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 Previous Page: Instructions - Net Earnings From Self-Employment Next Page: Publication 17 - Your Federal Income Tax - The Income Tax ReturnUse to find additional instances of index items. |
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The explanations and examples in this publication reflect the interpretation by the Internal Revenue Service (IRS) of:
However, the information given does not cover every situation and is not intended to replace the law or change its meaning.
This publication covers some subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS. Until these differing interpretations are resolved by higher court decisions or in some other way, this publication will continue to present the interpretations by the IRS.
All taxpayers have important rights when working with the IRS. These rights are described in Your Rights as a Taxpayer in the back of this publication.
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This section summarizes important tax changes that took effect in 2006. Most of these changes are discussed in more detail throughout this publication.
Changes are also discussed in Publication 553, Highlights of 2006 Tax Changes.
The standard mileage rate for the cost of operating your car is 44.5 cents a mile for all business miles driven in 2006. See chapter 26.
The standard mileage rate allowed for use of your car for medical reasons is 18 cents a mile for 2006. See chapter 21.
The standard mileage rate allowed for use of your car for determining moving expenses is 18 cents a mile for 2006. See Publication 521.
The following paragraphs highlight changes that affect individual retirement arrangements (IRAs) and pension plans.
Traditional IRA income limits. You may be able to take an IRA deduction if you were covered by a retirement plan, your modified adjusted gross income is less than $85,000, and you are married filing jointly or a qualifying widow(er). See chapter 17.
IRA contribution. If you are age 50 or older at the end of 2006, the amount you may be able to deduct as an IRA contribution is increased to $5,000. See chapter 17.
Combat pay. For purposes of taking an IRA deduction, earned income includes any nontaxable combat pay received by a member of the U.S. Armed Forces.
Qualified charitable distributions. If you have reached age 701/2, you can make a qualified charitable distribution directly from your IRA to a qualified organization. You do not include the distribution in your income. See Publication 590 for more information.
Limit on elective deferrals.Generally, the maximum amount of elective deferrals under a salary reduction agreement that could be contributed to a qualified plan increased to $15,000 ($20,000 if you were age 50 or older). However, for SIMPLE plans, the amount is $10,000 ($12,500 if you were age 50 or older).
Designated Roth accounts. A 401(k) or 403(b) plan can include a qualified Roth contribution program. Under the program, designated Roth contributions are treated as elective deferrals, except that the contributions are included in income. A qualified distribution from a Roth account is not included in income. For more information on contributions, see Publication 525, and for distributions, see Publication 575.
Qualified reservist distributions. If you were a qualified reservist called to active duty for more than 179 days, the additional 10% tax on early distributions does not apply to distributions to you after September 11, 2001. See chapter 10 for more information.
Public safety employees. If you were a public safety employee who separated from service after you reached age 50, the additional 10% tax on early distributions does not apply to distributions to you from qualified governmental plans after August 17, 2006. See Publication 575 for more information.
Some tax items that are indexed for inflation increased for 2006.
Earned income credit (EIC).The maximum amount of income you can earn and still get EIC increased. The amount depends on your filing status and number of children. The maximum amount of investment income you can have and still be eligible for the credit has increased to $2,800. See chapter 36.
Standard deduction. The standard deduction for taxpayers who do not itemize deductions on Schedule A (Form 1040) has increased. The amount depends on your filing status. See chapter 20.
Exemption amount.You are allowed a $3,300 deduction for each exemption to which you are entitled. However, your exemption amount could be phased out if you have high income. See chapter 3.
Limit on itemized deductions. Some of your itemized deductions may be limited if your adjusted gross income is more than $150,500 ($75,250 if you are married filing separately). See chapter 29.
Tax benefits for adoption. The adoption credit and the maximum exclusion from income of benefits under an employer's adoption assistance program are increased to $10,960. See Adoption Credit in chapter 37.
Hope or lifetime learning credit income limits increased. The amount of income you can have and still receive a Hope or lifetime learning credit has increased. The Hope credit is increased. See chapter 37.
Social security and Medicare taxes. The maximum wages subject to social security tax (6.2%) increased to $94,200. All wages are subject to Medicare tax (1.45%).
If you donate clothing and household items to a qualified organization, the items must be in good used condition or better for you to claim a charitable contribution deduction. See Clothing and Household Items under Contributions You Can Deduct in chapter 24.
You must use Form 8615 to figure the tax of a child under age 18 (increased from age 14) with investment income of more than $1,700. The election to report a child's investment income on a parent's return and the special rule for when a child must file Form 6251 also now apply to children under age 18.
The AMT exemption amount is increased to $42,500 ($62,550 if married filing jointly or qualifying widow(er); $31,275 if married filing separately).
You may be able to claim a new tax credit for the purchase of qualified energy efficiency improvements to your existing home. You may be able to claim a tax credit for the purchase of residential solar water heating, photovoltaic equipment, or fuel cell property. See chapter 37.
