Generation X Finance » Taxes

Get Free Tax Advice by Calling 1-800-829-1040

Jeremy — Thu, 01 Apr 2010 13:02:53 +0000

Did you know the IRS is available to give you free tax advice? It might seem shocking since most people feel the IRS is only out to get you or subject you to a tax audit, but they really are able to help you. That’s why they have a toll-free help line you can call at 1-800-829-1040.

This is particularly a nice resource if you are someone who does taxes on your own and don’t want to pay for those wasteful additional services many of the tax software packages provide where it can cost upwards of $49-$99 to interact with a human to go over your return. This is a free service. Granted, they won’t be able to go over your return line by line and check for errors, but they can help assist you with many questions that can come up with even a simple return. Checking for clarification on an issue could save you money, or even more importantly, keep you from an audit.

Even through you still have a few weeks to complete your taxes, this could help reduce a lot of stress that can come from waiting until the last minute. And if you’re still waiting to get started you may want to jump on one of the free online filing options at TurboTax or H&R Block to get started.

Other Resources

Another helpful resource can be found by calling TeleTax at 1-800-829-4477. Calling this number you can hear pre-recorded messages covering various tax topics or to check on the status of your refund. TeleTax topics, which range from IRS assistance, to who must file, are listed on pages 8 and 9 of the Form 1040 instruction booklet. The topic list is extensive and could provide a quick answer to a question you may have.

In addition, IRS Publication 910 provides a guide to all available free tax services. This will outline various phone numbers, newsletters, IRS service centers and even workshops to help educate you further on taxes. Bookmark these pages and write down the phone numbers so that you’re prepared once tax time comes. It could end up saving you money.

About the Author: Jeremy is a retirement planning specialist and founder of Generation X Finance and the guide to Financial Planning at About.com. To learn more, follow Jeremy on Twitter.

Get Free Tax Advice by Calling 1-800-829-1040

Don’t Let Your Taxes Make You a Criminal

Jeremy — Tue, 23 Mar 2010 14:56:46 +0000

The IRS is watching you. Think underpaying, not paying at all, or making a mistake on your tax return just means a possible penalty or added interest? Not exactly. In fact, many tax mishaps carry criminal penalties. Some of the most common tax offenses that carry both civil and criminal penalties are: failure to pay tax, failure to file a return, failure to keep records, failure to supply information, filing a false tax return, filing a false claim for refund, and assisting any person with any of the aforementioned acts.

Common sense, right? It is pretty obvious that blatantly not filing a return or paying what you owe can result in stiff penalties, but even if you think you’re doing everything right you could find yourself in hot water. The good news is most of the time this can all be avoided if you simply respond to the IRS when they notify you of a problem and then take corrective action. There are a number of ways to avoid and fight a tax audit, but ignoring the letters from the IRS is not one of them.

IRS Criminal Investigations in 2007

So, just how many people get caught and criminally sentenced? It may not seem like a lot, but the IRS has said they are cracking down. 2007 was the highest number of investigations since 1997 and they claim to be searching for offenses even more aggressively these days. But here are the stats for 2007:

Investigations Initiated: 3,204
Prosecution Recommendations: 2,107
Information/Indictments: 1,818
Total Convictions: 1,620
Total Sentenced: 1,592
Percentage Sent to Prison: 80.4%
Average Months to Serve: 41

There you have it. 80% are actually getting sentenced to prison and the average offender will spend nearly four years behind bars. I don’t know about you, but those aren’t any stats I want to mess with. Here’s a common example:

Texas Man Sentenced for Filing Fraudulent Tax Returns

On August 10, 2009, in Sherman, Texas, Samuel Perez, of Corinth, Texas, was sentenced to 41 months imprisonment, to be followed by three years of supervised release, for filing fraudulent tax returns for tax years 2002 and 2003. The court also order Perez to pay a $100 special assessment, and $303,324 in restitution. According to the indictment, Perez filed Individual Tax Returns for tax years 2002 and 2003 that reported income of $77,561 and $77,686 respectively, when in fact, he knew his income for those tax years was in excess of those amounts due to income he received and concealed in the form of checks that were made payable to third parties.

Avoiding Problems With the IRS

The vast majority of people have absolutely nothing to worry about. If your taxes are simple, you file on time and accurately, and pay what you actually owe you should be just fine. But if you made a mistake a few years ago and never got caught or heard anything from the IRS about correcting it and think you’re in the clear, you might want to be careful. Just because you may not have been audited it doesn’t mean you slipped one by.

