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Free Online Tax Filing and Rapid Refund
Ready for online tax filing? First review these free 2007 tax filing tips, special deductions, and errors that can cost you.
Free Online Tax 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. Browse for rapid, free tax filing resource(s) on CreditFederal.com or visit the IRS tax site at irs.gov.
File electronically to get a fast 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.
Free IRS tax forms and publications: Download free from the IRS Web site in the "Forms and Publications" section, or you can order by mail by calling 1-800-829-3676.
Online tax help: The IRS web site has links to every tax topic.
Tax help by phone:
1-800-829-1040 for individuals
1-800-829-4059 (TDD) for the hearing impaired
1-800-829-4933 for businesses
Facts, Tips & News:
Filing Extension: Get an automatic 6 month extension to Oct. 15, 2008, by filing Form 4868 by the April deadline. However, any tax owed must be paid by April 15.
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 irs.gov for a list of vehicles and credit amounts.
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.
Most common tax filing mistakes:
Claiming the wrong filing status: Your filing status determines a number of tax benefits, like the child tax credit, earned income tax credit and dependent exemptions. Filing status choices are single, married filing jointly, married filing separately, head of household, and qualified widow with dependent child. You can't just pick one; each has requirements.
Wrong Social Security numbers: If these are incorrect, they won't match your government records and the IRS may disallow exemptions, credits and deductions.
Failing to sign and date your return: If you don't sign, the IRS doesn't consider the return filed. E-filed returns can be electronically signed, and this year the agency is simplifying that process. You or your tax preparer can use a PIN number to complete the filing process.
Claiming ineligible dependents: Make sure they qualify. If they don't have Social Security numbers, the IRS may disallow the exemption.
Not claiming (or misusing) the earned income tax credit: Millions of low-income working families qualify, but do not claim it for a variety of reasons. Even if you don't make enough money to be required to file a tax return, you may still be eligible for the credit. Because this is a refundable credit, it often means money back from the IRS. However, check the requirements because some taxpayers who try to claim the credit do not qualify for it.
Failing to report domestic workers: Some taxpayers do this to avoid paying Social Security and Medicare taxes for their workers, and it's against the law.
Failing to report all income: This means every source of income, even if you don't get a W-2 back from an employer, or a 1099 form from someone else you did work for.
Failing to check whether you are subject to the alternative minimum tax: If your deductions and taxes are so high as to wipe out much of your tax liability, it's a good chance you may be subject to AMT, a parallel tax system designed to make sure the wealthy pay their fair share. But you don't have to have vast wealth to fall under AMT. More middle income taxpayers are being ensnared by this tax. It's best to check.
Bad math: Mistakes in figuring your taxable income, tax amount, calculating tax deductions, capital gains, credits or money you owe or are due as a refund.
Not filing the right forms: IRS instructions spell out who has to file which form. There are, for example, short and long versions of the 1040. See "Which form should I use" in IRS Publication 17, "Your Federal Income Tax." Supporting documents and schedules must be filed for certain deductions, credits and other items.
Not filing or calculating self-employment tax. If you are self-employed, in most cases you need to file Schedule SE, "Self-Employment Tax."
Prepare for tax preparation - Most common records needed to prepare 2007 taxes for filing via computer software, professional tax preparers or by using paper tax return forms:
-Copy of 2006 tax return.
-W-2s from all employers.
-Forms 1099, 1099-DIV, 1099-R and 1099-G showing non-wage income, dividend or interest paid to you in 2007 as well as any refund, credit or offset of state and local taxes.
-Receipts indicating state and local taxes, real estate taxes and personal property taxes you paid in 2007.
-Form 1098 showing 2007 home mortgage interest and points, as well as mortgage insurance premiums on home acquisition debt that was new or refinanced in 2007.
-Receipts and documentation for all charitable contributions and gifts (cash and non-cash).
-Income receipts from rental real estate, royalties, partnerships, S corporation and trusts.
-Records of unemployment compensation, Social Security benefits or other income.
-Records of medical and dental expenses if you think you can meet the 7.5 percent adjusted gross income threshold required for this deduction.
-Documentation of casualty and theft losses.
-Total paid for day care, and tax identification number for daycare provider.
-Identifying documents - such as a Social Security card or driver's license - for you and your spouse in certain tax situations, such as when claiming the earned income tax credit.
-A bank routing number and an account number for direct deposit of refund.
Remember to keep a copy of your tax return and supporting documents for at least three years from the date you file the return. Many tax advisers say you should keep these for six years. Some records should be kept much longer. This includes anything needed to calculate a cost basis for IRAs and other investments that may be sold many years in the future. When in doubt, save.
Free tax tips:
For 2007 taxes, little things can add up. Small deductions, credits, and aide for homeowners caught in the mortgage crisis can increase tax refunds or lower taxes due.
Unfortunately, Congress' delayed fix of the alternative minimum tax has also delayed filing for several million early birds who usually submit returns months ahead of the April 15 deadline.
Affected were taxpayers claiming any of five credits related to the AMT. This year, they couldn't file before February. More than 13 million taxpayers claim those credits, the Internal Revenue Service said, but only about 3 million to 4 million typically file before Feb. 11, the agency's target date for processing those forms.
For 125 million other taxpayers it's business as usual, the IRS says. And for everyone, including those affected by the five AMT-related forms, tax returns are still due April 15. Taxes owed must be paid by that date, even if you file for the automatic six-month extension.
