can't claim more than $125,000 until he or she has resided in the new state for three years and four months.

· Residential lease exempted from automatic stay—Landlords can bypass the automatic stay and initiate or continue eviction proceedings.

· Non-dischargeable consumer debts expanded—Non-dischargeable debts now include state and local taxes. Federal taxes were non-dischargeable prior to the Act.

· Presumption of non-dischargeability limits expanded—Charges for "luxury goods and services" in excess of $500 made within 90 days of filing, and cash advances in excess of $750 made within 70 days of filing, are presumed non-dischargeable. Prior to the Act, the limits were $1,150/60 days.

· Domestic support obligations given top priority—Alimony, maintenance, and child support obligations have first priority among unsecured debts, are non-dischargeable, and are not subject to the automatic stay. Chapters 11, 12, and 13 discharges are contingent on full payment of all such obligations.

· Tenth priority created for DUI liability—Liabilities incurred in connection with operating a motor vehicle under the influence of alcohol or drugs have tenth priority among unsecured debts, and are non-dischargeable.

· Loans secured with personal property reaffirmation/surrender required—Chapter 7 debtors have 45 days after the petition filing date to reaffirm or redeem loans secured with personal property, or surrender the property. If the debtor fails to do so, the case is automatically dismissed.

· Secured loan payment continuation required—Chapter 13 debtors must continue making secured loan payments as originally obligated. Debtors must remit such payments to the bankruptcy trustee to be held until confirmation or denial of a payment plan.

Commercial Bankruptcy

· Expedited Chapter 11 created for small businesses—Businesses with less than $2 million in debts can file an expedited form of Chapter 11 reorganization.

· Chapter 11 exclusivity period shortened—A Chapter 11 debtor has only 18 months to propose a reorganization plan before creditors are allowed to propose their own plans. Prior to the Act, creditors were barred from making proposals indefinitely due to the debtor's ability to obtain extensions.

Agricultural Bankruptcy

· Chapter 12 made permanent—Chapter 12 family farmer reorganization is made permanent, and extended to include family commercial fishing operations and aquaculture.

· Chapter 12 eligibility debt limit raised—Family farmers must have aggregate debts of less than $3.37 million, of which 50 percent must arise from farming operations, to be eligible to file under Chapter 12. This figure is indexed for inflation. Prior to the Act, the limits were $1.5 million/80 percent, and these pre-Act rules still apply to family commercial fishing operations.

Additionally, the Act requires bankruptcy attorneys to make reasonable inquiries to confirm that information provided to the court is "well grounded." Attorneys will be held liable for misleading statements and inaccuracies, and may incur penalties and sanctions.

The Act also requires consumer lenders to make disclosures regarding introductory rates, minimum payments, late payment deadlines and penalties for open-end lines of credit, and tax consequences of certain home equity loans.

Most provisions of the Act will be effective 180 days after the legislation is signed into law, except the consumer lender disclosure requirements (effective 12 months or 18 months after signing).

TAX RELIEF GRANTED FOR HURRICANE RITA VICTIMS

The Internal Revenue Service has announced relief for taxpayers affected by Hurricane Rita. The President issued major disaster declarations covering Texas and Louisiana effective Sept. 23, 2005.

CONGRESS PASSES THE KATRINA EMERGENCY TAX RELIEF ACT OF 2005

On September 21 the House and Senate passed the Katrina Emergency Tax Relief Act of 2005. The $6.1 billion measure provides tax relief for individuals and businesses affected by the hurricane and incentives to promote charitable donations for victims. President Bush has promised to sign the bill as soon as he receives it.

Highlights of the legislation include:

Filing extension until February 28, 2006.
Penalty-free withdrawals from IRAs and other qualified retirement plans
Tax-free re-contributions of withdrawals made for interrupted home purchases
Expanded qualified plan loan limits
Expansion of the work opportunity tax credit
New employee retention credit
Temporary suspension of individual and corporate limitations on charitable contributions and overall limitation on itemized deductions
Increase in standard mileage rate for charitable use of vehicles and exclusion of mileage reimbursement to charitable volunteers
Expanded deduction for contributions of food and book inventories
Exclusions of certain hurricane related cancellations of indebtedness
Suspension of limitations of deduction of casualty losses
Additional exemptions for housing displaced individuals
Election for individuals to calculate their earned income tax credit and refundable child tax credit for 2005 using 2004 earned income
Temporary suspension of first-time homebuyer requirements to permit low-rate mortgages
Extension of the replacement period required for nonrecognition of gain.

Teachers and other educators can deduct up to $250 that they spend to buy classroom supplies. This popular tax break had expired at the end of 2003, but Congress renewed it for the 2004 and 2005 tax years as part of legislation passed in October and signed by the president. Even though the new law took effect late last year, you can count eligible classroom expenditures made at any time in 2004 on your current return. (And start filing away your 2005 receipts now.)

Even better, the deduction is claimed directly on Form 1040 or Form 1040A, meaning there's no need to itemize to get the break. Rather, it's an adjustment to your income, helping cut your tax bill by reducing your overall income. The less income to tax, the lower the tax bill.

1. Single: This applies to never-married, unmarried and divorced taxpayers. You are considered single for the whole year if you were legally single on the last day of the year.

2. Married filing jointly: In this case, as with the single status, you are considered married for the whole tax year as long as you were married on the last day of the tax year. And regardless of what your state says about marriage for same-sex couples, federal law -- and therefore the IRS for tax purposes -- considers only a legal union between a man and woman as a marriage.

When you file jointly, both husband and wife report all their income on one Form 1040. Both filers may be held responsible for any tax (or subsequent penalty and interest) due. This is the case even if only one spouse earned all the income. On the plus side, the married filing jointly option does offer some tax credits that are not available under other filing statuses.

