Tax Tips 2008: Filing for The Tax Year 2008

WASHINGTON � The Internal Revenue Service today released a notice designed to help eligible homeowners who received federal reimbursement grants stemming from Hurricanes Katrina, Rita or Wilma take advantage of a new tax provision.

Notice 2008-95 provides guidelines to homeowners who received these grants, including the Louisiana Road Home Grants and the Mississippi Development Authority Hurricane Katrina Homeowner Grants.

The Housing and Economic Recovery Act, enacted this summer, included the new provision, aimed at helping grant recipients who previously claimed hurricane-related disaster-loss deductions on their main home. The new law gives affected homeowners the option of adjusting previously claimed deductions by treating their federal reimbursement grants as reimbursement for the losses they suffered on their main home from Hurricanes Katrina, Rita or Wilma.

Before this change, homeowners who claimed casualty loss deductions and received grants in a later tax year as reimbursement for the loss were required by law to pay tax on part or all of the grant to compensate for the tax benefit of the prior deduction. While individual circumstances varied, this meant that some taxpayers ended up paying more tax on the grant than they saved by claiming the deduction.

The notice explains how eligible taxpayers can amend prior-year returns to reduce the casualty loss deduction by the amount of the grant, and explains that taxpayers have one year to pay back any resulting tax due, penalty-free and interest-free. To qualify for this relief, these amended returns must be filed by July 30, 2009, and the entire resulting tax due paid by July 30, 2010, in most cases. The notice also provides special instructions for those taxpayers who have already filed an amended return.

Taxpayers should write the words, �Hurricane Grant Relief� in dark, bold letters at the top of their amended return, Form 1040X, and mail it to: Internal Revenue Service Center, Austin, TX 73301-0255. Amended returns cannot be filed electronically.

The IRS cautioned that, although filing an amended return may be a good option for many, it won�t necessarily be the right choice for everyone. The agency urges affected taxpayers and their representatives to consider carefully which option is best under their particular circumstances.

Small Business/Self-Employed/Other Business: Form SS�4 & Employer Identification Number (EIN)

Yes, an employer identification number, or EIN, is also known as a taxpayer identification number, or TIN. A sole proprietorship that has no employees and files no excise or pension tax returns and a LLC with a single owner (where the owner will not be filing employment tax returns) are the only businesses that do not need an employer identification number. In these instances, the sole proprietor uses his or her social security number as the taxpayer identification number.

Small Business/Self-Employed/Other Business: Form W�2, FICA, Medicare, Tips, Employee Benefits

As an employer, do I have any liability if my employees receive tips but don't report them to me?

Employees who customarily receive tips are required to report their cash tips to their employers at least monthly, if they receive $20 or more in the month. Cash tips are tips received directly in cash or by check, and charged tips. You have a liability to withhold and pay Social Security and Medicare tax on your employees' reported tips, to the extent that wages or other employee funds are available. If the employee does not report tips to you, it places you at risk of possible assessment of the employers share of the Social Security and Medicare taxes on the unreported tips. If you are a large food or beverage establishment (more than 10 employees on a typical day and food or beverages consumed on the premises), you are required to allocate tips if the total tips reported to you are less than 8% of gross sales. Report the allocated amount on the employee's W-2 at the end of the year. Beginning January 01, 2007, IRS is offering a three-year-pilot program, "The Attributed Tip Income Program (ATIP), for food and beverage employers. This reduces industry recordkeeping burdens, has simple enrollment requirements and promotes reporting tips on Federal Income tax returns. This benefits both the employer and employee. This information may be found in Revenue Procedure 2006-30.

Publication 1872 (PDF), Tips on Tips - A Guide to Tip Income Reporting for Employees in the Food and Beverage Industry

Publication 1875 (PDF), Tips on Tips - A Guide to Tip Income Reporting for employers in the Food and Beverage Industry

WASHINGTON � Only days remain until the Oct. 15 deadline for retirees and disabled veterans to file an income tax return that will allow them to receive an economic stimulus payment this year.

The Internal Revenue Service also reminds retirees and disabled veterans that the money received from the economic stimulus payment will generally have no impact on eligible for Medicare, Medicaid or other benefits. In addition, the payment generally will not be counted as income or require the recipients to file future income tax returns.

�This really is the last chance for people to still get their stimulus payments this year. Don�t let the economic stimulus payment pass you by,� said IRS Commissioner Doug Shulman.

The Internal Revenue Service�s latest estimate indicates as many as 4.3 million recipients of certain Social Security and Veterans Affairs benefits who may be eligible for the economic stimulus payment but who have not yet claimed their stimulus payments. People must file an income tax return in order to receive an economic stimulus payment.

For people who have no tax liability and who have no requirement to file a tax return because their income is too low or nontaxable there is a stimulus payment of up to $300 ($600 for married couples) plus the $300 payment for each qualifying child. However, people in this situation must have at least $3,000 in qualifying income from any combination of earned income, nontaxable combat, and certain Social Security, Veterans Affairs and Railroad Retirement benefits.

