eFile Taxes: Online Taxes: Tax Preparation

Reasons to File Your Tax Return with IRS eFile

2012-01-17T08:44:00.000-08:00

IRS e-file: It’s safe. It’s easy. It’s time. Most taxpayers—nearly 80 percent-- file electronically. If you haven’t tried it, now is the time! The IRS has processed more than 1 billion individual tax returns safely and securely since the nationwide debut of electronic filing in 1990. In fact, last year, 112 million people – 78 percent of all individual taxpayers – used IRS e-file to electronically transmit their tax returns to the IRS. The number of people who use a paper tax return or who mail a tax return dwindles each year – and for good reason .

1. Safety and security. E-file providers must meet strict guidelines and provide the best in encryption technology. You receive an acknowledgement within 48 hours that the IRS received your return. If the IRS rejects the return, the receipt will explain why so you can quickly correct and resubmit.

2. Faster refunds. An e-filed tax return normally means a fast refund. If you combine e-file and direct deposit the IRS can typically issue your refund in as few as 10 days. About three of four taxpayers receive a refund and last year the average refund was approximately $2,900.

3. More payment options. If you e-file you can file early and set an automatic payment withdrawal date for any date on or before the April due date. You may also pay by paper check or even by credit card.

4. It’s easy. You can e-file through your tax preparer, use commercial tax preparation software such as Taxhead.com

IRS Begins Processing Tax Forms Affected by Late Tax Changes; Taxpayers can e-File Immediately

2011-02-15T10:46:00.000-08:00

The Internal Revenue Service announced today it has started processing individual tax returns affected by legislation enacted in December and reminded taxpayers that they can begin filing electronically immediately. e-file at Taxhead.com

IRS e-file systems have now begun accepting and process both e-file and paper tax returns claiming deductions for higher education tuition and fees and educator expenses.

“The IRS is now accepting all the 1040 forms,” IRS Commissioner Doug Shulman said. “We worked hard to update our systems and get the changes in place as quickly as possible. We appreciate the patience of those impacted by the delay. We urge taxpayers to use e-file with direct deposit, and they can get their refunds within days.”

In late December 2010, the IRS announced it would delay processing of some tax returns in order to update processing systems to accommodate the late tax law changes. These tax law provisions were extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which became law on Dec. 17.

For the vast majority of taxpayers, the filing season this year began on time in January. Most taxpayers claiming itemized deductions and the other delayed forms file later in the year.

The IRS worked closely with the tax software industry and the tax professional community during the reprogramming process to minimize disruptions for taxpayers and ensure a smooth tax season. Taxhead.com is an authorized IRS e-file partner

Six Important Facts about Dependents and Exemptions at Tax Time

2011-01-11T20:17:00.000-08:00

Some tax rules affect every person who may have to file a federal income tax return – these rules include dependents and exemptions. Here are six important facts the IRS wants you to know about dependents and exemptions that will help you file your 2010 tax return.

Taxhead.com offers online tax software to prepare tax forms for free. IRS e-file is offered for one low price.

Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2010 tax return.
Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the social security number of any dependent for whom you claim an exemption.
If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Tax Credit payments you received.
If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

Taxhead.com offers online tax software to prepare tax forms for free. IRS e-file is offered for one low price.

Choose the Simplest Tax Form for Your Situation

2011-01-05T10:37:00.000-08:00

To file your 2010 individual tax return, you’ll have to decide which form to use…unless you e-file. This year, choosing which form to file will be even more important since the IRS will no longer be mailing paper tax packages. The IRS is taking this step because of the continued growth in electronic filing, the availability of free options to taxpayers and to help reduce costs. Taxpayers can still get forms and instructions online at http://www.irs.gov, at local IRS offices or from participating community outlets like many libraries and post offices.

If you file your return using IRS e-file, the system will automatically decide which form you need.

Here are some general rules to consider when deciding which paper tax form to file.

Taxhead.com supports form 1040A and 1040EZ filers.

Use the 1040EZ if:

Your taxable income is below $100,000
Your filing status is Single or Married Filing Jointly
You and your spouse – if married -- are under age 65 and not blind
You are not claiming any dependents
Your interest income is $1,500 or less

Use the 1040A if:

Your taxable income is below $100,000
You have capital gain distributions
You claim certain tax credits
You claim adjustments to income for IRA contributions and student loan interest

If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. Among the reasons you must use the 1040 are:

Your taxable income is $100,000 or more
You claim itemized deductions
You are reporting self-employment income
You are reporting income from sale of property

Ten Last Minute Tax Filing Tips

2010-04-09T10:02:00.000-07:00

With the tax filing deadline close at hand, the IRS offers 10 tips for those still working on their tax returns:

File Electronically Consider filing electronically instead of using paper tax forms. If you file electronically and choose to have your tax refund deposited directly into your bank account, you will have your money in as few as 10 days. About 98 million taxpayers – 70 percent of all taxpayers – are eligible for the IRS Traditional Free File.
Check the Identification Numbers When filing a paper return carefully check the identification numbers — usually Social Security numbers — for each person listed. This includes you, your spouse, dependents and persons listed in relation to claims for the Child and Dependent Care Credit or Earned Income Tax Credit. Missing, incorrect or illegible Social Security numbers can delay or reduce a tax refund.
Double-Check Your Figures If you are filing a paper return, you should double-check that you have correctly figured the refund or balance due.
Check the Tax Tables If you are filing using the Free File Fillable Forms or a paper return you should double-check that you have used the right figure from the tax table.
Sign your form You must sign and date your return. Both spouses must sign a joint return, even if only one had income. Anyone paid to prepare a return must also sign it.
Mailing Your Return Use the coded envelope included with your tax package to mail your return. If you did not receive an envelope, check the section called "Where Do You File?" in the tax instruction booklet.
Mailing a Payment People sending a payment should make the check out to “United States Treasury” and should enclose it with, but not attach it to the tax return or the Form 1040-V, Payment Voucher, if used. The check should include the Social Security number of the person listed first on the return, daytime phone number, the tax year and the type of form filed.
Electronic Payments Electronic payment options are convenient, safe and secure methods for paying taxes. You can authorize an electronic funds withdrawal, or use a credit or a debit card. For more information on electronic payment options, visit IRS.gov.
Extension to File By the April due date, you should either file a return or request an extension of time to file. Remember, the extension of time to file is not an extension of time to pay.
IRS.gov Forms and publications and helpful information on a variety of tax subjects are available around the clock at IRS.gov. You can also check the status of your refund after you file your return by clicking on Where’s My Refund?.

Top Ten Facts About the Child and Dependent Care Credit

2010-03-08T12:02:00.001-08:00

Did you pay someone to care for a child, spouse, or dependent last year? If so, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are the top 10 things the IRS wants you to know about claiming a credit for child and dependent care expenses.

