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n n MOULTRIE OBSERVER Tuesday, January 22, 2008 CYAN MAGENTA Ev Od YELLOW BLACK The Moultrie Observer 1C A SPECIAL SUPPLEMENT TO The Moultrie Observer THE ULTIMATE GUIDE TO TAX PREPARATION, PLANNING & FILING January 2008 Ev Od MOB_Tax Prep Cover/ak CYAN MAGENTA n n YELLOW BLACK n n MOULTRIE OBSERVER 2C The Moultrie Observer CYAN MAGENTA Ev Od YELLOW BLACK Tuesday, January 22, 2008 2008 TAXTIME Little things can mean a lot for savvy 2007 tax filers WASHINGTON (AP) — For 2007 income taxes, it’s the little things that count. Small deductions here, a credit there, a bit of help for homeowners caught in the mortgage crisis — all add up to tax savings for savvy filers. But a big thing — Congress’ last-minute fix of the alternative minimum tax — delayed filing for several million early birds who usually submit returns months ahead of the April 15 deadline. Affected were taxpayers claiming any of five credits related to the AMT. This year, they couldn’t file before February More than 13 mil. lion taxpayers claim those credits, the Internal Revenue Service said, but only about 3 million to 4 million typically file before Feb. 11, the agency’s target date for processing those forms. For 125 million other taxpayers it’s business as usual, e strongly encourage taxpayers to file electronically, particularly those affected by late tax law changes.” “W Linda Stiff acting IRS commissioner the IRS says. And for everyone, including those affected by the five AMT-related forms, tax returns are still due April 15. Tax owed must be paid by that date, even if you file for the automatic six-month extension. Filing electronically and having your refund electronically deposited into a bank account will get it to you weeks earlier than choosing to receive it by government check. “We strongly encourage taxpayers to file electronically, particularly those affected by late tax law changes,” said Linda Stiff, acting IRS commissioner. “Filing electronically makes things easier by reducing errors and speeding up refunds.” Taxpayers using home tax preparation software should check the companies’ Web sites often for updates. Those still grappling with paper forms can print updated forms from the IRS Web site at http://www.irs.gov/formspubs/index.html or order them from the IRS by calling 1-800-829-3676. Forms also are available at post offices, banks, public libraries and other outlets, though they might not be up to date. But then neither is the tax packet that last year’s paper filers received by mail from the IRS in January, because it doesn’t include those five AMT-related forms. When the dust settles, you’ll find there’s little that’s new this filing season, other than the usual inflation-related adjustments. But even small items can add up. “Make sure that you’ve got the bases covered. Make sure you know all of the deductions you’re entitled to, the credits you can claim,” said Maggie Doedtman, client advice manager for H&R Block, the tax preparation giant. Leading the list of new items for 2007 are tax breaks for homeowners facing foreclosure or struggling with house payments that include mortgage insurance premiums. Mortgage insurance is required by government and private lenders on home purchases in which the buyer pays less than 20 percent as a down payment. For 2007, taxpayers can deduct mortgage insurance premiums on home acquisition debt that was new or refinanced in 2007. If you simply continued paying premiums on a mortgage that predated 2007, you can’t deduct those. Like many deductions, this one phases out as income rises. Only taxpayers with adjusted gross incomes of $100,000 or less take the full deduction. Homeowners facing foreclosure have one bright spot, a provision Congress passed late last year as the mortgage crisis took its toll. Taxpayers granted forgiveness of mortgage debt in 2007 don’t have to pay taxes on the amount of that forgiveness, up to $2 million ($1 million for a married person filing separately). Previously, loan forgiveness was often taxed as income. Despite high fuel prices and other energy costs, energy tax breaks are petering out. Homeowners who made certain energy-saving home improvements in 2007 have one last chance to claim the residential energy credit, but only if they didn’t use all the credit in 2006. Items that qualify include insulation, certain water heaters, air conditioners, fans, furnaces, skylights, exterior windows and doors, solar panels and metal roofs with pigmented coatings designed to reduce a home’s heat gain. The credit is usually 10 percent of the cost, though there may be separate limits for specific devices. The credit is limited to $500 for the 2006 and 2007 tax years combined. Taxpayers who bought a new hybrid or alternativefuel vehicle in 2007 are eligible for the alternative motor vehicle credit, but this phases out beginning in the second calendar quarter after the quarter in which the manufacturer records its 60,000th sale of hybrids and alternative fuel vehicles. Check the IRS Web site for specific manufacturers’ models and allowable credits. Facts about filing 2007 income