2007 Late Tax Filing

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The additional child tax credit has expanded the income limits

By: Robert A. Johnson

In the last few years, there have been many families with children who received some important tax relief because of an increase of the Child Tax Credit. This is really a Reduction in the taxes that you pay and not simply a Deduction from your taxable income. For the 2007 tax return, the minimum earned income amount that is used to figure the additional child tax credit has been raised to $11,750.

Child Tax Credit

The Working Families Tax Relief Act was passed by Congress in 2004. It kept the Child Tax Credit at $1,000 for each qualifying child through the year 2010. You must stay within the income thresholds of your filing status. You must use Tax Form 8812, the Additional Child Tax Credit, in order to figure out your additional credit.

Claiming the Child Tax Credit

In order to claim this credit, you must use the 1040 or 1040A tax forms ONLY. This credit is limited if your MAGI is above a specific amount. The amount will vary depending upon your filing status.

• Married filing separately - $55,000

• Married filing jointly - $110,000

• All others - $75,000

Additionally, the Child Tax Credit is usually limited by the amount of income tax that you owe as well as owing any alternative minimum tax.

If the amount on your 2007 tax form for your Child Tax Credit is more that the specified amount of income tax that you owe, you may be eligible to claim some if not all of the difference as an “Additional” Child Tax Credit. This may give you a refund even if you don’t owe any tax. On your 2007 tax form, the total amount of both the Child Tax Credit as well as any Additional Child Tax Credit is not able to exceed the maximum of $1,000 for each child that qualifies.

Claiming the additional child tax credit

In order to claim this credit, follow the steps below:

1. Make sure that you have figured the amount of your child tax credit, if any.

2. If the answer was “Yes” on lines 4 or 5 on the Child Tax Credit Worksheet in Form 1040, 1040A or 1040NR instructions use form 8812 to see if you qualify for the additional child tax credit.

3. If you have put an additional child tax credit on line 13 of Tax form 8812, then carry that figure to Form 1040 – line 68; 1040A – line 41; or Form 1040NR – line 62.

Late 2007 tax return filers will face penalties

By: Robert A. Johnson

Chances are if you still have not filed your 2007 tax return, you are going to face some penalties. Even in a case where you have filed an extension you should be aware that you could still be assessed penalties on any taxes owed. The deadline each year is the same, April 15th, except when it falls on a weekend and in that case, the tax filing deadline will be the following business day.

Returns.

The tax code allows you three years to file a tax return if you either do not owe taxes or are due a refund. After three years, you forfeit all rights to any prior year tax refund money owed to you. On the other hand, if you owe the IRS they can go back as far as six years of prior tax returns and under special circumstances, with internal approval, even further.

Penalties

If you are to be penalized you will probably fall into one of these three categories.

1) You have filed your 2007 tax return on time but could not for whatever reason pay all of the tax you owed.- In this situation you will be charged a .5% penalty of the remaining tax due for each month that it goes without being paid. This can increase to 1% of the tax due if the tax remains unpaid after several attempts to collect. If you can show, justification for not paying, the penalty may be avoided.

2) You have a late tax return - If you go past the deadline and file a late tax return, when you owe tax, then you can be charged a late file penalty. Like the above, if you can show just cause, it may be avoided. However if not this is the stiffest of penalties at 5% of the tax you owe for each month it goes past due. This is a 4.5% late file penalty coupled with the .5% late fees. The longer this continues, the more it will cost you as the late fee continues to accrue and at five months, you can owe as much as 47.5%! (4.5% * 5 months + 25% late fee) An important side note: The minimum penalty once you pass the 60-day mark is the smaller of $100 or 100% of the tax owed.

3) You have filed an installment plan for your 2007 return - Even with an installment plan you will be assessed late fees. If you file your return on time and then filed an installment agreement, which the IRS accepted you would then be charged a .25% late fee for every month that you are past due; this is instead of the .5% on a typical late return.

4) No matter which of the above categories you may find yourself you will also have to pay interest on the federal taxes owed. This is generally the federal rate plus 3%. This interest is refigured every three months and compounds daily. The moral of this story is to file on time and pay as much as humanly possible if you owe any taxes. There are many ways to file your taxes each year, CPA, tax preparation companies and online. Be proactive, get your current returns in on time, and file any prior year’s tax returns as soon as you can. If you wait, too long the IRS can file a return for you based on the income information they have on file for you. When this happens, you can rest assured that the IRS will not give you any preferential filing status or deductions.