The IRS is continuously collecting information about taxpayers with what are called Informational Returns. These Informational Returns are forms that are required to be filed with the IRS reporting just about every type of transaction involving the exchange of money or sale of property. These returns are not just limited to W2′s and 1099′s any more.

So, do the right thing and report all of your income. Even if you aren’t issued a 1099 or get paid in cash, you better be keeping track of everything. Also, make sure you’re keeping financial documents in a safe place for a number of years. If the IRS comes to you requesting more information about a return the burden is on you to produce documentation to prove your claim. Finally, if you have a unique tax situation or some hidden tax skeletons in your closet it might be worth it to find an CPA to help with your taxes. When it comes to resolving issues with the IRS you certainly don’t want to go about it alone.

How to File Taxes for Free – FreeFile and Free Tax Software

Jeremy — Thu, 11 Feb 2010 14:18:20 +0000

Free E-File for Federal Taxes

As if paying taxes isn’t bad enough, having to pay just to complete and file your taxes is a real pain. Wouldn’t it be nice if you could file your taxes for free? The good news is in many cases, you can. That’s right, you could qualify to complete and file your taxes absolutely free. So, let’s go over how you can complete your taxes for free, and if you qualify, even use an e-file option absolutely free.

Doing Your Taxes by Hand

If you like numbers and doing calculations, one of the obvious options is to do your taxes by hand. All of the available tax forms are available for download right from the IRS website, and your local post office should have some of the most common forms and instruction booklets sitting in the lobby.

There are no limitations as to who can complete and file their taxes this way. From the easiest returns to complex self-employment returns, if you have the time and energy to fill out the forms on your own, more power to you. Your only cost by doing it this way is the mailing of the return. Most experts recommend you mail your taxes via Certified Mail. With Certified Mail you can be sure your article arrived at its destination with access to online delivery information. When you use Certified Mail, you receive a receipt stamped with the date of mailing. A unique article number allows you to verify delivery online. As an additional security feature, the recipient’s signature is obtained at the time of delivery and a record is maintained by the post office. This helps protect you in the event an issue arises and the IRS claims your return never arrived. Certified Mail starts at $2.70.

If you want to go one step further and eliminate the postage, the IRS now has online forms that you can use to enter your information and e-file for free. Again, you’re pretty much on your own in terms of selecting the correct forms, tracking down all of the eligible deductions and so on, but at least it’s free. There’s also no income limitations to use this service.

If your adjusted gross income is less than $57,000, you could be entitled to use the Free File program offered by the IRS in partnership with certain software vendors. You can find more information about Free File on the IRS website.

Getting Help With Your Tax Return

Most people cringe at the thought of doing their taxes by hand, and that’s understandable. But how can you get assistance with your return, and possibly even file your return electronically at no cost? Well, there are a few different options out there that you might be able to take advantage of. Here are the two most popular free tax preparation software options.

H&R Block at Home for Free

H&R Block at Home software has been one of my favorites for the past few years. I’ve used the online version and it’s easy to use and has found a few good deductions that I may have otherwise overlooked. This year, H&R Block has a free online option that not only allows you to complete your taxes for free with their online software, but it includes free federal e-file! File for FREE with H&R Block Online Free Edition.

The free online filing edition is perfect for those with simple tax situations. It’s great for students, individuals and couples that aren’t self-employed, and those who don’t need to itemize deductions. The simple interview process will walk you through your taxes with some basic questions, and you typically just enter the numbers found on the tax forms you receive in the mail. You can then instantly submit your federal taxes for free via e-file. Keep in mind that if you need to complete a state tax return, you’ll have to purchase that or go through with completing that return by hand.

If your tax situation isn’t that simple and you have a business or need to itemize deductions, don’t worry. H&R Block at Home still has some fantastic offers available. They offer a number of software options from a basic return for 1040EZ filers all the way to the Home and Business edition. All of these also come with free e-file, and all purchased versions now get free live audit support. In the past, consumers who e-filed with H&R Block have always had the comfort of a trained tax professional behind them in the event of an audit. Now, this advantage is available even if the return is printed and mailed in to the IRS. Find the version of H&R Block at Home that’s right for you.

Intuit’s TurboTax for Free

Just like with H&R Block,TurboTax also has a free tax preparation and e-file solution. Again, this is geared towards those with relatively simple tax situations, but if you fit the bill, you can’t go wrong with professional software and e-file for free.

