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Entries in Tax Tips (10)

Wednesday
Apr042012

IRS Taxes: Late Filers Can Avoid Costly Mistakes

iStockphoto/Thinkstock(WASHINGTON) -- The April 17 tax deadline is rapidly approaching, and millions of people wait until the very last minute to file.

But what happens if you can’t file your 2011 returns on time or pay your taxes?

The IRS says don’t panic. But the worst thing you can do is to simply ignore the deadline.

“Even if you owe money and you don’t know how you’re going to be able to afford to pay that balance due, first and foremost file your taxes,” says Kathy Pickering, executive director of the H&R Block Tax Institute.

“You can work out a payment plan with the IRS.” You may incur some interest or some payments, she says, but the penalties are far worse if you don’t file.

Automatic extensions are available to taxpayers who need more time to finish their returns. But remember: this is an extension of time to file; not an extension of time to pay.

“What you can do is just file without even paying your taxes and they’ll contact you,” says Pickering. The IRS will send you a letter “and you can work out a payment plan then.”

Taxpayers will avoid stiff penalties if they file either a regular income tax return or a request for a tax-filing extension by this year’s April 17 deadline.

People who haven’t finished filling out their return can get an automatic six-month extension. The fastest and easiest way to get the extra time is through the free file link on IRS.gov. Use form 4868.

By properly filing this form, a taxpayer will avoid the late-filing penalty, normally five percent per month based on the unpaid balance that applies to returns filed after the deadline.

Last month, the IRS introduced the Fresh Start program for people who are out of work.

“If you’ve been unemployed for 30 days or more, whether in 2011 or 2012, you can have until October 15th to pay your taxes in full and they won’t assess the failure to pay penalty,” says Pickering. “I think it’s going to be a good program for some people.”

Some taxpayers get more time to file without having to ask for it. These include: taxpayers who live and work abroad, as well as members of the military on duty outside the U.S. They have until June 15 to file. Tax payments are still due April 17.

Members of the military and others serving in Iraq, Afghanistan or other combat zones can wait at least 180 days after they leave before they have to file or pay taxes.

People affected by certain tornadoes, severe storms, floods and other recent natural disasters may have until May 31 to file and pay. If this may be you, find out more information at the official website IRS.gov.

Copyright 2012 ABC News Radio

Wednesday
Feb082012

Tax Tip: Know Your Filing Status

Creatas/Thinkstock(NEW YORK) -- When you fill out your 1040 form this tax season, you will need to choose your filing status. Depending on which box you check, the choice could wind up costing you a lot of money.

H&R Block's Kathy Pickering gave one woman's story: "She was a single woman who was caring for a number of kids, some nieces and nephews full time, and she had filed as a single filing status whereas had she filed head of household, she would have had a more favorbale status."

Accountants say it's a good idea to run the numbers if you fall under more than one filing status. For instance, many married couples wonder whether it makes more sense to file separate returns than filing a joint 1040.

As Eric Smith with the IRS explains, only about 1 or 2 percent of married couples find filing separately works better for them.

"There are some deductions and credits that are not available if you file separately, but only are available if you file jointly, so that's another consideration," he says.

Copyright 2012 ABC News Radio

Tuesday
Feb072012

Tax Tip: Which Form Should You Use When Filing?

Ryan McVay/Photodisc/Thinkstock(NEW YORK) -- Once you have all your tax paperwork in front of you, the next step is figuring out which form to use when you file.

There's the full 1040 form, which anyone can use, but there's also the simpler 1040A and 1040EZ.  So which one is right for you? 

As Eric Smith from the IRS explains, "The 1040EZ targets primarily single individuals and married couples who don't have any kids and have a very simple income structure."

With the EZ form, you cannot itemize your deductions and your taxable income has to be less than $100,000.

If your situation is a little more complicated, the 1040A form might be a better fit.

"Some tax benefits that can be claimed that are not available on the EZ, such as the child care credit, child tax credit, the EITC -- earned income tax credit -- is available on the 1040A," Smith says.

However, if you're reporting any self-employment income, or money from the sale of a property, than longform 1040 is the choice for you.

Copyright 2012 ABC News Radio

Monday
Feb062012

Tax Tip: Things to Do Before You File

Comstock Images/Thinkstock(NEW YORK) -- The countdown to Tax Day is underway, and while many may dread filing their taxes, the process can be made easier with some organization.

"The first thing everyone should do before they even put pen to paper or go online to file their taxes is to get everything in order," advises Farnoosh Torabi of Yahoo Finance.

That includes "All your W2s, your 1099s if you are freelancing, if you work on the side; all of your receipts, [and] if you have any deductions that you want to qualify for," Torabi explains.

He adds, "It's really important to get a paper trail going."

And once you have all that paperwork together, tax accountant Janice Hayman says, "It's really important to make certain that you report all of your earned income, all of your investment income -- basically income from all sources, and you don't want to forget to claim every possible deduction you're entitled to."

Those deductions may include charitable donations and business expenses you paid for, plus state and local income taxes.

Copyright 2012 ABC News Radio

Thursday
Mar172011

Tax Tip: Bites in the Tax Bill for the 'Sandwich Generation'

Comstock/Thinkstock(NEW YORK) -- The so-called "sandwich generation" continues to be a growing segment of the U.S. population as parents are stuck in the middle, balancing care for their loved ones amid the recent slumping economy.

