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Basic Tax Information

Table of Contents: Business Expenses | Dependents | Donation Value Guide | EITC Limits | Filing Status | Gross Income | IRS Filing Thresholds | Itemize Deductions | Partnership Overview | Personal Exemptions | Qualifying Children | Standard Deductions | Standard Mileage Rates | Who Must File a Return? |

Basic Information on the 2008 Stimulus Payments

The Three top reasons why returns were rejected from the electronic filing system were:

Code 515:

The primary Social Security number was used more than once.

Code 501:

The qualifying Social Security Number on Schedule EIC (Earned Income Credit) and the year of birth for the child associated with that number do not match or the name control associated with that number do not match. A name control is the first four letters of the child's name.

Code 504:

The dependants Social Security Number and the dependants name control do not match the data on the IRS Master file. Please be sure to check all the Social Security Numbers of taxpayers, their spouse and their children. Also check to see if the dependant children have the same last name as the primary filer. Also check the birth dates of the dependants. Ask if a newly married spouse notified the Social Security Administration that she is now using her husband's last name.

Who Must File a Return?

If you're reading this material, you probably don't have any doubt about whether you need to file a IRS tax return.

Filing thresholds — the basic rule is that if you are a citizen or resident of the United States, or a resident of Puerto Rico, you must file a IRS tax return if you have gross income at or above a certain dollar amount. The dollar amount depends on your filing status, and on your age if you are 65 or older at the end of the year. The same rules apply to U.S. citizens living outside the United States.

Rules for dependents — you may have questions about whether your child, parent, or some other person for whom you're responsible needs to file a IRS tax return. Others who must file — even if the other rules don't apply, certain people must file an annual return.

Most small business owners need to file an IRS tax return, because anyone with net self-employment income of $400 or more must file a IRS tax return to report and pay their self-employment tax.

If you are a nonresident alien, different rules may apply which are not covered here. See IRS Publication 519, U.S. Tax Guide for Aliens.

What is My Filing Status?

IRS secure online help with determining your filing status.

IRS Tips and Guidance for Determining Filing Status

In order to determine your filing status, we will ask you a series of questions. Click the above link for some tips for answering the questions.

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Filing for Dependents

When tallying up a dependent's income, "unearned income" includes interest, dividends, capital gains, unemployment compensation, taxable Social Security benefits, pensions, annuities, and trust distributions. "Earned income" includes wages, salaries, tips, and net income from a business; it also includes taxable scholarship and fellowship grants.

If the child or other dependent is too young or otherwise incapable of filing a IRS tax return, his or her parent, guardian, or other legally responsible person must file the IRS tax return for the dependent. In that case the responsible adult filing the IRS tax return would sign the return for the dependent, and add their own name; for example, "John Jones, Jr., by John Jones, parent of minor child."

If the child is under age 14 and his or her only income is interest and dividends, the parent has the option to include the child's income on the parent's IRS tax return by filing IRS Form 8814, Parent's Election to Report Child's Interest and Dividends, along with the parent's IRS tax return.

Does My Child Qualify?

IRS secure online help with determining if you have one or more qualifying children.

IRS Tips and Guidance for Determining Qualifying Children

In order to determine if your children qualify, we will ask you a series of questions. Click the above link for some tips for answering the questions.

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What are the Standard Deductions?

Almost any taxpayer who does not wish to itemize deductions in any particular year can choose to use the standard deduction. For 2007, the standard deduction amounts for most individuals are:

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What are the Personal Exemptions?

The rules are fairly straightforward for most people. You can claim one exemption for yourself, one for your spouse if married and filing jointly, and one for each minor child living with you. But surprisingly complex rules apply to your older children, parents, extended family members you support, or children from a previous marriage.

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Gross income defined.

Except as otherwise provided in the Internal Revenue Code, gross income means all income from all sources, including (but not limited to):

compensation for services, including fees, commissions, fringe benefits, and similar items;
income from a business;
gains from property dealings;
interest;
rent;
royalties;
dividends;
alimony and separate maintenance payments;
annuities;
income from life insurance and endowment contracts;
pensions;
income from the discharge of debt;
distributive share of partnership gross income;
income in respect of a decedent; and
income from an interest in an estate or trust. (IRC section 61(a))

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WHAT ARE THE NONBUSINESS DEDUCTIONS?

