January Tax Tips

Internal Revenue Service

When January comes around, it’s time to start putting your taxes together. These tips will help make it easier:

Choose Your Correct Filing Status

Your federal tax filing status is based on your marital and family situation. It is an important factor in determining whether you must file a return, your standard deduction and your correct amount of tax.

Your marital status on the last day of the year determines your status for the entire year. If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.

There are five filing status options:

  • Single: Generally, this is your filing status if you are unmarried, divorced or legally separated according to your state law.
  • Married Filing Jointly: If you are married, you and your spouse may file a joint return. If your spouse died during the year and you did not remarry, you may still file a joint return with that spouse for the year of death.
  • Married Filing Separately: Married taxpayers may elect to file separate returns.
  • Head of Household: You must be unmarried and paid more than half the cost of maintaining a home for you and a qualifying person.
  • Qualifying Widow(er) with Dependent Child: You may be able to choose this filing status if your spouse died during 2003 or 2004 and you have a qualifying child and meet certain other conditions.

For more information about filing status, see Publication 501, "Exemptions, Standard Deduction, and Filing Information," available on the IRS Web site or by calling 800-TAX=FORM (800-829-3676).

Should You File a Tax Return?

You must file a tax return if your income is above a certain level. The amount varies depending on filing status, age and the type of income you receive. For example a married couple under age 65 generally is not required to file until their joint income reaches $16,400. However, self-employed individuals generally must file a tax return if their net income from self-employment exceeds $400. Check the Individuals section of the IRS Web site, or consult the instructions for form 1040, 1040A or 1040EZ for specific details that may affect your need to file a tax return with IRS this year.

Even if you do not have to file, you should file to get money back if federal income tax was withheld from your pay or you qualify for any of these credits:

  • Earned Income Tax Credit: This is a federal income tax credit for eligible low-income workers. The credit reduces the amount of tax an individual owes and may be returned in the form of a refund.
  • Additional Child Tax Credit: This credit may be available to you if you have three or more qualifying children or if you have earned income that exceeds $10,750. The Additional Child Tax Credit may give you a refund even if you do not owe any tax.
  • Health Coverage Tax Credit: Limited to certain individuals who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corp.

For more information about filing requirements and your eligibility to receive tax credits, visit the IRS Web site.

Seven Ways to Get a Jump-Start on Your Taxes

Earlier is better when it comes to working on your taxes. Taxpayers are encouraged to get a head start on tax preparation, especially since early filers avoid the last-minute rush and get their refunds sooner.

Here are seven easy ways to get a good jump on your taxes long before the April deadline is here:

  • Gather Your Records in Advance: Make sure you have all the records you need, including W-2s and 1099s. Don’t forget to save a copy for your files.
  • Get the Right Forms: They’re available around the clock on the IRS Web site.
  • Take Your Time: Don’t forget to make time for a coffee break when filling out your tax return, since rushing can cause you to make mistakes.
  • Double-Check Your Math and Verify All Social Security Numbers: These are among the most common errors found on tax returns. Taking care will reduce your chance of hearing from the IRS and speed up your refund.
  • Get the Fastest Refund: When you file early, you receive your refund faster. When you choose direct deposit, you receive your refund sooner than waiting for a check.
  • E-Filing Is Easy: E-filing catches math problems, provides confirmation your return has been received and gives you a faster refund.
  • Don’t Panic: If you have a problem or question, remember the IRS is there to help. Try the IRS Web site, or call the IRS customer service number at 800-829-1040.

Keeping Good Records

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good recordkeeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience.

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents, such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property, should be kept longer.

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return, such as:

  • Bills.
  • Credit card and other receipts.
  • Invoices.
  • Mileage logs.
  • Canceled, imaged or substitute checks or any other proof of payment.
  • Any other records to support deductions or credits you claim on your return.

Good recordkeeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.

For more information on what kinds of records to keep, see IRS Publication 552, "Recordkeeping for Individuals," which is available on the IRS Web site or by calling 800-TAX-FORM (800-829-3676).

Should You Itemize?

Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than the standard deduction, you can usually benefit by itemizing.

The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. Things to keep in mind:

  • Different Standard Deductions: The standard deduction is more 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 another taxpayer’s return.
  • Limited Itemized Deductions: Your itemized deductions may be limited if your adjusted gross income is more than $145,950, or $72,975 for those who file Married Filing Separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses and investment interest.
  • Stipulations for Married Filing Separately: When a married couple files separate returns and one spouse itemizes deductions, the other spouse must also itemize and cannot claim the standard deduction.
  • Eligibility for the Standard Deduction: They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months.
  • Forms to Use: To itemize your deductions, use Form 1040, “US Individual Income Tax Return,” and Schedule A, “Itemized Deductions.”

Choose the Simplest Federal Tax Form for Your Needs

The three forms used for filing individual federal income tax returns are Form 1040EZ, Form 1040A and Form 1040. If you are filing a federal income tax return on paper, use the simplest form you can. Using the simplest allowable form will reduce the chance of an error that may cost you money or delay the processing of your return.

You may qualify to use Form 1040EZ, the simplest form, if:

  • Your taxable income is below $100,000.
  • Your filing status is Single or Married Filing Jointly.
  • You are under age 65.
  • You are not claiming any dependents.
  • Your interest income is $1,500 or less.

You may be able to use Form 1040A if:

  • Your taxable income is below $100,000.
  • You have capital gain distributions.
  • You claim certain tax credits.
  • You claim deductions for IRA contributions, student loan interest, educator expenses or higher-education tuition and fees.

If you cannot use either a 1040EZ or 1040A, you probably need to use Form 1040. You must file form 1040 if:

  • 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.

Choosing the correct tax form could mean money in your pocket. Check your tax instructions carefully. Publication 17, Your Federal Income Tax, is a helpful guide to preparing your federal tax forms. It is available on the IRS Web site or by calling 800-TAX-FORM (800-829-3676).