Worried about how you’re going to pay your tax bill? You could always use your credit card. 

The IRS will accept payment of your 2008 federal income tax on a Visa, Mastercard, Discover Card or American Express.  Many states are accepting income tax payment via credit card too!

But you might want to rethink this decision based on the fact you will be charged a “convenience fee” of 2.49% of the amount you charge.  That’s because the IRS isn’t interested in paying the merchant fee, so you have to foot that bill.  It may not be a big deal paying an extra fee of  $12.45 on a $500 tax bill, but what about an extra $124.50 on a $5,000 income tax bill?

And don’t forget that unless you pay off that bill within the credit-card issuer’s grace period, you’ll start getting charged interest.

So before you pay your federal income tax using plastic, you may want to dig up the money some other way. Ask your parents, sell some of your old gold or even set up an installment plan with the IRS themselves.  The IRS charges a $52 setup fee (for setting up automated payments from your bank account) and then a monthly interest rate on the outstanding balance. Currently, that interest rate is 0.667% per month (which equates to 8% annually).

If you do have a low interest credit card and can pay off a big chunk of federal income tax right away, a credit card may be a good option for paying for federal income tax using a credit card. If you decide to pay your federal income tax using a credit card, visit pay1040.com to process your payment.

source: Wall Street Journal

April 15, the federal income tax filing deadline, is coming upon us fast. And this year, the economic conditions may pose serious problems for those who owe federal income taxes but don’t have the money. If you end of up owing federal income tax and can’t afford to pay the tax, here is some essential information you need to know about the IRS collection process and payment alternatives:

1. What is the collection process?
If you do not pay the taxes you owe in full when you file your income tax return, or if the IRS examines your tax return and makes an assessment based upon an examination, you will receive a bill from the IRS. This bill begins the collection process. The IRS may take action to collect the money if you do not pay on time or do not make arrangements with the IRS to pay over time.

The first bill you receive will request payment in full. If the IRS has changed the amount you owe, the bill will explain the change.

It is in your best interest to pay the tax as soon as possible because the IRS will continue to charge you penalty and interest. If you cannot pay the full amount of taxes you owe by the deadline, you should still file your return by the deadline and pay as much as you can to reduce penalties and interest.

2. How can I pay my taxes?The Internal Revenue Service will accept check or money order made out to the Department of Treasury – write your Social Security number or ITIN, the tax form, and tax period on the check.
Electronic Federal Tax Payment System (EFTPS) – EFTPS is a free tax payment system. You can transfer money from your bank account to pay your taxes by phone or online. For details, visit www.eftps.gov or call 1-800-316-6541.
Credit Card – these companies charge finance fees. To pay by credit card, here a contact number of one of the service providers: Link2Gov Corporation: 1-888-PAY-1040 (1-888-729-1040).

3. What if I cannot pay in full?
If you cannot pay your federal income tax in full, call the IRS at the phone number listed on your bill. Depending on your specific circumstances, you may qualify for an extension or an installment agreement.

Extension of Time to Pay – You can request an extension from 30 – 120 days depending on your specific situation.
Installment Agreement or Partial Pay Installment Agreement – Depending on the amount you owe , and your specific circumstances, you may apply for an installment payment plan or a partial pay installment agreement by applying online at www.irs.gov.

Be aware that for most taxpayers, the IRS generally charges a fee for setting up an installment agreement and interest and penalties continue to accrue during this time.

4. What if I cannot pay at all?
Call the IRS at the phone number on your bill. Because you will need to give the IRS complete financial information if you feel you cannot pay, before you call, make a list of your monthly expenses and monthly income, and be prepared to discuss those with the IRS. Be sure to consider your medical costs and transportation costs (e.g., gas, repairs, insurance, bus fares), as well as housing costs. For expenses that are not recurring on a monthly basis (like auto repairs), consider your total yearly costs and divide that amount by 12 to come up with an average monthly amount. If the IRS agrees that you do not have the ability to pay, it may temporarily suspend collection action. However, the amount you owe will continue to increase through additional penalty and interest charges.