Also, those who are dependents or eligible to be dependents on another�s tax return are not eligible. People must have a valid Social Security Number unless their spouse is a member of the military.

Local IRS Offices, search for the IRS Taxpayer Assistance Center closest to you.

WASHINGTON � The Internal Revenue Service has acknowledged the certifications by manufacturers that certain advanced lean-burn technology vehicles qualify for the alternative motor vehicle tax credit.

Before, only hybrid vehicles, fuel cell vehicles and alternative fuel vehicles had been certified, but now certain advanced lean-burn technology vehicles, which generally run on diesel fuel have been certified. These vehicles are passenger cars or light trucks with an internal combustion engine designed to operate primarily using more air than is necessary for complete combustion of the fuel. The vehicles also must incorporate direct fuel injection technology and achieve at least 125 percent of the 2002 model year city fuel economy rating.

Available credit amounts may vary and include a base credit amount based on fuel economy compared to the 2002 model year city fuel economy rating and an additional amount based on the vehicle�s lifetime fuel savings. For a taxpayer to claim the credit, the original use of the vehicle must begin with the taxpayer and the vehicle must be acquired for use or lease by the taxpayer and not for resale.

The alternative motor vehicle tax credit was enacted by the Energy Policy Act of 2005 under Internal Revenue Code Section 30B and includes the advanced lean-burn technology motor vehicle credit and the qualified hybrid motor vehicle credit.

There is a limitation on the number of qualified hybrid and advanced lean-burn technology vehicles eligible for credit. The phase-out period begins when a manufacturer sells 60,000 qualified hybrid and advanced lean-burn technology vehicles.

Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid passenger automobile or light truck or advanced lean-burn technology motor vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

Small Business/Self-Employed/Other Business: Form 1099�MISC & Independent Contractors

Both of these forms are called information returns. The Form W-2 is used by employers to report wages, tips and other compensation paid to an employee. The form also reports the employee's income tax and Social Security taxes withheld and any advanced earned income credit payments. The Form W-2 is provided by the employer to the employee and the Social Security Administration. A Form 1099-MISC is used to report payments made in the course of a trade or business to another person or business who is not an employee. The form is required among other things, when payments of $10 or more in gross royalties or $600 or more in rents or compensation are paid. The form is provided by the payer to the IRS and the person or business that received the payment.

* Tax Topic 752, Form W-2 - Where, When, and How to File * Form W-2 and W-3 Instructions * Form 1099-MISC Instructions

Small Business/Self-Employed/Other Business: Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation

Are partners considered employees of a partnership or are they self-employed?

Partners of a partnership are considered to be self-employed. The partnership must furnish copies of Schedule K-1 to the partners by the partnership information return due date or extended due date. If you are a member of a partnership that carries on a trade or business, your distributive share of the income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.

* Form 1065 Instructions, U.S. Partnership Return of Income * Publication 334, Tax Guide for Small Business * Revenue Ruling 69-184 * Publication 541, Partnerships

Small Business/Self-Employed/Other Business: Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation

Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?

It is possible for either the husband or the wife to be the owner of the sole proprietor business. When only one spouse is the owner, the other spouse can work in the business as an employee. If a married couple who file a joint tax return elect to conduct their business activities as a qualified joint venture, (a trade or business in which the husband and wife materially participate in such venture), the spouses must divide the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture. For more information see Election for Husband and Wife Unicorporated Businesses This is effective for taxable years beginning after December 31, 2006. Also, see Rev. Proc. 2002-69 for Special Rules for Spouses in Community States.

Interest/Dividends/Other Types of Income: Life Insurance & Disability Insurance Proceeds

Are proceeds paid under a life insurance contract taxable and do they have to be reported as income?

Generally, if you receive the proceeds under a life insurance contract because of the death of the insured person the benefits are not taxable income and do not have to be reported. Any interest you receive would be taxable and would need to be reported just like any other interest received.

However, if the policy was transferred to you for valuable consideration, the exclusion for the proceeds is limited to the sum of the consideration you paid, additional premiums you paid, and certain other amounts. There are some exceptions to this rule. For additional information, see Publication 525, Taxable and Nontaxable Income.

WASHINGTON � Approximately four hundred U.S. colleges and universities will begin receiving compliance questionnaires from the Internal Revenue Service in the next few days as part of the agency�s focused effort to study key areas in the tax-exempt community. The college and university questionnaire will focus on unrelated business income, endowments and executive compensation practices. The questionnaires are being sent to a cross-section of small, mid-sized and large private and public four-year colleges and institutions.

Private nonprofit universities are generally exempt from tax under Internal Revenue Code section 501(c)(3) and like state universities are subject to unrelated business income tax.

