The headaches of tax season! As the deadline nears here are some helpful hints that could relieve some of your stress and put more money in your wallet.
Tax Tip No. 1: Which Form to Use?
When filing your federal income tax return, half the battle is deciding which form to use. For most of us there are three to choose from:
1040EZ
This is the easiest by far but:
Your taxable income must be under $50,000
Most of that income should come from wages, salary, tips and overtime
You can’t owe household employment taxes
You can’t claim dependents
Married couples must file jointly
You must be under 65
1040A
If you need a little more flexibility in income then the 1040A is the next best thing:
Your taxable income must be under $50,000
You can claim dependents
You are allowed some deductions, but no itemizing
1040
If your taxable income is higher than $50,000 or if you are self-employed you’ll have to use the 1040 anyway even if you don’t plan to itemize.
Tax Tip No. 2: The Cost of Tax Help
How much should you expect to pay to have your tax returns prepared? That depends a lot on how complicated they are, but for most of us it’s pretty simple.
H&R Block, the largest chain in the tax preparation business, charges an average $92.86 per return.
Jackson Hewitt averages between $100-$110.
Keep in mind these are averages for all types of individual returns — from the most basic to the most detailed. If you don’t itemize you’ll probably pay a lot less.
Private tax preparation costs are frequently higher. But if your taxes are complicated, a private preparer may work best for you. To make sure you get an experienced tax professional, look for one of these:
Enrolled agents are either former IRS employees or have passed an IRS exam.
Certified Public Accountants have passed state qualifying exams for accounting, but be sure to ask about their knowledge of current federal tax laws and about their tax prep experience.
For more complex tax matters, a tax attorney may be the way to go.
Remember a private tax specialist can not only accompany you to the IRS if you are audited, but they can even go in your place as your representative. Not all chains can do that
Tax Tip No. 3: Help Me!
Do I have to pay taxes on my unemployment? Can I deduct the interest on my student loan? Do we qualify for a child credit?
Answers to these and just about any other tax question you may have can be found easily on the World Wide Web. You can even learn how to file your taxes electronically or find forms to print out and send snail mail.
Your first stop is an obvious one:
The Internal Revenue Service’s own www.irs.gov can help you with all your federal tax preparation needs, but it’s not necessarily the most user-friendly.
The tax software specialists at Quicken do a better job breaking down the rules and regulations in plain English at www.quicken.com. You can even get the lowdown on President Bush’s tax plan and what it could mean to you and your family.
Tax Tip No. 4: Surprise – It’s Taxable!
No matter how much money you think you made last year, you can bet Uncle Sam thinks you made more.
It may not make sense to you and it may even sound like you’re being double taxed. But the federal government wants its cut of just about all of your income no matter where it comes from, even when it comes from the federal government.
So get ready to pay taxes on:
Social Security – up to 85 percent depending on your income
Unemployment compensation disability if the premiums were paid by your employer
Alimony
Jury duty
Some state and local tax refunds
Gambling winnings
Tax Tip No. 5: Take it Off!
What can you deduct on your federal income tax return?
You probably know the usual suspects: kids, interest on your mortgage and charitable donations. But here are some deductions you may not know about:
Points paid to buy a home or refinance a mortgage
Home equity loan interest
State and local income taxes
Portion of personal property taxes
Moving expenses due to a job change
Investing losses to offset gains
Gambling losses to offset gains
Medical expenses that add up to 7.5 percent of your adjusted gross income
Tax Tip No. 6: Common Tax Blunders
About the only thing worse than doing your federal income taxes is doing them incorrectly. Make no mistake, if you mess up your federal tax return you will be sorry.Here’s a list of the most common blunders for you to avoid:
Social Security numbers that don’t match names
This is a big one. Marriage, divorce, adoption – there are a lot of reasons names change but if the Social Security administration didn’t get the memo, then the IRS won’t know who you are. So, make sure both agencies have the same information on you and any dependents you claim.
Incorrect filing status
This seems like a no-brainer: you’re either single or married. But can you claim head of a household? Only if you’re single and pay more than half the cost of a qualifying dependent. Otherwise leave this one alone.
Taking credits you don’t deserve.
Earned income and child tax credits are the most common culprits. Make sure you qualify.
Math Errors
Simple math is always a problem. Check and double-check your figures.
Forgetting to sign.
Lots of people forget and joint filers often skip one spouse’s signature. Make sure you don’t.
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