AGI - Adjusted Gross Income

Remember that your AGI or Adjusted Gross Income, is not your annual salary or income. It is your gross income minus your pre-tax deductions; plus any interest income and profit or loss from self-employment.

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Ensuring Return Correctness with a Pre-File Checklist

 Use this pre-file checklist during your tax preparation process to ensure the correctness of the information on your return. These steps apply whether the return is done by hand, on a computer, online or by a preparer. You do not want to have the IRS send back your return for any deficiencies that could have been avoided on your part. Be sure to check the following:

• Your arithmetic is correct.
• Your Social Security number is recorded correctly on each form and schedule. If filing jointly, this applies to your spouse also.
• You have filled in the proper boxes stating your filing status and number of exemptions claimed.
• You have reported the correct Social Security number for each of your exemptions.
• You have claimed the full amount of the standard deduction you are entitled to if you are age 65 or older, or blind.
• You have used the Tax Table or Tax Computation Worksheet applicable to your tax status. For taxable income less than $100,000, use the Tax Table. If your taxable income is greater than $100,000, use the Tax Computation Worksheet.
• You have put the refund due you or your tax payable on the correct line.
• If you owe tax and are paying by check, make certain your check is made payable to “United States Treasury”. Be certain the amount is correct. Be sure to put your Social Security number in the memo section on your check.
• You have signed your return. If filing jointly, your spouse has also signed the return.
• You have attached the correct copy (Federal copy) of your W-2 along with any other appropriate forms and schedules to your return.
• If you want to receive your refund via direct deposit, be certain you provide the IRS with the correct routing number of your bank account that you want the refund deposited into.
• You have correctly addressed the envelope to your nearest IRS center. Make certain you have the proper postage, also.
• You use certified or registered mail or an IRS-specified private delivery service to prove that your return was postmarked on or before the deadline/filing date. This is not a necessity, only recommended to ease your mind.

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1040EZ & 1040A

Form 1040EZ
Form 1040EZ is for single, or married filing jointly with taxable incomes less than $100,000. Also, taxpayers under the age of 65 and not blind as of January 1, 2007 can file a 1040EZ. 1040EZ income includes: wages, interest received (up to $1,500), unemployment compensation, and earned income credit (does not apply if you received any advanced earned income credit payments.)

Other stipulations for using Form 1040EZ include:

• You are not allowed to claim any dependent exemptions and use Form 1040EZ
• You cannot itemize deductions
• You cannot be self-employed

Form 1040A
Form 1040A applies to all filing statuses: single, head of household, married filing jointly, married filing separately and widow or widower. Form 1040A is for any taxpayer making less than $100,000 in taxable income. Self-employed individuals can not use Form 1040A. Other features of using form Form 1040A include:

1) Any taxpayer receiving income from the following sources cannot use 1040A:

1. IRA distributions,
2. alimony,
3. state tax refunds,
4. rents and royalties,
5. gain and losses from property sales

2) Any taxpayer paying the following expenses cannot file a Form 1040A:

1. alimony
2. educator
3. moving
4. self-employed health insurance
5. self-employment tax
6. Archer MSA deduction
7. penalty for early savings withdrawal
8. any deduction for retirement plans (KEOGH, SEP, SIMPLE),
9. an alternative minimum tax
10. Roth conversion IRA
11. IRA penalty tax
12. household employee taxes and
13. “Kiddie” tax on child’s return

3) Any taxpayer claiming the following credits can file Form 1040A:

1. Credit for child and dependent care
2. Earned income credit
3. Credit for elderly and totally disabled
4. Child tax credit or additional child tax credit
5. Adoption credit
6. Retirement savings and contributions credit
7. Education credit

Individuals itemizing deductions cannot use the 1040A.

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Do I Need To File A Tax Return?

Taxpayers are required to file a tax return when certain situations and/or income tests are met. They are described as follows:

• You are entitled to a refund of taxes withheld OR
• You are entitled to a refund based on the Earned Income Credit for working families OR
• You received any EIC payments in advance from your employer OR
• You are self-employed and owe self-employment tax due to your net self-employment being $400 or more
• You owe any alternative minimum tax, IRA penalty, or FICA on tips OR
• You are a nonresident alien with a U.S. business OR
• You are a nonresident alien and have tax liability not covered by withholding
• You are a dependent and meet the following dependent’s filing income test:
  • Single dependent.
    Were you either 65 or older OR blind?
    
    If no. You must file a return if any of the following apply:
    • Your unearned income was over $800.
    • Your earned income was over $5,000.
    • Your gross income was more than the larger of $800 or your earned income (up to $4,750) plus $250.
    