The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
You – and your spouse if you are married filing jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.
The payments for care cannot be paid to your spouse, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
The qualifying person must have lived with you for more than half of 2009. However, see Publication 503, Child and Dependent Care Expenses, regarding exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents.
The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
For 2009, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For information, see Publication 926, Household Employer's Tax Guide.

Beginning with 2009 tax returns, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers, has been eliminated. Form 1040A filers will now use Form 2441, Child and Dependent Care Expenses. For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses. You may download these free forms and publications from IRS.gov or order them by calling 800-TAX-FORM (800-829-3676)

Taxhead.com supports Childcare Expense reporting.

Four Important Tax Credits

2010-03-03T13:50:00.000-08:00

You might be eligible for a valuable income tax credit. A federal income tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. Here are popular tax credits you should consider before filing your 2009 Federal Income Tax Return:

The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

Taxhead.com supports these tax credits.

IRS e-file: It’s Safe; It’s Easy; It’s Time

2010-01-17T15:32:00.000-08:00

IRS e-file, the popular electronic tax return delivery service used by two-thirds of the nation’s taxpayers, opens for business January 15 and marks 20 years of safely and securely transmitting nearly 800 million individual federal tax returns.

The Internal Revenue Service debuted e-file nationally in 1990, delivering 4.2 million tax returns. Last year, IRS e-file delivered 95 million tax returns, 66 percent of all returns filed.

“Electronic filing is more and more popular every year, and most taxpayers now e-file. IRS e-file means faster refunds. It means the option to file now and pay later if you owe additional tax. It means peace of mind knowing the IRS received the return because we send an acknowledgement. Those are the reasons this has been a popular service,” said Doug Shulman, IRS Commissioner. “IRS e-file is safe, it’s easy and everyone should try it.”

Taxhead.com is an authorized IRS e-file provider

Last year, more than 49 million taxpayers missed out on the e-file benefits. The IRS urges taxpayers, especially those people already using tax software, to take the next step and e-file their return or ask their preparer to e-file their return. The IRS urges tax preparers who electronically file some of their clients’ tax returns to consider filing all tax returns through e-file.

The IRS is working on faster acknowledgements of accepted or rejected returns. Last year, taxpayers received an acknowledgement within 48 hours that the IRS had accepted or rejected their return. Paper filers do not receive any acknowledgement. Also, if the IRS rejects an e-filed return, it will provide more specific explanations of the errors that caused the rejection. This will enable taxpayers to make corrections and quickly resubmit their returns.

IRS e-file offers the fastest, safest way for people to receive their tax refunds. By using e-file and direct deposit, taxpayers can get their refunds in as few as 10 days. Taxpayers even can opt to have their refund deposited into two or three financial accounts or purchase a U.S. Savings Bond.

For those who owe additional tax, e-file is still the best option. People can file now and pay later, as long as the payment is received by April 15. Taxpayers can set the date for an automatic withdrawal from their financial accounts or they can pay by credit card. People also can e-file and pay by check by simply attaching the payment to a voucher that is mailed to the IRS.

Other e-file benefits include a reduced error rate (1 percent compared to nearly 20 percent on a paper return), which means a decreased likelihood of hearing from the IRS. Also, federal tax returns are delivered to the IRS through a highly secure, encrypted transmission system. Just like paper returns, e-filed returns remain confidential.

There are three ways to use e-file: through tax preparers, through most tax preparation software or through IRS Free File. The IRS does not charge for e-file. Many tax preparers and software products also offer free e-filing with their services.

Taxhead.com offers IRS e-file and specializes in tax form 1040-EZ and 1040-A.

As people become more comfortable using computers and the Internet for financial transactions, the IRS has seen a huge growth in the number of people who are preparing their own tax returns with the help of software.

Ten Tax Topics for Taxpayers with Tots and Teens

2010-01-13T13:13:00.000-08:00

Got Kids? They may have an impact on your tax situation. Listed below are the top 10 things the IRS wants you to consider if you have children. Taxhead.com offers credits and deductions for students and IRS e-file:

Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.
Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may give you a refund even if you do not owe any tax. For more information see IRS Publication 972, Child Tax Credit.
Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.
Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.
Children with Earned Income If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.
Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.
Coverdell Education Savings Account This savings account is used to pay qualified educational expenses at an eligible educational institution. Contributions are not deductible, however, qualified distributions generally are tax-free. For more information see IRS Publication 970, Tax Benefits for Education.
Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income. For more information see IRS Publication 970.
Student Loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.

Taxhead.com offers credits and deductions for students and IRS e-file

Five Important Facts about Dependents and Exemptions

2010-01-07T12:16:00.000-08:00

When you prepare to file your tax return, there are two things that will factor into your tax situation: dependents and exemptions. Here are five important facts the IRS wants you to know about dependents and exemptions before you file your 2009 tax return.

If someone else claims you as a dependent, you may still be required to file your own tax return. Whether or not you must file a return depends on several factors, including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and, any advance Earned Income Tax Credit payments you received.
Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2009 tax return. Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, depending on your filing status.
If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.
Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

For more information on exemptions, dependents and whether or not you or your dependent needs to file a tax return, see IRS Publication 501. The publication is available on IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).

Links:

IRS Publication 501, Exemptions, Standard Deduction, and Filing Information

Two Out of Three Individuals Now Using IRS e-File

2010-01-06T21:31:00.000-08:00

Individuals e-filed a record 95 million federal income tax returns during 2009, up almost 6 percent from last year’s total of nearly 90 million. About two out of three taxpayers e-filed this year; out of the 141 million returns filed so far this year, over 67 percent were e-filed, compared to 59 percent last year.

Each year, more taxpayers chose to e-file their tax returns. While the total number of tax returns has increased 10 percent during the past decade, the number filed electronically has increased by 168 percent. Taxpayers who e-file from a home computer continue to be an increasingly significant segment of those who e-file.

Taxhead.com offers IRS e-file

IRS Presents: Top Ten Tax Time Tips

2010-01-06T21:27:00.000-08:00

While the tax filing deadline is more than three months away, it always seems to be here before you know it. Here are the Internal Revenue Service’s top 10 tips that will help your tax filing process run smoother than ever this year.

Start gathering your records Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support an item of income or a deduction you’re taking on your return.
Be on the lookout W-2s and 1099s will be coming soon from your employer; you’ll need these to file your tax return.
Try e-file When you file electronically, the software will handle the math calculations for you. If you use direct deposit, you will get your refund in about half the time it takes when you file a paper return. E-file is now the way the majority of returns are filed. In fact, last year, 2 out of 3 taxpayers used e-file.
Check out Free File If your income is $57,000 or less you may be eligible for free tax preparation software and free electronic filing. The IRS partners with 20 tax software companies to create this free service. Free File is for the cost conscious taxpayer who wants reliable question-and-answer software to help them prepare a return.
Consider other filing options There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.
Consider Direct Deposit If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.
Visit IRS.gov again and again The official IRS Web site is a great place to find everything you’ll need to file your tax return: forms, tips, answers to frequently asked questions and updates on tax law changes.
Remember this number: 17 Check out Publication 17, Your Federal Income Tax on IRS.gov. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.
Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.
Don’t panic! If you run into a problem, remember the IRS is here to help. Try IRS.gov or call our customer service number at 800-829-1040.

