Last Updated : January 14, 2009
  AutoEfile Home  Sitemap  Contact us   Print this page  Bookmark this page
Call for Support : 732.606.4476 7326988881 - SUPPORT

AutoEfile - FAQs

Welcome to the AutoEfile general questions and answers section. Each year we update the answers to make you aware about the latest changes in tax rules and regulations. These questions are generated by you and served by us. We hope you find them helpful and informative.


We will be more than glad if you please let us know any problems or have suggestions for its expendability so that we can serve you better. To send a comment to support@autoefile.com.


If you still don't find the answer to your question, please call our toll-free tax assistance line at 732.606.4476, 732.606.4478.

Frequently Asked Questions by Category

General Questions

What to Do if I Haven't Filed My Tax Return?

Reasons - You not have filed your federal income tax return for current year or previous years. Or

  • You may not have known whether you were required to file, or
  • Because you could not afford to pay your taxes in full.

No matter what the reason for not filing, file your tax return as soon as possible. Failure to file your return on or before the due date may result in penalties and interest. If your return was not filed by the due date (including extensions), you may be subject to the failure to file and failure to pay penalties. However, if you filed on time but did not pay in full, you will be subject only to the failure to pay penalty. Call (800) 829-1040. The assistor will answer your tax questions and help you obtain blank prior year forms and financial information. Some prior year tax forms are available on this site www.irs.gov.

What are the changes for this year?

For highlights of any tax changes for the current tax year please refer to ‘’what’s new section of’’ the IRS Website of Form 1040 Instructions, the Form 1040A Instructions, or the Form 1040EZ Instructions. You may also refer to Publication 553, Highlights of the Current Year Tax Changes.


What I need to do to avoid errors on my tax return in order to receive my refund as soon as possible?

Be careful of Common Errors When Preparing Your Tax Return
Before filing your return, take a small excursion to make sure it is correct and complete. The following checklist may help you avoid errors:

  • Did you enter your social security number properly?
  • Did you enter the names and social security numbers for yourself, your spouse, your dependents, and qualifying children for earned income credit or child tax credit, exactly as they appear on the social security cards? If there have been any names changes are sure to go to www.ssa.gov or call at 1–800–772–1213.
  • Have you check only one filing status?
  • If you show a negative amount on your return put brackets around it
  • If you are taking the standard deduction and checked any box indicating either you or your spouse were age 65 or older or blind, did you find the correct standard deduction using the worksheet in the Form 1040 Instructions or the Form 1040A Instructions?
  • Did you figure the tax correctly? If you used the tax tables, did you use the correct column for your filing status?
  • Make sure about the correct ‘’ sign and date the return If it is a joint return, spouse also sign and date the return
  • Have you check the appropriate exemption boxes and enter the names and social security numbers exactly as they appear on the Social Security Card, for all of the dependents claimed? Is the total number of exemptions entered?
  • Have you enter income, deductions, and credits on the correct lines and are the totals correct?
  • Did you attach all other necessary schedules and forms in sequence number
  • If you owe tax, did you enclose a check or money order with the return and write your social security number, tax form, and tax year on the payment? Refer to Topic 158 for more information, and
  • Have you make a copy of the signed return and all schedules for your records?

A few of the most common errors are:

  1. Wrong or missing social security numbers.
  2. Wrong tax entered from the tables.
  3. Computation errors in figuring the child and dependent care credit or the earned income credit
  4. Withholding and estimated tax payments reported on the wrong line, and
  5. Other mathematical errors.

Please be careful that any errors may delay the processing of your return.

If you have moved or your address has changed, you need to notify the IRS. You may provide your new address in a variety of ways. You should correct the address on the mailing label from our tax package or write the new address on your return when you file. When your return is processed, we will update your records.

If you have changed your address after you have filed your return then forwarded Complete a Form 8822 (PDF), Address Change Request, to change your address with the IRS. Form 8822 may be downloaded from the IRS website (www.irs.gov).

If you filed a joint return and you and/or your spouse have separate address then, you both should notify the IRS of your new address.

From IRS resources - Note: The U.S. Postal Service provides the IRS with change of address updates weekly. Tax forms will be mailed to the last address clearly and concisely provided by the taxpayer or the change of address information furnished by the Postal Service. 

Amended Returns & Form 1040X

What I need to do if I made a mistake on my original federal return that I have already filed?

It depends on the type of mistake that was made. Mathematical errors are being taken care of in the processing of the tax return itself. Or the IRS service will contact you and ask for the missing information.

If you made a mistake or omitted to report any income adjustments or credits then you are entitled to file an amended or corrected return using Form 1040X , Amended U.S. Individual Income Tax Return.

As per IRS regulation to claim a refund, the Form 1040X (PDF) must be received within three years after the date you filed your original return or within two years after the date you paid the tax, whichever is later.

References:


What are the reasons for which I need to file an amended return

If forms or schedules were missing in your return but which are required to correctly calculate your tax liability or refund, or

If you find that you did not report some income, or

You claimed deductions or credits you should not have claimed, or

You failed to claim some deductions or credits to which you are entitled, or

You should have used a different filing status; you should file an amended return.

