Tax Tip Updates - 2006/2007
1. Mileage Reimbursement:
Beginning January 1, 2007, the standard mileage rates for the use of a personal vehicle for company business will be:
o 48.5 cents per mile for business miles driven.
o 20 cents per mile driven for medical and moving purposes.
o 14 cents per mile driven in service to a charitable organization.
The new rate compares to a rate of 44.5 cents per mile in 2006. The new rate for medical and moving purposes compares to 18 cents in 2006. The primary reasons for the higher rates were higher prices for vehicles and fuel during the year ending in October.
2. Delinquent Federal Tax Obligations:
Many individuals who owe delinquent federal income taxes will now be able to apply online for a payment agreement. The Online Payment Agreement (OPA) application, now available in www.irs.gov provides an easy way to voluntarily resolve tax liabilities.
Taxpayers must have filed all required tax returns in order to use the online application. They should also the following information available:
o Balance due notice from the IRS
o Social Security number or Individual Taxpayer Identification Number.
Three payment options are available when applying online:
o Pay in full - Payment within 10 days and save penalties and interest.
o Short Term Extension - Up to 120 days. Penalties and interest accrue.
o Monthly Pay Plan - $43 user fee. Penalties and interest accrue.
To access the application, use the pull down menu under "I need to...." on the home page of www.irs.gov and select "Set Up a Payment Plan." The application is available Monday through Friday from 6 AM to 12:30AM, Saturday from 6 AM to 10PM, and Sunday from 4 PM to midnight (all are Eastern Time).
3. Education Expenses:
Taxpayers who don't keep good records of their education expenses could be robbing themselves of money. Taxpayers who are going to college or have children in college could greatly benefit from keeping records of their educational expenses. They may possibly be able to deduct from their tax returns and reduce their liability Form 1098T is an information document used by universities to report the amounts paid by students amounts billed for tuition. It has often been used as a source document, but often it includes only the amounts billed for tuition. Therefore, taxpayers need to keep records of what they spent on tuition and how much the paid for related expenses to justify the education credits and expenses they claim on their returns.
For more information, please see Publication 970 "Tax Benefits for Education available on www.irs.gov.
4. Alternative Minimum Tax Relief
If your one of the many taxpayers who is subject to the alternative minimum tax (AMT) you will be pleased to know that the new law increases the exemption amounts for tax years beginning in 2006. The increased exemption amounts for 2006 are:
o $ 62,550 for married filing a joint return and surviving spouses.
o $ 42,500 for unmarried individuals.
o $ 31,275 for unmarried individuals filing separate returns.
For one more year into 2006, you may continue to claim the following non refundable personal tax credits in full for purposes of the AMT, as well as for the purpose of regular income tax:
o Dependent care credit.
o Credit for elderly and disabled.
o Hope scholarship credit and lifetime learning credit.
5. Offer in Compromise
Taxpayers making an offer in compromise must now make partial payments to the IRS during the time their offer is pending. The following guidelines apply:
o Lump sum offers in compromise require a 20% down payment.
o Periodic payment schedules must be followed or the deal is terminated and entire balance becomes due.
6. Direct Payment of Tax Refund into IRA's
To encourage greater retirement savings, you will be able to direct the IRS to deposit all or part of your tax refund directly into your IRA account. Beginning with returns filed in 2007, the IRS must make available a form to enable the direct deposit to happen.
The IRS recently announced that taxpayers who use direct deposit will be able to split their refunds and deposit them into as many as three different financial accounts, such as checking, savings, and retirement accounts. This program takes effect in January, 2007.
7. Reduced Capital Gains Rate To Continue Through 2010
The maximum tax rate on capital gains of non-corporate taxpayers will remain unchanged through 2010. For most taxpayers, the maximum rate is 15 percent. The rate for taxpayers in the 10 and 15 percent tax brackets is 5 percent for 2006. The rates for these taxpayers is reduced to zero between 2008-2010.
Summary of rate guidelines:
2006-2007 2008-2010 After 2010
Capital gains rate-generalized 15% 15% 20%
For taxpayers in 10-15% bracket 5% 0% 10%
Capital Gains-5 Year Property 15% 15% 18%
5 Year Prop - 10-15% bracket 5% 0% 8%
Qualified Dividend Rate 15% 15% N/A
Qualified Dividend - 10-15% bracket 5% 0% N/A
8. Employer-Owned Life Insurance
In general, the proceeds of a life insurance contract that are received on account of the death of the insured are excluded from gross income. This rule extended to situations where a company owns a a life insurance policy on the life of an employee.
