The Income Tax Return
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:
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
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 directly into your bank account.
If you overpaid your taxes, you want the refund as soon as possible. You also do not want to risk having the check lost (or stolen) in the mail. By providing your bank routing number (the nine-digit number on the lower left side of your checks), and your checking or savings account number on 2005 Form 1040 (line 72b, c, and d), 2005 Form 1040A (lines 45b, c, d), 2005 Form 1040-EZ (lines 11b, c, and d), the IRS will deposit your refund directly into your account. Refunds received via direct deposit are generally available within two to three weeks after filing---well before the typical wait of six weeks for refunds sent by check.
1.37 $$$ TIP---You can pay your taxes by credit card, but the fee charged by the processing service can be substantial.
You can pay off the income taxes you owe by using your American Express, Visa, MasterCard or Discover card. But before you do so, check with your card’s processing service (Official Payments Corporation (www.officialpayments.com) or Link2Gov Corporation (www.pay1040.com) to determine what the service will cost you. Some taxpayers believe the perks they get by using their credit card, such as airline frequent flyer miles, justify this fee. Be sure to check also with your credit card issuer to verify that paying your income taxes qualifies for this benefit.
1.38 $$$ TIP---You can authorize the IRS to discuss your return with a third-party designee.
The use of a third-party designee, such as your tax preparer, lets the IRS communicate with that person if the agency needs more information to process your return. Your designee does not have the same scope of authority as someone with power of attorney but can answer questions about math errors in your return, for example, and other administrative matters. Assigning a representative frees you from having to address questions that may arise as your return is processed. You can designate a third party by checking the box above the signature line on Form 1040, 1040A, or 1040 EZ, where it indicates third-party designee.
1.39 $$$ TIP---Notify the IRS when you change your address.
If you change your address, file Form 8822 to notify the IRS. Otherwise, you might not receive IRS correspondence and could potentially accumulate interest and penalties on any taxes you owe.
1.40 Real-Life Examples
1.41 Example 1: Changing tax brackets
Jack and Judy file a joint return and report $58,100 of taxable income. Their tax liability comes to $7,985:
10% of $14,600, or $1,460
plus 15% of $43,500, or $6525
By comparison, in 2004, the same amount of taxable income would have produced a tax liability of $8,000.
1.42 Example 2: Reporting unearned income for children
Tom and Jane have an eight-year old son and an eleven-year old daughter. Generous grandparents made gifts to their grandchildren, resulting in $1,000 of taxable interest and dividends for each child during 2005. How do they report the income?
Since each child has more than $800 of unearned income, each must file a tax return. The family will file three federal tax returns. Parents can reduce this to one tax return if they elect to include the children’s interest and dividend income on their own tax return.
1.43 Example 3: Treating uncollected Social Security and Medicare taxes
Sandra is a waitress. In January 2006, she receives 2005 Form W-2 from her employer indicating $26,000 of taxable income. Sandra has no other income to report. Sandra notices that her Form W-2 has entries in Box 12, indicating that there is uncollected Social Security and Medicare tax. For 2004, Sandra filed form 1040A to report her income taxes. But, she cannot do the same in 2005.
Sandra must use Form 1040 because she had uncollected Social Security or Medicare taxes, according to her Form W-2.
1.44 Example 4: Dealing with a missing Form W-2
Bernie has completely filled in his 2005 tax return and is ready to send it to the IRS with his check for the amount of tax that he owes. But, because he owes additional tax, Bernie decides to wait until April 14, 2006, to sign and file the tax return. On April 14, 2006, he takes out his completed forms and discovers he has misplaced his Form W-2. What should Bernie do?
Bernie should request a four-month automatic extension of time to file his 2005 tax return and send in the additional tax that he owes. Next he should contact his employer, obtain a copy of his 2005 Form W-2, and then file his 2005 tax return.
If Bernie does not request an extension of time and does not send in the additional tax he owes, he must pay a penalty. The combined penalty for late filing and late payment is 5% of the tax due per month for the first five months and then .5% per month thereafter. The maximum total penalty is 50% of the balance due. Bernie would also be required to pay interest on the balance of tax, if he did not pay with the extension request.
1.45 Example 5: Filing from abroad
Janet, a U.S. citizen, believes she has the perfect job. She works for a bank in England and lives in a suburban London apartment. Since Janet is a U.S. citizen who meets all the requirements of filing a tax return, she must file an annual income tax return even though she does not live in the U.S. But, because she lives outside the United States, the due date of Janet’s tax return is June 15, 2006.
However, if Janet waits until June 15 to file her tax return and she owes tax, she must pay interest on the balance due from April 17 to the date she files the return, June 15. Janet can avoid paying the interest by sending in the tax due by April 17, 2006.
Copyright © 2005 by Intuit