Trust Your Taxes to the Experts from the Nation's #1 Rated Tax Software
"It's as clean as a whistle and a joy (if you can use that word in the same paragraph as 'tax') to use. Twelve years after Intuit introduced it, TurboTax for the Web comes closer to perfection than it's ever been."
---PC magazine
TurboTax is the leading name in tax preparation software, used by more than 10 million filers annually. Now, for the first time ever in print, comes an official tax guide from the nation's top tax experts at TurboTax. The TurboTax 2006 Income Tax Handbook gives you the guidance you need so you can claim all the deductions you deserve---from mortgages and charitable contributions to medical expenses, education credits, and more. With hundreds of money-saving tax tips plus answers to key tax questions, this handbook contains everything you need to get your taxes done quickly and correctly.
Inside you'll find:
* An easy-to-use format: Each chapter features What's New, Frequently Asked Questions, Top Tax Tips, and Real Life Examples
* Tax laws explained in plain English
* Special user-friendly sections on taxes for homeowners, Schedule C filers, the Alternative Minimum Tax (AMT), tax law updates, and previews of future tax law changes
* The latest information on the most recent tax law changes and audit advice
Topics covered include:
1. Gathering everything you need to file
2. How to figure out your filing status
3. Understanding and claiming child and dependent care credits, as well as credits for the elderly or disabled
4. Filing wages and salary income
5. How to handle your interest, dividends, and capital gains
6. How to maximize your deductions, including mortgages, moving expenses, property taxes, charitable contributions, and more
7. Dealing with retirement accounts and investment income: IRAs, 401(k)s, pensions, annuities, social security, and more
8. Understanding the Alternative Minimum Tax (AMT)
9. Schedule C filing information
Part One
The Income Tax Return
1
Filing Information
1.10 What's New
1.11 You might not have to file.
As a result of inflation adjustments, the amount of income you can make without having to file a return has increased. Generally, you do not need to file a return in 2005 if your gross income does not exceed the following amounts:
Single $7,950
Married, joint return $15,900
Married, separate return $3,100
Head of Household $10,250
Qualifying widow(er) $12,800
Dependent of another $ 800
Once you exceed this threshold, you must file a return, even if you will not owe taxes. Keep in mind that the IRS gets reports of income from your employer, banks, etc., and if you fail to file a return, the IRS may prepare a "substitute return" for you. In such a case, your taxes will be calculated on all your reported income, denying you the benefit of any deductions (other than the standard deduction and exemption) that you might be entitled to.
Even if your income does not meet the minimum amounts stated above, you must file a return if:
you had self-employment income of more than $400; or
you owe any Social Security or Medicare taxes on Tips that you did not report to your employer; or
you received an advance payment of the earned income credit from your employer.
Different requirements apply for anyone age sixty-five or older, someone who is blind, or someone who can be claimed as a dependent on another person's return. If any of these apply to you, check the instructions to Form 1040 or see IRS Publication 17, for more information on whether you need to file a return.
1.12 Lower-rate tax brackets have expanded.
For married couples who file a 2005 joint return, the first $14,600 of taxable income is subject to a 10% rate and the next $44,800 (up to a total of $59,400) is taxed at the 15% rate. For single people, the 10% rate applies to the first $7,300, and the 15% to the next $22,400 of income, for a total of $29,700.
By comparison, the 15% bracket for married and single individuals in 2004 started at $14,300 and $7,150 respectively.
1.20 Frequently Asked Questions
1.21 I recently married. How do I report my change of name?
Name changes must be reported to the Social Security Administration. Call 800-772-1213. They will issue you a new Social Security card under your new name and send an update to the IRS.
1.22 Do I need to change my maiden name to my married name on my Social Security card so that my husband and I can file jointly?
You can still file jointly without changing your name with the Social Security Administration. However, you must use your maiden name on the tax return instead of your married name.
1.23 My wife passed away last year, and I will be filing a joint return. Do I need to indicate on the return that she is deceased?
As a surviving spouse filing a joint return, you should sign the return and write in the signature area, "filing as surviving spouse." You should also write "deceased," your late spouse's name, and the date of death across the top of the return.
1.24 I received a W-2 with the wrong Social Security number. What should I do?
Ask your employer for a corrected W-2, which is Form W-2C, Corrected Wage and Tax Statement. Be sure your employer has your correct Social Security number. If the W-2 information is incorrect, you may not be credited for income withheld or credits toward Social Security benefits.
1.25 I already filed my return and just received another Form W-2. What should I do?
File an amended return if:
you did not report all of your income,
you claimed deductions or credits you should not have claimed,
you failed to claim some deductions or credits you are entitled to, or
you used an incorrect filing status.
Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct any Form 1040, Form 1040A, Form 1040 EZ, or TeleFile that you have already filed.
1.26 It's January 31 and I still haven't received my W-2 form from my employer. What should I do?
If you don't receive your Form W-2 by February 15, contact the IRS for help at 800-829-1040.
1.27 As a full-time student, am I exempt from federal taxes?
Not necessarily. Every U.S. citizen or resident must file an income tax return if certain income levels are reached. Factors that determine whether you must file an income tax return include:
the amount and type of income (earned and unearned)
whether you are able to be claimed as a dependent
your filing status
your age
If your income is below the filing requirement for your age, filing status, and dependency status, you will not owe income tax on the income and do not have to file a tax return. However, you may choose to file a return if income taxes have been withheld from your income that you would like refunded to you.
1.28 I am a college student with a part-time job. How much do I have to make before I have to file an income tax return?
If you are unmarried and are claimed as a dependent by a taxpayer, you must file a tax return if:
you have earned income of more than $4,750,
you have unearned income of more than $800, or
your gross income is more than $800 and exceeds your earned income by more than $250.
Even if you do not have to file, you should file a federal income tax return to get money back if any of the following apply:
you had income tax withheld from your pay
you qualify for the earned income credit, or
you qualify for the additional child tax credit
If you file Form 1040 EZ, Income Tax Return for Single and Joint Filers with No Dependents, your total income is the same as your adjusted gross income. For more information, see IRS Publication 929, Tax Rules for Children and Dependents, or Publication 501, Exemptions, Standard Deduction and Filing Information.
1.30 Top Tax Tips
Strategies to Save You Time and Money
1.31 TIP--Your name on your tax return must match the information on file with the Social Security Administration.
If you changed your name since you filed your last tax return (for example, you married and took your spouse's last name), be sure to record the name change with the Social Security Administration (800-772-1213). Not doing so can delay the processing of your return. You also run the risk of not receiving proper credit toward future Social Security benefits.
Further, be sure to provide the Social Security number of anyone you claim as a dependent on your return, regardless of the person's age.
1.32 TIP---Parents can report the income of certain children under fourteen on the parents' return, rather than filing a separate return.
If a child's income is solely interest and dividend income, then, subject to certain other conditions, parents can report it on their own return. They do not need to file a separate return for the child.
Beware, however, that while this approach can save time, it could cost additional tax. The first $800 of the child's investment income is not taxed. The next $800 of the child's investment income is taxed at the child's tax rate, 10%. The rest is taxed at the parents' rate by being added to their income. Also, including the child's income on the parents' return may cut their entitlement to certain benefits, such as miscellaneous itemized deductions, medical expenses, education credits, and others that are determined based on adjusted gross income.
Parents must weigh these potential costs against the time saved by not filing separately for the child.
1.33 TIP---You can avoid filing a paper return by using the e-filing program.
Using the e-file program will also speed up your refund. In addition, it reduces the risk of making mathematical errors that may occur with a paper return.
With the e-file program, you can also use an electronic signature. Note, however, that not all states allow electronic filing, so even if you use the IRS e-file program you may still have to file on paper for your state return.
1.34 TIP---Be sure to send your return to the proper IRS office.
As part of the IRS's ongoing reorganization, the filing address, which is based on where you live, has changed for many taxpayers. The envelope you receive with your tax package has the proper mailing address on it. If you did not receive a preaddressed envelope from the IRS, check the instructions on your tax booklet or on the IRS Web site for the proper address for filing your return. This will avoid processing delays and problems receiving IRS correspondence.
Note that the address where you file your return may depend on whether or not you have a balance due. This is strictly for facilitating IRS processing and has no impact on whether your return will be audited.
Also note that a separate set of addresses applies to returns filed using private delivery services, such as Federal Express and UPS. Many private delivery services do not deliver to the P.O. box addresses used for returns delivered through the U. S. Postal Service.
1.35 TIP---If you cannot file your 2005 return by April 17, 2006, get an automatic four-month extension.
You can get an extension to August 15, 2006, by filing Form 4868. This extension will give you more time to file your return, but you must still pay any tax you owe by April 17, 2006.
If you take the extension and find that you still have a balance due, you will owe interest starting from April 17 until the date that you file the return. The interest rate charged changes each quarter depending on the prevailing rates on government securities; recently rates have been around 5% a year.
Failure to file an extension, however, will result in a penalty of 5% per month on the unpaid balance until the return is filed (up to a maximum of 25%), in addition to the interest charge.
1.36 TIP---Have the IRS deposit your refund dir...