tax returns Some important facts about filing your 2007 income tax return: s Records needed A checklist of the most common records you’ll need to prepare 2007 taxes, whether you use home-computer tax software, a professional tax preparer or an old-fashioned paper tax return: • Copy of 2006 tax return. • W-2s from all employers. • Forms 1099, 1099-DIV, 1099-R and 1099-G showing non-wage income, dividend or interest paid to you in 2007 as well as any refund, credit or offset of state and local taxes. • Receipts indicating state and local taxes, real estate taxes and personal property taxes you paid in 2007. • Form 1098 showing 2007 home mortgage interest and points, as well as mortgage insurance premiums on home acquisition debt that was new or refinanced in 2007. • Receipts and documentation for all charitable contributions and gifts (cash and non-cash). • Income receipts from rental real estate, royalties, partnerships, S corporation and trusts. • Records of unemployment compensation, Social Security benefits or other income. • Records of medical and dental expenses if you think you can meet the 7.5 percent adjusted gross income threshold required for this deduction. • Documentation of casualty and theft losses. • Total paid for day care, and tax identification number for daycare provider. • Identifying documents — such as a Social Security card or driver’s license — for you and your spouse in certain tax situations, such as when claiming the earned income tax credit. •A bank routing number and an account number for direct deposit of refund. Remember to keep a copy of your tax return and supporting documents for at least three years from the date you file the return. FILING DEADLINE Tuesday, April 15, 2008. FILING EXTENSION Automatic six-month extension to Oct. 15, 2008, as long as Form 4868 is filed by the April deadline. But any tax owed must be paid by April 15. WHAT’S NEW • Filing delays until midFebruary for taxpayers using any of five specific forms related to the alternative minimum tax: Form 8863, “Education Credits”; Form 5695, “Residential Energy Credits”; Schedule 2 of Form 1040A, “Child and Dependent Care Expenses for Form 1040A Filers”; Form 8396, “Mortgage Interest Credit”; and Form 8859, “District of Columbia FirstTime Homebuyer Credit.” • Deduction for mortgage insurance premiums on home acquisition debt that was new or refinanced in 2007. Only taxpayers with adjusted gross incomes of $100,000 or less take the full deduction, which phases out as income increases. • Homeowners granted forgiveness of mortgage debt in 2007 don’t have to pay taxes on the amount of that forgiveness, up to $2 million ($1 million for a married person filing a separate return). • Stricter record-keeping rules for charitable cash donations. All must be backed up by official records such as a check, bank copy of the check, electronic funds transfer record, credit card or credit union statement. A charity’s written acknowledgment also is OK. • 2007 is the last year to claim the credit for certain energy-efficient home improvements, as long as you didn’t use it up for 2006. • The alternative motor vehicle fuel credit can still be taken for 2007 purchases of certain hybrid and alternative fuel vehicles. But the credit is phasing out or disappearing for many such vehicles as manufacturers reach 60,000 vehicles sold. Check the IRS Web site at http://www.irs.gov for a list of vehicles and credit amounts. FREE E-FILING The IRS’ Free File Alliance with tax software companies allows taxpayers with incomes of $54,000 or less to prepare and file returns online for free if they access the tax prep program through the IRS Web site. posited directly into an account. Paper tax returns and refund checks can take up to eight weeks. To check refund status, go to the IRS Web site and click on “Where’s My Refund?” on the left. When prompted, enter your Social Security Number, filing status and exact amount of the refund shown on your 2007 return. Or, call 1-800-8294477. This is also the phone number for recorded information on various tax topics. AUDITS The average taxpayer’s chances of an audit are slim. People with high deductions and income face greater odds. IRS FORMS/PUBLICATIONS Download from the IRS Web site by navigating to “Forms and Publications”; order by mail by calling 1800-829-3676. REFUNDS The IRS will split a taxpayer’s refund into three different financial accounts, such as checking, savings and retirement accounts. File electronically to get your refund within days if you have your money de- ONLINE TAX HELP The IRS Web site has links to every tax topic. PHONE TAX HELP 1-800-829-1040 for individuals, 1-800-829-4059 (TDD) for those with hearing impairment, 1-800-829-4933 for businesses. AUTHORIZED TAX DAYS SALE-A-THON Get More For Your Money! BUY A PRE-OWNED VEHICLE AND GET PROVIDER Hours: Monday - Friday 8 a.m. - 6 p.m. * Open Saturdays * 9 a.m. - 2 p.m. $500 IN FREE GAS 2007 Ford Ranger Supercab XLT Only 3,000 Miles! WITH THIS AD! $ 2006 Dodge Dakota Quad Cab Still Under Factory Warranty! 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Call today to schedule your Purchase Consultation. 