Do you rent property to others? If so, you’ll want to read the following seven tips about rental income and expenses.

You generally must include in your gross income all amounts you receive as rent. Rental income is any payment you receive for the use of or occupation of property. Expenses of renting property can be deducted from your gross rental income. You generally deduct your rental expenses in the year you pay them.  IRS Publication 527, Residential Rental Property, includes information on the expenses you can deduct if you rent property. Here are some more tips about rental income and expenses:

1. When to report income. You generally must report rental income on your tax return in the year that you actually receive it.
2. Advance rent. Advance rent is any amount you receive before the period that it covers.  Include advance rent in your rental income in the year you receive it, regardless of the period covered.
3. Security deposits. Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease. However, if you keep part or all of the security deposit during any year because your tenant does not live up to the terms of the lease, you must include the amount you keep in your income in that year.
4. Property or services in lieu of rent.  If you receive property or services—instead of money—as rent, include the fair market value of the property or services in your rental income.  If the services are provided at an agreed upon or specified price, that price is the fair market value unless there is evidence to the contrary.
5. Expenses paid by tenant. If your tenant pays any of your expenses, the payments are rental income, and you must include them in your income. You can deduct the expenses if they are deductible rental expenses. See “Rental Expenses” in Publication 527, for more information.
6. Rental expenses.  Generally, the expenses of renting your property—such as maintenance, insurance, taxes, and interest—can be deducted from your rental income.
7. Personal use of vacation home. If you have any personal use of a vacation home or other dwelling unit that you rent out, you must divide your expenses between rental use and personal use.  If your expenses for rental use are more than your rental income, you may not be able to deduct all of the rental expenses.

For more information about rental income and expenses, consult your professional tax advisor or tax preparer, or see IRS Publication 527. This publication can be downloaded by clicking the link above, or from the official IRS website at www.IRS.gov, or ordered by calling 800-TAX-FORM (800-829-3676). Please also feel free to forward this article to others you know that might benefit from this information.

According to the Internal Revenue Service, refunds totaling more than $1.1 billion may be waiting for nearly 1.1 million people who did not file a federal income tax return for 2007. However, to collect the money, a return for 2007 must be filed with the IRS no later than Monday, April 18, 2011. The IRS estimates that half of these potential 2007 refunds are $640 or more.

Some people may not have filed returns because they had too little income to require filing a tax return, even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury. For 2007 returns, the window to file closes on April 18, 2011. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS also reminded taxpayers seeking a 2007 refund that their checks will be held if they have not filed tax returns for 2008 and 2009. In addition, the refund will be applied to any amounts still owed to the IRS, and may be used to offset unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than a refund of taxes withheld or paid during 2007. In addition, many low- and moderate-income workers may not have claimed the Earned Income Tax Credit (EITC) to which they might have been entitled. The EITC helps individuals and families whose incomes are below certain thresholds, which in 2007 were $39,783 for those with two or more children, $35,241 for people with one child, and $14,590 for those with no children. (For more information about the EITC, see the IRS’s EITC Home Page on the official IRS website.)

Current and prior year tax forms and instructions are available on the Forms and Publications page of www.IRS.gov or by calling the IRS toll-free at 1-800-TAX-FORM (1-800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for 2007, 2008 or 2009 should request copies from their employer, bank or other payer. If these efforts are unsuccessful, taxpayers can get a free transcript showing information from these year-end documents by ordering on-line, calling 1-800-908-9946, or by filing Form 4506-T, Request for Transcript of Tax Return, with the IRS. For additional information or assistance, contact your professional tax advisor or tax return preparer. Please also help to spread the word about these unclaimed refunds by forwarding this article to others.

Chart of Number of Individuals by State Who Did Not File a 2007 Return with a Potential Refund:

*Excluding the Earned Income Tax Credit and other credits.

Taxpayers should make sure they are aware of many important changes to the tax law before they complete their 2010 federal income tax return. Here are several important changes you should keep in mind when you file your 2010 federal income tax return in 2011.

1. Health Insurance Deduction Reduces Self Employment Tax. In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their liability for social security self-employment tax in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. However, in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.

Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.

As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. Details, including a worksheet, are in the instructions to Form 1040.

2. First-time homebuyer credit. You must meet the required deadlines to be eligible to claim the credit.  You must have bought—or entered into a binding contract to buy—a principal residence on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed or gone to settlement on the home on or before Sept. 30, 2010.  Due to the documentation requirements for claiming the credit, taxpayers who claim the credit on their 2010 tax return must file a paper—not electronic—return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and a properly executed copy of a settlement statement used to complete the purchase.

Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally begin repaying it on the 2010 return. In most cases, the credit must be repaid over a 15-year period. Many of those affected by this requirement should have received reminder letters from the IRS.

A repayment requirement also applies to a taxpayer who claimed the credit on either their 2008 or 2009 return and then sold it or stopped using the home as their main home in 2010. Use Form 5405 to report the repayment.

In addition, certain members of the armed forces and some other taxpayers still have time to buy a home and take the credit. See Form 5405 and its instructions for details.

3. Standard Mileage Rates for 2010. The standard mileage rate for business use of a car, van, pick-up or panel truck is 50 cents for each mile driven. The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 16.5 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

4. Tax Breaks Extended. Several tax breaks that expired at the end of 2009 were renewed and can be claimed on 2010 returns. These include:

• State and local general sales tax deduction, primarily benefiting people living in areas without state and local income taxes. Claim on Schedule A, Line 5.


• Higher education tuition and fees deduction benefiting parents and students. Claim on Form 8917.


• Educator expense deduction for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. Claim on Form 1040, Line 23 or Form 1040A Line 16.


• District of Columbia first-time homebuyer credit. Claim on Form 8859.

For further information about these changes, consult your professional tax advisor or tax preparer, or visit the official IRS website at www.IRS.gov. Please also feel free to share this article with others that might benefit from this information.

Before you file your 2010 tax return, you should make sure you have all the needed documents. If you worked as an employee for someone else at any time during 2010, then those necessary documents include all your Forms W-2. You should receive a Form W-2, Wage and Tax Statement, from each of your employers. Employers had until January 31, 2011 to send you a 2010 Form W-2 earnings statement.

If you did not receive all your Forms W-2, follow these four steps:

1. Contact your employer. If you have not received your W-2, contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS. If you still do not receive your W-2 and it is after February 14th, contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, Social Security number, phone number and have the following information:

• Employer’s name, address, city and state, including zip code and phone number
• Dates of employment
• An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2010. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return. Even if you do not receive all your W-2 statements, you still must file your tax return or request an extension to file by April 18, 2011. If you do not receive your Form W-2 by the due date, and you have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating your income and withholding taxes as accurately as possible.  Be aware that there may be a delay in any refund due while the information is verified.

4. File a Form 1040X. On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.  Form 4852, Form 1040X, and instructions are available at the official IRS website at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).

If you have any questions in regard to these requirements, consult your professional tax advisor or tax preparer. Please also feel free to share this article with others that might benefit from this information.

The Child Tax Credit is an important tax credit that may be worth as much as $1,000 per qualifying child depending upon a taxpayer’s income. Here are 10 important facts about this credit and how it may benefit a taxpayer’s family.

1. Amount – With the Child Tax Credit, a taxpayer may be able to reduce his or her federal income tax by up to $1,000 for each qualifying child under the age of 17.
2. Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
3. Age Test – To qualify, a child must have been under age 17—age 16 or younger—at the end of 2010.
4. Relationship Test – To claim a child for purposes of the Child Tax Credit, the child must either be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes a taxpayer’s grandchild, niece or nephew. An adopted child always is treated as a taxpayer’s own child. An adopted child includes a child lawfully placed with a taxpayer for legal adoption.
5. Support Test – In order to claim a child for this credit, the child must not have provided more than half of his or her own support.
6. Dependent Test – A taxpayer must claim the child as a dependent on the taxpayer’s federal tax return.
7. Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
8. Residence Test – The child must have lived with the taxpayer for more than half of 2010. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
9. Limitations – The credit is limited if a taxpayer’s modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on the taxpayer’s filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, the phase-out begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax the taxpayer owes as well as any alternative minimum tax the taxpayer owes.
10. Additional Child Tax Credit – If the amount of the taxpayer’s Child Tax Credit is greater than the amount of income tax a taxpayer owes, the taxpayer may be able to claim the Additional Child Tax Credit. The credit is claimed on IRS Form 8812, Additional Child Tax Credit.

For information about the Child Tax Credit, contact your professional tax advisor or tax preparer, or see the official IRS website at www.IRS.gov. Also, see the prior article, “Ten Tax Topics for Taxpayers with Children,” for additional information about tax benefits generally available to taxpayers with children. Please also feel free to share this article with other individuals that might benefit from this information.