5. What if I do not pay voluntarily?
If you do not pay your tax bill or contact the IRS to make arrangements to pay, the IRS will take action to collect, such as:

• Filing a Notice of Federal Tax Lien (NFTL) – The lien is a claim against your property. The lien will appear on your credit report and it may harm your credit rating. The IRS will release the lien once the taxes, penalty, interest, and recording fees are paid in full.
• Serving a Notice of Levy or seizing assets – The IRS can collect the amount you owe from your wages, bank accounts, Social Security benefits, retirement, or other sources of income. If the tax still isn’t paid and you haven’t made arrangements to pay, the IRS may seize your car, real estate, or other property. Prior to taking such action, you have the opportunity to request a hearing to resolve your tax payment issues.
• The IRS will also apply any future federal tax refunds that you are due to the debt. They may also take any state income tax refunds you are due.

6. What if I disagree with the IRS’ Collection Actions?
Depending on where you are in the collection process, you may be able to appeal the IRS collection actions through the Collection Due Process (CDP) or Collection Appeals Programs (CAP). For more information, see Publication 1660, Collection Appeal Rights. All Publications are available by calling 1-800-829-3676, or at www.irs.gov.

7. Will the IRS settle for less than full payment?
The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability. For most taxpayers, there is a fee for submitting a request for an OIC, and the IRS will generally not accept an OIC if you can fully pay the tax liability. For more information about OICs, see Publication 594, What You Should Know About The IRS Collection Process.

8. Where can I find more information about paying my taxes?
See IRS Publication 17, Your Federal Income Tax, for more information.

9. Whom should I contact if I need assistance?
If you have additional questions or concerns, contact the IRS at the phone numbers listed on your bill. If you do not have a bill, you can call IRS customer service at:

• 1-800-829-1040, or
• Visit the IRS website at www.irs.gov
• Taxpayer Assistance Center. Use this link to locate the closest IRS Taxpayer Assistance Center or visit www.irs.gov for a listing.
• You may also qualify for assistance from a Low Income Taxpayer Clinic (LITC). Information about LITCs can be found later in this toolkit.

source: www.irs.gov

With the economic times getting tougher, we all need to find ways to save money. The recent tax law changes may put extra money in your pocket when you file your federal income tax this year.  For example, If you’re not a first time homebuyer but your last home purchase was more than 3 years ago you may qualify for a new $7,500 tax credit for first-time home buyers.

Technically, it’s a tax-free loan that has to be repaid over 15 years but it’s still a great deal. Some new tax breaks have qualifying dates that don’t follow the calendar year. The home buyer credit applies only to purchases between April 9, 2008, and June 30 of this year. And many have income restrictions. For example, the home buyer credit is phased out at modified-adjusted incomes of $150,000 for married couples or $95,000 for singles.

Here are some other tax law changes that may affect your 2008 federal income tax return.

Kiddie tax
The “kiddie tax,” which taxes a child’s investment income beyond $1,800 at the parent’s tax rate, now covers some children until they turn 24. “People used to try to pay for college by transferring appreciated assets to their children to pay college expenses,” said Mark Luscombe, principal tax analyst at CCH, a tax publisher in Riverwoods, Ill. The children could then sell those assets and pay far less tax than their parents would have owed. “Now that no longer works,” Luscombe said. The rule applies to children who are enrolled in college or a trade school and who are still dependent on their parents for most of their financial support.

Capital gains
Low-income households will pay zero tax on capital gains from assets they’ve owned at least a year. To qualify, your wages must place you in the bottom two income tax brackets, which cover taxable incomes up to $65,100 for married couples filing joint returns, or $32,550 for singles. Previously, people in these brackets had to pay a 5 percent tax on such long-term capital gains. Most higher-earning taxpayers will continue to pay a 15 percent tax on capital gains.

Luscombe said he thinks this change explains why the kiddie tax was extended to older offspring. Parents would have had even more incentive to shift investments over to kids who would pay zero tax on the gains. “Taxpayers really like the concept of a zero percent tax rate,” he noted.

Standard deduction plus
Nearly two-thirds of taxpayers claim the standard deduction instead of itemizing, according to the IRS. This year those using the standard deduction can claim an extra amount for state and local property taxes. Married couples filing jointly can claim up to $1,000 extra; singles can claim $500. This will benefit people such as retirees who have paid off their mortgages and don’t have enough deductions aside from their property taxes to make itemizing worthwhile.

Taxpayers also can claim an extra amount on top of their standard deduction to account for losses suffered from a federally declared disaster.