1-888-231-0299 1825 VETERANS PKWY. • MOULTRIE, GA. 419899smM 985-2753 or 985-0991 Millie Bozeman Ev 419485smM EDWARDSMOTORS.COM YELLOW BLACK Od CYAN MAGENTA n n n n MOULTRIE OBSERVER Tuesday, January 22, 2008 CYAN MAGENTA 2008 Ev Od YELLOW BLACK The Moultrie Observer 3C TAXTIME Millions of eligible taxpayers fail to take credit WASHINGTON (AP) — The IRS is making a big push this year to make sure certain taxpayers know they can take the earned income tax credit, a benefit for lower income workers and working families that goes unclaimed by up to 25 percent of those who are eligible. The EITC is intended to offset a portion of Social Security and Medicare taxes, thus boosting take-home income in low-wage jobs and providing an incentive to work. It’s a “refundable” credit, meaning that after it is figured against your tax liability the IRS sends you any , money you’re due. For 2007 tax returns, the maximum credit is worth up to $4,716 for people with two or more qualifying children, though it’s also available to some taxpayers without children. “For families eligible for the maximum it’s almost a quarter of their income,” F or 2007 tax returns, the maximum credit is worth up to $4,716 for people with two or more qualifying children, though it’s also available to some taxpayers without children. Day” on Jan. 31 — about the time people get their W-2 forms from employers and start thinking about income taxes. The agency also works with 12,000 volunteer tax preparation sites for people who need help with this and other benefits. The credit is calculated on IRS worksheets, available in English and Spanish. There is also an English-Spanish “EITC Assistant” tool on the IRS Web site at http://www.irs.gov. Many EITC filers can file for free online using the IRS Free File partners, providing they access those partners from the IRS Web site. The agency is also reaching out to Native said David R. Williams, IRS director of Electronic Tax Administration and Refundable Credits. “That is such a significant amount of money . It can mean so much for a family .” But the rules and qualifications can be confusing. People overlook the credit because they believe it’s too complicated, they don’t have children or their income is so low they don’t have a legal obligation to file taxes. Many aren’t native English speakers. As many as 5 million people are probably eligible for the credit but are not taking it, the IRS says. To reach out to them, the IRS has “EITC Awareness Americans, people with disabilities and those in rural areas who may be eligible for the credit. Congress originally approved the tax credit legislation in 1975. For tax year 2005, more than 22 million taxpayers received over $41 billion through the EITC credit, an average credit of $1,797, the IRS said. For tax year 2006, 22.4 million taxpayers received $43.7 billion as of last November. But only about 75 percent of those eligible claim this benefit, the agency says. Most who claim the credit use a paid tax preparer. The IRS says taxpayers should avoid preparers who offer upfront to qualify them for EITC or ask them to sign a blank 1040. They should also avoid preparers who charge high fees for refund anticipation loans, a short-term advance of quick cash using the expected refund as collateral. Those who can’t afford a paid preparer should use volunteer tax prep sites run by community organizations, the IRS says. To get the earned income tax credit, you must file a tax return, even if you didn’t earn enough money to be obligated to file. If in 2007 you had less than $37,783 ($39,783 for married filing jointly) in income and had two or more qualifying children, you are eligible for the credit. People with no qualifying child can still be eligible for a credit of up to $428 if their income was less than $12,590 ($14,590 for joint filers). Those with one qualifying child and income under $33,241 ($35,241 for joint filers) are also eligible. What’s a qualifying child? There are three tests: the child’s relationship to you, age and residency A qualify. ing child can be a son, daughter, stepchild, foster or adopted child, or descendant of any of them; brother, sister, half brother or sister, step- brother, stepsister or their descendant. The child must have been under 19 at the end of 2007 or a full-time student under age 24. Someone permanently and totally disabled also qualifies, regardless of age. The child must have lived with you in the United States for more than half the year. People claiming the EITC, and their qualifying children, must have valid Social Security numbers. It’s possible some of those eligible for the credit don’t claim it because they have illegal immigrants in the household and fear the IRS will share their information with immigration authorities. The IRS says it doesn’t do that. “We divulge that information to no one,” Williams said. “We would not be divulging Social Security numbers or taxpayer identification numbers to other third parties.” Check and double-check to avoid these common income tax return errors WASHINGTON (AP) — Everyone makes mistakes. But when it comes to tax