In addition, TurboTax is also extending it’s free audit and online support for free with all online versions. So if you have a question, you can easily get the answer. Even worse, if you get audited, TurboTax will be there to help. You’re also covered in the event of a mistake. If there is an incorrect calculation in the software that requires you to pay interest or penalties, TurboTax will cover the cost.

If you need something a little more robust than the 1040EZ free online option, TurboTax also offers a wide selection of tax software to fulfil your needs. In addition to doing your taxes online, you also have the opportunity to download or receive a CD for software you can install on your computer. Find the version of TurboTax that’s right for you.

Making the Tax Deadline

It doesn’t matter how you file your taxes, you still have to file before the tax deadline. Also, keep in mind that if you owe the IRS money it’s still due by the tax deadline even if you file an extension, so penalties or interest may apply. So, get started on those taxes as soon as possible!

82% of Early Tax Filers Receive a Refund: An Infographic and TurboTax Giveaway

Jeremy — Wed, 10 Feb 2010 14:56:59 +0000

Are you an early tax filer or do you wait until the last minute, or even request an extension? I tend to be an early filer and last minute payer. We usually owe the IRS a little bit at the end of the year so I like to prepare and file the return early so there are no surprises and then hang on to my money until the last day or two before the deadline. But I know for many of you you’re expecting a refund. Obviously, getting your hands on that refund as early as possible is a good idea. You can take it out of Uncle Sam’s hands and put it to work yourself.

According to a recent survey by Intuit, the makers of TurboTax, they report that that 82 percent of taxpayers who filed before the end of February got money back. In fact, 40 percent of all tax returns last year were filed before the end of February. Not only do most early filers get a refund, their average refund is typically larger: $2,869 compared to $2,753 for returns filed through April 15, according to the IRS That’s a lot of early returns and a lot of people getting a refund.

So, who are these early filers? Well, the folks over at the TurboTax Blog have put together a nice infographic to illustrate the breakdown of these early filers. You can see where you fit in. And if you think that’s interesting, scroll down to the bottom of the page to enter my TurboTax Giveaway. I’ll be giving away two copies of TurboTax Premier Online, with both a federal and state filing.

TurboTax Giveaway

As I mentioned above, I’m giving away two copies of TurboTax Premier Online, which includes federal and state filing. To enter, all you have to do is leave a comment below related to taxes. Share with us whether you plan on filing early or late, if you expect a refund or owe money, or just tell everyone how much you hate paying taxes. Leave your comment before 9 pm Wednesday, February 17th and then I’ll randomly select two comments as winners. Make sure you use a valid email with your comment so that I can contact you if you win and have the activation code sent to you. Contest is only valid for U.S. residents. Thanks, and good luck!

How to Avoid and Prepare For a Tax Audit by the IRS

Jeremy — Wed, 03 Feb 2010 15:37:13 +0000

You Can Avoid and Successfully Fight a Tax Audit

The tax audit. Probably one of the most feared phrases in finance, but it doesn’t have to be. Yes, if you or someone you know has ever been audited, you know it’s right up there on the list of things you want to do with a root canal. An audit might not be fun, but it’s a fact of life for many. A fact of life that can usually be avoided. It’s true. The IRS doesn’t exactly randomly pick out taxpayers to harass as if it’s the worst lottery in the world to win, but they do select people that fall within a few certain categories compared to others.

For the most part, if you have regular W-2 or 1099 income and accurately report the income each year, there’s very little chance of being the subject of an audit. In fact, only a tiny percentage of all tax returns are subject to an audit. The problems begin to arise if you 1.) fail to report income on your tax return that was subsequently reported to the IRS, and 2.) you score high on the IRS scoring system that determines how likely it is you’re not reporting taxable income. It seems easy enough to stay out of the IRS cross-hairs if you simply report everything and play by the rules, but there are plenty of other red flags that can increase the likelihood of an audit.

Audit Red Flags

If you play by the rules there’s a good chance you’ll never have to worry about an audit. But, if you make even a few simple mistakes it could be enough to trigger the heavy hand of the IRS. So, here are a number of red flags that can trigger additional scrutiny of your tax return.