�This effort reflects our work to build a better understanding of the largest, most complex organizations in the tax-exempt sector,� said Doug Shulman, IRS commissioner. �The information gathered will help us identify issues and areas that may need more outreach and education or further scrutiny.�

Among other things, the questionnaire will gather information from the schools about how they report revenues and expenses from their trade or business activities, classify their activities as exempt or taxable activities, and calculate and report income or losses on taxable activities. The questionnaire also will gather information regarding how the organization invests and uses its endowment funds and determines compensation of certain highly paid individuals.

The IRS said it expects to receive most of the responses within the next several months, analyze the results of the compliance questionnaire and conduct examinations of a sample of the organizations. The IRS said it expects to issue a report on the project in 2009.

I retired last year, and started receiving social security payments. Do I have to pay taxes on my social security benefits?

The amount of income tax, if any, that you must pay on the social security benefits you receive depends on the total amount of your income and benefits for the taxable year. If you are married and file a joint return, you must combine your incomes and your social security and equivalent tier 1 railroad retirement benefits when figuring the taxable portion of the benefits.

The taxable amount of the benefits is figured on a worksheet in the Form 1040 Instructions or Form 1040A Instructions book, or in Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Refer to Publication 915, for base amounts and additional information regarding taxability and reporting requirements. Or, Tax Topic 423, Social Security and Equivalent Railroad Retirement Benefits, includes additional information regarding taxability and reporting requirements.

Sale or Trade of Business, Depreciation, Rentals: Personal Use of Business Property (Condo, Timeshare, etc.)

I rent my home out for two weeks each year. Do I have to show the income on my return?

You must first consider if you use any dwelling as a home. You are considered to use a dwelling as a home if you use it for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days it is rented to others at a fair rental price.

It is possible that you will use more than one dwelling unit as a home during the year. For example, if you live in your main dwelling unit for 11 months and in your vacation home for 30 days, your main dwelling unit is a home and your vacation dwelling unit is also a home unless you rent your vacation dwelling unit to others at a fair rental value for more than 300 days during the year.

There is a special rule if you use a dwelling as a home and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.

If you itemize your deduction on Form 1040, Schedule A (PDF) Itemized Deductions, you may be able to deduct mortgage interest, property taxes, and any casualty losses. For additional information, refer to Tax Topic 415, Renting Vacation Property/Renting to Relatives and Publication 527, Residential Rental Property (including Rental of Vacation Homes).

Private nonprofit universities are generally exempt from tax under Internal Revenue Code section 501(c)(3) and like state universities are subject to unrelated business income tax.

Sale or Trade of Business, Depreciation, Rentals: Personal Use of Business Property (Condo, Timeshare, etc.)

I rent my home out for two weeks each year. Do I have to show the income on my return?

There is a special rule if you use a dwelling as a home and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.

Is an S-Corporation required to pay quarterly estimated tax?Rarely does an S corporation make estimated tax payments. On rare occasions the following taxes may have estimated consequences if the total of these taxes is more than an amount specified by law:

For more information regarding estimated tax, refer to Form 1120S Instructions, U.S. Income Tax Return for an S Corporation, under topic Estimated Tax Payments, and Publication 542, Corporations, under topic Paying and Filing Income Taxes.

Can a person receive a tax refund if they are currently in a payment plan for prior year's federal taxes?

As a condition of your agreement, any refund due you in a future year will be applied against the amount you owe. Therefore, you may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. The IRS will automatically apply the refund to the taxes owed. If the refund does not take care of the tax debt; you must continue the installment agreement.

What can I do if I think someone has filed a tax return using my social security number?

The IRS has security measures in place to verify the accuracy of tax returns and the validity of social security numbers submitted. However, if you receive a notice from IRS that leads you to believe someone may have used your social security number fraudulently, please notify IRS immediately by responding to the name and number printed on the notice or letter.

You can contact the Federal Trade Commission (FTC) Identity Theft Hotline at (877) 438-4338 if you suspect someone else is using your social security number, or to secure information on how to prevent identity theft.

Is the money received from the sale of inherited property considered taxable income?

To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of inherited property is generally one of the following:

(1) The fair market value (FMV) of the property on the date of the decedent's death.

(2) The FMV of the property on the alternate valuation date if the executor of the estate chooses to use alternate valuation. See the Form 706 Instructions, United States Estate (and Generation-Skipping Transfer) Tax Return.

If you or your spouse gave the property to the decedent within one year before the decedent's death, see Publication 551, Basis of Assets.

Report the sale on Form 1040, Schedule D (PDF), Capital Gain and Losses. If you sell the property for more than your basis, you have a taxable gain. For information on how to report the sale on Schedule D, please see Publication 550, Investment Income and Expenses.

What should I do if I made a mistake on my federal return that I have already filed?

It depends on the type of mistake that you made. Many mathematical errors are caught in the processing of the tax return itself. If you did not attach a required schedule the service will contact you and ask for the missing information.