returns, errors can be costly . Check and double-check the items below, which are among the most common tax goofs, according to the Internal Revenue Service and MSN.com tax expert Jeff Schnepper. • Claiming the wrong filing status: Your filing status determines a number of tax benefits, like the child tax credit, earned income tax credit and dependent exemptions. Filing status choices are single, married filing jointly, married filing separately, head of household, and qualified widow with dependent child. You can’t just pick one; each has requirements. • Wrong Social Security numbers: If these are incorrect, they won’t match your government records and the IRS may disallow exemptions, credits and deductions. • Failing to sign and date your return: If you don’t sign, the IRS doesn’t consider the return filed. E-filed returns can be electronically signed, and this year the agency is simplifying that process. You or your tax preparer can use a PIN number to complete the filing process. • Claiming ineligible dependents: Make sure they qualify If they don’t have . Social Security numbers, the IRS may disallow the exemption. • Not claiming (or misusing) the earned income tax credit: Millions of low-income working families qualify, but do not claim it for a variety of reasons. Even if you don’t make enough money to be required to file a tax return, you may still be eligible for the credit. Because this is a refundable credit, it often means money back from the IRS. However, check the requirements because some taxpayers who try to claim the credit do not qualify for it. • Failing to report domestic workers: Some taxpayers do this to avoid paying Social Security and Medicare taxes for their workers, and it’s against the law. • Failing to report all income: This means every source of income, even if you don’t get a W-2 back from an employer, or a 1099 form from someone else you did work for. •Failing to check whether you are subject to the alternative minimum tax: If your deductions and taxes are so high as to wipe out much of your tax liability, it’s a good chance you may be subject to AMT, a parallel tax system designed to make sure the wealthy pay their fair share. But you don’t have to have vast wealth to fall under AMT. More middle income taxpayers are being ensnared by this tax. It’s best to check. Free preparation help available for many taxpayers WASHINGTON (AP) — Many taxpayers can get free tax help from IRS-sponsored programs at neighborhood community centers, libraries, schools, shopping malls and other sites during the filing season. The IRS provides technical assistance for training and certification of volunteer tax counselors. • VITA: The IRS’ Volunteer Income Tax Assistance program offers help to taxpayers with incomes of $40,000 or less. Most sites also offer electronic filing. To find a VITA site near you, call 1-800-829-1040. • TCE: Tax Counseling for the Elderly helps people age 60 and older. Many of the volunteer counselors come from AARP’s Tax-Aide program, which provides tax help for the elderly at 9,000 sites across the country. To find one near you, call AARP at 1-888-227-7669, or visit AARP’s Web site at http://www.aarp.org/money/taxaide. • Military personnel: Military service members and spouses get tax help here and abroad through a program coordinated by the Armed Forces Tax Council. The IRS provides tax software and tax prep training. For more information, see IRS Publication 3, “Armed Forces’ Tax Guide,” available on the IRS Web site, http://www.irs.gov or order a free copy by calling 1-800-TAX-FORM (1-800-829-3676). • Free electronic tax preparation and filing: If your income was $54,000 or less in 2007, you can use Free File to prepare your taxes online for free through the IRS’ partners in the Free File Alliance. Go to the IRS Web site and follow the links to Free File. The IRS itself provides free tax help in several ways: • Its Web site has information on any tax topic, publication, instructions or form. You can research tax questions, order forms and publications, view IRS bulletins and use interactive tools for making certain calculations. • Phone assistance. The IRS has several toll-free numbers for tax help. For individuals, call 1-800-829-1040; for businesses, 1-800-829-4933. People with hearing impairments should call 1-800-829-4059. •IRS Taxpayer Assistance Centers provide tax help in person at walk-in sites. Go to http://www.irs.gov/localcontacts/index.html and click on your state to view ones near you. To find the nearest site, you also can enter your five-digit ZIP code into the “Walk-in Site” search box. $ FAST CASH TAX REFUNDS $ FAST CASH TAX REFUNDS $ Refund Anticipation Loan OPEN SATURDAY 9-6 • Expert Tax Service Year Round • Bookkeeping • No Up Front Fee • First Time Filers O.K. • Pre-Prepared Returns O.K. • R.A.L. Available from $300-$10,000 COUPON Bring this Coupon & Receive Dennis W. Futch, E.A. TAX ACCOUNTANT/ENROLLED AGENT $ 20.00 OFF On Electronic Filing or Tax Prep. Cash Value 1/10 of 1 cent "FREE" Electronic Filing and Ga. Return with Tax Preparation Not Valid With Any Other Offer THE TAX SHOP "No Return Too Simple Or