    If yes. You must file a return if any of the following apply:
    • Your unearned income was over $2,050 ($3,300 if 65 or older & blind)
    • Your earned income was over $6,250 ($7,500 if 65 or older & blind)
    • Your gross income was more than:
      The larger of $800 or your earned income (up to $4,750) plus $250
      plus $1,250 ($2,500 if 65 or older & blind)
  • Married dependent.
    Were you either age 65 or older or blind?
    
    If no You must file if any of the following apply:
    • Your unearned income was over $800.
    • Your earned income was over $5,000.
    • Your gross income was more than the larger of $800 or your earned income (up to $4,750) plus $250.
    • Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
    
    If yes. You must file a return if any of the following apply:
    • Your unearned income was over $1,800 ($2,800 if 65 or older & blind)
    • Your earned income was over $6,000 ($7,000 if 65 or older & blind)
    • Your gross income was at least $5 and your spouse files a separate return and itemizes deductions.
    • Your gross income was more than:
      The larger of $800 or your earned income (up to $4,750) plus $250
      plus $1,000 ($2,500 if 65 or older & blind)
  
  

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Sole Proprietor Tax Return

People operating businesses as a sole proprietor will have a packet of forms to submit to the IRS. The Form 1040 will be used by the self-employed person. When you are filling out your tax forms, consider factors that could minimize your small business taxes.

1. Maximize expenses by expensing everything you use in your business like furniture, a car and office equipment. Be sure to pay the bills before the year is over.

2. Expense vs. Depreciate: Expense small furniture & fixtures rather than depreciating office equipment over time

3. Defer income. Have year-end client's pay after the first of the year.

4. Donate to a qualified charitable organization. In most instances, the donation you make can be deducted from the company income.

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Submitting Tax Returns

There are a variety of methods you can use to submit your tax return. Depending on what is most convenient and affordable for you, you can choose from:

Do-it-yourself

E-filing. E-filing is becoming an increasingly popular form of tax return submission. In fact, the IRS has a goal of having 80% of all taxpayers submitting their tax returns via this method. You can visit the IRS website, located at irs.gov, and find a variety of service providers offering efiling of tax returns. Some charge for this service, and others do not.

Hard copy. The tried and true method of filing in tax forms by manually preparing your tax return is still available. You will mail your tax return to the applicable IRS office.

Hiring Others

Hiring others to prepare your return, either paid or no-charge, will also provide a means of submitting your tax return for you. Before making an appointment, ask if tax return submission is part of the services included.

CPA. These individuals can also represent you in a court of law. Obtain the name of a competent one by first checking with your State Board of Accountancy to ascertain their current licensure. Plus, the Board of Accountancy may have members you are available to help you with your return.

Enrolled Agent. Specially trained by the IRS. Many are in private practice and can be a wealth of information on tax laws and tax preparation. TaxBrain.com recommends visiting www.naea.org for more information.

No matter who you choose to hire for your tax help, TaxBrain recommends checking credentials and obtaining references.

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Tax Return Filing Extension

You may get an extension without waiting for the IRS to act on your request. You will receive an automatic six-month extension for your 2006 return if you file Form 4868 by April 16, 2007. The extension gives you until October 16, 2007 to file your return. A later filing penalty will not be imposed if you fail to submit a payment with Form 4868 provided you make a good faith estimate of your liability based upon available information at filing time. You will be subject to interest charges and possible penalties, however.

If you cannot file your return on time, apply by the due date of the return for an extension of time to file. Use Form 4868 to apply for the extension request. Send the form to your IRS office where you file your tax return.

In addition to the written Form 4868, your extension can be requested either by phone or over the Internet. When requesting your extension by phone or over the Internet, you must use a credit card to make a tax payment. If you pay using a credit card, Form 4868 does not have to be filed (if you do your transaction over the phone). There will be a service fee for the phone transaction, however. You can obtain phone numbers and web addresses of service providers which are located in the Form 4868 instructions.

If you cannot pay the tax due by October 16, 2007, you should file your return and attach Form 9465 to request an installment arrangement.

For more information, check the TaxBrain Extension Center

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Tax Return Penalties

If your return is filed late without reasonable cause, the IRS may impose a penalty of 5% of the net tax due for each month the return is late. There is a maximum penalty of 25%.

If the return is more than 60 days late, the penalty will not be less than the small of $100 or 100% of the tax due. The minimum $100 penalty does not apply unless tax is underpaid.

If failure to file is fraudulent, the monthly penalty is 15% of the net tax due, up to a maximum of 75%.

If you are subject to the two penalties of late filing and late payment, there is a .5% penalty for late payment that offsets the penalty for late filing. This happens only during the period that the penalties (late payment and late filing) run concurrently.

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