Taxhead.com offers IRS e-file.

Does the IRS Owe You Money?

2009-08-18T17:46:00.000-07:00

Who couldn’t use a little extra cash this summer! The IRS may have some money for you.

If you have not filed a prior year tax return and are due a refund, you should consider filing the return to claim that refund. If you are missing a refund for a previously filed tax return, you should contact the IRS to check the status of your refund and confirm your current address.

Unclaimed Refunds

Some people may have had taxes withheld from their wages but were not required to file a tax return because they had too little income. Others may not have had any tax withheld but would be eligible for the refundable Earned Income Tax Credit.

To collect this money a return must be filed with the IRS no later than three years from the due date of the return.
If no return is filed to claim the refund within three years, the money becomes the property of the U.S. Treasury.
There is no penalty assessed by the IRS for filing a late return qualifying for a refund.
Current and prior year tax forms and instructions are available on the Forms and Publications web page of IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Information about the Earned Income Tax Credit and how to claim it is also available on IRS.gov.

Undeliverable Refunds

Were you expecting a refund check but didn't get it?

Refund checks are mailed to your last known address. Checks are returned to the IRS if you move without notifying the IRS or the U.S. Postal Service.
You may be able to update your address with the IRS on the “Where’s My Refund?” feature available on IRS.gov. You will be prompted to provide an updated address if there is an undeliverable check outstanding within the last 12 months.
You can also ensure the IRS has your correct address by filing Form 8822, Change of Address, which is available on IRS.gov or can be ordered by calling 800-TAX-FORM (800-829-3676).
If you do not have access to the Internet and think you may be missing a refund, you should first check your records or contact your tax preparer. If your refund information appears correct, call the IRS toll-free assistance line at 800-829-1040 to check the status of your refund and confirm your address.

Filing Tax Returns from Home Computers Up 20 Percent in 2009

2009-03-13T12:34:00.000-07:00

The IRS reports that taxpayers are e-filing their Federal income tax returns from their home computers in record numbers this year. As of March 6, 2009 more than 18 million income tax returns were filed from home computers, up 20 percent compared to the same time last year.

So far this year, almost 52 million tax returns have been e-filed, up 6 percent compared to the same time last year. However, the number of people using IRS Free File has fallen from almost 3 million last year to just under 2 million for the same time this year, a reduction of about 30 percent. A number of factors could be causing the decrease in Free File volumes, including national advertising of other free online tax preparation offers and the elimination of electronic filing fees by some software providers like Taxhead.com.

As of March 6, about 91 percent of tax returns resulted in a refund. This percentage however is usually at its highest at the start of the filing season because taxpayers expecting refunds usually file earlier than taxpayer who must make a payment.

Important Tax Credits

2009-03-04T17:23:00.000-08:00

You might be eligible for a tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable. That means you might receive a refund rather than owe any taxes.

Here are four popular credits you should consider before filing your 2008 Federal Income Tax Return:

1. The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.

2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.

3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.

4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low- and moderate-income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

Taxhead.com tax software is free to use and covers all these tax credits.

There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications, and additional information that is available on the IRS Web site at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).

National Taxpayer Advocate Urges Tax Simplification and Compassionate Treatment of Taxpayers Hit by Recession

2009-01-12T09:11:00.000-08:00

National Taxpayer Advocate Nina E. Olson today released her annual report, urging Congress to greatly simplify the tax code and recommending measures to reduce the burden on taxpayers who are struggling to pay their tax bills.
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The report takes note of the serious financial difficulties facing many Americans in light of the ongoing economic downturn. “It is imperative for the IRS to consider the circumstances of taxpayers facing economic hardship before initiating enforcement actions,” Olson wrote.

When the IRS contemplates taking an enforced collection action such as a levy, a lien or an asset seizure, both the tax code and IRS procedures require that IRS personnel consider whether the collection action will impose an economic hardship on the taxpayer. Despite these requirements, “current IRS guidance provides little direction to help IRS employees identify taxpayers who are experiencing economic hardship and prevent undue economic burden,” Olson wrote.

Call for Tax Simplification

The report designates the complexity of the tax code as the most serious problem facing taxpayers. According to data compiled by Olson’s office, U.S. taxpayers and businesses spend about 7.6 billion hours a year complying with tax-filing requirements. “If tax compliance were an industry, it would be one of the largest in the United States,” the report says. “To consume 7.6 billion hours, the ‘tax industry’ requires the equivalent of 3.8 million full-time workers.”

The report estimates that U.S. taxpayers spend $193 billion a year complying with income tax requirements, an amount that equals 14 percent of the total amount of income taxes collected. One count shows the number of words in the tax code has reached 3.7 million, and over the past eight years, changes to the tax code have been made at a rate of more than one a day – including more than 500 changes in 2008 alone. Individual taxpayers now find the tax rules so overwhelming that more than 80 percent pay transaction fees to help them file their returns – about 60 percent pay a preparer to do the job and another 22 percent purchase tax software.

Two examples of tax law complexity:

The Alternative Minimum Tax (AMT) effectively requires taxpayers to compute their taxes twice — once under the regular rules and again under the AMT regime — and then to pay the higher of the two amounts. Absent repeal or continuing AMT patches, the AMT will affect 33 million taxpayers in 2010. Although the AMT was originally conceived to prevent wealthy taxpayers from escaping tax liability through the use of tax-avoidance transactions, 77 percent of the additional income subject to tax under the AMT today is attributable to the disallowance of deductions otherwise allowed for state and local taxes and personal and dependency exemptions. “Few people think of having children or living in a high-tax state as a tax-avoidance maneuver, but under the unique logic of the AMT, that is essentially how those actions are treated,” the report notes.
The tax code provides tax breaks to encourage taxpayers to save for education and retirement. However, the number of such tax incentives has grown to at least 27 and the eligibility requirements, definitions of common terms, income-level thresholds, phase-out ranges and inflation adjustments vary among the provisions. This complexity undermines the intent of the incentives, as taxpayers can only respond to incentives if they know they exist and understand them.

Olson recommends that Congress substantially simplify the tax code. The report includes a series of recommendations, including recommendations to repeal the Alternative Minimum Tax; streamline education and retirement savings tax incentives; simplify the family status provisions of the tax code; simplify the rules under which workers are classified as employees or independent contractors; reduce sunset and phase-out provisions and revise the overall penalty structure. More broadly, Olson recommends six core principles on which fundamental tax reform should be based. (For details, see Most Serious Problem: The Complexity of the Tax Code and corresponding items in the Legislative Recommendations section of the report.)

