Buy Savings Bonds with Your Federal Tax Refund

The IRS continues to help individuals use their tax refunds to build savings and retirement funds. This tax filing season, those receiving tax refunds can buy savings bonds for themselves and up to two other individuals.
For 2010 tax returns, new savings bond options are now available. Last year, if the taxpayer chose to receive a savings bond as part of the refund, it could only be issued in the taxpayers’ name. This year, taxpayers can designate anyone to receive a savings bond and also designate the co-owner or beneficiary. Also a new section, part II, was added to Form 8888 for entering savings bond information so that taxpayers no longer need to need to enter a pre-specified routing number. Instead, taxpayers will enter the bond owner’s name. The savings bonds will be mailed to the taxpayer or the person designated on the form.
Taxpayers who claim a tax refund on Form 1040 can use Form 8888, Allocation of Refund (Including Savings Bond Purchases) to split their refunds. Refunds can be directed into bank accounts and other financial institutions where their mutual funds or retirement accounts are managed and to purchase U.S. Series I Savings Bonds.
Taxpayers can choose to use a portion of the refund to buy up to $5,000 in low-risk savings bonds, which earn interest and protect owners against inflation. The bonds must be purchased in $50 increments. Direct deposit of any remaining refund amounts is no longer required. Paper checks can be requested for the balance.
The savings bonds purchased through the refund program are U.S. Series I Savings Bonds. Their composite interest rate consists of a fixed rate and an inflation-based rate, adjusted every six months, on May 1 and November 1.
During 2010, more than 99,000 bonds were purchased on Form 8888, totaling more than $11 million dollars. To check the status of a bond purchase request, go to the “ Where’s My Refund” section of IRS.gov or call 1-800-829-1954. If the IRS has already processed the refund and placed the request for the bond, then the tax filer should contact the Treasury Retail Securities at 1-800-245-2804.

Tope Ten Tax Tips for Your 1040

Ten Tax Benefits for Parents 

Did you know that your children may help you qualify for some tax benefits? Here are 10 tax benefits the IRS wants parents to consider when filing their tax returns this year.

1.     Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2.     Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3.     Child and Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.

4.     Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.

5.     Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.  Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included.  For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6.     Children with Earned Income If your child has income earned from working they may be required to file a tax return. For more information see IRS Publication 501.

7.     Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate. For more information see IRS Publication 929, Tax Rules for Children and Dependents.

8.     Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income.  For more information see IRS Publication 970, Tax Benefits for Education.

9.     Student loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information see IRS Publication 970.

10.   Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent. For more information see the IRS website.

1040

Which Tax Form Should I Use?

Choose the Simplest Tax Form for Your Situation 

To file your 2010 individual tax return, you’ll have to decide which form to use…unless you e-file.  This year, choosing which form to file will be even more important since the IRS will no longer be mailing paper tax packages. The IRS is taking this step because of the continued growth in electronic filing, the availability of free options to taxpayers and to help reduce costs. If you file your return using IRS e-file, the system will automatically decide which form you need.

Consult with a CPA (Certified Public Accountant)

Here are some general rules to consider when deciding which paper tax form to file.

Use the 1040EZ if:
• Your taxable income is below $100,000
• Your filing status is Single or Married Filing Jointly
• You and your spouse – if married -- are under age 65 and not blind
• You are not claiming any dependents
• Your interest income is $1,500 or less

Use the 1040A if:
• Your taxable income is below $100,000
• You have capital gain distributions
• You claim certain tax credits
• You claim adjustments to income for IRA contributions and student loan interest

If you cannot use the 1040EZ or the 1040A, you’ll probably need to file using the 1040. Among the reasons you must use the 1040 are: • Your taxable income is $100,000 or more
• You claim itemized deductions
• You are reporting self-employment income
• You are reporting income from sale of property

As always, consult with a CPA (Certified Public Accountant) as to which form he or she will be filing on your behalf. A local Staten Island CPA or NJ CPA can prepare your taxes quickly & accurately.