Complex!" TAXES ARE OUR ONLY BUSINESS! PUT OUR EXPERIENCE TO WORK FOR YOU !! Open: Mon. - Sat. 9 am -6 p.m. Next to Braswell Jewelers The Tax Shop 16 S. Main St. Moultrie After 6 p.m. by Appointment www.thetaxshop.net Ev 985-0176 Od 419486smM CYAN MAGENTA n n YELLOW BLACK n n MOULTRIE OBSERVER 4C The Moultrie Observer CYAN MAGENTA Ev Od YELLOW BLACK Tuesday, January 22, 2008 2008 TAXTIME gradually decrease — as income goes up. A taxpayer who has over $57,000 in modified adjusted gross income (AGI), $114,000 for joint filers, can’t claim a credit. • Tuition and fees deduction: Depending on your income, you may be able to take a deduction of up to $2,000 or up to $4,000 for tuition and fees. But no deduction is allowed for modified AGI above $80,000 for single filers, $160,000 for joint filers. Use the new Form 8917 to figure the deduction; attach it to your 1040 or 1040A. • Interest on student loans. Up to $2,500 of interest on student loans is deductible. Taxpayers with modified AGI over $70,000 for individual filers, $140,000 for joint filers, don’t qualify for the deduction. Forms 1040 and 1040A have a worksheet for figuring this deduction, and the lender — a bank or other qualified institution — must send you Form 1098-E stating the amount of interest paid in 2007. One of the bugaboos of figuring education tax benefits is the issue of what qualifies as education expenses. Generally, room and board aren’t qualifying expenses for purposes of your 1040. Tuition and any mandatory fees — like a college’s required Internet fee or student activity fee — are OK, if paid directly to the school. And if a student withdraws from college, you can deduct qualified education expenses not refunded by the institution. Books, supplies and equipment like a computer don’t qualify as education expenses, unless they’re required by the school for enrollment or attendance and paid directly to the school. Those plane and bus tickets home? Not eligible. The tax code is firmly against double-dipping; you can’t claim both a tuition and fees deduction and an education tax credit for the same student in the same tax year. You can’t take both tax Education tax breaks can soften the blow of college costs WASHINGTON (AP) — College is one of the most expensive investments a parent can make in a child’s future. But there’s a consolation prize that comes with the hefty price tag: bigger tax breaks. With average yearly instate costs at $13,589 for a public university and $32,307 for a private college, according to the College Board, any education tax break is a boon. But be careful; in most cases you can’t use the roomand-board part of that bill — a sizable chunk of the cost — in figuring your tax benefit. Still, two tax credits, a student loan interest deduction and a deduction for tuition and fees — not just for your dependent’s education, but yours and your spouse’s as well — can lessen the sting of college bills. Credits are among the tax code’s biggest prizes because they are a dollar-for-dollar reduction in tax liability, while a deduction simply reduces the income against which W ith average yearly in-state costs at $13,589 for a public university and $32,307 for a private college, according to the College Board, any education tax break is a boon. the student is enrolled at least half time. For each student you can claim 100 percent of the first $1,100 in qualified education expenses and 50 percent of the next $1,100. The Lifetime Learning credit is worth up to $2,000 per return — not per student, so you can combine expenses from more than one student. This credit isn’t limited to college expenses — non-degree work is OK, even if it’s just a course or two. There’s also no limit on the number of years in which the Lifetime Learning credit can be claimed. The calculation is 20 percent of the first $10,000 of qualifying education expenses. Both credits phase out — tax is assessed.Here are education tax benefits for 2007. You can claim them for qualifying education expenses for yourself, your spouse or a dependent for whom you claim an exemption on your tax return. You can’t take any of them if your filing status is married filing separately . • Tax credits: There are two. Calculate them using Form 1098-T, which a college must send every enrolled student by the end of January To claim a credit, attach . Form 8863 to your 1040 or 1040A form. The Hope credit, worth up to $1,650 per student in 2007, can be taken only in the first two years of post-secondary education, providing credits for the same student that year. You cannot take the credits or tuition and fees deduction for qualified education expenses paid with tax-advantaged funds from 529 tuition plans or the Coverdell Education Savings Account. You’ve already received the tax benefit from such accounts — the earnings and distributions aren’t taxed if used for education. Finally, you can’t claim education credits or deductions if the student is also claiming them on his or her tax return. That may mean figuring your return and your student’s tax return several ways to determine which way best helps the family’s overall tax situation. For more