According to the IRS, it receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the Internal Revenue Service. Many of these scams fraudulently use the Internal Revenue Service name or logo as a lure to make the communication more authentic and enticing. The goal of these scams––known as phishing––is to trick you into revealing personal and financial information. The scammers can then use that information––like your Social Security number, bank account or credit card numbers––to commit identity theft or steal your money.  Here are five things to know about phishing scams which involve supposed communications from the IRS:

1. The IRS does not ask for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.

2. The IRS does not initiate taxpayer communications through e-mail and won’t send a message about your tax account. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:

• Do not reply to the message.
• Do not open any attachments. Attachments may contain malicious code that will infect your computer.
• Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, visit the IRS website and enter the search term “identity theft” for more information and resources to help.

3. The address of the official IRS website is http://www.IRS.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site and report it to the IRS.

4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, you should contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence.

5. You can help shut down these schemes and prevent others from being victimized. Details on how to report specific types of scams and what to do if you’ve been victimized are available at http://www.IRS.gov, keyword “phishing.”

The IRS also has additional information at the following link:  Protect your personal information! The IRS does not initiate taxpayer communications through e-mail; Suspicious e-Mails and Identity Theft.

For more information, call Hertsel Shadian, Attorney at Law, LLC at (503) 352-6985.  Please also forward this article to others to help prevent such phishing scams.

IRS also Announces Major Changes Made to Lien Process

In its latest effort to help struggling taxpayers, the Internal Revenue Service in February 2011 announced a series of new steps to help people get a fresh start with their tax liabilities. The stated goal of these steps is to help individuals and small businesses meet their tax obligations, without adding an unnecessary burden to taxpayers. Specifically, the IRS announced new policies and programs to help taxpayers pay back taxes and avoid tax liens.

The IRS’s announcement centers on the IRS making important changes to its lien filing practices that hopefully will lessen the negative impact on taxpayers. The changes include:

• Significantly increasing the dollar threshold when liens are generally issued, resulting in fewer tax liens.
• Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill.
• Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement.
• Creating easier access to Installment Agreements for more struggling small businesses.
• Expanding a streamlined Offer in Compromise program to cover more taxpayers.

This is another in a series of steps by the IRS intended to help struggling taxpayers. In 2008, the IRS announced lien relief for people trying to refinance or sell a home. [See IRS article, “IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell” (IR-2008-141)] In 2009, the IRS added new flexibility for taxpayers facing payment or collection problems. [See IRS article, “IRS Begins Tax Season 2009 with Steps to Help Financially Distressed Taxpayers; Promotes Credits, e-File Options” (IR-2009-2)] Also, in 2010, the IRS held about 1,000 special open houses to help small businesses and individuals resolve tax issues with the Agency. The February 2011 announcement came after a review of collection operations which the IRS Commissioner launched in 2010, as well as input from the Internal Revenue Service Advisory Council and the National Taxpayer Advocate.

Tax Lien Thresholds

Under the newly stated policy, the IRS significantly will increase the dollar thresholds when liens generally are filed. The new dollar amount is intended to be in keeping with inflationary changes that have arisen since the number last was revised. Previously, liens were automatically filed at certain dollar levels for people with past-due balances (usually $5,000 or more). That amount now generally has been increased to people with past-due balances of $10,000 or more, which should result in significantly fewer lien filings (tens of thousands in the IRS’s own estimation). In its announcement, the IRS also stated that it plans to review the results and impact of the lien threshold change in about a year.

A federal tax lien gives the IRS a legal claim to a taxpayer’s property for the amount of an unpaid tax debt. From the government’s standpoint, filing a Notice of Federal Tax Lien is necessary to establish priority rights against certain other creditors. Usually the government is not the only creditor to whom the taxpayer owes money. A lien informs the public that the U.S. government has a claim against all property, and any rights to property, of the taxpayer. This includes property owned at the time the notice of lien is filed and property acquired by the taxpayer thereafter. A lien can affect a taxpayer’s credit rating, so it is critical to arrange the payment of taxes as quickly as possible.

Tax Lien Withdrawals

The IRS further stated in the February 2011 announcement that it also will modify procedures that will make it easier for taxpayers to obtain lien withdrawals once taxes have been paid. According to the announcement, liens now will be withdrawn once full payment of taxes is made if the taxpayer requests such withdrawal. The IRS stated that it determined that this approach is in the best interest of the government. Previously, liens could remain on record for years after the tax was paid or the balance was negotiated to a reduced amount, and also could stay on a taxpayer’s credit report for years after the tax was paid or negotiated. In order to speed the withdrawal process, the IRS stated that it also will streamline its internal procedures to allow collection personnel to withdraw the liens.