If you did not report all your income or did not claim a credit, you are entitled to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return. Include copies of any schedules that have been changed or any Form W-2 (PDF) you did not include. The Form 1040X (PDF) should be submitted after you receive your refund or by the due date of the return, whichever, is earlier. Generally, to claim a refund, the Form 1040X (PDF) must be received within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.

WASHINGTON � The Oct. 15 deadline to file a 2007 income tax return and to receive an economic stimulus payment this year is fast approaching.

This is the deadline for the estimated 4.3 million retirees and disabled veterans who may be eligible to receive a stimulus payment but who normally don�t file a tax return.

It�s also the deadline for the approximately 10 million people who earlier this year received extensions to file their 2007 income tax return.

�Don�t let the economic stimulus payment pass you by,� said IRS Commissioner Doug Shulman. �If you want the payment this year, you should file by Oct. 15. We recognize that there may be older Americans and disabled veterans who still have not filed for their stimulus payment. If you know of a friend, neighbor or family members who may be in that situation, please give them a hand if they need it.�

The IRS has accounted for nearly 80 percent of the Social Security and Veterans Affairs beneficiaries initially identified as potentially eligible.

The IRS has yet to hear from an estimated 4.2 million people who receive certain Social Security benefits and 178,000 who receive certain Veterans Affairs benefits. The agency twice has sent to this group letters that enclosed a Form 1040A, a sample tax form and instructions for sending the tax return to the IRS. If these instructions have been misplaced, the fastest way to obtain a Package 1040A-3 is to go to IRS.gov or to local IRS offices. There are more than 400 local offices nationwide where people can get assistance in preparing the return as well. A return also can be prepared and submitted for free through Free File which is available at IRS.gov.

People must file a tax return in order to receive an economic stimulus payment even if they normally are not required to file a return.

For eligible individuals, the Economic Stimulus Act of 2008 provided for stimulus payments of up to $600 ($1,200 for married couples) or the amount of the taxpayer�s 2007 net income tax liability, whichever is less. There also is a $300 payment for each qualifying child.

There is an income phase-out, starting at adjusted gross income amounts of $75,000 for single taxpayers and $150,000 for married taxpayers.

For people who have no tax liability and who have no requirement to file a tax return because their income is too low or nontaxable there is a stimulus payment of up to $300 ($600 for married couples) plus the $300 payment for each qualifying child. However, people in this situation must have at least $3,000 in qualifying income from earned income, nontaxable combat pay as well as certain benefits from Social Security, Veterans Affairs and Railroad Retirement.

Qualifying income from Social Security includes retirement, disability and survivor benefits. Supplemental Security Income is not a qualifying income. Qualifying income from Veterans Affairs includes disability compensation, disability pension and survivor benefits. Qualifying Railroad Retirement Board benefits include the social security equivalent portion of Tier I benefits. Also, those who are dependents or eligible to be dependents on another�s tax return are not eligible. People must have a valid Social Security Number unless their spouse is a member of the military.

The IRS has partnered with numerous organizations, including AARP, Center on Budget and Policy Priorities, National Council on Aging, Community Action Partnership, United Way, National League of Cities, National Disability Institute and National Community Tax Coalition. These organizations also are conducting outreach efforts to older Americans and veterans.

Also, each year, there are approximately 10 million taxpayers who request an extension from the April 15 deadline to file their tax return. The extension applies only to filing a return, not to paying any taxes owed. Oct. 15 is a final deadline for these extension taxpayers to avoid any penalties. They, too, may be eligible for the economic stimulus payment but must file a 2007 return by Oct. 15 to receive the payment this year.

By law, the IRS cannot disperse any economic stimulus payments after Dec. 31. However, people who may be eligible for an economic stimulus payment can claim a credit in 2009 by filing a 2008 income tax return.

As of Aug. 29, the IRS has issued $93 billion in economic stimulus payments to 114.8 million individuals and families.

Those who already have filed a 2007 tax return but who have not yet received an economic stimulus payment, can check on the status of your payment by going to �Where�s My Economic Stimulus Payment?� on the IRS.gov Web site.

People also can call 1-866-234-2942 and, after selecting English or Spanish language, should press 2 to check on the status of the stimulus payment. People will need their Social Security Number (the one listed first on the 2007 return), filing status (single, married, etc) and the number of exemptions claimed on the return.

I received social security benefits this year that were back benefits prior years. Do I amend my returns for prior years? Are the back benefits paid in this year for past years taxable for this year?

You must include the taxable part of a lump-sum (retroactive) payment of benefits received in the current year in your current year's income, even if the payment includes benefits for an earlier year.

Generally, you use your current year's income to figure the taxable part of the total benefits received in the current year. However, you may be able to figure the taxable part of a lump-sum payment for an earlier year separately, using your income for the earlier year. You can elect this method if it lowers the taxable portion of your benefits. Refer to Publication 915, Social Security and Equivalent Railroad Retirement Benefits, for a detailed explanation of the election and worksheets. Refer to Tax Topic 423, Social Security and Equivalent Railroad Retirement Benefits.