Working with Taxpayers Who Are Experiencing Financial Difficulties

The report makes three principal recommendations to reduce burden on financially struggling taxpayers:

1. Make greater use of collection alternatives when economic hardship is present. While enforced collection actions like levy and seizure authority are important collection tools that allow the IRS to address serious incidents of noncompliance, a review of IRS historical enforcement data show that more enforcement actions do not translate into commensurate increases in revenue collection. One example: The number of levies issued by the IRS increased by 1,608 percent from FY 2000 to FY 2007 — from 220,000 levies to about 3.76 million levies — yet the increase in the total collection yield during the period was slightly less than 45 percent. By contrast, historical enforcement data indicate that collection alternatives, such as offers in compromise and partial-payment installment agreements, may be more effective at collecting liabilities from taxpayers having difficulty paying their tax debts. (For details, see Most Serious Problem: The IRS Needs to More Fully Consider the Impact of Collection Enforcement Actions on Taxpayers Experiencing Economic Difficulties.)

2. Simplify the “cancellation of debt” minefield that many taxpayers who default on debts must navigate. Most financially distressed individuals who lose their homes to foreclosure or cannot pay off their car loans, credit card balances, student loans, or medical bills probably do not realize that their delinquency may increase their tax liabilities, but it often does. If a creditor writes off a debt, the tax code generally treats the amount of the canceled debt as taxable income to the debtor. Congress has carved out a number of exclusions, including an exclusion for “insolvency” and a recently enacted exclusion to help some (but not all) homeowners whose mortgage debts are canceled when their houses are foreclosed upon and sold or whose loan balances are reduced as part of a mortgage loan modification. However, taxpayers do not receive the benefit of these exclusions automatically. A taxpayer must file Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to claim an exclusion. Form 982 is extremely complex, and very few taxpayers or preparers are familiar with it.

IRS data show that approximately two million Forms 1099-C, Cancellation of Debt, are issued to taxpayers and the IRS each year reporting canceled debts. In an economic downturn, the number of taxpayers defaulting on credit card bills, car loans, home mortgages and other debts can be expected to rise. Olson estimates that tens of thousands and possibly hundreds of thousands of taxpayers who qualify to exclude canceled debts from gross income do not file Form 982 to claim allowable exclusions. Instead, some of these taxpayers unnecessarily include the amount of the canceled debt in gross income, and other taxpayers who fail to include it unnecessarily face IRS examinations and tax assessments.

Olson recommends that Congress change the law to remove taxpayers with modest amounts of debt cancellation from the cancellation of debt income regime, and she recommends that the IRS develop an insolvency worksheet that taxpayers can file with their returns and create a centralized unit dedicated to handling cancellation of debt issues. (For details, see Legislative Recommendation: Simplify the Tax Treatment of Cancellation of Debt Income, and Most Serious Problem: Understanding and Reporting the Tax Consequences of Cancellation of Debt Income.)

3. Implement a “screen” to protect low income Social Security recipients from continuous, automated tax levies. Under the Federal Payment Levy Program, the IRS is authorized to “levy” (or withhold) 15 percent of any federal payment made to a delinquent taxpayer. Using this authority, the IRS levied against 1.8 million payments to Social Security recipients in 2008. TAS estimates that more than 25 percent of these taxpayers had incomes below the poverty level and more than one-third would likely be classified by the IRS as unable to pay if their cases were subject to human review. However, the automated levy system does not use built-in screens to identify and shield these taxpayers. The report contains a research study recommending the implementation of such a screen. (For details, see Research Study: Building a Better Filter: Protecting Lower Income Social Security Recipients from the Federal Payment Levy Program.)

Finally, taxpayers who are unable to make their tax payments and face enforced collection action will generally qualify for assistance from the Taxpayer Advocate Service (TAS), which Olson heads. (See information below about contacting TAS.)

Other Issues

Olson reiterates her longstanding recommendation that Congress regulate unenrolled tax preparers to protect taxpayers from preparer errors and exploitation. She notes that 62 percent of taxpayers use preparers, yet anyone can now be a “preparer” — with no training, no licensing and no oversight required.

The report also proposes a comprehensive framework for reforming the penalty provisions in the tax code, which have increased from about 14 in 1954 to more than 130 today. More specifically, the report recommends quick congressional action to remedy particularly harsh consequences of a penalty enacted in 2004 to combat tax shelters. Section 6707A of the tax code imposes a penalty of $100,000 per individual per year and $200,000 per entity per year for failure to make special disclosures of a “listed transaction.” The penalty creates what Olson calls “unconscionable” results and may have the effect of bankrupting middle class families who had no intention of entering into a tax shelter. Under the law, the IRS must impose the penalty where a taxpayer fails to make the special disclosures – even if the taxpayer had no knowledge that the transaction was listed or even questionable, even if the taxpayer derived no tax savings from the transaction, and even if the transaction is not “listed” until years after the taxpayer entered into it and filed a return reflecting the transaction. A taxpayer who does business through a wholly owned S corporation is subject to a penalty of $300,000 ($200,000 at the entity level and $100,000 at the individual level) for each year in which the transaction is reflected on a return. The IRS is currently considering this penalty in hundreds of cases.

Overall, the report discusses 21 problems facing taxpayers, makes dozens of recommendations for administrative change, proposes 17 recommendations for legislative change and analyzes the 10 tax issues most frequently litigated in the federal courts during the past fiscal year. It also contains a second volume that presents in-depth studies on three subjects — the penalty regime in the tax code, the development of a “filter” to protect low income Social Security recipients from automated levies and strategies to improve tax compliance by tax preparers and their clients.

About the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS whose employees assist taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels or who believe that an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, you can reach TAS by calling the TAS toll-free case intake line at 1–877–777–4778 or TTY/TDD 1-800-829-4059. For more information, go to www.irs.gov/advocate.

Comprehensive Tax Guide Available for Free at IRS.gov

2008-12-17T11:51:00.000-08:00

The IRS has placed its comprehensive tax guide for individuals on IRS.gov, updating it for tax year 2008. The updated on-line version of IRS Publication 17, “Your Federal Income Tax,” contains more than 900 interactive links.

Publication 17 has been updated with important changes for 2008, including information on the new recovery rebate credit, new first-time-homebuyer credit, and an additional standard deduction for real estate taxes. It has been published annually by the IRS for more than 65 years and has been available on the IRS Web site since 1996.

Taxhead.com is free tax software for 1040A and EZ filers.

As in prior years, the publication provides information on how to file an individual tax return, what to include as income, how to calculate capital gains and losses, how IRAs and other expenses can affect how much income to report, whether to take the standard deduction or itemize, and how to figure taxes and credits.

Publication 17 is available on line, however, those who do not have access to the Internet can call 1-800-829-3676 to request a free copy from the IRS. Printed copies will be available in January 2009.

Self-Select PIN Signature Requirement for IRS e-file Individual Income Tax Returns

2008-12-12T19:35:00.000-08:00

For Filing Season 2009, the Self-Select PIN will be the only IRS e-file signature method available to taxpayers filing online. The Form 8453-OL U.S. Individual Income Tax Declaration for an IRS Online e-file Return and Form 8453-OL(SP) U.S. Individual Income Tax Declaration for an IRS Online e-file Return (Spanish Version) will be eliminated as signature documents for individual taxpayers that use tax preparation software. This policy change is designed to promote a paperless and secure method of signing individual returns electronically.