Don’t lose your rebate check or stimulus check

By: Robert A. Johnson

President Bush signed the 2007 economic stimulus package, what does that mean for you? For starters it could mean a tax-free check for you to spend anyway you see fit. The estimates are the minimum check will be three hundred for single person and twelve hundred for couples. With an additional three hundred dollars possible for each eligible child. “Great,” you may be thinking, “where do I sign up?” Well, you don’t, at least not exactly.

How to Get Your Stimulus

The only way to receive your 2008 economic stimulus check is to file a 2007 tax return. For most people that will not be a problem, if you work at all in this country you should make enough that you are required to file a tax return each year. However, there are a few folks who slip through the cracks on this one and need to be aware of what they should do.

Social Security

If you draw social security, you could still qualify for the 2008 stimulus check. What you will need to do is either go into the office of a local tax preparation office or, if you are internet savvy, go online to the IRS website and view the list of providers offering free tax filing for people whose income falls below $54,000 a year. If you are going into the office, take with you the 1099 the Social Security Department sends out each year showing how much you drew. One important note; some people receive supplemental security income or SSI, this is not eligible income for rebate check purposes.

Low Income

The federal guidelines say that if you make less than $8,750 per year for singles and $11,250 you do not have to file a tax return. Well for the economic stimulus check, you had to make at least $3,000. That means if you previously fell in one of the first two categories you more than likely did not file. So in order to receive your check you are going to need to file before a 2007 income tax return before October 15th deadline. Update, if you still have not filed a tax return you will be able to file a late return in January and still receive an economic stimulus check if you are eligible.

Income Tax Return

Many may be concerned that by filling out a tax return they will have to pay taxes normally not assessed to them. This is not the case the only reason you must file one is to assess your eligibility for the stimulus check and determine exactly how much it will be.

EIC is here to stay

By: Robert A. Johnson

EIC (Earn Income Credit) is here to stay.

The earned income credit is for the low to moderate income individual or couple. This is a credit you can take to reduce or eliminate the amount of tax you owe. In some cases, it also provides a healthier return. Unlike some other credits you can receive on your tax return, this is one of the few that is refundable. In other words if you have very little or no tax to reduce you will receive the balance of the EIC on your federal return.

Income Qualifications

To qualify for the earned income credit you must have either children or an income that falls below a certain level. For instance, a single person with an income of under $12,590 they can receive up to $428. This of course will be calculated according to their exact income on the basis of income times 7.65% for incomes up to $6,999 when the credit begins to phase out.

For families with children the qualifications become more complex. Below is a sample break down of the maximum benefit:

- One qualifying child will equal $2,853
- Two qualifying children equals $4,716
- No children $428

Now keep in mind these are the maximum benefit amounts and will be affected by your gross income. These numbers are up from the previous year by anywhere from one thousand to two thousand dollars of earned income. It is prudent to double-check your 2007 tax return for any errors that may have occurred. Alternatively, if you are filing late you need to know all the possible deductions and credit changes that were made for the 2007 tax filing year.

Qualifying Child

To get the maximum EIC that you are entitled to you need to also be aware of what constitutes a qualifying child. There are situations where this can be complicated as in the case of an aunt or uncle claiming a niece or nephew. However the federal guidelines are:

1. - Age- According to the IRS website under age 19 at the end of 2007, A full-time student under age 24 at the end of 2007, or permanently and totally disabled at any time during 2007, regardless of age.

2. Relationship- A child may be your daughter, son, stepdaughter, stepson, grandchild, great-grandchild, sister, brother, stepsister, stepbrother, half sister, half brother, niece, nephew, great niece, great nephew or any descendant of the above listed. In some cases, foster children and adoptive children are also qualifying children, provided they are placed with you by a court.

3. Residence- Your child of course must be a resident of the United States except for temporary absences due to school, jail, hospital or other stays outside the country that are considered to be temporary, case in point military service.

This is a break down of the main components of claiming the EIC credit for the 2007 tax year. There are other special instances that may fall outside these qualifications. Always check for the most current updates when filing current or prior year’s tax returns.