WASHINGTON � The Internal Revenue Service today announced cost of living adjustments applicable to dollar limitations for pension plans and other items for Tax Year 2008.

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

Many of the pension plan limitations will change for 2008 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, for others, the limitation will remain unchanged. For example, the limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $15,500. This limitation affects elective deferrals to Section 401(k) plans and to the Federal Government�s Thrift Savings Plan, among other plans.

Effective January 1, 2008, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $180,000 to $185,000. For participants who separated from service before January 1, 2008, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2007, by 1.0236.

The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $45,000 to $46,000.

The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $15,500.

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $225,000 to $230,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $145,000 to $150,000.

The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $915,000 to $935,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $180,000 to $185,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $100,000 to $105,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $335,000 to $345,000.

The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $500.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $10,500.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $15,500.

The compensation amounts under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of �control employee� for fringe benefit valuation purposes remains unchanged at $90,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $180,000 to $185,000.

The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). These dollar amounts and the adjustments are as follows:

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing a joint return is increased from $31,000 to $32,000; the limitation under Section 25B(b)(1)(B) is increased from $34,000 to $34,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $52,000 to $53,000.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $23,250 to $24,000; the limitation under Section 25B(b)(1)(B) is increased from $25,500 to $25,875; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $39,000 to $39,750.

The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $15,500 to $16,000; the limitation under Section 25B(b)(1)(B) is increased from $17,000 to $17,250; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), from $26,000 to $26,500.

The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $83,000 to $85,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $52,000 to $53,000. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $156,000 to $159,000.

The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(I) for determining the maximum Roth IRA contribution for taxpayers filing a joint return or as a qualifying widow(er) is increased from $156,000 to $159,000. The adjusted gross income limitation under Section 408A(c)(3)(C)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $99,000 to $101,000.

Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.

The income limit for the savers credit is $53,000 for joint filers (up $1,000), $39,750 for heads of household (up $750) and $26,500 for singles and married persons filing separately (up$500). Low-and moderate income workers who contribute to a retirement plan, such as an IRA or 401(k), may qualify for the credit, which is available in addition to any other tax savings that apply.

The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000) and $101,000 (up from $99,000) for singles and heads of household.

For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000).

Participants in most employer-sponsored 401(k) plans and 403(b) plans for employees of public schools and certain tax-exempt organizations can contribute up to $15,500, unchanged from 2007. Individuals, age 50 or over, can make an additional contribution of up to $5,000, also unchanged from 2007.

Individuals participating in SIMPLE retirement plans can contribute $10,500, unchanged from 2007. Those, age 50 or over, can make an additional contribution of up to $2,500, also unchanged from 2007.

The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.

More information about the pension and retirement plan-related changes can be found in IR-2007-171. Other inflation adjustments are described in Revenue Procedure 2007-66.

"Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers."

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2008-63 on the optional standard mileage rates.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Tax Statistics Produced by the Statistics of Income Division and Other Areas of the Internal Revenue Service

WASHINGTON � People who are awaiting an economic stimulus payment or who have yet to file can avoid common errors that may delay their payment. They also can use the IRS Web site to answer most common questions.

The Internal Revenue Service, which is still issuing economic stimulus payments, has been studying trends and common issues in filing errors and questions posed by people calling its customer service telephone lines.

The most common question posed to the IRS is from people wondering when they will receive their stimulus payment. The question can be answered easily by going to IRS.gov and using the �Where�s My Economic Stimulus Payment?� Web tool.

Here�s how to avoid common mistakes:

* File only one tax return � People should file only one 2007 tax return. It takes the IRS up to 12 weeks to process paper returns and issue the stimulus payments. However, some people are filing more than one tax return in an effort to receive a stimulus payment, which could further delay their stimulus payment. The IRS is concerned there will be more multiple filings as the October 15 deadline approaches for filing a return in 2008. * List qualifying income � Some people are listing their monthly income instead of annual income. People must list their annual amount of qualifying income to be eligible for the minimum payment of $300 ($600 married filing jointly.) The qualifying income required by law is at least $3,000 in benefits from Social Security, Veterans Affairs and Railroad Retirement, earned income and/or combat pay. * Review Your Tax Liability � Some people who have either small amounts of tax liability or no tax liability are getting smaller stimulus payments than they expected or none at all. Generally, the law provided for a maximum stimulus payment of $600 ($1,200 for married couples) or an amount equal to a taxpayer�s tax liability, whichever was less. Tax liability is the net amount of federal income taxes paid after deductions and credits. If people had no tax liability but had at least $3,000 of �qualifying income� from specific sources, they would be eligible for $300 ($600 for married couples.) There also is a $300 payment for each qualifying child. * Amended return � Generally, people cannot file an amended return solely to get an economic stimulus payment unless they are a retiree, veteran or have other �qualifying income.� While amended returns will be processed to correct the income, deductions and income tax as appropriate, the economic stimulus payment amount will not be adjusted based on an amended return. If people do not receive a payment this year, they can claim it when they file their tax return in 2009. * Use Most Current Address � People must use their most current address in order to receive a timely payment. People who change addresses after filing should complete Form 8822 and a change of address card with the U.S. Postal Service. If the postal service is unable to deliver the payment, it is returned to the IRS.