Taxhead.com online tax software and eFile service offers self-select PIN

The electronic signature method allows taxpayers to use a Personal Identification Number (PIN) to sign their individual income tax return. The taxpayer selects five numbers (except all zeros) to enter as their electronic PIN signature.

The taxpayer has the option to choose between two “shared secrets” for authentication. The Self-Select PIN signature method requires taxpayers to provide their prior year Adjusted Gross Income (AGI) or the prior year PIN used to electronically sign their 2007 return. If a taxpayer enters both the prior year AGI and prior year PIN for authentication, only one shared secret must match IRS records.

Customers of Taxhead.com can easily access share secrets. Prio year AGI and PIN's are automatically looked up from last year's return and pre-entered for customers of their eFile service.

Who is eligible to electronically sign using the Self-Select PIN signature method?

Taxpayers filing Form 1040, 1040A, 1040EZ, 1040-SS(PR)

Who is not eligible to electronically sign using the Self-Select PIN signature method?

Taxpayers under age 16 who have never filed

The Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return, will now be used to submit all required attachments for both online and practitioner prepared individual income tax returns.

Plan Now to Get Full Benefit of Saver’s Credit; Tax Break Helps Low- and Moderate-Income Workers Save for Retirement

2008-12-02T10:15:00.000-08:00

Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2008 and the years ahead, according to the Internal Revenue Service.

The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to Individual Retirement Arrangements (IRAs) and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

Taxhead.com tax software and eFile offers this Retirement Savings Contribution Credit.

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2008 tax return. People have until April 15, 2009, to set up a new IRA or add money to an existing IRA and still get credit for 2008. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2009 contributions soon so their employer can begin withholding them in January.

The saver’s credit can be claimed by:

Married couples filing jointly with incomes up to $53,000 in 2008 or $55,500 in 2009;
Heads of Household with incomes up to $39,750 in 2008 or $41,625 in 2009; and
Married individuals filing separately and singles with incomes up to $26,500 in 2008 or $27,750 in 2009.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.

A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.

In tax-year 2006, the most recent year for which complete figures are available, saver’s credits totaling almost $900 million were claimed on nearly 5.2 million individual income tax returns. Saver’s credits claimed on these returns averaged $213 for joint filers, $149 for heads of household and $128 for single filers.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Other special rules that apply to the saver’s credit include the following:

Eligible taxpayers must be at least 18 years of age.
Anyone claimed as a dependent on someone else’s return cannot take the credit.
A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
Certain retirement plan distributions reduce the contribution amount used to figure the credit. For 2008, this rule applies to distributions received after 2005 and before the due date (including extensions) of the 2008 return. Form 8880 and its instructions have details on making this computation.

Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on IRS.gov.

For Individual and Business e-File, 2008 Is a Record Breaker

2008-11-13T09:55:00.000-08:00

In 2008 individual taxpayers e-filed almost 90 million tax returns, an increase of more than 12 percent over the prior year. Of the 155 million tax returns filed, about 58 percent were filed electronically.

“More people with home computers and businesses embraced electronic filing this year," said IRS Commissioner Doug Shulman. “Every year, more people realize that electronic filing is the safe, accurate way for taxpayers to complete their taxes and get faster refunds.”

Tax Returns Filed by Individuals

While the total number of returns has increased by 23 percent during the past decade, the number filed electronically has increased by 206 percent.

Refunds: Direct Deposit and IRS.gov Set Records

More taxpayers chose to receive their refunds through direct deposit during 2008. The IRS made 66 million direct deposit payments in 2008, up 8 percent from 61 million payments at the same time in 2007.

Overall, the IRS issued 107 million tax refund payments in 2008, up almost 2 percent from 105 million refund payments for the same time in 2007. As of Oct. 31, the average refund for 2008 was $2,371, up 4 percent from $2,280 at the same time in 2007.

Taxhead.com offers free tax software for 1040A and 1040EZ tax form filers. The company is an authorized IRS eFile provider, eFile partner.

IRS e-file and Direct Deposit Outpace Last Year’s Results

2006-03-16T17:44:00.000-08:00

The Internal Revenue Service announced that taxpayers are continuing to e-file at a record pace. The IRS reports "The biggest increase is in returns e-filed from home computers, up almost 17 percent over last year’s figure."

IRS Commissioner Mark W. Everson stated that “Each year, we are seeing more taxpayers choosing e-file, with the highest growth belonging to those who file from a home computer ... E-file is a safe, accurate way to quickly finish your taxes and get your refund.”

Also, the IRS said that "Record numbers of individuals are choosing to have their refunds directly deposited into bank accounts. Out of 50.7 million refunds issued so far this year, 37 million have been directly deposited, which is 73.1 percent of the total, compared to 69.8 percent for the same time last year."

Taxpayers who e-file and choose direct deposit get their refunds in half the time of those who file paper returns. Even paper filers can get the benefits of direct deposit by choosing that option on their tax forms; they will get their refunds a week sooner than waiting for a paper check.

Online tax company Taxhead.com specializes in 1040A and 1040EZ returns. They offer one of the easiest, fastest tax preparation services on the market. Their tax software is free to use to help people prepare paper tax returns. They also offer e-file for just $9.95 if you use coupon code "TAXSALE". Taxhead.com reported a five-fold increase in their e-file service this year (See: http://taxhead.com/news/index.php)

2004 Earned Income Available Online for Hurricane Victims

2006-02-11T19:13:00.000-08:00

Victims of Hurricanes Katrina, Wilma and Rita, whose 2005 earnings
declined, can elect to compute their 2005 Earned Income Tax Credit and
Additional Child Tax Credit using their higher 2004 earned incomes. Victims
can immediately access their 2004 earned incomes, from the IRS, for this
special election computation using a new IRS.gov feature, Your 2004 Earned Income Option, found on the IRS.gov Help for Hurricane Victims page.

For Your 2004 Earned Income Option go to http://www.irs.gov/individuals/article/0,,id=151658,00.html

Taxhead.com is free tax software and offers these tax calculations for Earned Income and Form 8914 (Additional Exemption(s) for Housing Hurricane Victims).

IRS eFile Starts Friday, January 13, 2006 -

2006-01-05T12:46:00.000-08:00

Taxhead.com Opens their free tax software and eFile service on January 12, 2006. IRS eFile starts the next day, January 13, 2006. The next Monday is a government holiday, so the first e-file tax returns probably won't get processed by the IRS until Tuesday, January 16, 2006.
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Some News from the IRS:

WASHINGTON - The Internal Revenue Service today launched the 2006 filing season with a new look to its popular Web site, improved online tools and enhanced electronic services that will better assist taxpayers and tax preparers.