Incomplete return – It should go without saying, but if you don’t fill out your return with all of the required information it’s going to trigger some sort of follow-up. In most cases it’s a forgotten signature, a wrong Social Security number or other minor error that can be easily fixed once the IRS lets you know of the mistake. But even so, this usually requires a human to look at your return after a computer spits it back out. The human touch may be just enough to catch a bigger problem. If you use a tax preparer or tax software such as TurboTax it’s unlikely you will miss data, but that doesn’t mean the data was entered correctly.
Not including all of your income – Again, this seems like common sense, but it snags a lot of people each year. If your only source of income is a single job that issues a W-2 this is probably a non-issue, but if you have side income, bank interest, or dividends paid out by stocks in a taxable account it can be easy to overlook a small amount of income. If the income numbers don’t match what the IRS expects you can bet they will be contacting you to find out why.
Charitable contributions – If you donated a few hundred dollars to a local charity and have a receipt to prove it there’s nothing to worry about. But if you have a large number of charitable donations, especially if you never gave much to charity in the past, the IRS might want to know why. It’s great to give money to charity, but just be careful and keep track of all contributions with valid receipts so that you can back up your claim.
Self-employed business losses – If you own a business or simply make money on the side and show a significant loss (usually upwards of $10,000) that results in a lower tax liability you better be careful. While it is perfectly accepted to have a business loss, if the loss is sudden and large, or you consistently lose money year after year you’re a prime target for the IRS.
The home office deduction – While the self-employed get many tax breaks, it also means more chances to make a mistake and get audited. One of these deductions is the home office deduction. There is a lot of room for abuse with this deduction and it’s easy for people to deduct too much. Take this deduction if you’re entitled to it, but make sure you really do have a space in the home that is dedicated to business and the items you’re deducting are for business use.
Bragging about your taxes – Don’t go on Facebook or Twitter and brag to your friends about how big of a refund you got because of your creative deductions. The IRS is watching. The same goes for talking about income and other major financial decisions you make. Somebody might see that and put two and two together to realize your tax return may not be 100% accurate. So, just keep quiet.

What If You Get Audited Anyway?

Even if you try to follow all of the rules there are times when it just won’t be avoidable. But there is still good news. Not all audits are created the same. In fact, most audits aren’t even what you think they are and don’t involve an IRS agent coming to your house and rummaging through all your files.

The Correspondence Audit

This is the type of audit I have experienced, and it’s the most common type. In fact, many people receive these each year without even realizing it’s what most audits consist of. The correspondence audit is simply a letter sent to you by the IRS that identifies a possible error, information regarding the error, and instructions on how to remedy the problem.

In some cases this may result in actually receiving a larger refund, but more often than not it means you’ll owe some additional money unless you can prove otherwise. This correspondence also includes information for how to challenge the IRS’s claim and what information you might need if you want to fight it.

Either way, these audits are relatively painless unless you’ve done something major such as failing to report something significant. As long as you take care of the problem in a timely fashion you’re not likely to encounter any further action by the IRS.

The In-Office Audit

This is one of the audit types that people usually think about and fear. In these situations, you actually have to gather information and take it to an IRS office to prove that your return is accurate. The auditor will schedule a date and time to meet and suggest what documentation you should bring so that you can substantiate your claim.

It’s obvious to see how this can be something to fear. If you haven’t kept good records or have lost receipts or other important documentation, you obviously know that it can be difficult to prove your claim. Depending on what the IRS asks for, it could be as simple as showing a few expenses to trying to verify that something like your home office actually qualifies for the home office deduction.

Of course, if you have good records and aren’t trying to pull a fast one, even these audits are relatively painless. The IRS may see something differently than you do, but this is your chance to prove it and hopefully fix the issue before additional penalties are enforced. This is where having a tax attorney or accountant can be beneficial.

The Field Audit

The final type of audit isn’t typically going to happen to an individual. The field audit is one where the IRS sends an agent into the field to meet with a taxpayer on-site. These audits are most commonly done on businesses or self-employed individuals making a lot of money. These audits are also the most feared.

If you do happen to be subject to a field audit, it’s imperative to have legal counsel. There may be significant sums of money at stake and tax laws can be complicated, so having someone on your side that specializes in tax law can potentially save you or even your business.

What to Do Once You’ve Been Audited

First, don’t panic. It isn’t the end of the world, and if you’re like most people it’s simply a matter of clarifying a mistake. If it’s just a correspondence audit you can probably handle the issue by yourself by finding the piece of information they are questioning and making the appropriate changes. Maybe you forgot to sign your return, you transposed some numbers, or simply forgot about that late 1099 that came in after you already filed. Either way, as long as you kept good records it probably won’t be that big of a deal.

