Preparing your IRS tax returns can be an expensive and troubling project without some sort of guide lines to follow, or an expert tax consulting service to help guide you through the annual, meticulous, process of preparing for your IRS tax return filings. As if this ever changing world was not difficult and confusing enough, Washington in the form of The Congress has reinstated, changed and added several important tax laws that should not go unnoticed or unmentioned for taxpayers of every walk in life. One of these popular reinstated tax breaks is directed towards the middle class, including a deduction of up to $4,000 for higher education tuition and fees. The provision, which expired at the end of 2005, was designed to help taxpayers whose incomes put them beyond the reach of the moderate and lower income families.

Lawmakers reinstated a deduction for state and local sales taxes that primarily benefits people living in states without an income tax. Also restored was a deduction of up to $250 for teachers’ expenses. Congress also took something away from family pocketbooks last year, raising the age at which teens are subject to the new “kiddie” tax a phrase coined by politicizations, which is the tax on the child’s investment income that must be figured at the parent’s top rate, instead of the child’s generally lower rate. Before, only those under 14 years old were subject to the higher tax, now those under 18 years of age are included. That change may consume earnings on certain college funds or saving programs started before the taxpayer friendly #529 college plans became widely available.

There’s a bit of bad news for charity chasers and pack rats. This means taking a tax deduction for donating the depleting and deteriorating junk in your attic or basement and then giving it to charity. This will be harder to prove now under the changed laws. Household goods and clothing donated after Aug. 17, 2006, must be in “very good used condition” at the least to qualify. The deduction is available to taxpayers who itemize their tax returns and must have adequate documentation and reliable receipts.

What You Will Need:

Use a checklist as a simple reminder during this busy time of the year. Gather the most common records you will need in preparing for your 2006 tax return, whether you use a popular tax software, a professional tax preparer, or a paper tax return done through traditional mail.

• A Copy of 2005 tax return.
• W-2s from all employers.
• Identifying documents, such as a Social Security card or a driver license.
• Forms 1099, 1099-DIV, 1099-R and 1099-G showing dividends and interest paid to you in 2006 as well as any refund, credit, or off set of state and local taxes.
• Receipts indicating state and local taxes, real estate taxes and personal property taxes.
• Form 1098 for home mortgage interest and points.
• Receipts and documentation for charitable contributions and gifts for cash and non cash.
• Income receipts from any rental real estate, royalties, partnerships, S corporations and all if any taxable trusts and funded accounts.
• Records of unemployment compensation, Social Security benefits or other income.
• Records of medical and dental expenses if you think you can meet the 7.5 percent adjusted gross income threshold required for this deduction.
• Documentation of casualty and theft losses.

Note: Remember to keep a copy of your tax return and supporting documents for at least three years from the date you file the tax return.

Telephone users, energy saving homeowners and parents of older teens should pay special attention at tax time this year. Many changes affecting your 2006 tax returns are aimed specifically at you. Even if you do not have to file a 2006 tax return, you can get a refund on certain telephone taxes. You can claim a standard refund of $30 to $60 depending on the number of exemptions checked on your tax return, or the actual excise taxes paid for sevices billed from March 1, 2003, to July 31, 2006, if you have phone bills documenting the tax withholdings. Most taxpayers can claim a one time refund on federal excise taxes for long distance telephone service, whether for a land line, cell phone or Voice Over Internet Protocol.

The government stopped collecting the 3 percent tax since July 2006 after businesses repeatedly fought the tax law and won their cases. You do not have to itemize deductions to claim this refund. Even if you aren’t required to file a tax return, perhaps your income was too low, you still can get the refund. There is a new form for this filing. Request a 1040 EZ-T for this purpose when filing your 2006 returns.

People who purchased hybrid or other alternative fuel vehicles can take a credit, though it’s reduced if the manufacturer has sold 60,000 or more such vehicles. A list of vehicles and their credits is on the Internal Revenue Service Web Site at www.irs.gov.

Important Facts For Filing 2006 Tax Returns:

• The filing deadline is April 17, 2007. The usual deadline April 15 is on a Sunday, and the next day is Emancipation Day in the District of Columbia, a new legal city holiday in DC.
• Filing Extensions is an automatic six month extension to October 15, as long as Form 4868 is filed by the April 17 deadline.
• To check refund status, go the IRS Web site and click on the “Where’s My Refund ?” link on the left side. When prompted, enter your Social Security number. Filing status and exact amount of the refund can be found there. Or call 800-829-1954.
• IRS Forms and Publications can be located and downloaded at the IRS website at
  ris.gov
  by going to “Forms and Publications”, or by calling the refund hotline at 800-829-3676.
• For taxpayers who itemize, there are stricter rules for charitable deduction of household goods. Items donated after August 17, 2006, must be in “good used condition or better” to qualify.
• Inflation related increases for all who qualify under personal and dependent exemptions, standard deductions, thresholds at which certain tax benefits begin to phase out, maximum income for claiming earned income credit, slight increase in income threshold for phase out of deduction for IRA contributions by joint filers already covered by a retirement plan at work.
• Age at which teens are subject to the “kiddie” tax on investment income is raised to under 18 years old; it had been for kids under the age of 14 years old.
• Telephone tax rebate is where taxpayers can claim a standard refund of $30 to $60, depending on the number of exemptions checked on the tax return (If you have records of actual taxes paid for service billed between March 2003 and July 2006, you may claim that amount; file using Form 8913.) Even if you aren’t required to file a tax return, perhaps your income was too low, you can still get the refund; file using Form 1040 EZ-T.
• Extended tax breaks of several popular tax breaks that expired at the end of 2005 were restored by Congress in its final days last year. Among them are a deduction of up to $4,000 for qualifying higher education tuition and fees, and a deduction of up to $250 for teachers who pay for school supplies with their own money. Also extended was the deduction for stat and local sales taxes, which primarily benefits people living in states where there is now state income tax.
• Energy credits are available for certain energy saving home improvements and for hybrid and alternative fuel using vehicles.
• The IRS free e-filing alliance with tax software companies allows taxpayers with incomes of $52,000 or less to prepare and file returns online for free if they access the program through the IRS site, www.irs.gov.
• For the first time, the IRS will split a taxpayer’s refund into three different financial accounts, such as checking, savings and retirement accounts if asked; file Form 8888.
• Refunds should take no more than two weeks to receive from a tax return filed electronically and no more than eight weeks on a paper filed return, this is for taxpayers that are receiving a paper check from the government.
• Online tax help can be found at www.irs.gov and has links to every tax topic. There are tools for calculating withholdings and earned income credit, along with interactive history lessons, games and “Tax Trivia.”