The Social Security benefits a taxpayer received in 2010 may be taxable. A taxpayer should receive a Form SSA1099 which will show the total amount of his or her benefits. The information provided on this statement along with the following facts will help a taxpayer determine whether or not his or her benefits are taxable.

1. The amount—if any—of a taxpayer’s Social Security benefits that are taxable depends on the taxpayer’s total income and marital status.
2. Generally, if Social Security benefits were a taxpayer’s only income for 2010, the taxpayer’s benefits are not taxable and he or she probably does not need to file a federal income tax return.
3. If a taxpayer received income from other sources, the taxpayer’s benefits will not be taxed unless his or her modified adjusted gross income is more than the base amount for the taxpayer’s filing status.
4. A taxpayer’s taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet.
5. A taxpayer can do the following quick computation to determine whether some of his or her benefits may be taxable:
   • First, add one-half of the total Social Security benefits the taxpayer received to all the taxpayer’s other income, including any tax exempt interest and other exclusions from income.
   • Then, compare this total to the base amount for the taxpayer’s filing status. If the total is more than the taxpayer’s base amount, some of the taxpayer’s benefits may be taxable.
6. The 2010 base amounts are:
   • $32,000 for married couples filing jointly.
   • $25,000 for single, head of household, qualifying widow/widower with a dependent child, or married individuals filing separately who did not live with their spouses at any time during the year.
   • $0 for married persons filing separately who lived together during the year.

For additional information on the taxability of Social Security benefits, consult your professional tax advisor or tax preparer, or see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Publication 915 is available on the official IRS website at www.irs.gov or by calling 800-TAX-FORM (800-829-3676). Please also share this article with others that might benefit from this information.

As tax filing season quickly approaches, many taxpayers will wrestle with the question of whether certain income they have received is taxable or non-taxable. Generally, most income you receive is considered taxable, but there are situations when certain types of income are partially taxed or not taxed at all.

To help taxpayers understand the differences between taxable and non-taxable income, following are some common examples of items not included as taxable income:

• Adoption Expense Reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers’ compensation benefits
• Meals and Lodging for the convenience of your employer
• Compensatory Damages awarded for physical injury or physical sickness
• Welfare Benefits
• Cash Rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

• Life Insurance. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
• Scholarship or Fellowship Grant. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
• Non-cash Income. Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items—including income such as wages, salaries, tips and unemployment compensation—are fully taxable and must be included in your income unless it is specifically excluded by law. These examples are not all-inclusive. Special rules also exist for income received by certain members of the clergy or members of religious orders, and certain employees of foreign employers or the military, or those who are volunteers.

For more information, consult your professional tax preparer or tax advisor, or see Publication 525, Taxable and Nontaxable Income, which can be obtained at the official IRS website at www.irs.gov. Please also forward this article to others that may benefit from this information.

According to the Internal Revenue Service, nationwide last year, over 26 million eligible taxpayers received nearly $59 billion total from the Earned Income Tax Credit (EITC). Yet, the IRS estimates that one out of five eligible taxpayers still could be missing the credit. This filing season, the IRS again is encouraging all eligible taxpayers to claim this benefit.

Those who made $48,362 or less from wages, self-employment or farm income, should check to see if they qualify for the EITC. The IRS has tools to make it is easy to check with their “EITC Assistant.” Once taxpayers know that they do qualify for the EITC, they must file a tax return and claim the credit to get it. The IRS also has several free options for EITC eligible taxpayers to get help to file a federal tax return and claim the credit.

While there are many factors that affect eligibility for the credit and the amount of EITC that qualified taxpayers may take home, it can be a valuable tool to lower their taxes or to claim a refund. A couple with three or more children could get up to $5,666. If a person qualifies, he or she must file a return and claim the credit.

For more information, taxpayers should contact their professional tax preparer or tax advisor, or see www.irs.gov/eitc on the official IRS website.  Also, if you know someone that might benefit from this information, please forward this article to them.

The Internal Revenue Service in late 2010 issued guidance providing relief to homeowners who have suffered property losses due to the effects of certain imported drywall installed in homes between 2001 and 2009.  Revenue Procedure 2010-36 enables affected taxpayers to treat damages from corrosive drywall as a casualty loss and provides a “safe harbor” formula for determining the amount of the loss.