The agency is sending 17.7 million 1040 tax packages this week to taxpayers who have previously filed paper returns. The number of paper tax booklets being mailed to Americans is continuing to decline as more people opt for electronic filing.

The IRS expects to process about 135 million individual tax returns in 2006 and expects continued growth for IRS e-file. The agency surpassed an important milestone last year as more than half the nation's taxpayers filed their tax returns electronically. IRS e-file will be available beginning later this month.

"We expect e-file will continue to grow this year," said IRS Commissioner Mark W. Everson. "We remind taxpayers that e-filing is fast, secure and reliable."

Taxpayers who use IRS e-file and have their tax returns deposited directly into their bank account can receive their refund in two weeks or less. That's less than half the time needed for paper returns.

Now, taxpayers can find even more help 24 hours a day, seven days a week on IRS.gov. The newly redesigned IRS.gov provides a more usable look and feel. Also, the agency improved overall site navigation and enhanced the search engine to increase search result accuracy and usability. Users should more easily find needed forms and publications, electronic tools and tax information. A new drop-down menu called "I Need To" provides taxpayers with quick access to frequently requested information.

New and improved features for IRS.gov in 2006 include:

· 1040 Central. This is the one-stop online shop for people hunting key forms, looking for what's new in the tax code and answers to frequently asked questions.

· Free File. The IRS and a consortium of tax software manufacturers will begin the fourth year of the popular service to income-eligible individuals later this month. Free File provides free tax preparation software and free e-filing to individuals who earn approximately $50,000 or less. Each manufacturer offers a proprietary product and sets its eligibility criteria within certain limits. Taxpa yers who formerly used Telefile should give Free File a try. Users must access Free File through IRS.gov to qualify.

· Alternative Minimum Tax Assistant. Every year taxpayers need to consider whether they will have to pay the alternative minimum tax (AMT). The AMT Assistant is intended to provide a simple test for taxpayers who fill out their tax returns without using software to determine whether they may be subject to the AMT.

· EITC Assistant. Tax professionals and taxpayers themselves should give the Earned Income Tax Credit Assistant a try. The EITC Assistant helps determine an individual's eligibility for the valuable tax credit and provides an estimate on the amount of the credit. This year, it will also help Hurricane Katrina victims determine which optional income to use. It is available in English and Spanish.

· Hurricane Assistance. The IRS has established a toll-free number for hurricane victims, 1-866-562-5227. There are also numerous tax law changes for the victims of Hurricane Katrina, Rita and Wilma, businesses located in the disaster areas and for individuals donating to charities helping the victims. These changes are available on IRS.gov. Also, the agency is preparing Publication 4492 that also will detail these changes.

For 2006, tax returns must be filed by April 17 because the traditional date of April 15 falls on a weekend this year. However, some taxpayers living in the Northeast - Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont and the District of Columbia - will have a filing deadline of April 18th because of a state holiday in Massachusetts where the IRS has a processing facility.

Another change will give late-filers six months to get their return in the mail. Taxpayers who cannot meet the April deadline should file a Form 4868, Application for Automatic Extension. Now, the extension to file will be through Oct. 16 for most taxpayers. Previously, Form 4868 automatically gave taxpayers four months.

Once taxpayers file their tax return, they can track their refund through the online tool "Where's My Refund?" Taxpayers will need some of the exact information from their tax return in order to use the tool. Access this secure Web site to find out if the IRS has processed the tax return and sent the refund.

The IRS Web site is, at certain times of the year, one of the most heavily used sites on the Internet. In fiscal year 2005, there were more than 176 million visits to IRS.gov and 1.2 billion page views.

Americans are not holding their breath for Tax Reform

2005-12-09T20:22:00.000-08:00

On December 8, 2005 John W. Snow, Treasury Secretary of the United States, gave a speech at PricewaterhouseCoopers’ 2005 Global Tax Symposium.

In the prepared remarks he said, "You know the statistics – billions of hours of paperwork for tax filers and businesses, $140 billion dollars in lost time and money just trying to comply with our increasingly unwieldy tax code. It's easy to see that the code is a drag on economic growth in America, an unnecessary burden we all share."

But during the speech (not in the official copy print) he also added that today there are four times more tax preparers than firemen, and 2 times more tax preparers than police in America. He added, "we need to fix that ratio", suggesting that tax reform will reduce the need for tax preparers in America.

But we ask why wait for tax reform! When will that come?

With the quality of tax software available online and the power of the IRS e-file system, Americans have the tools available TODAY to prepare their own tax returns. And they are doing it -- not waiting for Washington to reform tax codes -- Today, self-prepared taxes, done online (on the web with a computer), have reached a tipping point. Last year more than 50% of all tax returns were electronically filed (e-file). And, every year the number of people doing their own taxes online is growing by 15% -- the fastest growth segement in the tax filing industry.

Many of the online tax software companies offer their tax software for free. FREE TAX SOFTWARE. Companies like Taxhead.com offer free tax software, and only charge a small fee if you use IRS e-file to electronically file your tax return (instead of printing and mailing paper tax forms to the IRS).

Read Snow's the full speech

IRS Improves Tax Services in 2005

2005-11-17T09:36:00.000-08:00

IRS Commissioner Mark W. Everson released some information about how the IRS is improving tax service:

"This year for the first time over half of all individual returns were filed electronically. Our toll-free tax law accuracy hit a high of 89%. Telephone level of service was 83%, well above the 62% of just 4 years ago. And customer satisfaction with our toll-free service was a record 95%."

IRS eFile has now become the preferred way to prepare and file taxes. Online tax preparation software, approved as IRS eFile Partners, is available from companies such as Taxhead.com

The Best Online Tax Software and EFile Programs

2005-11-04T09:57:00.000-08:00

The IRS has designated about 30 online tax software companies as part of their IRS E-File Partnership. Here is a summary of what we think are the best online tax software offerings:

Tax Software Company	Specializes In	Price
Taxhead.com	1040A (EZ)	Free Software, eFile for $12.95
TaxCut by H&R Block	1040, A, EZ	$34.95 - $99.99

About Authorized e-file Partners

The IRS is committed to enabling all taxpayers to comply with their tax filing obligations. Whether you choose to file a tax return electronically or on paper, you should rest assured that the IRS is fully committed to protecting your information on our tax processing systems and by working with our industry partners.

Tax Panel takes a Populist Position on Taxes.

2005-11-03T10:26:00.000-08:00

There is a lot of talk about how the Bush Administration has been helping the rich and affluent at the exense of poor and middle-income Americans. But, President Bush's Tax Advisory Panel has actually recommended something that flies in the face of Bush's critics. The tax recommendations, if adopted, may actually help the bulk of Americans. And not the affluent directly.

The most controversial aspect of the Tax Panel's recommendation seems to be related to mortgage interest deduction limits. But, according to the IRS, today about 70% of Americans file tax form 1040-A or 1040-EZ, the "short forms". These forms do not allow mortgage interest deductions to be claimed. So it is fair to say that for about 70% of Americans, changes in mortgage interest deduction tax law will have little direct effect on them. But, interestingly enough, other effects from these tax law changes may work to the advantage of the 70% of Americans who file tax form 1040-A or 1040-EZ.