Forgiven mortgage debt
If you lost your home to foreclosure or a short sale (with the lender agreeing to accept sales proceeds that are short of what’s owed on the mortgage), that unpaid debt is technically considered income to you. For the tax years 2007 through 2012, the government is waiving any tax liability on that phantom income. The lender will send you — and the IRS — a copy of Form 1099-C, “Cancellation of Debt,” reporting that forgiven debt as income. To make sure you are not taxed on the amount, you will have to file Form 982, “Reduction of Tax Attributes Due to Discharge of Indebtedness.” (Forms can be downloaded free from http://www.IRS.gov.) If you’ve lost a home to foreclosure, be sure the bank and IRS have your current address (notify the IRS by mailing in Form 8822) so you receive important notices promptly.

This year-old change to the tax laws will affect more people this year, thanks to soaring foreclosure rates. Forgiven debt on vacation homes and rental properties is still taxable as if it were income.

Recovery rebate credit
Remember how last year’s economic stimulus payment arrived in your mailbox without you even requesting it? The credits were as high as $1,200 for married couples, $600 for singles and $300 for children, and you were automatically eligible if your income met the program’s limits. To get the stimulus checks in hand quickly, the IRS did the math for you, looking back to your 2007 reported income to estimate whether you would be eligible for all or part of the credit.

Now that you know how much you actually earned in 2008, it’s time to tidy up that math with this year’s tax return. If you got less than the full credit last year, you may qualify for the remainder now. Generally that will happen if your income in 2008 was lower than in 2007, or if you added another child to your household, who qualifies for a $300 credit.

This is already causing confusion with 2008 returns. The IRS reported that about 15 percent of people who filed in January made a mistake regarding the recovery rebate credit. To do it right, you will need to fill out a worksheet that comes with your tax return to calculate the dollar amount of rebate credit (if any) you are due. To fill out the worksheet correctly, you will you need to know exactly how much you received last year.

You do not have to pay tax on your economic stimulus payment, nor do you have to give any back if the IRS sent out a check that was too big in light of your actual 2008 income.

For more information on the tax changes for 2008 you can go to the IRS website at http://www.IRS.gov.

source: Washington Post

Tax season usually heats up once that Groundhog Day is here. That’s usually the time you start getting your 2008 income tax information your income sources. 

But there is still two months yet before the deadline but time does fly. Before you know it you’re scrambling to get your federal income tax return done.

Filing one’s taxes electronically seemed like a novelty 10 years ago but accounts for almost six out of 10 returns today.

For the 2007 tax year that taxpayers filed a year ago, the Internal Revenue Service received almost 90 million by way of electronic filing out of a total 155.5 million returns.

And almost 27 million returns were filed from home computers, an increase of 19 percent from the previous year’s total of 22.6 million.

The options for free e-filing are increasing as well, said IRS spokeswoman Lea Crusberg.

For the 2008 tax year, which taxpayers will file by this year’s April 15 deadline, people with adjusted gross income of $54,000 or less - about 70 percent of all taxpayers - are eligible for free filing through the IRS in a partnership with some software manufacturers.

Last year, almost 4.8 million returns were sent through free-file, an increase of 24 percent compared with the previous year’s 3.9 million free-filed returns.

Federal Income Tax refunds are available in as few as 10 days from filing if the taxpayer provides the IRS with direct-deposit information.

Another route taxpayers might choose is through a paid tax preparer who also provides refund anticipation loans. That means the preparer will provide you with most of what your expected refund is for a fee.

The IRS said another benefit of its e-filing system is taxpayers can file now and if they owe money, pay later - up to the deadline of April 15.

“The IRS does not charge taxpayers to e-file their completed returns, but some tax preparers and software manufacturers may charge a fee. However, this year a number of large software companies are waiving this additional fee,” the IRS said.

E-filed tax returns are encrypted and taxpayers will receive an acknowledgement within 48 hours that the IRS has accepted the return.

The IRS also said that e-filed returns have an error rate of 1 percent compared with 20 percent for paper-filed returns.

So take advantage of free-filing federal income tax if you qualify. But if you don’t, take advantage of the online tax prep companies - in most cases, they are cheaper than going to an accountant.
source: beaumontenterprises.com