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Entries in Tax Tip (43)

Saturday
Mar052011

Tax Tip: How to Cut Your Risk of an Audit

Ryan McVay/Photodisc(NEW YORK) -- Anyone who’s come under tax audit will tell you – it’s not a whole lot of fun.

“The best way to avoid it is making certain that you are reporting all of your income," tax accountant Janice Hayman said. She says failing to report all of your income is probably the number one cause of audits.

“You want to keep track during the year of all of the different employers you've had and make sure you are reporting everything that they're sending to you by way of W2 or 1099s.”

Business owners and the self-employed with complicated returns may be more likely than others to get an audit. So are those who make mistakes.

“About one percent of all returns are audited every year," says Eric Smith of the IRS.

“If we do ask you a question about what's on your return – if you have good records and show that ‘Yup, that item of deduction or credit is perfectly proper,’ then we're going to say ‘Hey, no problem.’"

One of the major hassles of getting an audit? It’s time consuming.

Copyright 2011 ABC News Radio

Wednesday
Mar022011

Tax Tip: Some Important Tax Forms Will No Longer Be Mailed

Photo Courtesy - Getty Images(NEW YORK) -- More than ever, tax prep is going online, and with that comes changes to what you would normally receive in the mail.

"Certain things will no longer be in the mail," says Mary Beth Franklin of Kiplinger's Personal Finance magazine.  "If you're waiting for your IRS tax forms to arrive in the mail it's going to be a really long wait, because this is the first year that the IRS will not automatically mail forms to taxpayers."

Franklin says "you can still get printed copies if you want at participating libraries and post offices or you can go to IRS.gov and download them."

If you need help with these forms or with e-filing, your local library may be a good place to go.

Most taxpayers now file electronically, not through the mail -- just one reason why the IRS is also changing with the times.

Copyright 2011 ABC News Radio

Tuesday
Mar012011

Tax Tip: Deducting for Charitable Donations

Photo Courtesy - Getty Images(NEW YORK) -- Giving money to your favorite charity qualifies as a tax deduction, but "the key is if you make a charitable contribution, get a receipt or make sure your bank account shows who you've made a charitable contribution to,” says Eric Smith with the IRS.

The money must go to a registered nonprofit group, religious organization or charity.

Have you donated clothing to organizations like Goodwill or the Salvation Army?

“If you can keep a list of – ‘Okay, there were four pair of pants and two shirts and the pants are valued at $3 and the shirts are at $2.’ That would be really good documentation to be able to provide."

Expenses involved in charitable work may also be deductible.

Copyright 2011 ABC News Radio

Monday
Feb282011

Tax Tip: Getting Help from the IRS?

Photo Courtesy - Getty Images(NEW YORK) -- Is the IRS more user friendly than it used to be?

Tax accountant Janice Hayman thinks so: “They really are trying to encourage people to be open with them. Contact them. Communicate with them. Let them know if you're having a problem paying them."

The worst thing you can do about your taxes, Hayman says, would be to ignore them.  “Just don't run and hide. Do something," she says.  "Call them. Lay it on the line, tell them your story and they will try to work with you."

Jodie Reynolds with the IRS says there is a toll-free number you can call: “Anybody can call the 1-800-829-1040 line with tax law questions – account questions, if you have a balance due."

But Hayman says IRS.gov is quicker and often more reliable than calling the IRS.  “I think going to the IRS website should be first choice," she says.

Copyright 2011 ABC News Radio

Sunday
Feb272011

Tax Tip: Using Withholding Calculators

Photo Courtesy - Getty Images(NEW YORK) -- Did you get a refund last year? Most taxpayers did.

“Last year the average refund was almost $3,000 and about three in four taxpayers got refunds," said Eric Smith the IRS. “Many of those folks, if they use the withholding calculator, they could have less withheld from their paychecks, have more of their money during the year."

Jodie Reynolds with the IRS has this advice: ”Every year we actually encourage taxpayers who work and have an employer and are going to receive W2 wages to go in and use the IRS withholding calculator to determine how much they should have withheld from their taxes."

Many websites offer tax calculators. Kathy Pickering with H&R Block says they can be helpful for those with several employers: “If they change jobs or if they're working multiple jobs where they've got a couple different paychecks it can be a little bit more complicated to predict it there."

Copyright 2011 ABC News Radio

Friday
Feb252011

Tax Tip: Parents Who Adopt Get a Big Tax Break

Photo Courtesy - Getty Images(NEW YORK) -- There are changes in the adoption tax credit.

