It's that time of year again—tax time. With a few precious weeks left before the filing deadline, households across the country are scrambling to gather receipts, 1099s, and W-2 forms so that the task of assembling and filing the annual income tax return can begin. Whether you are one of the proactive types who take pride in filing your return early or part of the majority who have a tendency to procrastinate, we are all in the same boat as we float toward that April 15th deadline. For those who have delayed working on a tax return for one reason or another, there are a number of tips available to help with filing that may both help you take advantage of deductions and help speed the processing of your return and the receipt of your refund.
When preparing your 2008 Federal income tax return, the Internal Revenue Service (IRS) offers the following tips and pointers to help you better utilize any deductions that you may be eligible to claim:
First-time Homebuyers Tax Credit: First-time homebuyers can take advantage of a new tax credit for a limited time. The credit applies to primary home purchases made between April 9, 2008 and June 30, 2009. First time homebuyers are those who have not owned a home in the three years prior to a purchase. Normally this tax credit must be paid back in equal payments over 15 years. The credit is 10% of the purchase price of the home, with a maximum available credit of $7,500 for either a single tax payer or a married couple filing jointly.
Real Estate Tax Deduction: An additional standard deduction exists for those who don't itemize their deductions but pay real estate taxes. The additional deduction amount is equal to the amount of real estate taxes paid— up to $500 for single filers or up to $1,000 for those filing jointly. This deduction is available for the 2008 and 2009 tax years and increases your standard deduction.
Recovery Rebate Credit: For those who did not qualify for or did not receive the maximum amount for the 2008 economic stimulus payment, you may be entitled to a recovery rebate credit when you file your 2008 tax return. Review the tax return filing instructions including the recovery rebate credit worksheet. You need to know the amount of the payment you received in 2008, which can be found on your Economic Stimulus Payment Notice (notice 1378). Two online tools on www.irs.gov—The Recovery Rebate Credit Calculator and How Much Was My 2008 Stimulus Payment?—are available to help taxpayers figure the amount they should claim on their 2008 tax return.
Tuition and Fees Deduction: You may be able to deduct qualified tuition and required enrollment fees up to $4,000 that you pay for yourself, your spouse, or a dependent. You do not have to itemize to take this deduction, however a taxpayer cannot take both the tuition and fees deduction and education credits (Hope & Lifetime Learning Credits) for the same student in the same year. Both income limits and other special rules apply to each of these provisions.
Earned Income Tax Credit (EITC): The federal government offers this credit to both working families and individuals. You may qualify for the earned income tax credit (EITC) if you worked but did not earn a lot of money. The EITC is a refundable tax credit meaning you could qualify for a tax refund even if you did not have federal income tax withheld. If you qualify, the amount of your EITC will depend upon whether you have children, the number of children you have, and the amount of your wages and income.
New Rules for "Cash" Charitable Contributions: Since the 2007 tax year, in order to deduct any charitable donations of money, you must have a bank record, credit card statement, or a written communication from the recipient showing the name of the organization and the date and amount of the contribution.
New Children: If you had or adopted a child in 2008 you should get a Social Security number for that child as soon as possible to ensure that you can include the child as a dependent on your 2008 return. Also, having or adopting a child in 2008 may mean you will receive a larger recovery rebate credit.
Electronic Filing and Direct Deposit: The most accurate and fastest way to file your tax return is via electronic filing or e-filing. Last year, the IRS stated nearly 90 million returns were filed electronically and accounted for about 58% of all filers. The process of e-filing is easy, safe, and accurate. The fastest way for you to receive a tax refund is to use the IRS's e-file and choose direct deposit. You can receive your refund in as little as ten days with IRS e-file and direct deposit. The error rate of an e-filed return is less than 1% compared to 20% for a paper tax return. The IRS states that e-filing is the most efficient way to prepare your taxes, particularly taking into consideration the 2008 tax law changes. About 70% of taxpayers can prepare and file electronically for free when they enter through www.irs.gov and use "Free File". Added advantages of using Free File and direct deposit are that you can file your taxes at any time—day or night—and you save paper.
The IRS website includes publications that more fully describe the deductions mentioned above plus all other aspects of the tax code. Publications can be downloaded or ordered from the website at www.irs.gov.
There are some things in our lives that we just have to do and filing yearly income tax returns falls into that group. Take advantage of the advice and tips provided by the government and make sure you claim any and all deductions for which you qualify. During these challenging economic times, every penny counts!
As with any financial situation, consult with your accountant or financial advisor for specifics regarding your particular situation.
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