People must file a 2007 tax return by October 15 in order to receive the economic stimulus payment this year, even if they normally do not have a filing requirement because their income is too low or not taxable. The IRS already has issued 90 percent of the economic stimulus payments but will continue to issue payments through December.

For people who filed a 2007 tax return eight to 12 weeks ago but who have not received a payment, the quickest and easiest way to track the status of the payment is to go to �Where�s My Economic Stimulus Payment?� on IRS.gov. The online tool will report when the payment has been issued. People will need their Social Security Number, their filing status and the number of exemptions claimed on their tax return to use this tool.

The IRS online tool also can report other issues, such as ineligibility because income was too high or the returning of an undeliverable payment to the IRS.

The economic stimulus payment begins to phase out for individuals whose income is $75,000 or more and for joint returns with income of $150,000 or more. To be eligible, a person cannot be a dependent or eligible to be a dependent of another person. To be eligible, an individual must have a valid Social Security Number unless his or her spouse serves in the military. Supplemental Security Income (SSI) does not count as �qualifying income� for stimulus payment purposes.

The biggest mistake of all would be failing to file a 2007 return in order to receive the stimulus payment, especially for people who are eligible but who do not normally file a tax return because their income is low or nontaxable. People in this category can use a Form 1040A, provide a little information to complete the return and send it to the IRS by October 15. People also are urged to help friends, family or neighbors who may be in this category and unaware of their eligibility.

People who do not file a tax return by October 15 can still obtain their economic stimulus payments when they file their 2008 tax return. If they wait until next year to file, their payments will be based on their 2008 income and personal situations rather than on 2007 information.

Related Items:

* Stimulus Payments - It's Not Too Late

Tax Tips September 9 2008

Hurricane Gustav Victims Qualify for IRS Disaster Relief

IR-2008-100, Sept. 3, 2008

Updated Sept. 4 to add St. Tammany and Tangipahoa parishes

WASHINGTON � The Internal Revenue Service is providing tax relief to victims of Hurricane Gustav in affected areas of Louisiana.

The IRS is postponing until Jan. 5, 2009 deadlines for taxpayers who reside or have a business in the disaster area. The postponement applies to return filing, tax payment and other time-sensitive acts otherwise due between Sept. 1, 2008 and Jan. 5, 2009. This includes:

* Individual estimated tax payments due Sept. 15, 2008. * Corporate extended 1120 tax returns due Sept. 15, 2008. * Individual extended 1040 tax returns due Oct. 15, 2008.

�As residents of Louisiana return to their homes following Hurricane Gustav, taxes are one thing they won�t need to worry about,� IRS Commissioner Doug Shulman said. �This relief gives them extra time to get their lives in order before having to deal with their tax matters.�

In addition, the IRS will waive the failure to deposit penalties for employment and excise deposits due on or after Sept. 1, 2008 and on or before Sept. 16, 2008 as long as the deposits are made by Sept. 16, 2008.

Other provisions are listed in the Grant of Relief section below.

Taxpayers who reside in or have a business located in the following parishes qualify for the relief announced today: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Cameron, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, Rapides, Sabine, St. Bernard, St. Charles, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, St. Tammany, Tangipahoa, Terrebonne, Vermilion, Vernon, West Baton Rouge and West Feliciana.

IRS computer systems automatically identify taxpayers located in the covered disaster area and apply automatic filing and payment relief. Affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request tax relief.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing or payment due date between Sept. 1, 2008 and Jan. 5, 2009.

Covered Disaster Area

The Louisiana parishes listed above constitute a covered disaster area for purposes of Treas. Reg. � 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. � 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose books, records, or tax professionals� offices are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area are eligible for relief.

Grant of Relief

Under section 7508A, the IRS gives affected taxpayers until Jan. 5, 2009 to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns) or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after Sept. 1, 2008 and on or before Jan. 5, 2009.

The IRS also gives affected taxpayers until Jan. 5, 2009 to perform other time-sensitive actions described in Treas. Reg. � 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (August 20, 2007) that are due to be performed on or after Sept. 1, 2008 and on or before Jan. 5, 2009. This relief also includes the filing of Form 5500 series returns in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098 or 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise deposits due on or after Sept. 1, 2008 and on or before Sept. 16, 2008 provided the taxpayer made these deposits by Sept. 16, 2008.

Casualty Losses

Affected taxpayers in a presidentially declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year�s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements but they must first subtract $100 for each casualty event and then subtract 10 percent of their adjusted gross income from their total casualty losses for the year. For details on figuring a casualty loss deduction, see IRS Publication 547, Casualties, Disasters and Thefts.