Direct Debit Installment Agreements and Liens

The IRS stated further in its announcement that it is making other fundamental changes to liens in cases where taxpayers enter into a Direct Debit Installment Agreement (DDIA). For taxpayers with unpaid assessments of $25,000 or less, the IRS now will allow lien withdrawals under several scenarios:

• Lien withdrawals will be allowed for taxpayers entering into a new Direct Debit Installment Agreement.
• The IRS will withdraw a lien if a taxpayer on a regular Installment Agreement converts to a Direct Debit Installment Agreement.
• The IRS also will withdraw liens on existing Direct Debit Installment Agreements upon taxpayer request.

Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored. In addition, this approach should lower overall user fees and at the same time will save the government money from having to mail monthly payment notices. Taxpayers can use the Online Payment Agreement application on www.IRS.gov to set-up Direct Debit Installment Agreements. A link to the application also is available under the links on this website (www.shadianlaw.com).

Installment Agreements and Small Businesses

In addition to the above changes applicable to individual taxpayers, the IRS also announced that it is making streamlined Installment Agreements available to more small businesses. The payment program will raise the dollar limit to allow additional small businesses to participate. Small businesses with $25,000 or less in unpaid tax now can participate. Previously, only small businesses with under $10,000 in liabilities could participate. Small businesses will have up to 24 months to pay.

The streamlined Installment Agreements will be available for small businesses that file either as an individual or as a business. Small businesses with an unpaid assessment balance greater than $25,000 still would qualify for the streamlined Installment Agreement if they can pay down the balance to $25,000 or less. Small businesses will need to enroll in a Direct Debit Installment Agreement to participate.

Offers in Compromise

Finally, the IRS announced that it was expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. This streamlined OIC is being expanded to allow taxpayers with annual incomes up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the previous limit of $25,000 or less.

OICs are subject to acceptance based on legal requirements. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

To get further information about these new programs to help pay or negotiate tax debts and/or tax liens, contact your professional tax advisor or tax preparer, or contact this office at (503) 352-6985, or visit www.shadianlaw.com. Please also feel free to forward this article to others you know that might benefit from this information (you can use the convenient link below). In addition, if you have received a notice from the IRS and you are not sure what to do, please review this prior article, “Don’t Panic! Some Things to Know If You Receive an IRS Notice.”

Charitable contributions made to qualified organizations may help lower your tax bill. Following are eight tips to help ensure your contributions pay off on your tax return.

1. If your goal is a legitimate tax deduction, then you must be giving to a qualified organization. Also, you cannot deduct contributions made to specific individuals, political organizations and candidates. See IRS Publication 526, Charitable Contributions, for rules on what constitutes a qualified organization. Also, to determine if an organization is a qualified charity, refer to the following link: Search for Charities or download Publication 78, Cumulative List of Organizations.
2. To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
3. If you receive a benefit because of your contribution—such as merchandise, tickets to a ball game or other goods and services—then you can deduct only the amount that exceeds the fair market value of the benefit received.
4. Donations of stock or other non-cash property usually are valued at the fair market value of the property. Clothing and household items generally must be in good used condition or better to be deductible. Special rules apply to vehicle donations.
5. Fair market value generally is the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. For text message donations, a telephone bill will meet the record keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.
7. To claim a deduction for contributions of cash or property equaling $250 or more, you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift. One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all non-cash contributions for the year is over $500, you must complete and attach IRS Form 8283, Non-cash Charitable Contributions, to your return. Refer also to the Instructions for Form 8283, Non-cash Charitable Contributions.
8. Taxpayers donating an item or a group of similar items valued at more than $5,000 also must complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, consult your professional tax advisor or tax preparer, or refer to IRS Form 8283 and its instructions, as well as IRS Publication 526, Charitable Contributions. For information on determining the value of donated property, refer also to IRS Publication 561, Determining the Value of Donated Property. These forms and publications all are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).  The IRS also has prepared a brief YouTube video on this topic at the following link: Fair Market Value of Charitable Donations. Please feel free to forward this article to others that might benefit from this information.

Here is some information from the IRS about a special tax deduction available for self-employed individuals. You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are one of the following:

• A self-employed individual with a net profit reported on Schedule C (Form 1040), Profit or Loss From Business, Schedule C-EZ (Form 1040), Net Profit From Business, or Schedule F (Form 1040), Profit or Loss From Farming.
• A partner with net earnings from self-employment reported on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., box 14, code A.
• A shareholder owning more than 2% of the outstanding stock of an S corporation with wages from the corporation reported on Form W-2, Wage and Tax Statement.

