I lost my home. Now I received a 1099 from my mortgage lender

People who lose their homes in foreclosure, abandon them or give them back to their lenders will receive a Form 1099-C Cancellation of Debt because the lender has forgiven a portion of the debt.

The forgiven amount is the difference between the amount owed on the mortgage and the value of the home. Prior to 2007, consumers had to pay federal taxes on the forgiven amount.

Loss of rental income

Landlords from time to time have to deal with problem tenants. In some instances, a tenant moves out without paying rent.

Although the landlord cannot deduct any loss of rental income, he or she is able to deduct expenses for managing, conserving, or maintaining the property while the property is available for rent even if the tenant has moved out.

Taxpayers who own and actively participate in a rental real estate activity may offset up to $25,000 of against. Generally, a taxpayer actively participates if he makes significant and bona fide management decisions, such as approving new tenants, deciding rental terms, and approving capital expenditures. To qualify, a taxpayer must also own at least 10 percent by value of all interests in the property.

The $25,000 offset amount is reduced by 50 percent of the amount that a taxpayer's adjusted gross income is more than $100,000.

If this active participation rule is not met, then such expenses may only be deducted with future rental income.

Self-Employment Income this year? Here's how to report it.

Schedule C is the form to use when reporting Self-Employment and business income.

All income pertaining to the business is reported. Expenses are subtracted from income to determine if there is a gain (profit) or loss. The net profit or loss is entered on line 12 of Form 1040. If a taxpayer owns and operates more than one business activity, file a separate Schedule C for each business. Combine the profits and losses on Form 1040 line 12 if there is more than one Schedule C.

If net earnings from self-employment are $400 or more, the taxpayer must file an income tax return. If net earnings from are less than $400, the taxpayer may still have to file a return and would still report the net earnings.

You can't do this on your tax return

Here are ten no-no's on your return.

1. Claim head of household filing status when you're married
2. Claim Earned Income Credit for a child that doesn't live with you
3. Claim an exemption for a child that doesn't live with you and you don't have permission from the custodial parent.
4. Claim the standard deduction when your spouse doesn't
5. Claiming deductions for a hobby
6. Claim an exemption for your pets
7. Fail to file a tax return and claim the "taxation without representation"
8. Deducting your home office when your employer provides a work station for you
9. Deducting commuting expenses
10. Deducting depreciation expenses on a vehicle you lease

In addition to the common tax return mistakes written previously, here are 11 more deductions you can't write off .

Need a Tax Form?

The Internal Revenue Service (IRS) no longer mails booklets to taxpayers. Even the post office and local libraries are no longer supplying tax forms. Here is your one stop spot for tax forms, instructions, schedules, worksheets, W-2 and 1099 examples, planning forms, publications and tables.

FORMS
Form 1040
Form 1040 Instructions
Form 1040A
Form 1040A Instructions
Form 1040EZ
Form 1040EZ Instructions
Form 1040ES Estimated Tax for Individuals
Form 1040V Payment Voucher
Form 1040X Amended U.S. Individual Income Tax Return
Form 1040X Instructions

Debunking Frivolous Tax Arguments

Many have tried and the Internal Revenue Service (IRS) has issued a response to the most common frivolous arguments made by individuals and groups that oppose compliance with federal tax laws.

The IRS publishes a long list of arguments it warns have already been deemed frivolous including contentions that taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment; that the only "employees" subject to federal income tax are employees of the federal government; and that only foreign-source income is taxable.

Penalties jumped from $500 per offense to $5,000 in 2006. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

Are you really self-employed?

Many businesses mislabel their employees as "self-employed independent contractors" to get Social Security, Medicare, Unemployment, and income tax relief. Generally:

• an employee is anyone who performs services if the employer can control what will be done and how it will be done.
• a person is an independent contractor if the employer/supervisor has the right to control or direct only the result of the work and not the means and methods of accomplishing the result.

If you think your employer should treat you as an employee instead of a contractor, file a Form SS-8. If the IRS agrees, they will send to you a determination letter stating you are an employee of that organization. You can then report your wages on Form 8919 and you will only be responsible for your share of Social Security and Medicare taxes. The wages are carried over to line 7 of Form 1040 and the Social Security and Medicare taxes are reported on line 57 of Form 1040.

The IRS has general guidelines for more information.

Paying money to your ex? There is tax relief.

Generally, alimony you pay is deductible (even if you don't itemize) while alimony you receive is taxable income. Alimony received is considered earned income for purposes of contributing to an Individual Retirement Arrangement (IRA).

Report alimony received on Form 1040 line 11 and alimony payments can be deducted on Form 1040 line 31a. Income taxes are not withheld from alimony payments - you may need to make estimated tax payments or increase the amount withheld from your paycheck.

Child support payments are NOT alimony – these payments received are not taxable income and child support payments paid are not deductible.

For more information, review IRS Publication 504.

When is my State tax return due?

By now most of you have heard that the IRS extended the 2010 federal income tax filing deadline to April 18, 2011 because Emancipation Day, a District of Columbia holiday, falls on Friday, April 15. In addition, taxpayers requesting an extension have until Oct. 17 to file their 2010 tax returns due to October 15 falling on a Saturday.

