Four Tips about Tip Income

If you make your living at least partly by tips, be aware of these tips about tip income:

1. Tips are taxable. Tips are subject to federal income, Social Security and Medicare taxes. The value of non-cash tips, such as tickets, passes or other items of value, is also income and subject to tax.
2. Include tips on your tax return. You must include in gross income all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.
3. Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all of your tips to your employer. Your employer is required to withhold federal income, Social Security and Medicare taxes.
4. Keep a running daily log of your tip income. You can use IRS Publication 1244, Employee's Daily Record of Tips and Report to Employer, to record your tip income.

For more information see IRS Publication 531, Reporting Tip Income.

Eight Facts About Filing Status

If your marriage status changes during the year, it can confuse the issue of which filing status to use on your return. Here are eight facts about the five filing status options to help you choose the best option for your situation.

1. Your marital status on the last day of the year determines your marital status for the entire year.
2. If more than one filing status applies to you, choose the one that gives you the lowest tax obligation.
3. Single filing status generally applies to anyone who is unmarried, divorced or legally separated according to state law.
4. A married couple may file a joint return together. The couple's filing status would be Married Filing Jointly.
5. If your spouse died during the year and you did not remarry during 2011, usually you may still file a joint return with that spouse for the year of death.
6. A married couple may elect to file their returns separately. Each person's filing status would generally be Married Filing Separately.
7. Head of Household generally applies to taxpayers who are unmarried. You must also have paid more than half the cost of maintaining a home for you and a qualifying person to qualify for this filing status.
8. You may be able to choose Qualifying Widow(er) with Dependent Child as your filing status if your spouse died during 2009 or 2010, you have a dependent child and you meet certain other conditions. There's much more information about determining your filing status in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

Need More Time to File? Facts about Amended Returns

Taxpayers who need to change a return they already filed can file an amended return. Here are some tips every taxpayer should know about amending a federal return:

• To amend a return, use Form 1040X, Amended U.S. Individual Income Tax Return. The same form is used for 1040, 1040A and 1040EZ returns, and for e-filed returns.
• You should file an amended return if any of the following were reported incorrectly: filing status, dependents, total income, deductions or credits.
• You usually do not need to file an amended return for math errors - the IRS will make the correction for you. You also do not usually need to file an amended return because you forgot to include forms, such as W-2s or schedules - the IRS normally requests those forms from you.
• Be sure to enter the year of the return you are amending at the top of Form 1040X. Generally, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
• If you are amending more than one tax return, prepare a 1040X for each return and mail them in separate envelopes.
• If the changes involve another schedule or form, attach it to the 1040X.
• If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X. You may cash that check while waiting for any additional refund.
• If you owe additional tax for the year, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges. Interest is charged on any tax not paid by the due date of the original return, even if you filed an extension.

Explore Your Payment Options

If you cannot pay the tax you owe in full by April 15, you should still file your return on time and pay as much as you can to avoid penalties and interest. There are also other payment options to consider:

• Additional time to pay - Depending on your circumstances, the IRS sometimes allows a brief additional amount of time to pay. Request this through the Online Payment Agreement (OPA) application at IRS.gov or call 800.829.1040. If you get an additional 30 to 120 days to pay the tax, you'll usually pay less penalty and interest than if you paid by installment agreement over a longer period.
• Installment agreement - You can apply for an IRS installment agreement using the OPA application on IRS.gov. This is for taxpayers who owe $25,000 or less in combined tax, penalties and interest. You can find out immediately if you're approved. The OPA option gives you a simple and convenient way to set up an installment agreement, eliminates the need for personal interaction with IRS, and reduces paper processing.

Things You Need to Know about Tax Refunds

Are you expecting a tax refund from the IRS this year? Here are the top 10 things you should know about your refund:

1. Refund options - You have two options for receiving your federal refund: a paper check or a direct deposit.
2. Separate accounts - You may use Form 8888, Direct Deposit of Refund to More Than One Account, to have your refund split among up to three separate accounts, such as checking or savings or retirement accounts.
3. Paper return processing time - If your return is complete and accurate, your refund will usually be issued within six weeks from the date the IRS receives it.
4. E-filed returns - If you file electronically, your refund will normally be issued within three weeks after the acknowledgment date.
5. Check status online - The fastest and easiest way to find out about your refund is to go to IRS.gov and click on the "Where's My Refund?" link on the home page. You will need your Social Security number, filing status and the exact amount of your refund.
6. Check status by phone - Call the IRS Refund Hotline at 800-829-1954. You will need to your Social Security number, your filing status and the exact amount of your refund.
7. Delayed refund - For things that may delay the processing of your return, read about common tax return errors.
8. Larger than expected refund - Do not cash the check until you receive a notice explaining the difference. Follow the instructions on the notice.
9. Smaller than expected refund - If this happens you may cash the check. If the IRS determines that you should have received more, it will later send the difference. If you did not receive a notice and you have questions about the amount of your refund, wait two weeks and then call 800-829-1040.
10. Missing refund - The IRS will send you a replacement check for a refund check that is lost or stolen. If the IRS was unable to deliver your refund because you moved, you can change your address online. Once your address has been changed, the IRS can reissue the undelivered check. For more information, visit IRS.gov or call 800-829-1040.

What to do if you're Missing a W-2

If you haven't received a Form W-2 from your employer by January 31, you should take these steps:

1. Ask your employer if and when the W-2 was mailed. If it was mailed, it may have been returned because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for the W-2 to be resent.
2. If you do not receive your W-2 by February 14, call the IRS at 800-829-1040 for help. When you call, you'll need to provide personal information to identify yourself, as well an estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2011. This should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.
3. You still must file your tax return or request an extension to file by April 17, 2012, even if you do not receive your Form W-2. If you have not received your Form W-2 by the due date, and 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 income and withholding taxes as accurately as possible. Any refund may be delayed while the information is verified.
4. 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, Instructions).

10 Facts About Mortgage Debt Forgiveness

10 Facts About Mortgage Debt Forgiveness

Canceled debt is normally taxable to you, but there are exceptions. One of those exceptions is when the debt is partly or entirely forgiven during 2007 through 2012. Here are 10 facts about mortgage debt forgiveness:

1. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence.
2. The limit is $1 million for a married person filing a separate return.
3. You may exclude debt reduced through mortgage restructuring, as well as mortgage debt forgiven in a foreclosure.
4. To qualify, the debt must have been used to buy, build or substantially improve your principal residence and be secured by that residence.
5. Refinanced debt proceeds used for substantially improving your principal residence also qualify for the exclusion.
6. Proceeds of refinanced debt used for other purposes - for example, to pay off credit card debt - do not qualify for the exclusion.
7. If you qualify, claim the special exclusion by filling out Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and attach it to your federal income tax return for the tax year in which the qualified debt was forgiven.
8. Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the tax relief provision. In some cases, however, other tax relief provisions - such as insolvency - may be applicable. IRS Form 982 provides more details about these provisions.
9. If your debt is reduced or eliminated you normally will receive a year-end statement, Form 1099-C, Cancellation of Debt, from your lender. By law, this form must show the amount of debt forgiven and the fair market value of any property foreclosed.
10. Examine the Form 1099-C carefully. Notify the lender immediately if any of the information shown is incorrect. You should pay particular attention to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7.

For more information, see IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. The IRS website also has an Interactive Tax Assistant that you can use to determine if your cancelled debt is taxable.