Then you have to file the amended tax return

I made a mistake and sent much money then I was liable to pay. How do I correct it ?
You should not have to do anything. The IRS service center will make the correction for you. You will receive a refund of the difference between what you owe and what you sent in.

I still haven't received my refund, but it is more than it should be because I know that I made a mistake on my return. What should I do?

It depends on the type of mistake that was made on the return.

  1. Mathematical errors are often corrected in the initial processing of the return itself.
  2. Allow the IRS Service to process the return, and if necessary make changes using Form 1040X (PDF), Amended U.S. Individual Tax Return.

File the Form 1040X (PDF) (www.irs.gov) and pay the additional tax. Send a check or money order for the full amount payable to the United States Treasury. On your payment include your name, address, daytime phone number, social security number, the tax year, and type of return.

I have encashed my refund check, but it was more than I would have received because I have made a mistake on my return. What should I do now?

You need to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return, as soon as possible. Send a check or money order for the full amount payable to the United States Treasury. As per IRS regulation your payment should be made on or before the due date of the return to avoid penalties and interest.

I should have received a bigger refund than I claimed on my return. I haven't received the check till now what should I do?

You need to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return.

I and my wife filed jointly. Now I discovered that if we filed married filing separately we would have received a larger refund. How do I file amended returns to change my filling status from joint to separate filling ?

You can only make the change from filing joint to filing separately if you file the corrected returns before the due date of the tax return for either spouse. A request for this type of change will be disallowed if the request is filed after the due date for the return of either spouse.

IRS resource: Publication 17 , Your Federal Income Tax for Individuals, Amended Returns.

My husband and I filed jointly, but now we want to file married filing separately. What do we do?

These are the dealings to follow if you are making the change before the due date of the return. You cannot change from joint to separate returns after the due date. The primary taxpayer will need to file Form 1040X (PDF), Amended U.S. Individual Income Tax Return. Be aware that you show the original filing status as married filing jointly and the new filing status as married filing separately.

What form do I use to correct my tax return that I have already filed?

The form needed to correct previously filed Form 1040 (PDF), Form 1040A, Form 1040EZ (PDF), is Form 1040X (PDF), Amended U.S. Individual Income Tax Return.

Where do I send my Form 1040X ?

As per IRS regulations the instructions for completing Form 1040X (PDF), Amended U.S. Individual Income Tax Return, list the mailing addresses for the service centers. If you are filing more than one amended return, be sure to send each return in a separately to the service center for the area in which you live.

How do I fill out the amended return Form 1040X ?

Form 1040X , Amended U.S. Individual Income Tax Return, is designed with three columns.

  • Column A is used to show the figures from the original return.
  • Column C is used to show the correct figures.
  • The difference between the figures in Columns A and C is shown in Column B.

While you turn around of the form you need to explain the explicit changes being made on the return and the reason for each of such change being made. If you are required to attach another schedule or form, because of such changes attach it to Form 1040X . Be sure to enter the year for which you are amending at the top of the form as required.

What do I need to send with the amended form?

You should send any schedules that have been changed or any Form W-2 (PDF) not included in your original return. You do not need to send a copy of your corrected Form 1040EZ (PDF), Form 1040A, or Form 1040 (PDF).

How long do I have to file an amended return?

Generally, Form 1040X (PDF), Amended U.S. Individual Income Tax Return, must be filed within three years of the due date of the original return or within 2 years of the date you paid the tax, whichever is later, if you want to claim a credit or refund.

There are exceptions to this rule. Please review the Instructions for Form 1040X (PDF) for the exceptions.

Will I have to pay any penalties when I file Form 1040X ?

If you owe tax, you can pay the tax with the Form 1040X (PDF) If the tax is not paid within 21 calendar days then you will be liable to pay late payment penalty from the date of the bill unless there is reasonable reason for the failure. If the original return was late, the amount due based on any additional tax on Form 1040X may be subject to the late filing penalty for the original return unless you have reasonable reason for the failure.

Can I send an amended tax return electronically?

No, an amended return must be filed on a paper Form 1040X (PDF), Amended U.S. Individual Income Tax Return, at the mailing address listed in the instructions of Form 1040X (PDF).

How to correct a mistake on federal e-file return?

Once accepted, you must allow the e-file return to process before making any changes. You cannot correct a mistake on a federal return which was filed electronically. You need to file an amended or corrected return using Form 1040X (PDF), Amended U.S. Individual Income Tax Return,

How long will it take to receive a refund check for an amended tax return?

Generally 12 weeks

Can you have an amended return refund deposited into a bank account?

No, you will receive a paper check.

How can I check the status of my amended return?

You will need to contact IRS assistance line at (800) 829-1040 to receive information on the processing of your amended return. It will generally take 8 to 12 weeks to process an amended return.

If I call the automated tax line or access "Where's my Refund" to check the status of a refund on an amended return, do I enter the total amount of my original refund, or only the amended amount?

You cannot check the status of a refund for an amended return on the automated tax line or by accessing "Where's my Refund". Amended/corrected returns are processed as quickly as possible...