There is a new tax angle afecting taxpayers who’ve hit the age 70 1/2, the age at which required minimum withdrawls from IRAs begin. They now can make a direct transfer of funds up to $100,000 from the IRA to a qualifying charity. The amount of that transfer of funds is excluded from taxable income. Though this may benefit primarily wealthy taxpayers who don’t need the money, it also is a way for the less well off to avoid paying incomes taxes on their required IRA withdrawals and to put the money charitable use.

In another IRA related change, military personnel who received nontaxable combat pay in 2006 can include that a earned income when figuring IRA contributions. That gives them a higher IRA contribution, and if they put money into a traditional IRA, it also may mean a higher tax deduction. Contributions to Roth IRAs aren’t tax deductible, though they have tax benefits later on.

To incorporate the changes, the IRS says that some lines on the form essentially will do double duty: For example, line 5 of the Schedule A itemized deductions form is for state and local income taxes, but taxpayers who choose to deduct state sales taxes instead will enter that figure there. The IRS says it will send updated instructions to taxpayers who are mailed tax packets. But with electronic tax preparation and filing skyrocketing, not many people receive such packets. All forms and instructions are posted on the IRS Web site at www.irs.gov.

Where To Go For Help:

Note: Many taxpayers can get free help from IRS sponsored programs at community centers, libraries, schools shopping malls and other sites during the filing season. The IRS itself provides free tax help in several ways. Here’s a rundown:

• VITA: The IRS Volunteer Income Tax Assistance program offers help to taxpayers with incomes of $39,000 or less. To find a VITA site near you, call 800-829-1040.
• TCE: Tax Counseling for the Elderly helps people age 60 and older, many of the volunteer counselors come from the AARP’s Tax Aide program. To find one near you, call 888-227-7669, or visit www.aarp.org/money/taxaide.
• Military Personnel: Military service members and spouses can get help here and abroad through a program overseen by the Armed Forces Tax Council. The IRS provides tax software and tax preperation training. For more information, see IRS Publication 3, “Armed Forces’ Tax Guide,” available at www.irs.gov, or order a free copy by calling 800-829-3676.
• The IRS Web site:
  irs.gov
  , has information on any tax topic, publication, instructions or forms. You can research tax question, order forms and publications, view IRS bulletins and use interactive tools for making certain the correct calculations.
• Phone assistance: The IRS has several toll-free numbers to call for tax help. For individuals, call 800-829-1040; for businesses, call 8008294933. People with hearing impairments, call 800-829-4059.
• IRS Taxpayer Assistance Centers: Here help is provided in person at walk-in-sites. Go to www.irs.gov/localcontacts and click on your state to view the centers there. To find the site nearest you, you can also enter your five-digit zip code in the “Walk-In-Site” search box.
• Taxpayer Advocate: This independent office within the IRS doesn’t help you file your tax return, but it does help with unresolved tax issues or problems with the IRS. Call the Taxpayer Advocate toll-free at 877-777-4778

Audits of taxpayers with incomes above $100,000 were up 18 percent from 2005, the highest figure in more than a decade. Audits of certain businesses especially “S” corporations and partnerships, increased by 34 percent, though audits of larger corporations with assets over $10 million were slightly down. The overall audits of individual taxpayers were up by 6 percent in 2006; 1.3 million individual returns were audited, for an average individual the audit risk was about 1 in 100 filings.

About 1 in 16 taxpayers with an income of $1 million and higher were audited last year a 33 percent increase from the previous year. Taxpayers do have the right to appeal IRS findings and, if the dispute can’t be settled, can take their cases to the Taxpayer Advocate Service, which is part of the IRS, but operates independently and will help taxpayers resolve problems. The IRS will also work out payment plans for those who owe unpaid taxes, interest or penalties. The Congress set three years as the deadline, or statute of limitations, during which the IRS can go back and make additional tax assessments. That time can be extended if the IRS suspects serious underreporting of income. There is no statute of limitations for failure to file a return or when tax fraud is suspected. The IRS reported it had a conviction rate last year of 91.5 percent

Note: Not every audit means a “field” audit, a face-to-face meeting with an IRS agent. Some are correspondence audits which is essentially is a letter from the IRS to clear up discrepancies or apparent inaccuracies.