Affected taxpayers claiming the disaster loss on last year�s return should put the Disaster Designation �Louisiana/Hurricane Gustav� at the top of the form so that the IRS can expedite the processing of the refund.

Free Return Copies and Transcripts

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from this Web site or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

* Disaster Assistance and Emergency Relief for Individuals and Businesses * Recent IRS Disaster Relief Announcements

Tax Tips September 8 2008

Stimulus Payments � It's Not Too Late

Updated July 18, 2008

If you haven't yet filed a tax return to get your stimulus payment, you still have time to do so. But you must file by Oct. 15 to get your payment this year. And if you've already filed to get your payment but have a question or issue, it might be addressed here.

Tax Tips September 7 2008

Miscellaneous Expenses

Certain employee expenses are deductible as miscellaneous itemized deductions on Form 1040, Schedule A (PDF). Miscellaneous itemized deductions are subject to a 2% limit, which means you only can deduct certain expenses to the extent that they exceed 2% of your adjusted gross income from the total amount of deductions.

For additional information, refer to the Form 1040, Schedule A&B Instructions, and Publication 529, Miscellaneous Deductions, or Publication 946, How To Depreciate Property. If you want more in-depth information about educational expenses, refer to Topic 513. For further information on employee business expenses, refer to Topic 511, and Topic 512.

Tax Tips September 6 2008

Issue Number: IR-2008-101

Inside This Issue

IRS Hiring of Military Veterans Surpasses Goal

WASHINGTON � The Internal Revenue Service today announced that it has met its goal of hiring at least 1,000 military veterans this fiscal year, and the agency will continue to focus its recruitment efforts toward this important group.

The IRS� goal was to hire at least 1,000 military veterans during the fiscal year. In fiscal year 2008, which ends September 30, the agency has hired 1,052 veterans.

�The men and women who served America in the military are highly capable and trained individuals ready to supply valuable skills needed by the IRS, or any employer for that matter. I am pleased the IRS has met its goal. But we are not going to stop there. We will continue to recruit from this talented pool of people who already have demonstrated their leadership, work ethic and dedication,� said IRS Commissioner Doug Shulman.

During his confirmation hearing before the Senate Finance Committee, Shulman pledged to do everything possible to increase the hiring of veterans.

Earlier this year, the IRS Human Capital Office developed Veteran Hiring, Employment and Recruitment Opportunities (V-HERO) to recruit veterans and transitioning military personnel. In this effort, the IRS is partnering with veterans� organizations, other government agencies and job fairs.

The IRS has developed partnerships with the Paralyzed Veterans of America, the American Legion, the Veterans of Foreign Wars and the Blinded Veterans of America. IRS staff meets often with these organizations� membership to discuss employment opportunities.

The IRS also is participating in the Defense Department�s Operation War Fighter Program and the Veterans Affairs� Coming Home to Work initiatives. The programs also provide job opportunities for veterans and transitioning military personnel.

The IRS also has launched a web-based advertising campaign, called America�s Heroes, and a print media advertising campaign to recruit veterans will begin this fall.

Tax Tips September 5 2008

GUSTAV DISASTER RELIEF

Issue Number: IR-2008-100

Inside This Issue

Hurricane Gustav Victims Qualify for IRS Disaster Relief

WASHINGTON � The Internal Revenue Service is providing tax relief to victims of Hurricane Gustav in affected areas of Louisiana.

* Individual estimated tax payments due Sept. 15, 2008. * Corporate extended 1120 tax returns due Sept. 15, 2008. * Individual extended 1040 tax returns due Oct. 15, 2008.

Other provisions are listed in the Grant of Relief section below.

Taxpayers who reside in or have a business located in the following parishes qualify for the relief announced today: Acadia, Allen, Ascension, Assumption, Avoyelles, Beauregard, Cameron, East Baton Rouge, East Feliciana, Evangeline, Iberia, Iberville, Jefferson, Jefferson Davis, Lafayette, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, Rapides, Sabine, St. Bernard, St. Charles, St. James, St. John the Baptist, St. Landry, St. Martin, St. Mary, Terrebonne, Vermilion, Vernon, West Baton Rouge and West Feliciana.

Covered Disaster Area

The Louisiana parishes listed above constitute a covered disaster area for purposes of Treas. Reg. � 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Grant of Relief

Casualty Losses

Free Return Copies and Transcripts

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications from the official IRS Web site, irs.gov, or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information

Disaster Assistance and Emergency Relief for Individuals and Businesses

Recent IRS Disaster Relief Announcements

Revenue Procedure 2007-56

Issue Number: IR-2008-063

Inside This Issue

IRS Launches Campaign to Help New Small Businesses

WASHINGTON � The Internal Revenue Service today launched a campaign to help educate new self-employed small business owners about federal tax responsibilities.

