8 Tips for Filing and Paying Income Taxes
Tax season is here – and these eight tips for filing and paying income taxes will ease your pain! These tax tips are from Ethan Ewing, the president of Bills.com. Remember, income taxes are due on April 15, 2009 for Americans…and Canadians have until the end of April.
“Tax filing season is a necessary evil,” says Ewing. “But with appropriate preparation, you can make sure you are paying only what you owe and no more.”
For more info on income tax, read J.K. Lasser’s 1001 Deductions and Tax Breaks 2010: Your Complete Guide to Everything Deductible by Barbara Weltman.
And, here are Ewing’s tips for filing and paying income taxes.
8 Tips for Filing and Paying Income Taxes
1. Maximize your deductions. Consult with a tax advisor to receive all qualified tax deductions. Remember these income tax deductions:
- Donations to nonprofit organizations of money, vehicles, clothing and household items, or stocks or other investments.
- Contributions to retirement accounts, medical savings accounts, health savings accounts and 529 college savings plans.
- Medical and dental expenses that exceed 7.5 percent of adjusted gross income.
- Flexible spending account contributions for expenses such as child care and medical care.
- Some health insurance premiums, such as those for self-employed individuals or people who cannot choose to purchase health insurance at work.
- Student loan interest and some education expenses.
- Some job-hunting or moving expenses.
2. Take credit for economic impacts. Ask an income tax advisor how you are affected by any losses in investments, or how a job loss affects current or future tax. This tip for filing and paying income taxes can affect your future payments.
3. Deduct an investment in America. Taxpayers who bought a first home in 2008 can claim a maximum $7,500 income tax credit on their 2008 tax return. That credit must be repaid in $500 increments on future annual tax returns. Americans who purchase a first home between Jan. 1, 2009, and Dec. 1, 2009, may be eligible for a tax credit of up to $8,000, which need not be repaid. They can claim this credit on the 2008 tax return (either filed on time or with a six-month extension) or on the 2009 tax return.
4. Get paid back for green improvements. 2008 investments in home energy efficiency — such as solar systems, geothermal heat pumps or small home wind turbines — qualify for a credit for 30 percent of the equipment cost, up to $2,000. (That limit no longer applies in 2009.) Energy-saving home improvements, such as windows, exterior doors and high-efficiency heating or air conditioning equipment, bring a 10 percent credit for 2008, with a maximum credit of $200 per category. In 2009 and 2010, the credit will be 30 percent, up to a maximum $1,500 total, with no category cap.
5. Deal with a small tax refund. Some people are disappointed if they do not get a refund, but a refund means the taxpayer gave the IRS an interest-free loan. For most people, that cash would serve them better in their wallets every week. Those who have a sizable refund coming should talk with a tax advisor about completing a new W-4 with their employer, choosing a number of exemptions that will provide for the most appropriate withholding of taxes. This income tax tip will help you achieve your financial goals!
6. File your income taxes on time. Filing late incurs penalties and interest for those who owe money to the IRS. If a return is filed more than three years late, the filer forfeits any refund on that return. The penalties for not paying tax owed with a filed return are much less than the penalties for not filing a return with an unpaid balance. Filers who are considering not filing a return because they cannot pay the bill are probably better off filing and avoiding the substantial late-filing penalties. When individuals or couples cannot pay because of a death in the family, serious illness, financial records lost in a natural disaster, or reason the IRS deems “reasonable cause,” the IRS might waive penalties for those who contact the agency to negotiate solutions.
7. Get an extension. If for some reason a taxpayer cannot complete his or her return, he or she can file for an extension (IRS Form 4868). Keep in mind that this is an extension to file, not an extension to pay taxes owed. Penalties might still apply, but they will be less than if the person simply does not file. This tip for filing and paying income taxes can protect you from unnecessary financial penalities.
8. Get income tax help. Specialists, often found at or through reputable debt settlement firms, can negotiate directly with the IRS on behalf of consumers who owe $10,000 or more. Tax relief specialists usually are attorneys, enrolled agents or certified public accountants with special training and experience. They can navigate the intricacies of IRS forms and calculations, help consumers understand the criteria the IRS imposes, and then help them get back into good standing with the IRS. . This tip for filing and paying income taxes may cost a little in the short run, but be good in the long run.
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