To deduct the premiums paid for such insurance, the insurance plan must be established under your business.

• For self-employed individuals filing a Schedule C, C-EZ, or F, the policy can be either in the name of the business or in the name of the individual.
• For partners, the policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.
• For more-than-2% shareholders, the policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business.

For more information, consult your professional tax advisor or tax preparer, or see IRS Publication 535, Business Expenses, available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Please also feel free to forward this article to others that might benefit from this information.

When filing your federal income tax return, taxpayers can choose to either take the standard deduction or to itemize their deductions. 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 your standard deduction, you usually can benefit by itemizing. (Note, however, that some of these deductions are subject to minimum Adjusted Gross Income (AGI), meaning that only the amount of the expense above a certain percentage of AGI can be deducted—the remainder is lost.)

Following are six tax facts to help you choose the method that gives you the lowest tax:

1. Standard deduction. The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2010, the amounts are as follows:

• Single     $5,700
• Married Filing Jointly   $11,400
• Head of Household   $8,400
• Married Filing Separately  $5,700
• Qualifying Widow(er)  $11,400

2. Some taxpayers have different standard deductions. The standard deduction amount depends on your filing status, whether you are 65 years or older or blind, and whether an exemption can be claimed for you by another taxpayer. If any of these apply, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. The standard deduction amount also depends on whether you plan to claim the additional standard deduction for a loss from a disaster declared as a federal disaster or state or local sales or excise tax you paid in 2010 on a new vehicle you bought before 2010. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.

3. Limited itemized deductions. Your total itemized deductions no longer are limited because of your adjusted gross income. (Prior to 2010, taxpayers with adjusted gross income above a certain amount would lose part of their itemized deductions.)

4. Married Filing Separately. When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and therefore must itemize to claim their allowable deductions.

5. Some taxpayers are not eligible for the standard deduction. These taxpayers include nonresident aliens, dual-status aliens, and individuals who file returns for periods of less than 12 months due to a change in accounting periods.

6. Forms to use. The standard deduction can be taken on Forms 1040, 1040A or 1040EZ.  If you qualify for the higher standard deduction for new motor vehicle taxes or a net disaster loss, you must attach Schedule L. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions. These forms and instructions may be downloaded from the IRS website at www.IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

For additional information about this topic, contact your professional tax advisor or tax preparer. See also the following links for additional information:

• Publication 17, Your Federal Income Tax (PDF 2.3MB)
• Schedule A, Itemized Deductions (PDF)
• Schedule A, Itemized Deductions Instructions (PDF)

Taxpayers who made some energy efficient improvements to their home or purchased energy-efficient products last year (including for certain electric vehicles) may qualify for a tax credit this year. Following is a brief description of six energy-related tax credits created or expanded by the American Recovery and Reinvestment Act of 2009 (the ARRA).

1. Residential Energy Property Credit. This tax credit is for homeowners who make qualified energy efficient improvements to their existing homes. This credit is 30 percent of the cost of all qualifying improvements. The maximum credit is $1,500 for improvements placed in service in 2009 and 2010 combined. The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.
2. Residential Energy Efficient Property Credit. This tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, solar electricity equipment and wind turbines installed on or in connection with their home located in the United States, and geothermal heat pumps installed on or in connection with their main home located in the United States. The credit, which runs through 2016, is 30 percent of the cost of qualified property. ARRA removed some of the previously imposed annual maximum dollar limits.
3. Plug-in Electric Drive Vehicle Credit. ARRA modified this credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. The minimum amount of the credit for qualified plug-in electric drive vehicles, which runs through 2014, is $2,500 and the credit tops out at $7,500, depending on the battery capacity. ARRA phased out the credit for each manufacturer after they sell 200,000 vehicles.
4. Plug-In Electric Vehicle Credit. This is a special tax credit for two types of plug-in vehicles—certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012.
5. Credit for Conversion Kits. This credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle that is placed in service after Feb. 17, 2009. The maximum credit, which runs through 2011, is $4,000.  
6. Treatment of Alternative Motor Vehicle Credit as a Personal Credit Allowed Against AMT.  Starting in 2009, ARRA allowed the Alternative Motor Vehicle Credit, including the tax credit for purchasing hybrid vehicles, to be applied against the Alternative Minimum Tax. Prior to the 2009 law, the Alternative Motor Vehicle Credit could not be used to offset the AMT. This meant the credit could not be taken if a taxpayer owed AMT or was reduced for some taxpayers who did not owe AMT.

