Example showing how filing a tax return can benefit you
The following example shows how you can save money by filing your own return.
By filing a 2004 tax return, the taxpayer is entitled to a refund of $1,832, instead of the $2,790.98 balance due from the IRS prepared substitute return.
IRS Return Showing Balance Due:
Taxpayer did not file a tax return in 2004 and has received a letter from IRS on June 10, 2007 with a proposed assessment. The IRS computes a proposed assessment using taxpayer information provided from various corporate and private industry sources customarily received about U.S. taxpayers (e.g. wages, interest income, dividends, etc.)
The IRS computation will not include any credits, dependents or other deductions. The taxpayer must file a return to claim these benefits (correctly filing status, number of dependents and deductions.)
IRS Proposed Assessment
Taxpayer filed a married filing joint return in 2003; the IRS will use a ‘married filing separate’ status for the proposed assessment.
Taxpayer income information available to the IRS: Wages: $39,710, Interest Income: $57 and Federal Withholding: $2,877 equating to:
Adjusted Gross Income: $39,767 Taxable Income: $31,817 Total Tax (tax table for married filing separately): $4,694 Prepaid Credits (federal taxes withheld): ($2,877) Balance Due (total tax minus prepaid credit): $1,817 Interest and Penalties: $973.98 Total Balance Due: $2,790.98
Taxpayer's Return with Refund Due:
Taxpayers filing status: Married Filing Joint, Exemptions: 5 (self, spouse, two children & parent), Wages: $67,321 (self $39,710; spouse $27,611), Federal Withholding: $4,319 (self $2,877; spouse $1,442), Total Schedule A: $11,968, Child Care Credit: $277, Child Tax Credit: $1,000, and Education Credit: $1,500.
Adjusted Gross Income $67,321 Taxable Income $39,853 Total Tax (tax table for married filing jointly) $5,266 Credits (child tax, child care, education) ($2,777) Prepaid Credits (federal taxes withheld) ($4,321) Refund Due (total tax minus prepaid credits) ($1,832) Interest and Penalties $0
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