Filing electronically and having your refund electronically deposited into a bank account will get it to you weeks earlier than choosing to receive it by government check.
"We strongly encourage taxpayers to file electronically, particularly those affected by late tax law changes," said Linda Stiff, acting IRS commissioner. "Filing electronically makes things easier by reducing errors and speeding up refunds."
Taxpayers using home tax preparation software should check the companies' Web sites often for updates. Those still grappling with paper forms can print updated forms from the IRS Web site at irs.gov/formspubs or order them from the IRS by calling 1-800-829-3676.
Forms also are available at post offices, banks, public libraries and other outlets, though they might not be up to date. But then neither is the tax packet that last year's paper filers received by mail from the IRS in January, because it doesn't include those five AMT-related forms.
When the dust settles, you'll find there's little new this filing season, other than the usual inflation-related adjustments. But even small items can add up.
"Make sure that you've got the bases covered. Make sure you know all of the deductions you're entitled to, the credits you can claim," said Maggie Doedtman, client advice manager for H&R Block, the tax preparation giant.
Leading the list of new items for 2007 are tax breaks for homeowners facing foreclosure or struggling with house payments that include mortgage insurance premiums.
Mortgage insurance is required by government and private lenders on home purchases in which the buyer pays less than 20 percent as a down payment. For 2007, taxpayers can deduct mortgage insurance premiums on home acquisition debt that was new or refinanced in 2007. If you simply continued paying premiums on a mortgage that predated 2007, you can't deduct those.
Like many deductions, this one phases out as income rises. Only taxpayers with adjusted gross incomes of $100,000 or less take the full deduction.
Homeowners facing foreclosure have one bright spot, a provision Congress passed late last year as the mortgage crisis took its toll. Taxpayers 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 separately). Previously, loan forgiveness was often taxed as income.
Despite high fuel prices and other energy costs, energy tax breaks are petering out. Homeowners who made certain energy-saving home improvements in 2007 have one last chance to claim the residential energy credit, but only if they didn't use all the credit in 2006. Items that qualify include insulation, certain water heaters, air conditioners, fans, furnaces, skylights, exterior windows and doors, solar panels and metal roofs with pigmented coatings designed to reduce a home's heat gain.
The credit is usually 10 percent of the cost, though there may be separate limits for specific devices. The credit is limited to $500 for the 2006 and 2007 tax years combined.
Taxpayers who bought a new hybrid or alternative-fuel vehicle in 2007 are eligible for the alternative motor vehicle credit, but this phases out beginning in the second calendar quarter after the quarter in which the manufacturer records its 60,000th sale of hybrids and alternative fuel vehicles. Check the IRS Web site for specific manufacturers' models and allowable credits.
There's a new wrinkle in effect for 2007 charitable contributions: tighter record-keeping requirements for smaller cash contributions. Previously, for amounts under $250, a taxpayer's notes or personal check register reflecting the donations was sufficient documentation.
Now, all cash donations 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. These must list the charity, donation amount, date paid or transaction posting date. A charity's written acknowledgment showing that information is also OK.
You don't have to submit those records to the IRS, just keep them on hand in case you are audited.
"Everything on the tax form is only as good as the documentation behind it," said Mark Steber, vice president of tax resources at Jackson Hewitt Tax Service, which has 6,000 tax preparation locations across the country. "The IRS is not too forgiving on the 'trust me' phrase."
What are your chances of being audited? Slim, unless you have a high income and large deductions to go with it. That's also the group of taxpayers targeted by the AMT, a parallel tax system designed to make sure the wealthy don't use a lot of deductions to avoid paying their fair share of federal taxes.
However, increasingly moderate income taxpayers are ensnared by the tax because it isn't indexed for inflation. In December, Congress spared more than 20 million taxpayers an average extra $2,000 tax hit for 2007 by freezing AMT growth for a year.
Because Congress acted so late, the IRS had to scramble to reprogram its processing system. Since the AMT disallows deductions and credits, it affects a dozen or so tax forms used by many taxpayers, not just by the wealthy.
The IRS was able to rework most forms quickly. However, the forms for five credits required more significant reprogramming: Form 8863, "Education Credits"; Form 5695, "Energy Credits"; Schedule 2, "Child and Dependent Care Expenses for Form 1040A Filers"; Form 8396, "Mortgage Interest Credit"; and Form 8859, "District of Columbia First-Time Homebuyer Credit."
Two of the credits - the mortgage interest credit and the D.C. homebuyer credit - are used by relatively few taxpayers. And there's a way around Schedule 2 for the child and dependent care credit: Early filers could choose to switch to Form 1040 and attach Form 2441, "Child and Dependent Care Expenses."
The IRS and tax preparation professionals urged taxpayers to start on their returns as soon as W-2 forms arrive in January, even if they couldn't file until the next month.
Tim Gokey, group president of H&R Block retail tax services, said that while taxpayers could file a return without the AMT-related forms and amend it later, there were drawbacks to that approach. Amended returns must be mailed to the IRS, and refund checks on amended returns are mailed as well - a process that takes six to eight weeks.
Taxpayers are better off waiting until the forms were finalized, then e-filing the complete return, Gokey said. A refund on an e-filed return comes in eight to 10 days if the taxpayer has IRS deposit the money directly into a bank account.
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