For additional information in regard to all these tax credits, consult your professional tax advisor or tax preparer, or see IRS Form 5695, Residential Energy Credits and IRS Fact Sheet FS-2009-10, Energy Provisions of the American Recovery and Reinvestment Act of 2009. The IRS also has produced a brief YouTube video to provide more information: Energy Tax Credit-Claim It- 2011. Please feel free to forward this article to others that might benefit from this information.

If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are some important facts to know about claiming the credit for child and dependent care expenses.

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care also may be qualifying persons. You must identify each qualifying person on your tax return.
2. The care must have been provided so you—and your spouse if you are married filing jointly—could work or look for work.
3. To qualify for the credit, you—and your spouse if you file jointly—must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if he or she was a full-time student or was physically or mentally unable to care for themselves.
4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year, even if he or she is not your dependent.
5. You also must identify the care provider(s) on your tax return—you will need each care provider’s name, address, and taxpayer identification number (either the social security number, or the employer identification number). You can request this information from the care provider with IRS Form W-10, Dependent Care Provider’s Identification and Certification. The care provider’s information, and the dollar amount of the care provided, then is reported on IRS Form 2441, Child and Dependent Care Expenses. (See also the Form 2441 Instructions for additional information on how to complete the Form.) If the care provider is tax exempt, you only need to report the name and address of the care provider on your return. If you do not provide information regarding the care provider, you still may be eligible for the credit if you can show that you exercised due diligence in attempting to provide the required information.
6. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
7. The qualifying person must have lived with you for more than one-half of 2010. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
8. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
9. For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals, to calculate the credit.
10. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
11. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For more information about this withholding and filing requirement, see IRS Publication 926, Household Employer’s Tax Guide.

For more information on the Child and Dependent Care Credit, contact your professional tax advisor or tax preparer, or see the link for IRS Tax Topic 602 and IRS Publication 503, Child and Dependent Care Expenses. You also may download these free publications from the official IRS website at www.IRS.gov or order them by calling 800-TAX-FORM (800-829-3676). Also, for information about the Child Tax Credit (a separate tax benefit available to certain taxpayers with children), see the earlier article, Ten Important Facts about the Child Tax Credit. As with all of these articles, please feel free to forward or share this with others that might benefit from this information.

This year, taxpayers have a few extra days to make contributions to their traditional Individual Retirement Arrangements. That is because Emancipation Day, a legal holiday in the District of Columbia, will be observed on Friday, April 15, 2011, which moves the due date for filing tax returns and for making contributions to a 2010 IRA to Monday, April 18, 2011. Following are several important things you should know about setting aside retirement money in an IRA.

1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit formally known as the Retirement Savings Contributions Credit.
2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2010 must be made by April 18, 2011. Additionally, if you make a contribution between Jan. 1 and April 18, you should designate the year targeted for that contribution.
3. The funds in your IRA generally are not taxed until you receive distributions from that IRA.
4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for IRA contributions.
5. For 2010, the most that can be contributed to your traditional IRA is generally the smaller of the following three amounts: $5,000, or $6,000 for taxpayers who were 50 or older at the end of 2010, or the amount of your taxable compensation for the year.
6. Use IRS Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.
7. You must use either Form 1040A or Form 1040 to claim the Credit for Qualified Retirement Savings Contributions or if you deduct an IRA contribution.
8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.
9. You must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment to contribute to an IRA. If you file a joint return, generally only one of you needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements (IRAs), for additional rules.
10. Refer to IRS Publication 590 for more information on contributing to your IRA account. Both Form 8880 and Publication 590 can be downloaded on the official IRS website at www.IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

For more information about contributing to your IRA, consult your professional tax advisor, tax preparer or plan administrator. Please also forward this article to others that might benefit from this information.

Some taxpayers may have needed to take an early distribution from their retirement plan last year. Individuals who took an early distribution need to be aware that there can be a tax impact to tapping your retirement fund.  Following are some facts about the tax effects of early distributions:

1. Payments you receive from your Individual Retirement Arrangement (IRA) before you reach age 59½ generally are considered early or premature distributions.
2. Early distributions usually are subject to an additional 10 percent tax.
3. Early distributions also must be reported to the IRS as income and are subject to tax at the recipient’s regular income tax rates. However, the tax on this income may be offset by any withholding amounts applied to the distribution. These amounts all should be reported to you on a Form 1099-R issued by the plan administrator.
4. Distributions you rollover to another IRA or qualified retirement plan (if done correctly) should not be subject to income tax or the additional 10 percent tax. You must complete the rollover within 60 days after the day you received the distribution. Contact your plan administrator for further information.
5. The amount you rollover generally is taxed when the new plan later makes a distribution to you or your beneficiary.
6. If you made nondeductible contributions to an IRA and later take early distributions from your IRA, the portion of the distribution attributable to those nondeductible contributions is not taxed.
7. If you received an early distribution from a Roth IRA, the distribution attributable to your prior contributions should not be taxed.
8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.
9. There are several exceptions to the additional 10 percent early distribution tax, such as when the distributions are used for the purchase of a first home, for certain medical or educational expenses, or if you are disabled. Contact your plan administrator to learn more about these exceptions. Note that these exceptions to the 10 percent early distribution tax will not except the distribution from the regular income tax.