As far as State tax returns, the timetable is the same for most states with a few exceptions:

• Delaware, due date is May 2. Normally, April 30 but this year falls on a Saturday.
• Hawaii, due date is April 20.
• Iowa, same as Delaware
• Louisiana, due date is May 16. Normally, May 15 but this year falls on a Sunday.
• Virginia, due date is May 2. Normally, May 1 but this year falls on a Sunday.

Therefore, most states including Ohio the due date is April 18. In addition, for those who live in Ohio cities where the Regional Income Tax Agency collects local taxes, the due date is April 18, 2011.

Received my income tax refund - Now what?

Congratulations on receiving your refund. Now it's time to get your financial house in order. Below are some priorities:

$10,000 reserve fund - You've heard this one many times. Few taxpayers have an adequate emergency fund that could be used for living expenses in the event of a major crisis, like job loss. Having three to six months in a reserve fund is recommended. With $10,000 at least it's a starting point.

Credit Card Debit - Now that the new credit card rules are in place, it's imperative that your credit card debt be managed. A credit card charging 18% interest will be difficult to pay off.

401k - Failure to fund your 401(k) can be like throwing away free money because you could be passing up the employer match. The contribution withheld from your paycheck also reduces your taxable income.

Can I deduct my home office?

If you use part of your home for business, you may be able to deduct expenses for business use of home from your business income. To qualify to deduct expenses, you must use part of your home:

• Exclusively and regularly as your principal place of business
• Place where you meet clients or customers
• In connection with your business, a separate structure which is not attached to your home

Performing essential aspects of your business at home such as bookkeeping and administrative services does not make your home the principal place of business. However if you use your home regularly for administrative purposes and you have no other fixed location where you conduct your business your home will qualify.

To itemize or not to itemize? Here's the answer:

Taxpayers have a choice of taking the standard deduction or itemizing their deductions. If itemizing certain expenses results in a greater refund, then file Schedule A and claim the greater deduction on line 40 of Form 1040.

First you have to determine your standard deduction based on your filing status. For 2010, they are:

• Single $5,700
• Married Filing Jointly $11,400
• Head of Household $8,400
• Married Filing Separately $5,700
• Qualifying Widow(er) $11,400

Can I claim my child as a dependent?

To claim someone as a dependent that person must either be your qualifying child or qualifying relative.

To be a qualifying child:

1. The child must be related to you.
2. The child must be (a) under age 19 at the end of the year, (b) under age 24 at the end of the year and a full-time student, (c) any age permanently and totally disabled.
   
   A child is permanently and totally disabled if both of the following apply.
   
   • He or she cannot engage in any substantial gainful activity because of a physical or mental condition.
   • A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death
3. Child must live with you more than six months.
   

Do I Have To File a Tax Return?

Yes, you must file a federal income tax return if you are a U.S. citizen. However, there are certain instances where a taxpayer does not have to file a return based on three factors:

• Gross Income
• Filing Status
• Age

You must file a return if your gross income is at least the amount shown for your age and filing status.

Common tax return mistakes

10 things to watch for as you prepare your tax return.

1. Incorrect Social Security numbers or misspelled names
2. Using incorrect forms and schedules
3. Wrong filing status
4. Claiming ineligible dependents
5. Misapplied Earned Income Credit and Child Tax Credit
6. Lack of receipts
7. Failure to report all income
8. Not checking for Alternative Minimum Tax
9. Not signing the return – note the taxpayer and the spouse must sign and date the tax return
10. Not attaching Form W-2 and other forms that indicate taxes withheld during the year

Bonus items:

1. Applying for a Refund Anticipation Loan (RAL) without W-2 Earned Income
2. Omitting the Social Security Number or EIN of your caregiver for the Child and Dependent Care Credit
3. Mailing the tax return to the wrong address. Here is where to mail tax forms.
4. Making your check payable to the IRS. The correct payee on checks and money orders should be the United States Treasury.
5. Misreading the income tax tables
6. Failure to make a copy of the return for the taxpayer's records
7. Computation errors
8. Incorrect bank account numbers for Direct Deposit
9. Insufficient postage on envelopes. Better yet, use registered mail so there is a record that IRS received your tax return especially if you are paying a balance due.

Here are some other suggestions to avoid tax problems.

Is social security taxable income?

A portion of your social security benefits may be taxable if your total income plus one-half of your net social security benefits exceeds a base amount for your filing status. Net benefits are reported on box 5 of Form SSA-1099. If the only source of income is Social Security, then none of the benefits are taxable and the taxpayer does not have to file a federal income tax return.

The base amount is

• $25,000 if your filing status is single, head of household, or qualifying widower
• $25,000 if MFS if you lived apart from your spouse the entire year
• $32,000 if MFJ
• $0 if MFS if you lived with your spouse at any time during the year *
  

Use the Social Security Benefits Worksheet to determine the taxable amount. Total social security benefits are reported on Form 1040 line 20a while the taxable amount is reported on line 20b.