"We're finding a lot of families where they're caring for their elderly parents as well as they may have kids that moved out, then came back home because they couldn't find work," explains Kathy Pickering with H&R Block.

But, as Pickering notes, there may be potential tax breaks for these "sandwiched" individuals.

"If you're providing more than half the support -- food, clothing, shelter, transportation -- you could claim them as an exemption and that might be worth a little bit more than $3,600," she says.

Likewise, if you have an adult child who has moved back home and you're paying for their support and they have no income, similar rules could apply.

Read Internal Revenue Service publication 503 to see if you qualify, and if you do, use IRS form 24-41 -- for child and dependent care expenses -- when preparing your taxes.

Copyright 2011 ABC News Radio

Friday
Mar042011

Tax Tip: Check Your Return Carefully Before You Send It

Duncan Smith/Getty Images(NEW YORK) -- It's the little things that can trip you up when filling out a tax return.

"It's always best to make an early start on your tax returns," said Eric Smith of the IRS. "That's because people who wait until the last minute are much more likely to make mistakes," which can lead to delays and questions from the IRS about your return.

After filling out the forms, Smith advises that you "put the return aside for a day or two, maybe check it over with kind of a fresh perspective, and then you're in a much better position to say 'hey, you know something's missing here' or 'something's not missing, I'm ready to go.'"

Check more than just income and deductions, says Kathy Pickering of the tax firm H&R Block.

"Make sure your Social Security number is right, that your children's social security numbers are right, that your name is spelled correctly."

Doing your returns early may also be less stressful.

Copyright 2011 ABC News Radio

Monday
Feb212011

Tax Tip: Where to Get the Best, Cheapest Online Advice

Photo Courtesy - Getty Images(NEW YORK) -- The Internet is filled with tax advice -– some of it good, some of it just a big advertisement. The first place to look for good tax advice is on the Internal Revenue Service’s website.

“IRS.gov has a wealth of information,” said Jodie Reynolds of the IRS. “We have earned income tax credit calculators, we've got withholding calculators, if you have tax law questions.”

Accountant Janice Hayman says that's where she sends some of her clients.

“I am constantly surprised with their updates,” Hayman said. “They have wonderful features now.”

Many tax preparation companies also have their own websites, and most will answer some of your tax questions. Their main goal, however, is to sell their product.

“We have a lot of additional tax tips and information,” said Kathy Pickering, referring to her company’s site, HRBlock.com. “We've got calculators, and of course, that's where you would go if you want to prepare your taxes yourself.”

Copyright 2011 ABC News Radio

Sunday
Feb202011

Tax Tip: Saving Energy and Taxes

Photo Courtesy - Getty Images(NEW YORK) -- If you upgraded your appliances or fixtures to make your home more green, you're likely to be eligible for a tax break.

“If you put in energy-efficient windows, doors, or something like that in 2010, you can get a tax credit of up to $1500,” said Eric Smith with the IRS.

The residential energy credit gives you back 30 percent of what you spent on your home – up to $1500.

The credit is available for 2011 - but reduced.

“That tax credit has been scaled back to $500 instead of $1500,” said Mary Beth Franklin with Kiplinger's Personal Finance. “If you took advantage of the $1500 credit in 2009 or 2010, you don't get another crack at the lower credit in 2011.”

There are, however, still some alternative energy credits on the books for larger home projects, like installing solar panels and small wind turbines.

Copyright 2011 ABC News Radio

Sunday
Feb132011

Tax Tip: Using the Right Forms

Photo Courtesy - Getty Images(NEW YORK) -- There are literally hundreds of IRS tax forms. Fortunately, there are only a dozen or so that apply to most people. When it comes to choosing which 1040 to use, Mary Beth Franklin from Kiplinger's Personal Finance says “pick the simplest tax form for you.”

“If you simply have wage income W-2, you can go with the 1040EZ,” Franklin said. That one won't allow you to make anything but the standard deduction, and it might be the wrong move, according to accountant Janice Hayman.

“A lot of people file the short form mistakenly when they truly do have enough to use the long form and itemize their deductions," Hayman said. "What is commonly overlooked are the state and local income taxes that are right there on their W-2 form. They are part of the itemized deductions.”

You have to use the full form -- a 1040 -- if you want to itemize your deductions, make more than $100,000, or have self-employment income.

Copyright 2011 ABC News Radio

Saturday
Feb122011

Tax Tip: Taking Classes? Inquire About Tax Credits

Photo Courtesy - Getty Images(NEW YORK) -- The government wants you and your children to go to college and offers up a few tax savings to help you foot the bill.

The first is the American Opportunity Credit, which offers a maximum $2,500 credit.

“To qualify for the maximum credit, you only need to spend as little as $4,000, and with the cost of tuition, fees and books what they are today, it doesn't make much to get to that level,” said Eric Smith of the IRS.

“They need to be part of a degree program of some kind,” Smith said. “You need to be at least a half-time student.”

Say you want to take a class – maybe just an evening course to help update your job skills – there’s a tax credit for you, as well.

“The Lifetime Learning Credit may be something they could take advantage of if they're not able to go to school full time,” said H&R Block’s Kathy Pickering.

Check out Publication 970 at IRS.gov to see if you qualify.

Copyright 2011 ABC News Radio







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