For more information about early distributions from retirement plans, the additional 10 percent tax and all the exceptions, contact your professional tax advisor or tax preparer, or see IRS Publication 575, Pension and Annuity Income, and Publication 590, Individual Retirement Arrangements (IRAs). Both publications are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676). Also, see IRS Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts and the Form 5329 Instructions for additional information.  Please also feel free to share this article with others you think that might benefit from this information.

Tax preparation should not be so stressful. In fact, with proper organization and sufficient preparation time, tax filing can be managed very effectively. Following are some tips that hopefully will help to make your tax filing experience a little easier this year.

1. Don’t Procrastinate. Whether you use a professional tax preparer or prepare your returns yourself, resist the temptation to put off your taxes until the very last minute. If you prepare your own return, rushing to meet the filing deadline can cause you to overlook potential sources of tax savings and likely will increase your risk of making an error. If you use a professional tax preparer and wait until the last minute to give your return preparer all the documentation and information that your preparer needs, this might cause you to forget or overlook important and helpful information that your preparer will need to accurately prepare your return.

2. Use Free File.If you prepare your own return, consider using IRS Free File brand-name tax software or IRS online fillable forms. (Even if you use a professional tax return preparer, IRS Free File or fillable forms still might be a good way to preview your potential tax liability.) IRS Free File is available exclusively at the official IRS website at www.IRS.gov. Everyone should be able to find an option to prepare their tax return and e-file it for free. If you made $58,000 or less, you qualify for free tax software that is offered through a private-public partnership with various software manufacturers. If you made more than $58,000 or are comfortable preparing your own tax return, there also is Free File Fillable Forms, the electronic versions of IRS paper forms. For more information, visit www.IRS.gov/freefile to review your options.

3. Try IRS e-file. Available for the last 21 years, IRS e-file now is an easy, safe and fairly common way to file a tax return. According to the IRS, last year 70 percent of taxpayers—99 million people—used IRS e-file. Moreover, starting in 2011, many tax return preparers will be required to use e-file and therefore will explain your filing options to you. Based on IRS statistics, IRS e-file is approaching 1 billion returns processed securely each year. If you owe taxes, you also have payment options to file immediately and pay later (by the tax deadline). In addition, according to the IRS, e-file combined with direct deposit can get you your refund in as few as 10 days.

4. Don’t Panic if You Can’t Pay. If you cannot pay the full amount (or any amount) of the taxes you owe by the mid-April deadline, you still should file your return by the deadline if possible and pay as much as you can to avoid penalties and interest. (Filing on time also will get the clock started on any future statute of limitations for assessment of additional tax by the IRS.)  You can further discuss your payment options with your professional tax advisor or tax preparer.  You also can contact the IRS to discuss your payment options at 800-829-1040. The agency may be able to provide some relief such as an installment agreement. Note also that, according to the IRS, more than 75 percent of taxpayers eligible for an Installment Agreement can apply using the Web-based Online Payment Agreement application available on IRS.gov. To find out more about this simple and convenient process, click this link, Online Payment Agreement Application, or type “Online Payment Agreement” in the search box on the IRS.gov homepage.

5. Request an Extension of Time to File—But Pay on Time. If the mid-April tax deadline clock runs out, you can get an automatic six-month extension of time to file through October 17. However, this extension of time to file does not give you more time to pay any taxes due. If you have not paid at least 90 percent of the total tax due by the April deadline, you might also be subject to an Estimated Tax Penalty. To obtain an extension, just file Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. The easiest way to file a Form 4868 is through Free File at www.IRS.gov/freefile, or by contacting your professional tax advisor or tax preparer. Form 4868 also is available for downloading at the following link, Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, or from the IRS website at www.IRS.gov, or you can call 800-TAX-FORM (800-829-3676) and have a paper form mailed to you.

For more information about tax filing, contact your professional tax advisor or tax preparer, or visit the official IRS website at www.IRS.gov.  Please also feel free to forward this article to others you know that might benefit from this information.