In numerous instances, homeowners with certain imported drywall have reported blackening or corrosion of copper electrical wiring and copper components of household appliances, as well as the presence of sulfur gas odors. In November 2009, the Consumer Product Safety Commission (CPSC) reported that an indoor air study of a sample of 51 homes found a strong association between the problem drywall, levels of hydrogen sulfide in those homes and corrosion of metals in those homes.

Revenue Procedure 2010-36 provides the following relief:

• Individuals who pay to repair damage to their personal residences or household appliances resulting from corrosive drywall may treat the amount paid as a casualty loss in the year of payment. 
• Taxpayers who have already filed their income tax return for the year of payment generally have three years to file an amended return and claim the deduction.The amount of a loss that may be claimed depends on whether the taxpayer has a pending claim for reimbursement (or intends to pursue reimbursement) of the loss through property insurance, litigation or otherwise.
• In cases where a taxpayer does not have a pending claim for reimbursement, the taxpayer may claim as a loss all unreimbursed amounts paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances resulting from corrosive drywall. 
• If a taxpayer does have a pending claim (or intends to pursue reimbursement), a taxpayer may claim a loss for 75 percent of the unreimbursed amount paid during the taxable year to repair damage to the taxpayer’s personal residence and household appliances that resulted from corrosive drywall. 

A taxpayer who has been fully reimbursed before filing a return for the year the loss was sustained may not claim a loss. A taxpayer who has a pending claim for reimbursement (or intends to pursue reimbursement) may have income or an additional deduction in subsequent taxable years depending on the actual amount of reimbursement received.

For purposes of this revenue procedure, the term “corrosive drywall” means drywall that is identified as problem drywall under the two step identification method published by the CPSC and the Department of Housing and Urban Development in their interim guidance dated January 28, 2010.

Further details and limitations can be found in Revenue Procedure 2010-36, which also is available on the official IRS website at www.IRS.gov.

For taxpayers who wish to prepare their income tax returns themselves, the IRS on January 14, announced the start of its Free File program for 2011. Everyone can use Free File, the free way to prepare and e-file federal taxes either through brand-name software or online fillable forms. Individuals or families with 2010 adjusted gross incomes of $58,000 or less can use Free File software. Free File Fillable Forms, the electronic version of IRS paper forms, has no income restrictions.

Free File software is a product of a public-private partnership between the IRS and the Free File Alliance, LLC. The Alliance is a consortium of approximately 20 tax software providers who make versions of their products available exclusively at www.irs.gov/freefile. All Free File members must meet certain security requirements and use the latest in encryption technology to protect taxpayers’ information. The IRS approximates that about seventy percent of taxpayers are eligible for Free File software. The software probably is best suited for first-time filers, families with more straight-forward filing requirements that are looking for a way to save money, or older Americans adept at using the Internet.

People with an adjusted gross income of $58,000 or less are eligible for at least one software product if not more. Each of the Free File software providers sets their own eligibility requirements, usually based on qualifiers such as income, state residency, age or military status. The easiest way to locate a software provider is to use the online tool that, with a little of a taxpayer’s personal information, can identify matching products. Otherwise, taxpayers can review all providers and their offers. Some software providers also offer state income tax preparation for free or for a fee.

For taxpayers whose incomes are more than $58,000, there’s Free File Fillable Forms. This software is probably best for taxpayers experienced in preparing their own federal tax returns. For people who prefer doing their taxes the old fashioned way—by paper—this is an electronic alternative. Free File Fillable Forms performs some math calculations and provides links to some IRS publications. However, it does not use the familiar question-and-answer format used by software. Taxpayers can e-file the forms for free.  Free File Fillable Forms also does not support state income tax returns.

Taxpayers must access these tax products through the IRS’s official website at www.IRS.gov to avoid any charges for preparing or to e-file a federal tax return. Free File partners also are prohibited from repeatedly trying to sell taxpayers other products. Once taxpayers have selected a Free File software product, they will be directed away from www.IRS.gov to the partner’s site to prepare and e-file their returns. The IRS states that it does not retain any personal information from the taxpayers.

This year, taxpayers also will see a redesigned Free File page to make it easier for them to navigate the Free File steps. A microsite with additional Free File information and video also has been updated. The microsite, www.freefile.irs.gov, also includes a “spread the word” page that encourages other organizations or businesses to help spread the word about Free File. For example, other organizations or businesses can upload a tax-day countdown widget to their Web sites or make social media postings to help inform their employees, clients or customers about Free File’s availability.

You can help to spread the word about Free File by forwarding this information to others you know who are considering preparing their income tax returns themselves.