Collection Procedural Questions

I am unable to pay my delinquent taxes. Will the IRS accept an Offer in Compromise?

You may be eligible for an Offer in Compromise if you are not capable to pay your taxes in full or if you are facing rigorous or abnormal economic hardship.

Is there any special assistance available on unresolved tax matters which are creating a hardship?

If you are suffering, or about to suffer a significant destitution because of the way Internal Revenue laws are being carried out, you may ask for special help from the IRS' Taxpayer Advocate Program. The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. You can reach that office by dialing (877) 777-4778.

I owe money this year. Who do I make the check out to?

When you pay by check or money order, make it out to the "United States Treasury." Please show your correct name, address, social security number, daytime telephone number, and the tax year and form number on the front of your check or money order.

Enclose your payment with your return, but do not attach it to the form. If you received Form 1040-V (PDF), Payment Voucher, use it to send your payment to the IRS. This will help to process your payment more accurately and efficiently.

You can also pay part or all of your tax by using a credit card (American Express Card®, Discover Card®, Master Card®, or Visa® card). Payments can be made by phone or Internet. There are two credit card processors (also referred to as service providers), which offer this service. Service providers charge you a convenience fee for the service.

References: IRS resources Credit Card Benefits and Features 

Can I make installment payments on the amount I owe?

Yes. If you cannot pay the full amount due as shown on your return, you can ask to make monthly installment payments. However, you will be charged a one time user fee of $43.00, as well as interest on any tax not paid by its due date, and you can be charged a late payment penalty unless you can show reasonable cause for not paying the tax by the due date (April 16, 2007 for individual income tax returns) even if you apply for to pay in installments is granted. Before requesting an installment agreement, you should think about less costly alternatives such as a bank loan.

To apply for an installment agreement send Form 9465 (PDF), Installment Agreement Request, with your return or call (800) 829-1040. You be supposed to receive a reply within 30 days.

References: FOR MORE DETAILS ON IT REFER TO

I finished my return and found that I owe the IRS money. What should I do?

You ought to file your return even if you can't pay the entire amount you owe. File by the due date of the tax return and pay as much as feasible. By filing on time, you avoid the late filing penalty. By paying as much of the amount you owe, you can reduce the amount of interest and late payments penalty that you will owe. If you are unable to pay the full amount of your balance, you can ask for an installment agreement to pay the amount due with Form 9465 (PDF) or calling (800) 829-1040. For more details on interest and penalties, refer to Tax Tax Topic 201, The Collection Process, or Publication 594 (PDF), what you should Know About the IRS Collection Process.

References:

What kind of penalties and interest I will be charged of for late paying and filing?

Interest, (compounded on daily basis), is charged on any unpaid tax from the due date of the return until the date of payment at the rate of the federal short-term rate plus 3 percent.

In addition, if you filed on time but didn't pay on time, you'll generally have to pay a late payment penalty of one-half of one percent of the tax owed for each month, or part of a month.

If you did not file on time and owe tax, you may owe an additional penalty for failure to file unless you can show reasonable cause. The combined penalty is 5 percent (4.5% late filing, 0.5% late payment) for each month, or part of a month, that your return was late, up to 25%.

References:

IRS Tax Tax Topic 653, IRS notices and bills and penalty and interest charges
IRS News Releases and Fact Sheets

I received an IRS bill for an amended return I filed. I am not able to pay the whole amount at this time. Will the IRS allow me to make monthly payments?

If you cannot pay the full amount due, you can ask to make monthly installment payments. You can be charged a fee for this arrangement. Penalties and interest will continue to accrue on the unpaid amount until the account balance is paid in full...

Filing Requirements/Status/Dependents/Exemptions

How much do I have to make before I have to file an income tax return?

If you are a bachelor dependent, you must file a tax return if your earned and/or unearned income exceeds certain limits. To find these limits refer to Filing Requirements for Dependents in IRS Publication 501, Exemption, Standard Deduction and Filing Information. Even if you do not have to file, you should file a federal income tax return to get your money back if any of the following apply:

You had income tax withheld from your pay.
You qualify for the earned income credit.
You qualify for the additional child tax credit.

For More information see IRS Tax Information for Students

This is the first year that I received retirement benefits. Does any of these benefits taxable?

If you receive retirement benefits in the form of pension or annuity payments, the amounts you receive may be fully taxable, or partly taxable in the year received. Refer to IRS Tax Tax Topic 410, Pensions and Annuities.

References:

Publication 575, Pension and Annuity Income.

I am divorced with one dependent child. This year my ex-spouse will claim the child as an exemption. Does this mean I cannot qualify as head of household?

You can file as head of household even though you do not claim your ‘’single’’ dependent child as an exemption if you meet all of the following requirements:

You are single or considered single on the last day of the year.
You paid more than half the cost of keeping up a home for the year.
A qualifying person must live with you in the home for more than half the year (except for temporary absences such as school).

Refer to IRS Publication 501, Exemptions, Standard Deduction, and Filing Information, for more information.

If the parents not at all married but live together with the child for the tax year, and both contribute to the cost of maintaining the household for the child and themselves, may they both file as head of household?