The campaign kick-off coincides with the Small Business Administration�s annual Small Business Week, April 21-25, which recognizes outstanding small business owners for their contributions to the nation's economy and their personal achievements.

Custom Search

�One of the biggest challenges faced by people starting out in business is understanding and meeting their tax filing requirements,� said Kathy Petronchak, commissioner of the IRS�s Small Business/Self-Employed operating division.

�It�s a new, different and potentially overwhelming experience for them. We want new small business owners to know that the IRS has resources to help them learn about their federal tax responsibilities and avoid common pitfalls.�

The campaign will provide new Schedule C, Profit or Loss from Business, filers with improved and updated educational materials through a variety of channels, including IRS.gov, small business workshops and other outreach events.

Schedule C is filed by sole proprietors (one-owner businesses) as an attachment to their Form 1040 individual income tax return. Self-employed individuals with less complex situations � including business expenses of less than $5,000, no net losses and no employees � may be able to file Schedule C-EZ, Net Profit for Business.

About one in seven federal income tax returns includes a Schedule C or Schedule C-EZ. Taxpayers filed over 21 million Schedules C for tax year 2006, reporting overall net profits from sole proprietorships totaling more than $269 billion.

In this introductory phase of the campaign, IRS is offering some basic tips to avoid potential problems:

Classify workers properly as employees or independent contractors as determined by law, not the choice of the worker or business owner;

Deposit federal employment taxes, called trust fund taxes, according to the appropriate schedule;

Start making quarterly estimated-tax payments to cover your own income tax and social security self-employment tax liability;

Keep good records to protect your personal and financial investment and to make tax filing easier;

Consider a tax professional to help you with Schedule C;

File and pay your taxes electronically; it�s fast, easy, and secure;

Protect financial and tax records to ensure business continuity in the event of a disaster; and

Avoid abusive tax avoidance schemes such as the IRS�s 2008 �Dirty Dozen."

Tax Tips September 4 2008

TAX CREDITS

Topic 608 - Excess Social Security and RRTA Tax Withheld

Most employers must withhold social security tax from your wages. Certain government employers (some federal, state, and local governments) do not have to withhold social security tax.

If you work for a railroad employer, your employer must withhold Tier 1 railroad retirement (RRTA) tax and Tier 2 RRTA tax.

If you had more than one employer and your total wages were over the wage base limit for the year, too much social security tax or Tier 1 RRTA may have been withheld. The wage base limit for the year can be found in the Form 1040 Instructions.

If you had more than one railroad employer, and your total compensation was over the maximum amount of wages subject to Tier 2 RRTA, too much Tier 2 railroad retirement (RRTA) tax may have been withheld.

If you had too much social security tax or Tier 1 RRTA withheld, you may be able to claim the excess as a credit against your income tax. If any one employer withheld too much social security or RRTA tax, you cannot claim the excess as a credit against your income tax.

Your employer should make an adjustment of the excess for you. If the employer does not make an adjustment, you can use Form 843 (PDF), Claim for Refund and Request for Abatement to claim a refund.

For details, including how to compute the amount of excess credit, refer to Publication 505, Tax Withholding and Estimated Tax.

Issue Number: Summertime Tax Tip 2008-03

Inside This Issue

Can You Take a Home Office Deduction?

If you plan to run your small business out of your home you may be temped to �write-off� many of your household expenses. But how do you know what is deductible and what is not? The IRS has some advice that may help answer the question: �Can I take a Home Office Deduction?�

Generally, expenses related to the rent, purchase, maintenance and repair of a personal residence are not deductible.

However, if you use part of your home for business purposes you may be able to take a home office deduction. Expenses that can be deducted include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, painting, repairs and depreciation.

In order to claim a business deduction, you must use part of your home:

* Exclusively and regularly as your principal place of business, as a place to meet or deal with patients, clients or customers in the normal course of your business, or in connection with your trade or business where there is a separate structure not attached to the home; or * On a regular basis for certain storage use such as inventory or product samples, as rental property, or as a home daycare facility.

In addition, if you work as an employee you can claim this deduction only if the regular and exclusive business use of the home is for the convenience of your employer and the portion of the home is not rented by the employer.

�Exclusive use� means a specific area of the home is used only for trade or business. �Regular use� means the area is used regularly for trade or business. Incidental or occasional business use is not regular use.

Non-business profit-seeking endeavors such as investment activities do not qualify for a home office deduction, nor do not-for-profit activities such as hobbies.

Example: An attorney uses the den in his home to write legal briefs or prepare clients� tax returns. The family also uses the den for recreation. The den is not used exclusively in the attorney�s profession, so a business deduction cannot be claimed for its use.

These requirements are discussed in greater detail in Publication 587, Business Use of Your Home available at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

IRS Tax Tips September 1, 2008

Issue Number: IR-2008-082

Inside This Issue

IRS Increases Mileage Rates thro