If you’re completely lost and have no idea what they are asking for or why the numbers aren’t adding up, it’s time to seek out help. If you used tax software like TurboTax orH&R Block at Home, they provide you with some basic audit information, but typically you need to purchase additional audit support if you want them to handle the audit process for you. If you worked with an accountant or CPA you’ll want to contact them so that they can work with you to deal with the IRS and track down the error. This is one of those times where deciding to get a CPA to do your taxes can really pay for itself.

This is also why it’s important to keep important tax documents for at least three years. Generally speaking, the IRS will only initiate an audit up to three years after a return was filed, but that doesn’t mean I’d throw all your tax stuff out after three years. You may have supporting documents that go back beyond that, so in my opinion, keep those documents for much longer. Those returns and receipts don’t take up that much space, so it won’t hurt to hang on to them for a few more years.

Finally, while we’re talking about supporting documentation, don’t give the IRS any more information than what they specifically ask for. If they want to see a certain expense or a source of income, that’s all you want to show them. Don’t go and attach all your receipts or unnecessary documents they didn’t request. You may feel like you’re being extra helpful, but all you’re doing is giving them an opportunity to find more errors. So, stick to what they ask for and nothing more.

If you have followed the steps to minimize the chance of an audit and have taken care to follow the instructions if you are audited you’ll have little to worry about and get through the situation without much trouble.

Do I Need an Accountant or CPA? Knowing When to Outsource Your Taxes

Jeremy — Thu, 07 Jan 2010 18:07:58 +0000

Finding an Accountant Can Lead to Big Tax Savings

If you’re like most Americans you probably have a good handle on completing your taxes on your own. Over the years it has become incredibly easy for anyone with a computer thanks to TurboTax and H&R Block At Home to sit down and go through their tax documents, enter information as the software asks questions, and then even file your return instantly online. For those of you with relatively simple tax circumstances, this is the ideal way to go. The software is inexpensive, most of the questions asked can be easily answered in an hour or two, and there’s very little opportunity for error. It sure beats the days of sitting down with paper forms and spending a few days doing your taxes by hand!

But what about those with slightly more complex financial situations? Sure, there are more robust versions of tax software available such as TurboTax’s Home & Business, Property Manager, and so on. These solutions go into greater depth to help you account for less traditional sources of income and expenses. With more complex finances comes more time and money required to get through the tax filing process, not to mention more room for error. So, at what point does it become cost-effective to make the move from doing your own taxes with the help of software to hiring an accountant?

My Personal Tax Story

As soon as I was on my own I began using tax software to do my own taxes. I have used both TurboTax and H&R Block’s software many times and both get the job done great. For a few years during college my finances were so simple and my income and deductions were so trivial that I could spend under $50 and just about an hour and get my taxes done. Those were the good ol’ days. As time went on my finances started to get a little more complicated. For a few years I was a member of an LLC in addition to working part-time. This created a few unique scenarios that made doing my taxes a little more complicated, yet I was still comfortable in handling it on my own. As the years went on I moved on to where my wife and I just had regular salary jobs, no house, no kids, no odd circumstances, so doing my taxes again became as easy as sitting down at the computer for an hour and plugging in a few numbers.

Then, things started to change as I started to dabble in freelance work and other self-employment ventures. The first few years were easy because it was more of a hobby and the income and expenses generated from the freelance work were trivial. As time went on, more sources of income started coming in, and additional expenses started adding up, my tax returns become more of a nightmare. Sure, the software could still handle it, but I was spending more time tracking down documents, receipts, and trying to find deductions because the tax bill at the end of the year was growing significantly. On year after putting in all of my data the tax software said I owed the IRS nearly $4,000. That’s impossible, I thought. We had as much taken out of our paychecks as possible through work, I was paying estimated quarterly taxes, and was itemizing deductions so that we could deduct as much as possible. There had to be a glitch in the software or I was missing so I plugged the numbers in over and over for about a week straight only to come to the same result.

With that, I knew it was time to seek professional help. We asked around with some friends and co-workers about CPAs that specialize in small businesses and self-employed taxpayers, and I made a few calls around and interviewed a few of them. We eventually found one not too far down the road and their name came up a few different times from the people we asked. So, I set up an appointment. After sitting down with the accountant for about an hour discussing our situation, looking over some numbers, and doing some calculations she knew she could help me. A few days later I was thrilled when I received a call stating that I now only owed somewhere in the neighborhood of $2,500. Wow, that phone call and meeting just saved me about $1,500. Sure, the cost of having my taxes done increased compared to doing it myself, but at around $300 it was some of the best money I ever spent.