IRS Deductions in General: After determining gross income, the taxpayer subtracts allowable deductions to reach adjusted gross income, or AGI, which is an intermediate figure between gross income and taxable income. AGI is the starting point for computing deductions -- such as the deduction for medical expenses and the deduction for miscellaneous itemized deductions -- that are based on, or limited by, a percentage of income. (Reg. section 1.62-1T) Finally, taxpayers who itemize reduce AGI by allowable deductions (other than the standard deduction) and personal exemptions. (IRC section 63(a))

Those taxpayers who don't itemize are entitled to a standard deduction amount. The deduction varies according to the taxpayer's filing status. The standard deduction, taken together with personal exemptions, reduces adjusted gross income to arrive at taxable income. Elderly and blind taxpayers get an additional standard deduction. (IRC section 63(c)(3))
Medical and Dental Expenses
Interest: Qualified Home Mortgage Interest, and Investment Interest.
Deduction For Alimony Paid
Charitable Contributions: Cash and Non-Cash
Casualty and Theft Losses
Moving Expenses
Qualified Higher Education Expenses
Other Nonbusiness Deductions: In general. Individuals may deduct, as miscellaneous itemized deductions, ordinary and necessary (and reasonable) expenses paid or incurred during the year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income. (IRC section 212; Reg. section 1.212-1(a)) These expenses are subject to the 2-percent-of-AGI floor.

A deduction is not allowed for interest on indebtedness incurred or continued to purchase or carry obligations earning fully exempt interest or other exempt income. (IRC section 265(a))

Salvation Army Donation Value Guide to Used Items

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WHAT ARE BUSINESS EXPENSES?

Deductibility in General: Ordinary and necessary expenses. Taxpayers generally may deduct from gross income the ordinary and necessary expenses of carrying on a trade or business that are incurred or paid in the tax year. (Reg. section 1.162-1) To be deductible, an expense must be directly connected with or pertain to the trade or business. An expense is "ordinary" if it is customary or accepted in the taxpayer's business. A "necessary" expense is appropriate and helpful to the business; it doesn't have to be indispensable or essential.

Expenses for a sideline business can qualify for the deduction; a trade or business need not be the taxpayer's principal occupation. Serving as an employee qualifies as a "business" for purposes of the deduction. If property is used for both personal and business purposes, expenses must be allocated between personal and business uses.
Compensation Deduction
Entertainment, Meal, and Gift Expenses
Transportation and Automobile Expenses
Traveling Away From Home
Home Office Expenses
Employee Business Expenses
Rent
Taxes
Interest
Charitable Contributions
Farm Expenses
Merchants and Manufacturers
Mine Exploration, Development Costs
Other Business Expenses "Free1040EZ02"
Uniform Capitalization Rules

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OVERVIEW OF A PARTNERSHIPS

Overview: A partnership as such isn't subject to income tax. Rather the persons carrying on business as partners are liable for tax only in their individual capacities. (IRC section 701) However, partnerships are required to file returns under the provisions of IRC section 6031 and the applicable regulations. (Reg. section 1.701-1)

A partnership is the relationship between two or more persons who join together to carry on a trade or business. Broadly defined, the term "partnership" means a business entity that's not a corporation under reg. section 301.7701-2(b) and that has at least two members. (IRC section 761; reg. section 301.7701-2(c)) Further, the term "partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization carrying on a trade or business, that is not classified as a trust, estate, or corporation. (IRC section 761(a))

A joint undertaking merely to share expenses is not a partnership. Mere co-ownership of property maintained and leased or rented is not a partnership. However, if the co-owners provide services to the tenants, a partnership exists.
Forming a Partnership
Family Partnerships
Tax Year
Partnership Income and Loss
Partner's Distributive Share
Partnership Distributions
Transactions Between Partnership and Partners
Basis of Partner's Interest
Disposition of Partner's Interest
Adjusting the Basis of Partnership Property
Terminating a Partnership
Partnership Return
Electing Large Partnerships