information on education tax benefits, see the Internal Revenue Service’s Publication 970, “Tax Benefits for Education,” available online at http://www.irs.gov/formspubs/index.html. Kiddie tax hits many families for 2007; 18 year-olds escape for now Y WASHINGTON (AP) — If you have a child who turned 18 in 2007, you are in luck, taxwise. But that’s the only bright spot for families burdened by the “kiddie tax.” The tax is, in effect, a penalty on parents who saved for their child’s college by putting money into custodial accounts at a time when today’s tax-free education savings vehicles weren’t widely available or used. “It has ruined wonderful planning people have been doing for years, people who were thinking ahead, who gave their child income-producing assets they would use when the kid went to school,” said Harvey Aaron, senior tax manager at Braver PC in Newton, Mass. and director of tax services at Braver Wealth Management. Here’s how the kiddie tax works: If a child is under 18, he or she is allowed to have $1,700 in unearned income — non-wage income such as dividends and interest on in- ou can choose to include the child’s income on your tax return, provided the child was under 18 at the end of 2007 and had income less than $8,500 that consisted only of interest and dividends or capital gains distributions on those investments. vestments — before the kiddie tax kicks in. (There’s no tax on the child’s income of $850 or less, and the next $850 in income is taxed at the child’s ordinary income tax rate, usually 10 percent or 15 percent.) For unearned income over $1,700, the child’s tax is computed at the parent’s tax rate, which can be as high as 35 percent. A child who turned 18 in 2007 isn’t subject to the kiddie tax and will pay 2007 tax at his or her lower rate. But don’t celebrate too much. Congress has raised the age at which children are subject to being taxed at the parents’ rate. For 2008 in- come, the kiddie tax will apply to children under 19, and even those under 24 if they are full-time students and don’t have earned income equal to half of their annual support. Shifting income to children in lower tax brackets is a strategy long used by the wealthy to reduce their tax, and Congress took aim at that practice when it passed the kiddie tax nearly 20 years ago. But the wealth-shifting strategy was also a way for middle-income parents to save for children’s college expenses. Nowadays, many parents choose as college savings ve- hicles the popular 529 plans, which allow earnings to grow tax-free when the money is used for higher education. But 529s weren’t as widely available when parents of today’s older teens started saving. Instead, those parents typically saved for college by putting money into custodial mutual funds, bonds or other savings instruments in the child’s name. It’s the return on those investments — the “unearned” income that includes interest, dividends, rents, royalties and profits on the sale of property — that falls under the kiddie tax. The tax doesn’t apply to wages a child earns at a job. That brings up one strategy some parents with their own business have adopted: hiring their children to work for them. This gives the child earned income, which is taxed at the child’s ordinary income tax rate. But it’s best to be cautious with that strategy, notes Mark Steber, vice pres- ident of tax resources at Jackson-Hewitt, the nationwide tax preparation company “You can’t pay them . $20,000 a year for coming in and filing folders, but you’re also not precluded from hiring children,” Steber said. “I would caution people not to think that’s a loophole the IRS is not aware of. You can’t jack up earned income for something that’s unreasonable.” You can choose to include the child’s income on your tax return, provided the child was under 18 at the end of 2007 and had income less than $8,500 that consisted only of interest and dividends or capital gains distributions on those investments. Reporting the child’s investment income on your return may reduce paperwork and costs; since the child doesn’t file a return, tax preparation expenses may be reduced. But including a child’s income on your return also adds to your adjusted gross income, which in turn may subject you to phase-out or reduction of certain exemptions, deductions, IRA contributions and other tax breaks, as well as increase your state and local tax liability . Whichever tax-filing strategy you choose, be sure to file the correct forms: Form 8814 is attached to the parent’s return when a child’s investment income is reported with the parent’s income. When the income is reported on a child’s separate tax return, Form 8615 is filed with the child’s return and no additional form is filed with the parent’s return. Also, remember that a child who files a tax return cannot claim an exemption for himself or herself if the parent or someone else can claim the child as a dependent. For more information, see IRS Publication 929, “Tax Rules for Children and Dependents.” Downtown Moultrie on the Square Ann F. Newton Secretarial & Tax Services I have relocated my office. I am now at 639 R. L. Sears