You may be able to take a credit if you place an alternative motor vehicle in service during the year. See chapter 37. You no longer can take a deduction for clean-fuel vehicles.
Personal exemptions. The phaseout of the limit on personal exemptions is reduced by 1/3.
Itemized deductions. The phaseout of the limit on itemized deductions is reduced by 1/3.
You may be able to claim a credit if you held any clean renewable energy bond or Gulf tax credit bond during the year. See chapter 37 for more information.
If you paid the federal excise tax on your long distance or bundled telephone service, you may be able to claim a credit. See chapter 37 for more information.
If you choose direct deposit of your refund, you may be able to split the refund into two or three accounts. See chapter 1.
The following tax provisions have expired.
 | At the time this publication went to print, Congress was considering legislation that would reinstate these expired tax provisions. To find out if this legislation was enacted, and for more details, go to www.irs.gov, click on "More Forms and Publications," and then on "What's Hot in forms and publications," or see Publication 553. |
If you are filing a paper return, you may be mailing your return to a different address because the IRS has changed the filing location for several areas. If you received an envelope with your tax package, please use it. Otherwise, see Where to File near the end of this publication for a list of IRS addresses.
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This section summarizes the important changes that take effect in 2007 that could affect your estimated tax payments for 2007. More information on these and other changes can be found in Publication 553.
The following tax provisions are scheduled to expire at the end of 2006:
| At the time this publication went to print, Congress was considering legislation that would extend the provision related to the earned income credit. To find out if this legislation was enacted, and for more details, go to www.irs.gov, click on "More Forms and Publications," and then on "What's Hot in forms and publications," or see Publication 553. |
The following paragraphs highlight changes that affect individual retirement arrangements (IRAs) and pension plans.
IRA income limits. You may be able to take an IRA deduction if you were covered by a retirement plan, your 2007 modified adjusted gross income is less than $103,000, and you are married filing jointly or a qualifying widow(er).
Limit on elective deferrals.Generally, the maximum amount of elective deferrals under a salary reduction agreement that can be contributed to a qualified plan increases to $15,500 ($20,500 if you are age 50 or older). However, for SIMPLE plans, the amount is $10,500 ($13,000 if you are age 50 or older).
Rollovers by nonspouse beneficiaries. For distributions after 2006, a nonspouse designated beneficiary may have a distribution from an eligible retirement plan of a deceased employee directly transfered (trustee-to-trustee) to his or her own IRA set up to receive the distribution. The transfer will be treated as an eligible rollover distribution and the receiving IRA will be treated as an inherited IRA. See Publication 575 for more information.
Retired public safety officer. For distributions after 2006, an eligible retired public safety officer can elect to exclude from income distributions of up to $3,000 made directly from a governmental retirement plan to the providers of accident, health, or long-term care insurance. See Publication 575 for more information.
The AMT exemption amount is scheduled to decrease. The amount depends on your filing status.
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Listed below are important reminders and other items that may help you file your 2006 tax return. Many of these items are explained in more detail later in this publication.
To protect your privacy, social security numbers (SSNs) are not printed on the peel-off label that comes in the mail with your tax instruction booklet. This means you must enter your SSN in the space provided on your tax form. If you filed a joint return for 2005 and are filing a joint return for 2006 with the same spouse, enter your names and SSNs in the same order as on your 2005 return. See chapter 1.
If you believe someone has assumed your identity to file federal income tax returns, or to commit other tax fraud, complete Form 3949-A, Information Referral, and mail it to Internal Revenue Service, Fresno, CA 93888. Victims of identity theft who are suffering economic harm, experiencing a systemic problem, or seeking help in resolving tax problems that have not been resolved through normal channels may be eligible for Taxpayer Advocate Service (TAS) assistance. You can reach TAS by calling toll-free 1-877-777-4778 or TTY/TDD 1-800-829-4059. For additional information about identity theft prevention and victim assistance, you can access the IRS Identity Theft page at www.irs.gov by entering keyword "identity theft."
The IRS does not send out unsolicited emails requesting personal taxpayer information. If you receive this type of request, it may be an attempt by identity thieves to get your private tax information. Send a copy of the fraudulent email to phishing@irs.gov. For more information on how to forward one of these emails, go to www.irs.gov and enter keyword "phishing." Once there, see the article titled "How To Protect Yourself From Suspicious E-Mails or Phishing Schemes."
You must provide the taxpayer identification number for each person for whom you claim certain tax benefits. This applies even if the person was born in 2006. Generally, this number is the person's social security number (SSN). See chapter 1.
If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all such income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2 or 1099 from the foreign payer. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents and royalties).
If you reside outside the United States, you may be able to exclude part or all of your foreign source earned income. For details, see Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
You can use Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, to obtain an automatic 6-month extension of time to file your tax return. See chapter 1.
A definition of a "qualifying child" applies for each of the following tax benefits.
For 2006, you can choose to include combat pay in your earned income for purposes of computing this credit. If you are married, each of you can make this election separately.
