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IRS Tax Tips
03/12/09 - 01:16 PM
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Seven Important Points about Penalties

Taxpayers who do not file their return and pay their tax by the due date may have to pay a penalty. Here are seven things you should know about failure-to-file and failure-to-pay penalties.

1. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.

2. The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.

3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

4. You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.

5. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.

6. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.

7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Top Ten facts about the Tuition and Fees Deduction

The Tuition and Fees deduction of up to $4,000 is available to help parents and students pay for post-secondary education. Below are ten important facts about this deduction every student and parent should know.

1. You do not have to itemize to take the Tuition and Fees deduction. You claim a tuition and fees deduction by completing Form 8917 and submitting it with your Form 1040 or Form 1040A.

2. You may be able to claim qualified tuition and fees expenses as either an adjustment to income, a Hope or Lifetime Learning credit, or – if applicable – as a business expense.

3. You cannot take the tuition and fees deduction on your income tax return if your filing status is married filing separately.

4. You cannot take the deduction if you are claimed, or can be claimed, as a dependent on someone else’s return.

5. The deduction is reduced or eliminated if your modified adjusted gross income exceeds certain limits, based on your filing status.

6. You cannot claim the tuition and fees deduction if you or anyone else claims the Hope or Lifetime Learning credit for the same student in the same year.

7. If the educational expenses are also allowable as a business expense, the tuition and fees deduction may be claimed in conjunction with a business expense deduction, but the same expenses cannot
be deducted twice.

8. You cannot claim a deduction or credit based on expenses paid with tax-free scholarship, fellowship, grant, or education savings account funds such as a Coverdell education savings account, tax-free
savings bond interest or employer-provided education assistance.

9. The same rule applies to expenses you pay with a tax-exempt distribution from a qualified tuition plan, except that you can deduct qualified expenses you pay only with that part of the distribution that is a return of your contribution to the plan.

10. IRS Publication 970, Tax Benefits for Education, can help eligible parents and students understand the special rules that apply and decide which tax break to claim. The publication is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Claiming a Deduction for Your Home Office

Taxpayers who use a portion of their home for business purposes may be able to take a home office deduction if they meet certain requirements.
In order to claim a business deduction, you must use part of your home for one of the following two reasons:

1. Exclusively and regularly as either: your principal place of business, or as a place to meet or deal with patients, clients or customers in the normal course of your business. Where there is a separate structure not attached to your home, the regular and exclusive use does not need to be your principal place of business as long as the use is in connection with your trade or business.

2. On a regular basis for certain storage use—such as storing inventory or product samples—as rental property, or as a home daycare facility.

Generally, the amount you can deduct depends on the percentage of your home that you used for business.

Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.

There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

If you are self-employed, use Form 8829 to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040.

Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587, Business Use of Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Seven Things you Should Know When Selling Your Home

People who sell their home may be able to exclude the gain from their income. Here are seven things every homeowner should know if they sold, or plan to sell their house.

1. Amount of exclusion. When you have gain from the sale of your home, you may be able to exclude up to $250,000 of the gain from your income. For most taxpayers filing a joint return, the exclusion amount is $500,000.

2. Ownership test. To claim the exclusion you must have owned the home for at least two years during the five year period ending on the date of the sale.

3. Use test. You also must have lived in the house and used it as your main home for at least two years during the five year period ending on the date of the sale.

4. When not to report. If you are able to exclude all of the gain from the sale of your home, you do not need to report the sale on your federal income tax return.

5. Reporting taxable gain. If you have gain which cannot be excluded, it is taxable and must be reported on your tax return using Schedule D.

6. Deducting a loss. You cannot deduct a loss from the sale of your home.

7. Rules for multiple homes. If you have more than one home, you may only exclude gain from the sale of your main home and must pay tax on the gain resulting from the sale of any other home. Your main home is generally the one you live in most of the time.

For more information see IRS Publication 523, Selling Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Nine Reasons to Visit an IRS Taxpayer Assistance Center

IRS Taxpayer Assistance Centers are your source for personal tax help when you believe your tax issue cannot be handled online or by phone, and you want face-to-face tax assistance.

Here are nine reasons to visit an IRS TAC.

1. Face-to-Face Assistance No appointment is necessary—just walk in. 

2. Multilingual Assistance Don’t let a language barrier prevent you from getting the face-to-face tax assistance you may need. Multilingual services are offered to taxpayers in over 150 languages.
These services are provided through bilingual employees and an Over-the-Phone Interpreter.

3. Free Federal Tax Return Preparation Your local TAC will prepare basic tax returns for those who qualify for EITC or those whose income is less than $42,000. Visit your TAC for an
appointment.

4. Form 2290, Heavy Highway Vehicle Use Tax Return Your local TAC can help you prepare Form 2290, accept your payment and provide the needed receipts for you to take when registering your vehicle.

5. Individual Taxpayer Identification Number If you are not eligible for a Social Security Number but need to file a tax return, bring the completed tax return, Form W7 and certified identification documents to your local TAC to apply for your ITIN and file your return. For more information, see Publication 519, U.S. Tax Guide for Aliens.

6. Alien Clearances Before leaving the United States, most aliens must obtain a certificate of tax compliance. This document, also popularly known as the sailing permit or departure permit, must be secured from the IRS before leaving the U.S. You can get the permit from your local TAC. For more information, see Publication 513, Tax Information for Visitors to the United States.

7. Payments You can make payments at your local IRS TAC. Be sure you know the tax period and type of tax the payment is for. If you received a notice from the IRS, be sure to bring it with you.

8. Tax Forms Do you need tax forms? If so, most forms are available at your local TAC.

9. Tax Return and Tax Account Transcripts Do you need a copy of your tax return for financial aid or to obtain a mortgage? If so, a tax return or tax account transcript will generally meet the requirements of these lending institutions. Visit your local TAC for free transcripts, which are generally available for the current and past three years. 

TAC locations, business hours and an overview of services are available at IRS.gov. Just go to the “Individuals” tab and click on the link for Contact My Local Office in the left tool bar section under IRS Resources.