When Should You Consider Hiring an Accountant For Your Taxes?

I shared my story just to give you one scenario where making the move to hire a professional can be a good decision. I’m a pretty savvy guy when it comes to finances, but I admit that I don’t do a great deal with taxes on a daily basis. I thought I had enough knowledge with the assistance of tax preparation software to get the job done right, but clearly someone who does this stuff for a living can still do it better than I can. While it was the right decision for me, it may or may not be the right decision for you.

To start off, I want to make one thing clear. There is a difference between an accountant and just a tax preparer. As tax season kicks into gear you’ll begin to see advertisements pop up with tax preparers in your area who will do your taxes for you at a cost. Keep in mind that when dealing with one of these places you probably aren’t going to get a full-blown accountant or CPA. Instead, you’ll likely have someone who is qualified to handle returns, but they will likely do little more than ask you the same questions that software you buy on your own does and then plug in the numbers. While it’s nice to get some one-on-one time with someone, you also want to keep in mind that this person is more or less just trying to get your taxes done, not assess your financial situation and help you put together tax strategies going forward.So remember, there are accountants that do taxes, and there are people who do taxes that aren’t accountants.

Here are a few scenarios when it might make sense to start looking for professional tax help:

1. You own a business.

Self-employed individuals stand to see the greatest return when hiring an accountant. Running a business presents a lot of unique situations that can have a significant impact on your taxes. Being self-employed also opens the door for a new world of deductions, credits, and retirement account planning that you may not be used to. While you can certainly find this information online, having someone who does this for a living will save you time and maybe even some money. In addition to just helping you find all the available deductions and paying the IRS as little as possible an accountant can be tremendously helpful in working with you to structure your business as best as possible, putting together a plan for the future to help you take advantage of tax breaks in the coming year, and being there for you if you encounter problems down the road.

2. Going through a major life change.

If you’ve been plugging alone for the past few years with basically the same financial situation there’s obviously little need to pay someone to do what you’re already comfortable doing. But when you encounter a major life-changing event in the middle of a tax year it could lead to an unpleasant surprise come tax time. Getting married, divorced, changing jobs, having children, receiving an inheritance, preparing to retire, etc. These are the things that can change your financial situation in a heartbeat and if you aren’t prepared it could end up costing you dearly.

3. Real estate or taxable investment dealings.

Do you own a rental property? If so, an accountant will be your best friend. Owning a rental opens up a lot of special tax situations that you’ll surely want to take advantage of and make sure you aren’t making any mistakes. The same thing can go for just buying and selling a home or other real estate. While the laws are pretty straightforward, it’s usually a large transaction in terms of dollars so you want to make sure you’re doing everything properly. Finally, let’s not forget tracking gains and losses on taxable investments. If you buy and sell stocks, bonds, mutual funds, or anything else throughout the year in a taxable account you’re going to have a lot of things to consider. Long-term vs. short-term gains and losses, dividends taxed at a different rate, cost basis, the wash rule, and so on. Sure, you can do this on your own, but how much time will it take and are you sure you’ll catch everything? The time saved by hiring a professional alone may pay for itself.

Don’t Be Afraid to Get Help

For people who like to and are proud of doing things themselves it can be difficult to make the decision to seek outside help. Don’t let that get in the way of doing what’s best for your finances. Sure, the majority of people will be just fine doing their own taxes. If that’s you, grab the latest edition of TurboTax or H&R Block At Home. It’s still the easiest and cheapest way to do your taxes. But for those of you who may have finances that are a little more complex, are self-employed, or would otherwise just like to outsource your tax preparation don’t be afraid to get a professional to help. At most it will probably only cost a couple hundred dollars compared to buying software and e-filing yourself, and chances are you save that much or more on deductions and tax strategies you overlooked by doing it on your own. Whatever you do, make sure you get an early start so you don’t miss the tax filing deadline!

Start Making Year-End Tax Moves Now and Save Big Money

Jeremy — Tue, 10 Nov 2009 15:39:35 +0000

It may not feel like it, but the tax year is rapidly drawing to a close. In less than a month we’ll starting 2010, so if you’re planning on making some year-end tax moves, now is the time. Unfortunately, most people wait until their W-2s and 1099s start coming in before seriously thinking about taxes, but by then you’re left with very few options to correct the current tax year mistakes. By planning ahead you can get a jump on some things that could significantly improve your tax situation in just a few short months.

