April 2009 Topic - Taxe Tips, Planning, Overlooked Deductions & Avoiding common errors when filing taxes

Tax time has come and gone again. Some of you may have been waiting for this, while others cringe when they realized the deadline was near. How do you know that you are getting the money back you deserve? Should you file yourself or hire someone? What are all these new tax breaks that are being offered and do you qualify? I am sure many of us have pondered these questions over the past couple months. Throughout this month's newsletter we will explore the new tax breaks being offered as well as frequently asked questions.

01.  Hiring A Tax Preparer & Tax Software
02.  Common Errors & The Most Overlooked Deductions Plus New Credits
03.  Frequently Asked Questions
04.  How Tax Dollars are Spent
05.  Tax Terms

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1. Hiring A Tax Preparer

Many Americans will hire someone to file their taxes. In all honesty most of us do not have time to sit down for a quiet cup of coffee, no less spend hours preparing our taxes. Not to mention, you assume that hiring a professional is best since they will do everything legitimately. Unfortunately, this is not always true. You want to be sure you research the accountant or tax preparer that you are hiring. After all you are held responsible if that person does something incorrect. Be sure that person is accredited. Typically speaking certified public accountants and tax attorneys have the proper accreditations. The reason is they are required to attend continuing education classes. Also, look into any references the tax preparer has. If you do not know of anyone who has used their services ask for references. Assuming they have nothing to hide they should offer immediately. Regardless of references you will still want to shop around. You will want to compare fees and be sure that you are not being overcharged.

Tax Software

In today's society everything is done with the click of a button including taxes. If you go into a store you will find numerous programs available offering to make your taxes easier and quicker. How do you know which is the best for you? Each program is designed for certain needs. The first step will be figuring out your specific needs. On the back of the packages each program will tell you generally what it does. Let's save ourselves some time though there are 2 different types of filers. The first is someone who knows about taxes, but is not good at math. The other is someone who can do math, but has no idea about filing taxes. You should talk to people in the store and determine based on your needs what is best for you. Many programs offer features that you simply may not need. By doing a little research you could save yourself some money, time and aggravation. Many times the basic programs are just as thorough as the "deluxe" versions

2. Common Errors & Overlooked Deductions Plus New Credits

Double-check all figures on your return. Math mistakes are among the top reasons the IRS adjusts returns

When filing a paper return use the address label off the tax return the IRS sent you. If you don't have that label fill in the information legibly. An incorrect address can lead to a delay in filing as well as receiving your refund.

Be sure you choose only one filing status on your return. If you claim the wrong status you could lose some money you are entitled to.

Check your social security number and be sure it is accurate. The IRS will automatically reject any return with an incorrect social security number.

If you are choosing to have your refund directly deposited be sure you give the correct banking information.

Attach all necessary documentation (W-2, 1099,etc.) plus, if you are claiming to have made charitable donations attach any receipts.

The IRS collects millions of dollars in overpaid taxes every year. Taxpayers often times do not claim all deductions and credits available to them.

If you owe the IRS money include the check with your social security number, tax form number and tax year on the check.

Keep a copy for your records.

Most Overlooked Deductions Plus New Credits

Parents who pay student loans:
Up until this year if parents paid back a student loan taken out by their children no one received a tax break. There is an exception now if parents pay the loan back the IRS will look at is as if they gave the money to their child. Therefore, a child who is not claimed as a dependent can qualify to deduct up to $2,500 of the loan interest.

Charitable Contributions:
Everyone knows you can write off the big donations that you make throughout the year to charities. Did you know that you could also write off out of pocket expenses; such as ingredients you purchased to make the meals for the soup kitchen? Just save the receipts and it will add up by the end of the year.

Moving Expenses to take First Job:
Moving expenses to get to your first job can be used as a write-off. If you must move greater than 50 miles you may deduct the cost of the move, as well as gas and tolls.

Child-Care Credit:
You can actually get reimbursed for some of your day care bills. The credit applies to no more than $6,000 of qualifying expenses.

Health Insurance Premiums:
Any premiums you must pay out of pocket could be deductible. Medical expenses must exceed 7.5% of your adjusted gross income prior to getting any tax benefit.

New car credit:
You may now deduct the sales tax paid on a new car bought between February 17,2008 and December 31,2008. There are some restrictions, which include but are not limited to, income and amount of car.

Hybrid Tax credit:
In 2008 and 2009 the IRS is offering a tax credit between $250 and $1000, plus an additional fuel credit between $400 and $2400.

3. Frequently Asked Questions

Who must file?
Everyone who is a citizen or resident of the U.S. or Puerto Rico under the age of 65 who has a gross income of $8,200 must file a tax return. If you are above the age of 65 and have a gross income of $9,450 you must also file.

What determines my filing status?
Your filing status is determined by your marital status, and family situation. It is based on December 31, the last day of the tax year.

I am self employed what do I do?
You must file if your net earnings were $400 or more. It is actually to your advantage to file because you then become eligible for social security benefits.

Is there a deadline for filing taxes?
Yes. This year's deadline for filing 2005 taxes is April 17. Normally the deadline is April 15 but since that would be a weekend it is extended to the 17th.

