With January nearly over and 1099s and W-2s arriving in the mail, it's time to get serious about those tax returns. Before you fire up the software or the mobile app or talk to your accountant, Kathy Pickering, executive director of H&R Block's Tax Institute, offers seven tips to help manage this stressful event:
Prepare Like Always
Tax season is a little strange this year. The deadline for filing tax returns with the Federal government and most states is April 18. However, Montana, Tennessee and Georgia still have due dates of April 15.
In addition, due to the late passage of the tax bill, the IRS says it needs until February 14 to be ready to accept itemized returns.Still, get everything ready, Pickering told WalletPop in an interview. "Even if you think you might itemize, sometimes the difference between the standard deduction and your itemized deduction is not that much. Get the return queued up and it can be pushed through the minute the IRS says it's ready. That is the fastest way to insure you get your refund."
H&R Block is offering to file for free, either online or on-site, 1040EZs through February 15.
Don't Paper File Unless You Have To
Pickering said that what H&R Block is hearing from the IRS is that they will process electronically-filed returns before paper ones. Don't inadvertently delay your refund by turning to paper.
Unemployment Monies Are Taxable
Be aware that the first $2,400 is no longer tax-free. In 2010, all unemployment benefits are fully taxable.
But if you've been looking for work, tally up all your expenses, like hiring a search firm, traveling for an interview, or getting your resume prepared. If your job search cost is 2% of your adjusted gross income, then you may qualify.
If you're taking a class to update your job skills, look into education credits like the Lifetime Learning Credit (up to $2,000).
First-Time Homebuyer's Credit Pitfalls
If you bought your home in 2008 and took advantage of the first-time homebuyer's credit, it was actually an interest-free loan that you have to start paying back starting this year. "If you took the maximum credit of $7,500, you need to repay it in 15 annual installments of $500," explained Pickering.
If you purchased your home in 2009-2010, then the first-time homebuyer's credit is in fact a credit. However, you must stay in that home for three years or you will have to repay that credit.
Sandwich Generation Gets Some Relief
If you're providing more than 50% of the financial support for your aging parents, you may be eligible to claim them and get about $3,600 of exemptions. If you are doing the same for grown children because they are struggling, you may be able to claim them as well and score up to $3,600 in exemptions.
"There are a lot of rules so look into it and make sure you are getting help to know the rules," cautioned Pickering.
Perhaps the biggest help came in the health care reform bill, in which children under 27 can go back on their parents' health insurance if needed.
Education Can Be a Money Saver
The price of higher education is climbing higher and higher each year. Cut that bill down a little bit by taking advantage of the American Opportunity credit, which allows you to request a $2,500 credit for each child who is currently attending college or a degree-granting program.
No Matter What, Don't Panic
Whatever you do, file that tax return. Even if you don't have the money to pay the IRS, said Pickering. "You can always work out a payment plan with the IRS. But if you don't file, they will start assessing penalties and interest and late filing fees. Only in very rare cases do they settle so a lot of those ads [about debt settlement] is sensationalized. The IRS is not going to negotiate with everyone."
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