Only one taxpayer may claim the child as a qualifying child for purposes of filing as head of household. Also, a taxpayer filing as head of household must provide over half the cost of maintaining the household. Therefore, both parents may not file as head of household.

Social Security Benefits

I received social security benefits this year that were back pay for prior years. Do I need to re-file my returns for prior years? Are that benefits taxable in this year?

You must include the taxable part of a lump-sum payment of benefits received in the current year in your current year's income, even if the payment includes benefits for an earlier year.

References:

IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

I started receiving social security payments (RETIRED IN LAST YEAR). Do I have to pay taxes on my social security benefits?

To determine whether any of your benefits are taxable, evaluate the base amount of your filing status with the total of 1/2 of your social security payments plus all your income from other sources, including tax exempt interest.

The taxable amount of the benefits is figured on a worksheet in the IRS Form 1040 (PDF) or IRS Form 1040A instruction book, or in IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

References:

IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

Are social security survivor benefits for children considered taxable income?

The person who is legally receiving the benefits must determine whether the benefits are taxable. For example, if you and your child receive benefits, but the check for your child is made out in your name, you must use only your part of the benefits to see whether any benefits are taxable to you. One half of the part that belongs to your child must be added to your child's other income to see whether any of those benefits are taxable to the child.

References:

IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

Estimated Tax

Most of my income is from farming. Are there any special provisions related to estimated tax payments for farmers?

If you have income from farming, you may be liable for making estimated tax payments if not filing your return and paying the entire tax due on or before March 1 of the year your return is due. This rule applies if at least 2/3 of your total gross income is from farming during the tax year or previous tax year.

IRS Publication 505 , Tax Withholding and Estimated Taxes.

Do I have to file quarterly individual estimated tax payments?

Estimated tax payments can be used to pay Federal income tax, self-employment tax, and household employment tax. you need to calculate if the total tax you'll owe on your annual income tax return will be covered by the amount of tax you have already had either:

withheld from wages and other payments, or
paid in prior estimated payments for the year, or
Credited to your account due to overpayments from prior years returns

IRS Form 1040-ES (PDF), Estimated Tax for Individuals

You should make estimated tax payments if your tax is more, than an amount after withholding and credits, and the total amount of tax withheld and your credits will be less than the smaller of:

90% of the tax to be shown on your current tax return, or

100% of the tax shown on your prior year's tax return, if your prior year's tax return covered all 12 months of the year. However, if your prior year's adjusted gross income exceeded a certain amount based on your filing status, then you must pay 110% instead of 100% of last year's tax.

References: IRSPublication 505, Tax Withholding and Estimated Tax.

Do self-employment taxes need to be paid quarterly or yearly?

Self-employment tax is paid by making quarterly estimated tax payments which include both income tax and social security tax.

When are the quarterly estimated tax returns due?

Your first estimated tax payment is usually due the 15th of April. You may pay the entire year's estimated tax at that time, or you may pay your estimated tax in four payments.

April 15th, June 15th, September 15, and January 15th of the following year.

References: IRSPublication 505, Tax Withholding and Estimated Tax, Chapter.

How do I report the estimated payments I have made when I file my taxes at the end of the year?

Report all of your estimated tax payments in payment sections of your IRS Form 1040 (PDF), U.S. Individual Income Tax Return, or IRS Form 1040A, U.S. Individual Income Tax Return.

References:Publication 505, Tax Withholding and Estimated Tax.

What is the phrase "no tax liability" in the exceptions to the estimated tax penalty?

You had no tax liability if your total tax was zero or you did not have to file an income tax return.

Total tax. Your total tax on Form 1040 (PDF) is the amount listed on the line 76 labeled "amount owe"

On Form 1040A, it is line 47 labeled “amount owe”

On Form 1040EZ (PDF), it is line 13 amount labeled " amount owe

You do not have to pay estimated tax if you meet all three of the following conditions:

You had no tax liability for the prior year
You were a U.S. citizen or resident for the whole year
Your prior tax year covered a 12-month period.

Capital Gains, Losses: Property (Basis, Sale of Home, etc.)

What is the basis of property if you received such property as a gift? 

You need to verify the following things to know the basis of the property: 

Adjusted basis to the donor before it was given to you.
You need to know its fair market value (FMV) at the time it was given to you.
Whether any gift tax was paid.
What is your gain or loss on sale or disposition of property refer IRS.

References: IRS Publication 551, Basis of Assets.

I have investment property. Can you explain the term basis of assets?

Investment in property is the basis for tax purposes.

The difference between the selling price of your assets and your basis determines whether there is a taxable gain or loss on the disposition of your property.

Your basis will be more\less if any of the following apply to property

Improvements having a useful life of more than a year

Sales tax
The cost of extending utilities lines to the property
Depreciation
Legal fees such as the cost of defending or perfecting title
Casualty and theft losses
Easements
Assessments for local improvements
Rebates from the manufacturer or seller.

References: IRS Publication 551,Basis of Assets.

I sold my principal residence, which form do I need to file? 

