The Internal Revenue Service began its 2007 filing system with instructions on how to apply for newly enacted tax breaks and recommendations that more taxpayers give up paper and file electronically.
The agency said that it will send out 17 million tax packages this week to taxpayers who previously filed paper returns. The IRS expects to process about 136 million individual tax returns for 2006, with more than half filed electronically.
It pointed out that one major change this year will be the telephone excise tax refund. The government stopped collecting the federal excise tax on long-distance service last August and plans to provide refunds for these taxes billed after Feb. 28, 2003 and before Aug. 1, 2006.
The agency said taxpayers can avoid collecting 41 months of old phone bills by choosing standard amounts. Under standard amounts a person filing a return with one exemption can claim $30, with the amount rising to $40 for those with two exemptions, $50 for three exemptions and $60 for four or more exemptions.
Those desiring a refund based on actual amount of taxes paid should use Form 8913.
The agency also advised taxpayers on how to take advantage of tax breaks renewed by Congress in December, after the IRS had printed its forms for the 2007 filing season. The most significant of the breaks allow taxpayers to deduct state and local sales taxes instead of state income taxes and provide deductions for higher education tuition and fees and for personal expenses incurred by schoolteachers.
The IRS will mail Publication 600 to 6 million taxpayers who receive the Form 1040 package this month with instructions on claiming the sales tax deduction. The agency also advised that it will not be able to process tax returns claiming the belatedly renewed tax breaks until early February. It said that last year about 930,000 tax returns claiming the three tax breaks were filed by Feb. 1.
“As we always do, we encourage taxpayers who think they may claim these deductions to file electronically,” said IRS Commissioner Mark W. Everson. “They will get their refunds faster through e-file. Even more importantly, e-file will greatly reduce the chances for making an error compared to claiming the deductions on the paper 1040.”
Another change this year is that taxpayers can split refunds among up to three accounts held by U.S. financial institutions such as banks, mutual funds, brokerage firms or credit unions.
The tax agency also urged taxpayers who earn $52,000 or less to make use of Free File, a free electronic program that is a partnership between the IRS and private tax service providers. It noted that this year private sector partners have agreed to remove from their programs side offerings such Refund Anticipation Loans that offer taxpayers immediate payment of expected refunds but sometimes come with high interest rates and fees.
It noted that taxpayers, after filing returns, can track their refund through the online tool “Where’s my refund?” on the IRS web site, www.irs.gov. “With all the changes taking place, this is a good year for paper filers to try e-file,” Everson said. “We remind taxpayers that e-filing is fast, secure and reliable.”