According to the New York Times, "The panel had a powerful rationale behind its proposal: many economists say the real estate subsidy is one of the tax code's most unfair features, overwhelmingly benefiting the affluent and pulling investment from the rest of the economy into the housing sector. Today, most of the mortgage tax advantages accrue to the rich rather than struggling first-time homeowners. More than 55 percent of the mortgage tax subsidy last year, according to the Congressional Joint Committee on Taxation, accrued to just 12 percent of taxpayers with incomes above $100,000."

The Times added, "Low-income homeowners often do not claim the deduction (for home mortgage interest), opting instead to take the $10,000 standard deduction available to families. Turning the deduction into a tax credit would equalize its value and make it available to more people on the lower end of the market."

Affordable housing in the high-priced real estate markets is a real problem. And, perhaps the tax law changes proposed, if adopted, would also help level the housing market for the benefit of more Americans. Some analysts and special interest groups, critical to the Tax Panel's recommendations, fear such changes in tax laws will cause housing prices to fall, especially in high-cost real estate markets. But James Poterba, an economist at the Massachusetts Institute of Technology who is on the president's panel argues that it is unlikely home prices would fall as much as others fear. For example, the tax law changes could slow investment in housing, thus reducing the supply of homes along with the demand. Methods of financing homes could also change in response to the tax laws.

In fact, reducing the tax code's subsidy to housing may be a sound idea. "It's an appropriate change to the tax code," said Mark Zandi, chief economist at Economy.com, a research firm. "While it may have made sense a quarter of a century ago, now I don't see a compelling advantage to providing these tax advantages to housing."

Edward L. Glaeser, an economics professor at Harvard said, "The deduction increases the amount spent on housing, but it has almost no effect on the home ownership rate." Instead, what the subsidy has done is encourage people to build and buy bigger and more expensive houses.

According to the Times, the mortgage deduction diverts capital from other industries by subsidizing investment in housing relative to other economic activities. Moreover, while the tax deductions were conceived to help people who otherwise could not afford to buy a home, the principal effect today is to encourage upper-income taxpayers to buy ever bigger and more expensive houses.

Joel B. Slemrod, the director of the Office of Tax Policy Research at the University of Michigan said, "At the high end it reduces demand and will probably push prices down. For low-end housing, it could go the other way around."

Overall, the Tax Panel's recommendation, if adopted, will result in more Americans filing short tax forms (1040A and 1040EZ). Simpler taxes for all, a more even spread across income and wealth brackets, more affordable housing -- these all sound like the right direction. And, as a side benefit, but an important one, if taxes are indeed simplified, more American will be able to prepare and file their own income tax returns. Rather than spending hundreds of dollars on paid preparers like H&R Block, Jackson-Hewitt, and Liberty Tax, more American will be able to prepare their own taxes. With this, people would better understand, and be more accountable for their own financial and tax situations. It's a move toward a learning and learned population of tax payers. Accountability at the home level, the personal level. This is something else President Bush has been striving.

Today, the IRS E-File system together with a broad range on online tax software products allow many people to prepare their own taxes. Many of these online tax software programs are free, or offered for a nominal cost. Tax services like Taxhead.com offer online tax software for free and charge a small fee for eFile.

The IRS, with its E-File system, and online tax software companies are ready to help millions of American tax payers file taxes more simply, more quickly and themselves. Perhaps with new tax code laws adopted, the U.S Government will also help move more Americans toward financial accountability, self-prepared taxes, more affordable housing for more people, and a fairer spread of the riches of America across all Americans.

E-File Can Help Reduce Undelivered Tax Refunds

2005-11-02T15:01:00.000-08:00

The IRS is looking for more than 84,000 owners of undelivered tax refunds. E-file combined with direct deposit can help reduce this problem.

The Internal Revenue Service has reported that it is "seeking 84,290 taxpayers whose income tax refund checks could not be delivered in 2005. Checks totaling approximately $73 million can be reissued as soon as taxpayers correct or update their addresses with the IRS. In some cases, a taxpayer has more than one check waiting. The average amount owed to each taxpayer is $871."

IRS Commissioner Mark W. Everson said, "Our goal is to get this money back in the hands of the people it belongs to. Visiting IRS.gov makes it easy for taxpayers to see if they've missed a refund."

E-File & Direct Deposit Help Tax Refunds Find Their Owners

To put an end to undelivered refunds, taxpayers can join more than 52 million individuals this year who have taken advantage of Direct Deposit. Taxpayers who choose this service received their tax refunds directly into their personal checking or savings account. According to the IRS, Direct Deposit, which also guards against theft or lost refund checks, is available for filers of both paper and electronic returns.

If tax filers electronically file (E-file) and use direct deposit the problem can be further reduced; tax form errors are reduce and more quickly remedied. Online tax software and e-file dramatically reduce tax return errors. According to the IRS, an error rate of about 20% is found with paper tax returns. In comparison, tax returns which use e-file have an error rate of about 1%. With e-file, if an error is found, the tax filer can correct and resubmit their return quickly, electronically, and often themselves online. Also with e-file, the tax filers gets an official IRS acknowledgement that their return was received. E-filed tax returns are generally processed in about 24 hours. Online tax services like Taxhead.com offer free tax software designed to improve tax form accuracy and greatly reduce tax form errors. For a small fee, tax filers can e-file their tax return online. Direct deposit is offered for all tax filers.

How to Update an Address with the IRS

Taxpayers who have moved since filing their last tax return can ensure the IRS has their correct address by filing Form 8822, Change of Address, with the IRS. 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.

Links:

The "Where's My Refund?" feature on the www.IRS.gov Web site provides taxpayers with information about their refunds.

Where's My Refund?

Change of Address: Form 8822 (pdf, 59.6KB)

Tax Counseling for the Elderly (TCE)

2005-10-28T10:26:00.000-07:00

The 2006 Tax Counseling for the Elderly (TCE) Cooperative Agreement application process is now open!

The IRS E-Grants Program

The Tax Counseling for the Elderly (TCE) Program offers FREE tax help to individuals who are aged 60 or older. This cooperative agreement is authorized by Section 163 of the Revenue Act of 1978, Public Law No. 95-600, 92 Stat. 2810, November 6, 1978. This Act authorizes the Internal Revenue Service (IRS) to enter into agreements with private or non-governmental public non-profit agencies or organizations, exempt under Section 501 of the Internal Revenue Code, that will provide training and technical assistance to elderly individuals in the preparation of their Federal Income Tax Returns. Grant funds are used to reimburse volunteers for out-of-pocket expenses including transportation, meals, and other expenses incurred by them in providing tax counseling assistance at locations convenient to the taxpayers.