First-Time Homebuyer Tax Credit

This probably goes without saying, but if you bought a new home this year you’ll want to take a look at this generous tax credit. Originally, it was meant only for first-time buyers who haven’t owned a home in the past five years and closed on their purchase before December 1st. Those who qualified would receive a nice $8,000 credit. But Congress has extended and expanded this credit to include even more people, so you still may qualify for something even if you didn’t under the old plan.

The new rules took effect on Nov. 6. The provision is a true dollar-for-dollar tax credit of up to $8,000 for 10% of the cost of a home. The credit is also refundable, meaning that even if a buyer doesn’t owe $8,000 of tax, they can claim the full benefit and receive a refund check. The new law also authorizes a similar $6,500 credit for buyers who already own a home. It too is a refundable credit for 10% of the purchase price of a house costing no more than $800,000. To qualify the buyer has to have owned and lived in the same home for five of the eight years preceding the new home purchase, and the new home must become the buyer’s principal residence.

Now, don’t rush out and buy a home just for the sake of the credit, but think about any home purchase you already made this year or were planning on making. This is a huge opportunity if you happen to qualify and you want to make sure you’re getting everything available to you.

New Car Purchase Deduction

Did you know there’s also a tax deduction if you buy a new car before the end of 2009? It didn’t get as much attention as the homebuyer tax credit, but there’s still some money out there for you to take advantage of if you happened to buy a new car this year. Honestly, I think you can still save more money buying a used car vs. new, but this tax break can help take some of the bite out of that new car purchase. This allows you to deduct sales and excise taxes and other fees on as much as $49,500 of the purchase price.

Again, since we’re only talking about deducting the sales and excise taxes on the purchase don’t go and run out to buy a new car just to get the tax credit. But if you are already in the market for a car and planned on buying a new one anyway, just make sure you try and get it purchased before the end of the year so you can qualify for the tax break.

Charitable Gifts and Donations

If you haven’t given to charity yet this year you still have time. Remember that these gifts follow a calendar year so you need to make those donations before the January 1st. As the holidays approach it can be a crazy time and people often forget about making their donations until it’s too late. So, don’t wait, and start thinking about what you’ll donate this year. If you’ll be taking clothes or other items to a place like Goodwill or the Salvation Army, begin collecting those items now and take them in before the holiday rush. If you usually give money to one of the charities each year you should make a call and get the ball rolling on that to make sure it qualifies for this year’s taxes. As always, make sure you keep receipts for all of your donations!

Adjust Your Tax Withholding

Even though we only have a few weeks left in the year you can still make changes to your employer’s tax withholding. If you are in a situation where you’re expecting to owe the IRS money come April you still have some time to make a helpful change. You can change your W-4 exemptions and even opt to have additional taxes withheld between now and the end of the year. This added withholding could be enough to offset some of the taxes you’ll owe when it’s time to file. Not only that, but it’s a good idea to review your withholding and make sure you’re not having too much or not enough withheld for the coming year. No sense in giving Uncle Sam a free loan or putting added stress on you to come up with the money because you didn’t withhold enough.

Unemployment Benefits

If you’re like many Americans this year, you’ve been laid off or had a period of time where you received unemployment benefits. As you may know, these benefits are taxed. It stinks, I know, but there is some relief this year. Individuals are exempt up to the first $2,400 this year.

If you didn’t elect to have taxes withheld from your unemployment check you could be on the hook for making a payment to the IRS come spring. Even worse, if you have been collecting all year and haven’t been paying quarterly estimated taxes you may face an additional penalty. If you haven’t had taxes withheld from your unemployment checks you should use this time to calculate how much of that income is taxable and find out how much you might owe. Start saving that money in the coming months so that if you are hit with a tax bill in April it won’t come as a total shock.

Retirement Savings

Do you contribute to your company’s 401(k) plan? Great! You still have time to contribute even more to your plan before the year is up on a pre-tax basis. If you can afford to it might make sense to increase your deferrals for the remainder of the year to give you that extra boost. Not only does it save on taxes, but you’re doing yourself a favor by putting a little extra away for retirement as well.

Even if you don’t have a 401(k) there is still plenty of time to take advantage of some of the other retirement saving vehicles like IRAs. The best part is that you have until you file your taxes, up to April 15th, to make your IRA contributions for the tax year. That means you still have over five months to make these contributions! If you’re saving in a traditional IRA that gives you $5,000 (or $6,000 if age 50+) in a potential tax break if you make the full contribution. For most people this equates to about $1,000 of tax savings. That’s nothing to sneeze at. And think about it, with so much time yet to make these contributions even if you haven’t contributed a dime yet this year you can still max out your IRA by saving $1,000 a month before the April deadline.