For employer-owned life insurance contracts issued after August 17, 2006, the amount excluded from gross income proceeds cannot exceed the premiums paid by the policyholder. Under the new rules, and employer-owned life insurance contract is one which is owned by a person engaged in a trade or business who is a beneficiary of the policy that covers the life of an individual who is an employee of the policyholder at the time the contract is issued.
9. Suspicious e-Mails and Identity Theft
The Internal Revenue Service has issued several
recent consumer warnings on the fraudulent use of the IRS name or logo by
scamsters trying to gain access to consumers’ financial information in order
to steal their identity and assets. When identity theft takes place over the
Internet, it is called phishing.
Suspicious e-Mail/Phishing
Phishing (as in “fishing for information” and “hooking” victims) is a
scam where Internet fraudsters send e-mail messages to trick unsuspecting
victims into revealing personal and financial information that can be used to
steal the victims’ identity. Current scams include phony e-mails which claim
to come from the IRS and which lure the victims into the scam by telling them
that they are due a tax refund.
Identity Theft
Identity theft can be committed through e-mail (phishing)
or other means, such as regular mail, fax or telephone, or even by going through
someone's trash.
Identity theft occurs when someone uses your personal information such as your name, Social Security number or other identifying information without your permission to commit fraud or other crimes. Typically, identity thieves use someone’s personal data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes. People whose identities have been stolen can spend months or years — and their hard-earned money — cleaning up the mess thieves have made of their good name and credit record. In the meantime, victims may lose job opportunities, be refused loans, education, housing or cars, or even get arrested for crimes they didn't commit.
To Report Fraud:
For other than phishing
schemes, you may report the fraudulent misuse of the IRS name, logo, forms or
other IRS property by calling the TIGTA toll-free hotline at 1-800-366-4484 or
visiting the TIGTA Web site.
Other Federal Resources
For more information on understanding and preventing identity
theft and suspicious e-mails (phishing), or dealing with their aftermath, check
out the following federal resources
Direct Deposit Can Put an End to Lost Refunds
An average refund of $963 is waiting for 95,746 taxpayers whose refund checks have been returned to the Internal Revenue Service as undeliverable.
The checks, worth a total of $92.2 million, can be claimed as soon as their owners update their addresses with the IRS. In some cases, a taxpayer has more than one check waiting.
“Every year, many taxpayers miss their refunds because they move without notifying the IRS or Postal Service of a change of address,” IRS Commissioner Mark W. Everson said. "For those missing their check, the IRS is making it easier than ever for taxpayers to update their information and claim their refunds."
Taxpayers can use the "Where's My Refund?" feature on the home page of the IRS.gov Web site to learn the status of their refunds. To use it, a taxpayer must enter a Social Security number, filing status (such as single or married filing jointly) and the refund amount shown on the taxpayer’s 2005 tax return. When the information is submitted, “Where’s My Refund?” will display the status of a refund and, in some cases, provide instructions on how to resolve potential account issues.
Taxpayers can access a telephone version of “Where’s My Refund?” by calling 1-800-829-1954.
How to Update an Address with the IRS
Refund checks can go astray for a variety of reasons. Sometimes a life change results in a change of address. When a taxpayer moves or changes address and fails to notify the IRS or the U.S. Postal Service, a check sent to the taxpayer’s last known address is returned to the IRS.
“Where’s My Refund?” now has an online mailing address update feature for taxpayers whose refund checks were returned to IRS. If an undeliverable check was originally issued within the past 12 months, the taxpayer will be prompted online to provide an updated mailing address.
The address update feature is only available to taxpayers using the Web version of “Where’s My Refund?” Taxpayers with undelivered refund checks who access “Where’s My Refund?” by phone will receive instructions on next steps. Individuals whose refunds were not returned to IRS as undeliverable cannot update their mailing addresses through the “Where’s My Refund?” service.
A taxpayer can also ensure the IRS has his or her correct address by filing Form 8822, Change of Address. Download the form from IRS.gov or request it by calling 1-800-TAX-FORM (1-800-829-3676).
Those who do not have access to the Internet and think they may be missing a refund should first check their records or contact their tax preparer, then call the IRS toll-free assistance line at 1-800-829-1040 to update their address.