For more information see Publication 1101, Application Package and Guidelines for Managing a TCE Program. In addition, qualifying organizations are able to access web-enabled electronic services to apply for grants under the TCE Program during the application period using The IRS E-Grants Program.

As part of the IRS-sponsored TCE Program, AARP offers the Tax-Aide counseling program at more than 9,000 sites nationwide during the filing season. Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to those aged 60 and older. For more information on AARP's Tax-Aide Program or for the location of their sites, call 1-888-227-7669 or visit
AARP's Internet Website
To find the location, dates and hours of the closest TCE site, call the IRS toll-free number at 1-800-829-1040.

Taxhead.com offers free tax software online with the option to use IRS E-File. This online tax software service together with the IRS Tax Counseling for the Elderly (TCE) Program offers elderly people FREE tax help combine with free tax software. Individual tax filers can also use Taxhead.com e-file tax service to electronically file their 1040-A tax form. Using direct deposit, e-file allows persons to receive their tax fund in as few as 9 days.

Oct 17th Tax Deadline Approaching for Extension Filers

2005-10-13T09:53:00.000-07:00

If you requested a tax filing extension, you should file your return by Oct. 17 to avoid the late filing penalty. This is generally 5 percent per month of any unpaid tax.

The Internal Revenue Service says that "approximately 2 million people still face the Oct. 17 filing deadline." The IRS adds:

"However, there are many taxpayers in Presidentially declared disaster areas as a result of Hurricanes Katrina and Rita who have been granted additional time until Feb. 28, 2006, to file their tax returns. Taxpayers in these areas with questions can call the IRS disaster hot line at 866-562-5227. Also, Wyoming taxpayers in Campbell County, where a tornado occurred in August, have until Oct. 21 to file their returns."

"Usually the extension deadline is Oct. 15, however, this year that date falls on a Saturday so extension filers have until Oct. 17 to file their returns. Last year, the IRS received more than 2.1 million returns in October."

So far this year, approximately 68 million taxpayers have filed electronically, representing more than half of all individual tax returns. Online tax services such as Taxhead.com offer fast, easy ways to e-file your taxes.

Free File is not necessarily free, and it is confusing

2005-10-10T09:51:00.000-07:00

The IRS free file initiative was designed to help low income taxpayers efile their returns. But, if you are using Free File, read the fine print BEFORE you start work on your tax return. Free file can be confusing and many hidden fees can apply, Your privacy and security may also be at risk.

Watch out for Cross Marketing Programs

Read the Privacy policies. Often companies are offering free tax e-file only to get your personal information and sell it to others, or use it themselves to sell you other products.
This is a common tactic of the free e-file companies. For example, H&R Block requires all Free File taxpayers to consent to cross marketing, despite the protections of the Internal Revenue Code, 26 U.S.C. section 7216. If you are interested in the privacy and security of your personal taxpayer information, read the privacy policy carefully.

Watch out for any "hidden fees" in preparing your return.

While you may qualify to have your federal return electronically filed for free, other services offered by the commercial filers may not be free. Hidden costs are everywhere, so be alert and aware. Some companies participating in Free File may offer to "professionally review" your tax return after you file it, or they may offer an online interactive feature to answer your questions, all for a price.

Check to make sure what, if any, costs would be charged if you have questions about your tax return once it is filed. Make sure to understand if the company will charge to help you fix any problems you might later have with your tax return, if they even offer this service. Free Assistance my also be available. Call the Taxpayer Advocate's office at 877-777-4778.

Beware of pitches for costly refund anticipation loans.

If you Free File and arrange for direct deposit of your refund into a bank account, the IRS says you should have your money generally within ten days. The IRS does not charge any fees to do this and you receive your FULL refund amount. Nevertheless, participating companies in the Free File program offer refund anticipation loans (RALs). If you agree to an RAL, you will receive the dollar amount due you by the IRS as soon as you file your tax return. You should understand that RALs are NOT REFUNDS. RALs are loans with interest. RALs always include interest, usually very high, and many times an additional fee will be added. An RAL reduces the amount of your REFUND by the amount of the fees and interest charges. The longer it takes you to pay back your RAL the more it will cost you. Think carefully before you agree to an RAL. You are liable for the RAL (loan) even if your refund from the IRS is disallowed in whole or in part. This is because an RAL is a separate loan from a lender. It is not your refund.

The IRS does not encourage or endorse the use of RALs offered by commercial providers.

You have important rights as a taxpayer. If you are uncertain of your rights, contact:

the National Taxpayer Advocate at 1-877-777-4778, or on the web at http://www.irs.gov/advocate/index.html

your Local Bar Association, on the web at http://www.abanet.org/barserv/stlobar.html

your local Low Income Taxpayer Clinic, or Legal Aide Society office. The IRS provides a list of Low Income Taxpayer Clinics at http://www.irs.gov/pub/irs-utl/litc_nrp_2-3-03.pdf

There is no single way to determine who qualifies for Free File so you will need to do some homework. In order to qualify, you also must meet one or more eligibility conditions, including:

Filing Form 1040 EZ;

Claiming the Earned Income Tax Credit; or

Qualifying as a low income taxpayer.

Still, the process can be confusing. Seventeen companies are participating in the Free File alliance, and each has its own criteria for determining who can e-file for free. For example, one company offers free e-filing for those with an adjusted gross income of $30,000 or less. Another offers the service to someone with an adjusted gross income of $100,000 or above. Still other companies offer free services to anyone 50 or older, taxpayers on active military duty, or residents of specific states.

A Safer, Easier Way to File Your Taxes is to use Low-Cost E-File Companies

Reputable companies like Taxhead.com charge a small fee to efile your tax return, but honor and respect your privacy. According to their Privacy Policy, which is monitored by TRUSTe, your information will never be sold, disclosed, or used for cross marketing. Taxhead.com also offers a single fee, with no hidden charges, to e-file your federal income tax return.

Fastest tax software

2005-09-30T23:04:00.000-07:00

Taxhead.com has released results demonstrating they offer one of the fastest, easiest tax software and e-file services available.
According to the company "Based upon actual results, half (49%) of our customers completed their tax return in less than 30 minutes."

According to IRS reports, an average of about 10 hours is required to complete taxes on paper forms. So, the benefits of Taxhead's service are rather significant. Using Taxhead's e-file tax software is 20 times faster!

Taxhead, an IRS authorized e-file provider and IRS e-file Partner, reported that 77% of their customers filing income tax returns finished in under 60 minutes, 63% in under 40 minutes, 49% in under 30 minutes, and more than a quarter (26%) finiushed in under 20 minutes.

Their data was based on Tax Year 2004 customers who completed entering their tax information in a single sitting (84% of their customers), and whose tax returns were accepted by the IRS on their first attempt (about 90% of their customers).

The company's results can be viewed by clicking here.

Fastest, Easiest Tax Software

2005-07-30T17:30:00.000-07:00

Taxhead.com offers one of the fastest, easiest ways to do your taxes online. Their software is offered for free. E-file for just one low price, and you can get your tax refund the next week.