Road, Norman Park, GA. Directions to my office are: From Veterans Parkway North, take GA Hwy. 37 E towards Adel, GA. Go 4.4 miles until you reach R. L. Sears Road, turn left on to R. L. Sears Road, go 1.1 mile. I am on the left hand side. My office is situated beside my house. B T Business & Tax Service S 16 First Ave., S.E. • P Box 543 .O. Moultrie, Ga. 31776 (next to Colquitt Optical and Midtown Pawn) Call 229-890-1079 for an appointment for your income tax preparation. • Expert Tax Service • Year-round Bookkeeping • Monthly, Quarterly & Annually Tax Reports Ann F. Newton Refunds to 24 - 48 Hours • Bookkeeping Services • Payroll Services • Tax Preparation Applicacions para el Numero De Taxas (W-7) *Un numero de taxas se le applica quando no tiene seguro social llamanos hoy para mas informacion Richard K. Winston, Jr. CPA MBA OPEN: Monday - Friday 9:00 a.m. - 5:30 p.m. Will open on Saturday by appointment. Ann F. Newton Secretarial & Tax Service 639 R. L. Sears Road Norman Park, Ga. 890-1079 YELLOW BLACK 419482smM Phone: 985-1105 • Fax: 890-6687 Ev Od 419484jmM CYAN MAGENTA n n n n MOULTRIE OBSERVER Tuesday, January 22, 2008 CYAN MAGENTA 2008 Ev Od YELLOW BLACK The Moultrie Observer 5C TAXTIME Two new 2007 tax breaks help homeowners WASHINGTON (AP) — In a year of bad mortgage news, there’s a bright spot or two for homeowners: Foreclosure comes with a tax break, and 2007 mortgage insurance payments may be tax-deductible. Congress acted on both provisions late last year, extending the mortgage insurance deduction for three more years and creating a new tax break for homeowners facing foreclosure. The mortgage insurance deduction will help certain low and moderate income homeowners, especially firsttime homebuyers and those struggling with higher house payments as adjustable rate mortgages reset. By the way: This type of insurance should not be confused with the homeowners’ insurance you take out on your home and its contents in case of fire or other disaster. It’s also not the same thing as mortgage protection insurance, which is a form of life insurance some people buy to pay off a mortgage when they die. F or the first nine months of 2007, about 16.7 percent of the estimated $1.98 trillion in new mortgages originating during that period had private or government mortgage insurance, according to Inside Mortgage Finance Publications. Mortgage insurance is required by government and private lenders on home purchases in which the buyer makes a down payment of less than 20 percent. Often, these are first-time buyers or people with lower incomes. The insurance protects the lender if the borrower defaults on the loan — a very real prospect last year for homeowners who took out adjustable mortgages with low teaser rates that have since risen. For the first nine months of 2007, about 16.7 percent of the estimated $1.98 trillion in new mortgages originating during that period had private or government mortgage insurance, according to Inside Mortgage Finance Publications, which researches and tracks the residential mortgage business. Typically, homeowners pay an average of $50 to $100 a month in mortgage insurance on a median single family home price of $217,600, according to the Mortgage Insurance Companies of America, a trade association. The new tax deduction could save taxpayers who itemize as much as $300 to $350 in federal taxes, MICA estimates. There are restrictions. Only taxpayers with adjusted gross incomes of $100,000 or less can take the full deduction, which gradually decreases for incomes above that and is eliminated altogether for those with AGIs over $109,000. And only insurance on mortgages taken out in 2007 — new or refinanced — qual- ifies for the deduction. If you simply continued paying mortgage insurance in 2007 on a loan taken out in an earlier year, you cannot deduct those payments. To be deductible, the insurance must have been paid on “home acquisition debt” — debt incurred to buy, build or substantially improve a principal residence or second home. Most tax experts interpret this provision as meaning that if in 2007 you refinanced your home to take out extra cash from your equity — then used that cash toward building a home addition or making a substantial home improvement — insurance on that added mortgage debt is deductible along with insurance on the old mortgage amount. But if you simply refinanced your home to take out extra cash for other purposes, the portion of a mortgage insurance premium that covers that additional amount isn’t deductible, only the amount that covers the original mortgage debt. The 1098 form from your mortgage lender should specify the amount you paid in 2007 in mortgage interest and mortgage insurance. Claim the mortgage insurance deduction on Schedule A, Line 13. Further details are in IRS Publication 936, “Home Mortgage Interest Deduction.” Late last year, Congress approved a measure to help homeowners fighting foreclosure as the mortgage crisis took its toll. Taxpayers who were granted forgiveness of mortgage debt in 2007 don’t have to pay taxes on the amount of that forgiveness, up to $2 million ($1 million for a