If you meet the ownership and use tests, you will generally only need to report the sale of your home if your gain exceeds a certain dollar amount prescribed by law. To determine the amount of gain that can be excluded from income refer to IRS Publication 523, selling Your Home period ending on the date of the sale, you have:

You are required or choose to report a gain, it is reported on IRS Form 1040, Schedule D(PDF), Capital Gains and Losses.

Can I exclude the gain on sale of my old home this year as well as on sale of new home in future? 

You cannot exclude gain on the sale of your home if, during the 2-year period ending on the date of the sale, you sold another home at a gain and excluded all or part of that gain. If you cannot exclude the gain, you must include it in your income.

Exception: You still can claim exclusion, (up to max.limit as per IRS regulations) if the reason you sold the home was:

A change in place of employment Health,

References: IRS Publication 523, Selling Your Home.

How do you report the sale of a second residence? 

Your second home is considered a capital asset. Use Form 1040, Schedule D (PDF) to report sales, exchanges, and other dispositions of capital assets.

References:

Capital Gains, Losses: Stocks (Options, Splits, Traders)

How do I figure the cost basis of stock that has split, giving me more of the same stock, so I can figure my capital gain (or loss) on the sale of the stock?

When the old stock and the new stock are identical the basis of the old shares must be allocated to the old and new shares. Thus, you generally divide the adjusted basis of the old stock by the number of shares of old and new stock. The result is your new basis per share of stock. If the old shares were purchased in separate lots for differing amounts of money, the adjusted basis of the old stock must be allocated between the old and new stock on a lot by lot basis.

References: Publication 550, Investment Income and Expenses, Tax Tax Topic 409, Capital Gains and Losses.

How do I figure the cost basis when the stocks I'm selling were purchased at various times and at different prices?

If you can identify which shares of stock you sold, your basis is what you paid for the shares sold (plus sales commissions). If you sell a block of the same kind of stock, you can report all the shares sold at the same time as one sale, writing VARIOUS in the "date acquired" column of Form 1040, Schedule D(PDF). However, what you enter into the "cost or other basis" column is the total of all the acquisition costs of the shares sold.

If you cannot adequately identify the shares you sold and you bought the shares at various times for different prices, the basis of the stock sold is the basis of the shares you acquired first (first-in first-out). Except for certain mutual fund shares, you cannot use the average price per share to figure gain or loss on the sale of stock.

For more information, refer to Publication 550, Investment Income and Expenses.

References: Publication 525, Taxable and Nontaxable Income, Publication 550, Investment Income and Expenses, Tax Tax Topic 409, Capital Gains and Losses, Form 1040, Schedule D(PDF).

How do we show on our tax form where dividends are reinvested?

Some corporations allow investors to choose to use their dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. If you are a member of this type of plan, you must report the fair market value on the dividend payment date of the dividends that are reinvested as income on your tax return. You do not actually show that the dividends were reinvested on your return. Keep records of the dollar amount of the reinvested dividends, the number of additional shares purchased, and the purchase dates. You will need this information to establish your basis when you sell the shares.

Report the dividends that were reinvested with your other dividends, if any, on Form 1040 (PDF) or Form 1040A. If your total income from ordinary dividends exceeds a dollar amount set by law, you also must file either Form 1040, Schedule B (PDF) or Form 1040A, Schedule 1 (PDF).

For more information on this and other types of dividend reinvestment plans, refer to Ordinary Dividends in Chapter 1 of Publication 550, Investment Income and Expenses.

References:

Publication 550, Investment Income and Expenses, Form 1040, Schedule B (PDF) , Tax Topic 404, Dividends.

How do I compute the basis for stock I sold, when I received the stock over several years through a dividend reinvestment plan?

The basis of the stock you sold is the cost of the shares plus any adjustments, such as sales commissions. If you have not kept detailed records of your dividend reinvestments, you may be able to reconstruct those records with the help of public records from sources such as the media, your broker, or the company that issued the dividends.

If you cannot specifically identify which shares were sold, you must use the first-in first-out rule. This means that you deem that you sold the oldest shares first, then the next oldest, until you have accounted for the number of shares in the sale. In order to establish the basis of these shares, you need to have kept adequate documentation of all your purchases, including those that were made through the dividend reinvestment plan. You may not use an average cost basis. Only mutual fund shares may have an average cost basis.

Refer to Publication 550, Investment Income and Expenses, and Publication 551, Basis of Assets.

References: Publication 550, Investment Income and Expenses, Publication 551, Basis of Assets, Tax Topic 404, Dividends.

How do I report participation in an employee stock purchase plan on my tax return?

If you participated in an employee stock purchase plan, you do not include any amount in your gross income as a result of the grant or exercise of your option to purchase stock. When you sell the stock that you purchased by exercising the option, you may have to report compensation and capital gain or capital loss. For additional information on tax treatment and holding period requirements, refer to Publication 525, Taxable and Nontaxable Income.

References: Publication 525, Taxable and Nontaxable Income.

I purchased stock from my employer under an employee stock purchase plan. Now I have received a Form 1099-B from selling it. How do I report this?