Form 8836. If you received Form 8836, Qualifying Children Residency Statement, you have been selected to participate in the EIC certification program. See chapter 36.
If a qualifying child lives with you and you expect to qualify for the earned income credit in 2007, you may be able to get part of the credit paid to you in advance throughout the year (by your employer) instead of waiting until you file your tax return. See chapter 36.
Taxpayers affected by Hurricane Katrina, Rita, or Wilma may be eligible for tax relief. See Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma.
If your taxable income is $100,000 or more, figure your tax using the Tax Computation Worksheet. The Tax Computation Worksheet is found near the end of this publication immediately following the Tax Tables.
Generally, both spouses are responsible for the tax and any interest or penalties on a joint tax return. In some cases, one spouse may be relieved of that responsibility for items of the other spouse that were incorrectly reported on the joint return. See chapter 2.
To promptly resolve any questions we have in processing your tax return, we would like to be able to call you. Please enter your daytime telephone number on your tax form next to your signature.
You can check the "Yes" box in the "Third Party Designee" area of your return to authorize the IRS to discuss your return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your return. It also allows your designee to perform certain actions. See chapter 1.
Make your check or money order payable to "United States Treasury." You can pay your taxes by credit card, using the Electronic Federal Tax Payment System (EFTPS), or, if you file electronically, by electronic funds withdrawal. See chapter 1.
The IRS offers fast, accurate ways to file your tax return information without filing a paper tax return. You can use IRS e-file (electronic filing). See chapter 1.
You may be able to file your 2006 taxes online for free thanks to an electronic filing agreement. See chapter 1.
If you change your address, you should notify the IRS. See Change of Address, under What Happens After I File, in chapter 1.
You may be able to use a designated private delivery service to mail your tax returns and payments. See chapter 1.
If you were due a refund but you did not file a return, you generally must file your return within 3 years from the date the return was due (including extensions) to get that refund. See chapter 1.
The IRS Restructuring and Reform Act of 1998, the Privacy Act of 1974, and the Paperwork Reduction Act of 1980 require that when we ask you for information we must first tell you what our legal right is to ask for the information, why we are asking for it, how it will be used, what could happen if we do not receive it, and whether your response is voluntary, required to obtain a benefit, or mandatory under the law. A complete statement on this subject can be found in your tax form instruction booklet.
The Internal Revenue Service has expanded customer service for taxpayers. You can set up a personal appointment at the most convenient Taxpayer Assistance Center, on the most convenient business day. See How To Get Tax Help in the back of this publication.
If you want to confidentially report misconduct, waste, fraud, or abuse by an IRS employee, you can call 1-800-366-4484 (1-800-877-8339 for TTY/TDD users). You can remain anonymous.
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
This publication covers the general rules for filing a federal income tax return. It supplements the information contained in your tax form instruction booklet. It explains the tax law to make sure you pay only the tax you owe and no more.
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This publication closely follows Form 1040, U.S. Individual Income Tax Return. It is divided into six parts which cover different sections of Form 1040. Each part is further divided into chapters which generally discuss one line of the form. Do not worry if you file Form 1040A or Form 1040EZ. Anything included on a line of either of these forms is also included on Form 1040.
The table of contents inside the front cover and the index in the back of the publication are useful tools to help you find the information you need.
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The publication begins with the rules for filing a tax return. It explains:
Throughout the publication are examples showing how the tax law applies in typical situations. Sample forms and schedules show you how to report certain items on your return. Also throughout the publication are flowcharts and tables that present tax information in an easy-to-understand manner.
Many of the subjects discussed in this publication are discussed in greater detail in other IRS publications. References to those other publications are provided for your information.
taxmap/pub17/p17-000.htm#TXMP471fe61e Icons. |
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Small graphic symbols, or icons, are used to draw your attention to special information. See Table 1, Legend of Icons, below, for an explanation of each icon used in this publication.
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Some material that you may find helpful is not included in this publication but can be found in your tax form instruction booklet. This includes lists of:
If you operate your own business or have other self-employment income, such as from babysitting or selling crafts, see the following publications for more information.
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There are many ways you can get help from the IRS. These are explained under How To Get Tax Help in the back of this publication.
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We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6406
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
You can email us at *taxforms@irs.gov. (The asterisk must be included in the address.) Please put "Publications Comment" on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.
taxmap/pub17/p17-000.htm#TXMP0c15e625 Ordering forms and publications. |
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Visit
www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 business days after your request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
taxmap/pub17/p17-000.htm#TXMP75ba833d Tax questions. |
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If you have a tax question, visit www.irs.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.
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Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.
| Icon | Explanation |
| | Items that may cause you particular problems, or an alert about pending legislation that may be enacted after this publication goes to print. |
 | An Internet site or an email address. |
 | An address you may need. |
 | Items you should keep in your personal records. |
 | Items you may need to figure or a worksheet you may need to complete. |
 | An important phone number. |
 | Helpful information you may need. |
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Instructions - Net Earnings From Self-EmploymentNext Page:
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