If you’re saving in a Roth IRA, you won’t be getting any tax break up front for your contributions, but you still have until April to get your 2009 contributions in. Remember, once that deadline passes you can’t go back in time and make contributions for that year. So, make sure you’re taking advantage of your IRA as much as possible. You’re retirement depends on it. If you haven’t even opened an IRA yet, don’t delay. You can open an account for free at any of the online brokerage companies like Zecco and TradeKing.

For a Good Time Call 1-800-829-1040

Jeremy — Fri, 07 Aug 2009 16:13:22 +0000

While this number may not provide the same thrills of calling the number etched on the bathroom stall it could end up saving you money. This is the toll-free number for the IRS tax question line. With this number you can be put in touch with someone right at the IRS who can assist you with your own personal tax situation if you have any questions.

Even though it isn’t currently tax season, you can still get some common questions answered and begin preparing ahead of time. This could help reduce a lot of stress that can come from waiting until the last minute.

Other Resources

Another helpful resource can be found by calling TeleTax at 1-800-829-4477. Calling this number you can hear pre-recorded messages covering various tax topics or to check on the status of your refund. TeleTax topics, which range from IRS assistance, to who must file, are listed on pages 8 and 9 of the Form 1040 instruction booklet. The topic list is extensive and could provide a quick answer to a question you may have.

Deducting Vehicle Registration Fees If You Itemize Your Tax Deductions

Jeremy — Mon, 06 Jul 2009 13:53:14 +0000

Not long ago I wrote about how your car is making you poor. It’s true, and your vehicle expenses can eat up a lot of your budget. One expense people rarely consider is the annual vehicle registration. This can vary greatly from state to state, but if you have a vehicle, then you’re probably aware of this expense.

The good news is that you may be able to get some of that money back in the form of a tax deduction. That’s right, if you itemize your deductions on Schedule A and your registration fee is based on vehicle value (not weight), you can itemize that deduction. This is an often overlooked deduction, but given the value of some vehicles, it could be worth checking into.

I know this is helpful for us because we have two vehicles that each cost roughly $125 a year for registration and it’s based entirely on value. That’s a quick and easy $250 tax deduction each year.

The IRS states:

It has to be a personal property tax, not an excise tax, in order to be deductible. Deductible personal property taxes are only those based on the value of personal property such as a boat or car. The tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year. To be deductible, the tax must be charged to you and must have been paid during your tax year. Taxes may be claimed only as an itemized deduction on Form 1040, Schedule A, Itemized Deductions.

So, you will want to check with your state to determine whether your vehicle registration fee is calculated by value, weight, or a combination. If all or part of the fee is based on value, you should be able to deduct that portion on line 7 of Schedule A.

For more information: IRS Publication 17 – Personal Property Tax Section

Don’t Forget About Estimated Quarterly Taxes Due Today

Jeremy — Mon, 15 Jun 2009 15:00:39 +0000

I write this because I almost forgot about the June 15 deadline myself. It wasn’t until last night that I saw a little reminder on my computer alerting me to today’s due date. It has always confused me about the due dates for estimated taxes. The last payment was due on April 15th, yet the next payment is due only two months later. Then the next one isn’t due until September, and the final one isn’t due for another four months in January of next year.

Why can’t the due dates just fall every three months? I’m sure there is some really good reason for the odd schedule, but then again it is the IRS and we’re talking about the U.S. tax code here. We all know how streamlined that is!

All kidding aside, your next quarterly estimated tax payment is due today. The easiest way to make these payments is online through EFTPS.gov but you can still mail it in with a voucher if you want.

The Payment Schedule

If you do not pay enough tax by the due date of each of the payment periods, you may be charged a penalty even if you are due a refund when you file your income tax return. The payment periods and due dates for estimated tax payments are:

April 15
June 15
September 15
January 15

Have you been wondering if you should even be paying estimated taxes? Don’t worry, you’re not alone. If you aren’t sure, be sure to check out IRS Publication 505 for all the information you could ever want on estimated taxes. It’s better to be safe than sorry and end up with underpayment penalties, so check it out if you’re unsure.

And don’t be like me and wait until the last day to remember. Set up scheduled payments with EFTPS or set a reminder for a few days in advance.