Can I get an extension without getting penalized?
Yes. If you needed an extension you must file a form 4868 for an extension before April 15, 2009

I owe money how do I pay?
You may pay by check, money order, or credit card. For those who file electronically you should also be able to pay at that time.

Are there any common mistakes that I should be sure not to make?
Yes. Always be sure to check your math. A simple math error can cause you many problems when filing. Be sure that your social security number is stated clearly on each page of your tax return. Do not forget to claim all dependents and be sure that if someone is claiming you then you may not claim yourself. Remember to attach all W-2 forms. If they are not attached at time of filing it will delay the process and your refund.

Finally make sure that you keep copies of everything that you send the IRS just in case they do not receive it.

If I do my taxes myself how long should I anticipate it would take?
The IRS estimates it takes the average taxpayer 13 hours to complete form 1040.

I recently adopted a child and was wondering if I get a tax credit?
Yes, if you have adopted a child under the age of 18 last year you can usually get a tax credit up to $10,630. This number should include any travel, legal or adoption fees that you may have been charged.

Does a child under 14 have to file a return?
If the child's only income is interest and dividends the parent or guardian can include the child's earnings on their tax return.

If my spouse and I file separately must I include both of our social security numbers on my tax return?
Yes. If you are married you must include both of your social security numbers on each tax return.

For more Frequently Asked Questions, you can click onto the official IRS web site link. http://www.irs.gov/faqs/

4. How Tax Dollars are Spent

I am sure many of us wonder how our hard earned tax dollars are spent each year. The reality is about 70% of the money is already spent on commitments such as social security and interest on the national debt. You may not be aware, but more than 20% of the total budget is used to pay social security to existing retirees.

From there, 15% is designated for Medicare health benefits, while 7% goes to Medicaid. Almost 5% is split between veteran benefits and supplemental security income for the disabled. Housing subsidies, welfare, food stamps and other government-funded programs for low-income families receive 16% of the budget.

After doing the math you will notice 58% of the budget is government payments to citizens. 10% of the budget is designated for national debt, which has reached a high of about $9 trillion. So now you are wondering where does the rest of the money go. The military receives a large portion of funds. The military will receive around 30%. Roughly 20% will be put toward defense weapons, as well as the salaries of our soldiers. The remaining 10% goes to homeland security.

Finally, the last 8.5% goes for everything else including public transportation, medical research, the environment and many other things. Unfortunately, there is still not enough money to distribute to each area and the deficit is increasing annually.

5. Tax Terms

Additional Child Tax Credit
A refundable tax credit available to those who have 3 or more children. Regular child credit exceeds tax liability minus other nonrefundable credits.

AGI
Adjusted Gross Income. The income you receive throughout the year. This does not include alimony payments, some business expenses, and some moving expenses. This will be your first step in calculating your final federal income tax bill.

Annuitant
A person who receives a pension or annuity.

Asset
An item of useful or valuable property

Credits
Credits will reduce your amount that you owe. They are actually more valuable to you than deductions since they reduce the amount of tax you owe rather than reducing the amount of taxed income.

Deductions
The Internal Revenue Service allows you to have expenses subtracted from your AGI, which are referred to as deductions. These deductions vary from person to person however commonly they may include interest paid on a student loan or home equity loan, contributions made to a qualified retirement account, and alimony payments.

Standard Deduction
This term refers to a set amount of money that a taxpayer may deduct from their income. This deduction is available to all who file and is determined by the filer's status. Remember these amounts change each year due to inflation. It can be easily found on the tax forms. By using this standard deduction it allows the taxpayer to avoid having to itemize each item such as medical bills.

Itemized Deduction
These deductions are used to lower your AGI. They may include but are not limited to medical bills, mortgage interest, and money given to charity. Some must meet IRS limits before they can be claimed. You must file form 1040 and detail your deductions.

Exemption
The Internal Revenue Service lets you subtract a certain amount depending on how many people count on your income. Exemptions can be claimed for yourself, your spouse, and your dependants. The exemptions are factored in as well as the deductions to come up with your total AGI.

Open Year
A taxable year for which the statue of limitations has not yet expired.

Owner-Employee
A self employed person.

Progressive Taxation
A system where higher tax rates are applied as income increases. The tax brackets range from 10 percent to 35 percent.

Real Property
Also referred to as real estate. May include lands, buildings and structural components.

Taxable Income
Your gross income after all deductions and exemptions have been made. This is the amount that you will be taxed on.

Vested Benefits
Benefits owned by the taxpayer.

Voluntary Compliance
Taxpayers voluntary comply with the tax laws and report their income honestly.

Widower
A man who has not remarried following the death of his wife.

Withholding
This method allows you to pay as you go along. In other words money is taken out of your income for taxes before you receive your check. This money is then placed into an IRS account and you are then credited for the amount when you file.

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Got a question? Then contact our Education Team on 561-883-2398 Ex.310 United conducts regular seminars on financial education, including "How to Budget", come along and join us - to reserve your seat contact our Education Team on 561-883-2398 Ex.310

Newsletter 04
Rev.1
April, 2009