Eric Smith, who is with the Internal Revenue Service says, "If you adopted a child, you can now claim a credit that can be as much as $13,170 based on the expenses you had in adopting that child."

Smith adds that the credit is refundable, which means you can get it you owe no taxes.

While it's a very generous credit, though, you must submit proof you qualify in order to claim it.

"In most cases, we encourage people to file electronically," Smith says. "But this is a situation where you need to file a return on paper to get this credit."

But Kathy Pickering of H&R Block says you may need expert advice for this one.

"There's a lot of rules about carrying forward expenses and things like that, and so, you could be at risk of not getting the full benefit if you don't understand all the rules."

Copyright 2011 ABC News Radio 

Wednesday
Feb232011

Tax Tip: Online Payment Agreements for Taxes You Owe

Photo Courtesy - IRS [dot] gov(NEW YORK) -- If you owe money to the Internal Revenue Service, you may be able to pay it back over time.

Eric Smith, who's with the IRS, says you can go on the agency's website to set up a payment plan.

"The online payment agreement option on IRS.gov allows you to find out in a matter of a few minutes whether you qualify for a payment agreement with the IRS," says Smith.

Once qualified, you can agree to pay a certain amount of your debt each month.  Smith says a "monthly payment agreement is the best way to take care of a tax debt that you can't pay all at one time."

He says the IRS knows "many people are facing very severe financial difficulties" and the agency understands that.

Ignoring your taxes can lead to penalties, but Smith says if you contact the IRS it will listen.

"Anybody for any reason can get in a tough spot from time to time.  We're willing to work with people to try to work out those tax debts, those tax obligations," he said.

Copyright 2011 ABC News Radio

Tuesday
Feb222011

Tax Tip: Taking Advantage of Health Savings Accounts

Photo Courtesy - Getty Images(NEW YORK) -- It's been around for about a decade now, but many people still don't understand how a health savings account works.

As one person decribes it, think of it as an IRA for your health care expenses, with triple tax savings.

"You put your money into the health savings account tax free, and then it grows tax free.  The interest you earn on it is tax free, and when you take money out for qualified medical expenses, that's tax free as well," says Kathy Pickering with H&R Block.

Pickering says health savings accounts can no longer be used for over-the-counter medication, but many doctors will write prescriptions for those drugs.  And unlike a flexible savings account, the health savings account money rolls over year to year.

"If you can hold on to your health savings account, say as you lose your job, if you move to a new job, you can still use those funds and then if you can hold onto it until retirement.  That's just additional money that you can use later when you need it," she says.

Copyright 2011 ABC News Radio

Saturday
Feb192011

Tax Tip: Uncle Sam Brings Tax-Deduction Apple For Teachers

Photo Courtesy - Getty Images(NEW YORK) -- With school districts around the country continuing to cut expenses, teachers in many areas are being forced more now than ever to fill some of the gaps. A number of teachers often find themselves shelling out their own money to purchase classroom books, computer equipment and other supplies.

Kathy Pickering with H&R Block says educators can take a tax deduction on some of those expenses.

“That's $250 for teachers who are using out-of-pocket money to purchase classroom supplies,” she said.

And you can take advantage of the deduction no matter what tax form you use.

“They can claim a deduction on the front of their return, so this is a deduction you can get even if you don't itemize your deductions,” said Eric Smith with the IRS.

Just make sure to keep all of your receipts.

The deduction is available to all teachers, principals and counselors from kindergarten to the 12th grade.  If both spouses are teachers, you can deduct $500 for the household.

The deduction does not apply to parents who home-school their children.

Copyright 2011 ABC News Radio

Friday
Feb182011

Tax Tip: Electronically Filing Your Taxes for Free

Photo Courtesy - Getty Images(NEW YORK) -- The IRS is not mailing out tax forms this year, since millions of tax filers pay $20 or $30 for a software program to do their taxes for them. But many of those people could do it for free.

“The majority of Americans, about 70 percent, qualify for free e-filing through IRS.gov,” said Mary Beth Franklin with Kiplinger’s Personal Finance magazine, who notes that you have to make less than $58,000 a year to qualify.

“They have a partnership with about 20 different software vendors and you can prepare and file your income taxes for free,” she said.

No need to worry about keeping up with the latest tax law changes.

“It is absolutely up to date reflecting all the changes and there are many for the 2010 tax filing season,” Franklin said.

Even if you don't qualify for free filing, you can still use the Free File Fillable Forms. Just put in the numbers, and they will often do the math for you.

Copyright 2011 ABC News Radio







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