If the special holding period requirements described below are met, the sale of stock is treated generally as capital gain or loss. However, you may have income reportable as wages on Form 1040 if:

The option price of the stock was below the stock's fair market value at the time the option was granted, or You did not meet either or both of the holding period requirement.

The holding period requirements are that you must hold the stock for more than 2 years from the time the option is granted to you and for more than 1 year from when the stock was transferred to you. If you do not meet either or both of these holding period requirements at the time you sell the stock, there is a disqualifying disposition of the stock. The compensation income wages that you should report in the year of the disqualifying disposition is the excess of the fair market value of the stock on the date the stock was transferred to you less the amount paid for the shares. Then increase your basis in the stock by the amount of the ordinary income before calculating your capital gain or loss.

If the holding period requirements are met, but the option exercise price is below the fair market value of the stock at the time the option was granted, you report the discount as compensation income (wages) when you sell the stock. Generally, this compensation income is the lesser of the excess of the fair market value of the stock on the date of the disposition less the exercise price OR the excess of the fair market value of the stock at the time the option was granted less the exercise price.

If the holding period requirements are met and your gain is more than the amount you report as compensation income, the remainder is a capital gain reported on Form 1040, Schedule D(PDF). If you sell the stock for less than the amount you paid for it, your loss is a capital loss, and you do not have ordinary income.

For more information, refer to Publication 525,Taxable and Nontaxable Income, and Publication 551,Basis of Assets.

References: Publication 525, Taxable and Nontaxable Income, Publication 551, Basis of Assets, Form 1040, Schedule D(PDF), Capital Gains and Losses.

Should I advise the IRS why amounts reported on Form 1099-B do not agree with my Schedule D for proceeds from short sales of stock not closed by the end of year?

If you are able to defer the reporting of gain or loss until the year the short sale closes, you will need to attach a statement to your Form 1040, Schedule D(PDF) explaining the details of your short sale and that it has not closed as of the end of the year. This will allow you to reconcile your Form 1099-B (PDF) to your Form 1040, Schedule D(PDF) and still not recognize the gain or loss from the short sale. Include your name as it appears on the return and your social security number.

For more on these rules and the rules for put options and wash sales refer to Chapter 4 of Publication 550, Investment Income and Expenses.

References: Publication 550, Investment Income and Expenses, Tax Tax Topic 409, Capital gains and losses.

Do I need to pay taxes on that portion of stock I gained as a result of a split?

No, you generally do not need to pay tax on the additional shares of stock you received due to the stock split. You will need to adjust basis per share of the stock. Your overall cost basis has not changed, but your per share cost has changed.

You will have to pay taxes if you have gain when you sell the stock. Gain is the amount of the proceeds from the sale, minus sales commissions, that exceeds the adjusted basis of the stock sold.

References: Publication 550, Investment Income and Expenses, Tax Tax Topic 409, Capital gains and losses.

Capital Gains, Losses: Mutual Funds (Costs, Distributions, etc.)

I have both purchased and sold shares in a money-market mutual fund. The fund is managed so the share price is constant. All gain is reported as dividends. Do I have to report the sale of these shares?

Yes, you report the sale of your shares on Form 1040, Schedule D (PDF),Capital Gains and Losses. Generally, whenever you sell, exchange, or otherwise dispose of a capital asset, you report it on Schedule D.

If the share price were constant, you would have neither a gain nor a loss when you sell shares because you are selling the shares for the same price you purchased them.

If you actually owned shares that were later sold, the fund or the broker should have issued a Form 1099-B. That form is issued without regard to whether there is a gain or loss on the sale. It reports a sale or exchange of an investment asset and sales proceeds.

References:Publication 564, Mutual Fund Distributions.

How do return of principal payments affect my cost basis when I sell mutual funds?

A return of principal (or return of capital) reduces your basis in your mutual fund shares. Unlike a dividend or a capital gain distribution, a return of capital is a return of part of your investment (cost). However, basis cannot be reduced below zero. Once your basis reaches zero, any return of principal is capital gain and must be reported on Form 1040 Schedule D (PDF), Capital Gains and Losses.

References:Publication 564, Mutual Fund Distributions.

How do I calculate the average basis for the sale of mutual fund shares?

In order to figure your gain or loss using an average basis, you must have acquired the shares at various times and prices and have left them on deposit in a managed account.

There are two average basis methods:

Single-category method, and Double-category method.

Single-category method
First, add up the cost of all the shares you own in the mutual fund. Divide that result by the total number of shares you own. This gives you your average per share. Multiply that number by the number of shares sold. You may have both short and long term gains or losses. Use the FIFO method to determine your holding period.

Double-category method.
First, divide your shares into two categories, long-term and short-term. Then use the steps above to get an average basis for each category. The average basis for that category is then the basis of each share in the sale from that category.

Once you elect to use an average basis method, you must continue to use it for all accounts in the same fund. You must clearly identify on your tax return the average basis method that you have elected to use. You do this identification by including "AVGB" in column (a) of Form 1040, Schedule D (PDF).

Refer to Publication 564,Mutual Fund Distributions.

References: Publication 564, Mutual Fund Distributions, Form 1040, Schedule DInstructions.