3. Married filing separately: Here couples segregate their income, deductions and exemptions and file two individual returns. This might be advisable in cases where, for example, one spouse had large medical expenses. Since these costs must exceed a percentage of the filer's income before they are deductible, using only the eligible spouse's earnings by filing separately might make that deduction threshold more attainable.

In most cases, however, couples find they will generally pay more combined tax on separate returns than they would on a joint return. In some cases, at least one spouse's tax rate ends up higher than it would have been under a joint filing. Also, when a husband and wife file separate returns, they lose some tax credits and deductions they could have taken if they'd filed jointly.

Unless you are required to file separately, you should figure your tax both on a joint return and on separate returns. This way you can make sure you are using the method that results in the lowest combined tax.

4. Head of household: This status applies to unmarried taxpayers who provided more than half the cost of keeping up a home (for more than six months) for the filer and a qualifying relative. Tax rates for qualified filers usually are more favorable than those in the single or married filing separately categories. Head of household filers also get a larger standard deduction amount than do single filers. In some cases, married persons who have not lived with their spouses may qualify for this status.

5. Qualifying widow or widower with a dependent child: You can still file a joint return for the tax year in which your spouse passed away. After that, you might be eligible to file as a qualifying widow or widower.

This filing option is available for two years following the year of a spouse's death and basically applies the filing data afforded married joint filers. The key here is that the surviving spouse cared for a dependent child who lived with the adult for the full tax year. During that time, the taxpayer must have paid for more than half the cost of keeping up the home.

Under qualifying widower status, for example, a man whose wife died in 2003 could use this category for 2004 and 2005 returns. His status would have been married filing jointly on his 2003 return, the year he lost his wife. But for the two subsequent tax years as a single father, he is able to use the joint tax rates and, if he doesn't itemize, could claim the highest standard deduction amount.

Picking the right filing status isn't always easy; some individuals find they actually qualify to file as more than one type of taxpayer. This could be the case for a divorced mother. Although technically she could file as a single taxpayer, it would be a smarter tax move to file as a head of household since she is taking care of dependent children. Head of household would give her a tax rate lower than the single filer's rate, plus she'd get a bigger standard deduction.

So take the time to examine your personal situation and how it fits into the various filing status choices. IRS Publication 501 provides more details on each status's requirements, as well as specific exceptions, examples and worksheets to help you make the appropriate filing choice.

And always keep in mind that the IRS lets you file under the applicable status that offers you the best tax advantage. The tax savings you might get by selecting the correct status could make any extra trouble worthwhile.

A new payment option permits taxpayers and IRS to enter into installment agreements that result in full or partial payment of tax liabilities. A provision in the American Jobs Creation Act of 2004 amended IRC section 6159 permitting the use of Partial Payment Installment Agreements. The provision became effective January 17, 2005.

On March 6, 2005, the Internal Revenue Service unveiled its annual listing of notorious tax scams, the “Dirty Dozen,” reminding taxpayers to be wary of schemes that promise to eliminate taxes or otherwise sound too good to be true. To see the list, click HERE.

A recent decision by the IRS may provide considerable tax relief to homeowners who either used part of their home as a home office or have rented out part or all of their house. For more information click HERE.

The Internal Revenue Service has alerted taxpayers who itemize deductions that they may claim on their 2004 tax returns charitable donations made during Jan. 2005 for relief of the victims of the Indian Ocean Tsunami.

The new law enacted on Jan. 7 allows these donations to be deducted as if they were made on Dec. 31, 2004.

“There are no extra forms to fill out or any additional burdens for taxpayers,” said IRS Commissioner Mark W. Everson. “As long as you send your check by the end of the month, the donation will be treated just like it was still 2004.”

The Internal Revenue Service has announced a new Web-based tool to help working families determine if they are eligible for the Earned Income Tax Credit. The EITC Assistant will help take the guess work out of the EITC eligibility rules.

The Job Creation and Worker Assistance Act of 2002 created a 30-percent additional first-year depreciation allowance for qualifying MACRS property. A 2003 law subsequently raised the additional first-year depreciation allowance percentage from 30 percent to 50 percent for assets acquired after May 5, 2003. To qualify for bonus depreciation, the property must be acquired and placed in service before January 1, 2005.

The allowance is only available for new property that is depreciable under MACRS and has a recovery period of 20 years or less, is MACRS water utility property, is computer software depreciable over three years under Code Sec. 167, or is qualified leasehold improvement property.

Example: Joseph Long purchases $100,000 of new machinery that is MACRS 5-year property, where the half-year convention applies and no amount is expensed under Code Sec. 179. The property is purchased on June 1, 2004, and, therefore, qualifies for the 50-percent bonus depreciation rate. The 2004 bonus depreciation deduction is $50,000 ($100,000 cost x 50%). The depreciation table percentages for five-year property are applied to a depreciable basis of $50,000 ($100,000 - $50,000).

Individuals may elect to exclude from income up to $250,000 ($500,000 if married filing jointly) of gain realized from the sale of a principal residence.

Eligibility requires that the owner lived and owned the property for at least two out of the last five year period that ends on the date of sale. The two years need not be contiguous. A taxpayer can take this exclusion no sooner than once every two years.

Tax Tip - Even if you do not satisfy the ownership and/or use requirements you may still be eligible for a partial exclusion. This partial exclusion applies if you sold your home due to (1) a change in your place of employment, (2) health reasons (need proof), or (3) unforeseen circumstances (e.g. divorce or loss of employment).

Tax Tip - If you sell your home in the year that your spouse dies you can still claim the $500,000 exemption, if it would have been available otherwise.