Tax Tips

This page is updated on a regular basis with tips and news from the IRS and other reputable sources.  The goal is to keep you informed of new legislation, tax planning suggestions, etc.  Please be sure to check back frequently.

 

 

324 Wall Street

Princeton, NJ  08540

 

Donna Montgomery Associates, LLC

 

 

Phone: 609-921-6220

Fax: 609-921-6695

E-mail: DonnaJmont@aol.com

 

For directions to our office:  www.mapquest.com

 

ECONOMIC STIMULUS PACKAGE

 

President Bush recently signed the economic stimulus package into law.  According to the IRS, the return must show at least $3,000 in qualifying income.  Low-income workers, Social Security recipients, disabled veterans and retired railroad workers who might not otherwise need to file a tax return must do so in order to receive the tax rebate.

 

Payments range from $300 to $600 for individuals and $600 to $1,200 for joint filers.  Taxpayers may also receive $300 for each qualifying child.  In most cases, low-income recipients will get $300 each, or $600 for joint filers.  Even people who do not normally file tax returns because of their low incomes will need to file this year in order to receive an economic stimulus payment. 

 

Filers will need to have a valid Social Security number, not an Individual Taxpayer Identification Number.  The recipient also cannot be claimed as a dependent on any other filer’s tax return.  Also ineligible are those who file a Form 1040-NR, 1040-PR or 1040-SS.  The return must be filed on a 1040, 1040A or 1040EZ.

 

Payments will be processed through December 31.  The IRS has been budgeted $202 million to handle the rebate checks.  The IRS expects to process an additional 10 to 20 million returns this year as a result of the rebate.  Payments to higher-income taxpayers will be reduced by 5 percent of the amount of adjusted gross income above $75,000 for individuals and $150,000 for those filing jointly.

 

 

Mortgage Debt Forgiveness

 

The Mortgage Forgiveness Debt Relief Act (H.R. 3648) allows taxpayers to exclude from gross income up to $1 million of principal residence mortgage debt (if the loan balance was under $2 million) for mortgage debt forgiveness in 2007, 2008 or 2009.  Should you have had qualifying debt forgiven/eliminated, you’ll want to review the Form 1099-C carefully, paying particular attention to Box 2 (amount of debt forgiven) and Box 7 (Reduction of Tax Attributes Due to Discharge of Indebtedness), which is to be used by homeowners whose mortgage debt was either partially or fully forgiven in 2007.

 

As a reminder, the law also extends through 2010 the deductibility of mortgage insurance premiums and expands the exclusion of gain from sale of the principal residence by a surviving spouse to $500,000 provided it is within two years.

 

 

IRS Warns Taxpayers of New E-Mail Scams

 

The Internal Revenue Service is warning taxpayers of new phishing scams on a regular basis.  The IRS is urging taxpayers to ignore any e-mail solicitation claiming to be from the IRS and not provide and requested information.  The IRS does not initiate contact with taxpayers through e-mail.

 

Recipients of questionable e-mails claiming to come from the IRS should not open any attachments or click on any links contained in the e-mails.  Instead they should forward the e-mails to phishing@irs.gov . 

 

 

Should you itemize?

The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year.  For 2007, they are:

 

 

 

 

 

 

 

 

 

 

Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year.  Expenses for medical care, mortgage interest, taxes, charitable contribution, casualty losses and miscellaneous deductions can reduce your taxes.  When these amounts are more than the standard deduction, you can usually benefit by itemizing.

 

Some exceptions and differences to the standard deductions are the standard deduction is higher for taxpayers age 65 or older and for those who are blind.  It is generally less for those who can be claimed as a dependent on someone else’s return.

 

Limited itemized Deductions.  Your itemized deductions may be limited if your adjusted gross income is more than $156,400 for Married Filing Jointly or $78,200 for Married Filing Separately.  This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses and investment interest.

 

 

Charitable Donations 2007

 

The revisions governing cash and non-cash contributions will affect millions of taxpayers who itemize deductions for charitable donations.  In the past, taxpayers only needed written acknowledgement from  qualified charities for contributions of $250 or more.  Starting in 2007 no deduction will be allowed unless the donor can show a bank record or a written communication from the charity.  The document must include the name of the charity, the date of the contribution and the amount. 

 

If you put cash in your church collection plate every week, or make some other type of cash donation on a regular basis, you may want to consider switching to checks, or for larger donations, credit cards.  This way the cancelled check or bank statement would provide proof of the donation. 

 

 

Educational Expenses

 

Form 1098-T is not acceptable documentation for educational expenses.  Some taxpayers mistakenly believe the form serves as a record of educational expenses paid.  However, the form, issued by universities, only documents tuition that the school billed, not what the student paid.  Tax professionals can help by making sure all tuition and expenses claimed are backed up with thorough records.  For more information, see Publication 970, Tax Benefits for Education, of the Frequently Asked Questions in the “Educational Expenses” section on IRS.gov.

 

 

Pay your taxed electronically with EFTPS

 

If you are required to pay estimated taxes for the current year or owe taxes for a previous year, consider paying through the Electronic Federal Tax Payment System.  EFTPS is the fast, easy, convenient and secure service provided free by the Department of Treasury.

 

EFTPS is convenient and flexible.  It allows taxpayers to schedule payments up to 365 days —and businesses up to 120 days— in advance of the payment due date.  You can avoid missing deadlines and incurring penalties.  Scheduled payments can be cancelled up to 48 hours before the scheduled payment due date.

 

Ask us about our secure EFTPS services and start taking advantage of the worry free payment of your taxes today.