If I used an average basis method for shares of one mutual fund I sold, do I have to use it for all mutual funds I sell?

No, you may use a different method, as long as you have not used an average basis method for that fund previously. Once you have elected to use an average basis method to compute the gain or loss on shares in a mutual fund, you must use that same method for the sale of shares from any account in that same fund.

References: Publication 564, Mutual Fund Distributions.

How do I calculate the average cost method of a mutual fund if the fund price splits?

If your mutual fund splits, or adjusts its price, it is treated like a stock split. Your total basis doesn't change after the split, but since you now own more shares without paying any more money, your per-share basis will decrease. To calculate your per-share basis, divide the total cost that you have invested in the fund (minus any shares previously sold) by the current number of shares that you hold.

References: Publication 550,Investment Income and Expenses.

I received a 1099-DIV showing a capital gain. Why do I have to report capital gains from my mutual funds if I never sold any shares?

A mutual fund is a regulated investment company that pools funds of investors allowing them to take advantage of a diversity of investments and professional asset management. You own shares in the fund, but the fund owns assets such as shares of stock, corporate bonds, government obligations, etc. One of the ways the fund makes money for its investors is to sell these assets at a gain. If the asset was held by the mutual fund for more than one year, the nature of the income is capital gain, which gets passed on to you. These are called capital gain distributions, which are distinguished on Form 1099-DIV (PDF), from income that is from other profits, called ordinary dividends.

Capital gains distribution are taxed as long term capital gains regardless of how long you have owned the shares in the mutual fund. If your capital gains distribution is automatically reinvested, the reinvested amount is the basis of the additional shares purchased.

References: Publication 564, Mutual Fund Distributions.

Capital Gains, Losses: Losses (Homes, Stocks, Other Property

Is the loss on the sale of your home deductible?

The loss on the sale of a personal residence is a nondeductible personal loss.

References: Publication 523, Selling Your Home, Tax Tax Topic 409, Capital gains and losses.

I own stock which became worthless last year. Can I take a bad debt deduction on my tax return?

If you own securities, including stocks, and they become totally worthless, you can take a deduction for a loss, but not for a bad debt.

Worthless securities are treated as though they were capital assets sold on the last day of the tax year. Report this claim for loss from worthless securities on Form 1040, Schedule D(PDF), in Part 1 or 2 depending on whether you held the stock short term or long term, and write "Worthless" in the applicable column of Schedule D. Keep in mind that recordkeeping requirements for claims for a loss from worthless securities require that you keep your records for 7 years. For additional information, refer to Chapter 4 of Publication 550, Investment Income and Expenses (Including Capital Gains and Losses) and Publication 552, Recordkeeping for Individuals. For more information on bad debts, refer to Tax Topic 453, Bad Debt Deduction.

References: Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), Form 1040, Schedule D(PDF), Capital Gains and Losses.

Deductions: Standard and Itemized Deduction, etc.


Can I deduct the standard deduction on my tax return? 

The standard deduction is a fixed dollar amount that reduces the amount of income on which you pay tax on your tax return. The amount of the basic standard deduction depends upon your tax return filing status. However, if you can be claimed as a dependent on someone else’s tax return, your standard deduction amount may be different. In some cases, the standard deduction on your tax return can consist of two parts, the basic standard deduction, and an additional standard deduction amount for age, blindness, or both. 

If a person is born or dies before the end of his or her tax year, the tax year is considered to cover a 12-month period.

How much is my standard tax deduction?

If your filing
status is:
Your standard tax deduction is: If 65 or over AND/OR blind add for EACH
Single $5,150 $1,250
Married filing a joint tax return or Qualifying widow(er) with dependent child $10,300 $1,000
Married filing a separate tax return $5,150 $1,000
Head of Household $7,550 $1,250
Dependent Children The greater of $850 OR the amount of earned income, plus $300. Not to exceed $5,150 unless the dependent is blind. If blind add $1,250.

References: Publication 501, Exemptions and Standard Deduction , Publication 17, Your Federal Income Tax.

What is Additional Standard Deduction? How can I claim it?

You can claim your basic standard deduction as above. In addition to that you can also claim an additional standard deduction on the basis of your age & blindness and of your spouse.

For Example your filing status is Single & your age is above 65, then you can additional deduction of $1250. Similarly, if you are blind then also can claim an additional deduction of $1250. The amount of claiming for other filing status is explained in above table.

Can I take a tax write off for itemized deductions on my tax return? 

You deduct itemized deductions by listing on Form 1040, Schedule A all tax deductible amounts you paid during the tax year for certain items such as medical and dental expenses, state income tax, local income tax, real estate tax, state personal property tax, local personal property tax, home mortgage interest, and gifts to charity. These are called itemized deductions. 

In case of married filling separate returns, how we can split our itemized deductions?

If you and your spouse file separate returns and one of you itemize deductions, the other spouse should also itemize deductions because the other spouse will have a standard deduction of zero in that case

You may be able to claim itemized deductions on a separate return for certain expenses that you paid separately or jointly with your spouse...