married person filing a separate return). Only debt forgiveness on a principal residence is eligible. The provision applies to restructured mortgage agreements entered into after Jan. 1, 2007. Previously, such loan forgiveness was often taxed as income. Several other common tax benefits are in effect for homeowners who itemize. They include: • Mortgage interest deduction: interest you paid to the lender in 2007 on mortgages for your principal home and a second home for your personal use, providing the mortgages are secured by the home. • Points: certain fees, computed as a percentage of the loan amount, that you paid to obtain your mortgage; for second homes, these must be amortized over the life of the loan. For your principal home, points are fully deductible in 2007 if you took out the mortgage that year and certain conditions were met. (There are nine tests, spelled out in Publication 936.) • Refinancings: points paid for refinancing are usually not deductible in full during the year you refinance, but are instead amortized over the life of the loan. But if you refinanced in 2007 and used part of the refinancing proceeds to substantially improve your home, you can deduct in full the points on that part of the loan; the remaining points are amortized. IRS E-File Opens for 2008 Filing Season for Most Taxpayers WASHINGTON — Most taxpayers may file their 2007 tax returns electronically beginning Jan. 11 as the Internal Revenue Service opens the e-file program. I RS e-file allows taxpayers to file their return now and pay later if they owe taxes. It allows taxpayers to file both the federal and most state returns at the same time. said IRS Acting Commissioner Linda E. Stiff. "We strongly encourage taxpayers to take advantage of the benefits that electronic filing offers." IRS e-file allows taxpayers to file their return now and pay later if they owe taxes. It allows taxpayers to file both the federal and most state returns at the same time. Taxpayers may use IRS e-file through their tax preparer, or with a computer using tax preparation software. This software is available on the Internet for online use or for download. Many retail stores sell the software for offline use. The IRS does not charge taxpayers to e-file their completed returns, but some tax preparers and software manufactures may charge a fee. To get all the benefits of e-file, taxpayers must make sure that when they are done with their return, they take the final step of e-filing it. Taxpayers who use a paid preparer should make sure their preparer is taking this final step, too. Why? In addition to error checks inherent in the return-preparation software, additional checks are done BENEFITS OF E-FILE Taxpayers who use IRS e-file and who choose direct deposit can receive their refund in as little as ten days. With e-file there is no paper return going to the IRS and with direct deposit, there is no paper refund going to the taxpayer. It’s all electronic. Tax return information is protected through encryption. Taxpayers receive an acknowledgement within 48 hours that the IRS has accepted the return. “IRS e-file is the fastest, easiest and most accurate way to file a tax return,” during the transmission process. That's why the error rate is so low for e-filed returns. In fact, the error rate is significantly reduced from 20 percent with paper returns to about 1 percent with e-filed returns. FREE FILE Free File, which is a form of e-file, is a free federal tax preparation and electronic filing program for eligible taxpayers developed through a partnership between the IRS and the Free File Alliance LLC. The Alliance is a group of private-sector tax- software companies. Since Free File’s debut in 2003, a total of more than 18 million returns have been prepared and e-filed through the program. Free File allows taxpay- ers with an Adjusted Gross Income (AGI) of $54,000 or less in 2007 to e-file their federal tax returns for free. That means 70 percent of all taxpayers – 97 million taxpayers – can take advantage of the Free File program. E-File Usage Grows Every Year IRS e-file totaled nearly 80 million tax returns in 2007. Almost 57 percent of all returns were filed electronically Last year, there . was a surge in e-file from home computers. There were also significant increases in e-filing by people with a balance due using credit cards and Electronic Funds Transfer (EFT) payment options. The IRS began the e-file program in 1986 as a pilot project in three cities: Cincinnati, Phoenix and Raleigh-Durham, N.C. That year, there were 25,000 tax returns filed electronically . The e-file program expanded nationwide in 1990 and 4.2 million tax returns were filed. IRS e-file has undergone tremendous growth each year. TAXPAYERS AFFECTED BY AMT LEGISLATION As many as 13.5 million taxpayers who use five forms related to the Alternative Minimum Tax legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law. IRS has targeted Feb. 11 as the potential starting date for taxpayers to begin submitting the five-related returns affected by the legislation. BUY HERE! PAY HERE! 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