References:IRS Publication 504, Divorced or Separated Individuals, IRS Publication 555, Community Property.

Can you give some more idea about the Itemized Deductions? 

You can deduct following types of itemized deductions form your taxable income.

Ø Itemized Deductions - Casualty and Theft losses

Usually you can only deduct on your tax return a casualty loss - one with a sudden, unexpected or unusual cause - in the tax year it occurs. And you're allowed to claim only the amount of the loss that exceeds 10% of your AGI after subtracting $100 for each casualty on your tax return.

Ø Itemized Deductions - Charitable Contributions

Normally, you can claim your full charitable contribution on Form 1040, Schedule A. If you got something back in exchange for your charitable contribution, however, you can deduct only the excess value of your gift on your tax return.

If you gave a charity appreciated stock last tax year, you get a double tax break. Not only do you avoid owing tax on the capital gain, you can generally deduct the current market value of the shares on your tax return.

A reminder: If you made a non cash charitable contribution last tax year of more than $5,000 - say, you donated a painting - you'll need a written appraisal of its fair market value, and the appraiser must sign the Form 8283 that you attach to your Form 1040. You may be able to write off the appraiser's fee as a miscellaneous itemized deduction on your tax return.

Ø Itemized Deductions - Interest

Interest is an amount you pay for the use of borrowed money. To deduct interest you paid on a debt on your tax return you must be legally liable for the debt and you must be able to use itemized deductions.

Ø Itemized Deductions - Medical and Dental Expense Expenses

The basic rule: You can deduct health costs on your tax return for yourself, your spouse and your dependents only when the un-reimbursed expenses exceed 7.5% of your AGI. Among the items that the IRS permits: birth-control pills, Lamaze classes for the mother-to-be, and lead paint removal. For an unusual health write off on your tax return, get a note from your doctor stating that the expense was medically necessary. One caveat: If you claim a home improvement for medical reasons, you can deduct expenses on your tax return only to the extent that they exceed any increase in the value of your property caused by the renovations.

For more information on Medical and Dental Expense itemized deductions click here.

Ø Itemized Deductions – Tax

Although you can deduct state personal property tax and local personal property tax, you can't claim fees or charges for personal property. The difference? Personal property tax is levied purely on the value of an item. So if your state charges you a flat fee or a size or weight based amount to register your car, that's not tax deductible on your tax return. But if you pay an amount based on your vehicle's value, it is tax deductible on your tax return.

Ø Itemized Deductions - Miscellaneous itemized deductions

There are many Miscellaneous itemized deductions.

References: IRS Publication 17, Your Federal Income Tax.

Is alimony paid to my former spouse tax deductible?

Alimony is an amount paid by a person to a spouse or former spouse under a divorce or separation agreement. Usually, these alimony payments provide support to a spouse or former spouse with whom you no longer live. Alimony does not include child support payments or property settlement amounts. Alimony paid is generally tax deductible from gross income on your tax return in the tax year it is paid, even if you do not itemize your tax deductions; but there are requirements and exceptions. Your spouse or former spouse must include alimony in his or her gross taxable income on his or her tax return in the tax year received. Different tax rules apply to alimony agreements entered into or modified at different times. 

If you are divorced or separated, you may be able to deduct the alimony or separate maintenance payments that you are required to make to your spouse or former spouse, or on behalf of that spouse, from your tax return. If the payments are tax deductible they are taxable on your former spouse's tax return.

Partial payments that include both alimony and child support are allocated first to non tax deductible child support.

You may state in your divorce decree that alimony is neither tax deductible nor taxable to your former spouse. The statement disqualifies the alimony payments from being tax deductible.

Use Line 31a of IRS tax Form 1040, to claim your tax deduction for alimony. Because alimony is tax deductible "above the line" you can claim the tax deduction even if you do not itemize your deductions. You are required to enter the Social Security number of your former spouse. If you don't your tax deduction can be disallowed and the IRS may require you to pay a $50 tax penalty.

Your former spouse should report any taxable alimony received on Line 11 of IRS tax Form 1040. You must furnish your former spouse with your Social Security number.

References: Publication 504, Divorced or Separated Individuals, Publication 17, Your Federal Income Tax.

Can I take a tax deduction for child support payments on my tax return?

No, you cannot deduct child support payments on your tax return. Child support payments are neither taxable to the recipient on the recipient's tax return, nor tax deductible by the payer on the payer's tax return. Additionally, any alimony payments that include an element of child support are not tax deductible on your tax return as to the child support element.

If tax-deductible alimony payments include an element of child support and partial payments are made the payments must be credited first to the non tax-deductible child support.

Can I take a tax deduction for a home office on my tax return?

You've got two ways to show the IRS that your home office qualifies for tax deductions on your tax return. You must show on your tax return that you use your home office exclusively and regularly as:

- Your "principal place of business"; or

- The place where you meet with patients, clients, or customers in the normal course of business.

 

Supported States

Supported States

Federal CA CO CT GA
IL MD MI NC NM NJ
NY OH PA SC VT
     

Authorized IRS E-file Provider

Checkout with PayPal - FAST, EASY and SECURE