Earlier this Fall, the IRS was offering an amnesty program for offshore tax cheats to come forward and admit their wrongdoing, thereby getting a more lenient punishment.

Nearly 15,000 Americans who knew they were cheating came forward and admitted their bad behavior. From Reuters:

While IRS officials were still analyzing the amount of offshore assets declared in the amnesty program, Shulman said, “we are talking about billions of dollars coming into the U.S. Treasury” from the new disclosures.

This is not the end of the story. Combining these (perhaps) brave souls to the 4,450 accounts which are forcibly being turned over from the Swiss bank UBS, there are just under 20,000 leads that the IRS is now following. For example, they may find that some of the largest account holders were advised by the same unscrupulous high-powered tax adviser. And now we know his or her name, and we can investigate, and find even more cheaters.

This is happening on a State level, as well. According to the Wall Street Journal:

This year, 12 states had amnesties, up from the annual average of two or three. Another 10 or 15 are likely to follow suit in 2010.

If you live in a State with a State Income Tax, and you suspect you might be guilty of tax evasion, I’d recommend you set up a news alert for “[state name] tax amnesty” so that you can have plenty of time to weigh your options.

The Editorial Part

On a personal note, this will probably end up being my favorite story of the year. It takes the cynical view that if you’re wealthy enough, you can buy the power needed to keep more than you’re supposed to, and makes a big ol’ dent in that belief.

We have a big budget deficit, and I believe that’s because the previous administration’s ideas didn’t work out the way they were supposed to. Many people fear that their taxes will be raised as a result, though the only plans I’ve seen to raise taxes will affect maybe 5% of Americans. Amazingly, some people think that their taxes have already been raised (these people are either getting their news from some untrustworthy sources, or their paychecks are coming with a free mirage).

Happily, sometimes you don’t have to raise taxes; you just have to be serious about collecting them.

Nearly 15,000 Americans admit offshore tax cheating, Kim Dixon, Reuters, 17 Nov. 2009
More States Jump on Tax-Amnesty Bandwagon, Arden Dale, Wall Street Journal, 19 Nov. 2009

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Enforcing Tax Laws Works. Go Figure.

Between March 1917 and January 1984, there have been thirteen major changes in the rules for the estate tax, a tax paid by heirs for wealth inherited. Of these thirteen changes, eight were tax increases and five were tax decreases. In 2001, A study by the University of British Columbia and the University of Michigan determined that the timing of death surrounding these changes is elastic.

When the estate tax increased, individuals with wealth to leave to their heirs were more likely to die in the days before the increase than they were after the increase. The reverse is true when the tax law change favored the wealthy. When the estate tax decreased, individuals with wealth were able to hold on to life longer in order to save their heirs money owed to the government.

Here’s the study.

Right now, the estate tax is one of the IRS’s more complicated systems. Keeping it simple, the gross estate, after deductions, is used to determine the amount the heirs owe in tax payments. There are fourteen tax brackets from a rate of 18% for amounts below $10,000 up to 45% for amounts above $1,500,000. Keep in mind these are marginal tax rates. If you inherit $2,000,000 you do not owe 45% of that entire amount ($900,000), you owe $555,800 plus 45% of $500,000 ($725,000). But this is not currently relevant because the “first” $3,500,000 is excluded from the estate tax; effectively, the amount an heir would owe would be 45% of the amount inherited over $3,500,000. This greatly reduces the effective tax rate on an estate — for the 0.3% of all estates that end up owing taxes, their average effective tax rate is under 20% according to the Urban Institute-Brookings Tax Policy Center (source).

Unless Congress changes the law — a legitimate possibility — anyone who inherits wealth from an individual who dies in 2010 is exempt from the estate tax. If history is a guide, we should see the same pattern of convenient timing; those close to death at the end of this year will manage to hang on another week or two to pass away in a more heir-friendly tax environment.

And if the law sunsets in 2011 and the estate tax is back in force, those nearing death at the end of 2010 will accelerate their passing to get in under the wire.

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Changes in Estate Tax Law Affect When People Die

The IRS has not formally announced the federal income tax brackets for 2010 yet. In fact, the 2009 tax brackets are still the numbers I — or more accurately, my accountant — will be focusing on in the near future. But around this time each year, The Tax Foundation creates a reasonable estimate of the following year’s changes to the tax brackets.

Thanks to a low level of inflation, there won’t be too many changes in 2010. I’ll keep this updated if the IRS decides to set the rates differently than outlined in this prediction, but chances are these will be the official brackets.

Remember that if you are “in the 29% tax bracket,” for example, you don’t owe 28% on all of your income. You owe that rate on only the income within that bracket. A misunderstanding of this concept often leads to people being afraid of earning enough money to enter the next bracket, with the belief that even $1 into the next bracket would dramatically increase the amount of tax due. Thankfully, the system does not work that way.

Married individuals filing joint returns and surviving spouses

Heads of households

Unmarried individuals (other than surviving spouses and heads of households)

Married individuals filing separate returns

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2010 Federal Income Tax Brackets and Marginal Rates

Every so often I come across a news story that’s more enjoyable to read when I add a vindictive “ha ha ha ha ha” after each sentence. For example:

Rich Americans who have evaded taxes by hiding foreign holdings have about a week to turn themselves in to an Internal Revenue Service amnesty program or gamble they will not be caught.

Ha ha ha ha ha!

In fact, most of this news article is enhanced with a little maniacal laughter. That is, unless you’ve been in the habit of hiding money you owe the IRS in a Swiss bank account maintained by UBS AG. And since hiding money from the IRS is equivalent to stealing from your fellow citizens (in the form of, for example, making sure the bridges you all use never get the maintenance they need, and schools are using outdated books, etc.), I’m thrilled to see this moving forward.

It would’ve been better if we’d managed to get the names of all of the American cheaters hiding the needed pothole-fixing money in Switzerland (the original stated goal was to get the names of 52,000 account owners), but I won’t let that get me down. I never thought I’d see even this much go-get-em attitude from the IRS. (I should point out that this isn’t a Democratic or Republican plan – it started under Bush and Obama is simply continuing it.)

The fun part now is that nobody is saying yet who is on the list of about 4,400 account holders that will be turned over to the IRS, so the IRS started an “amnesty” program for volunteers who are willing to come forward now, instead of risking a worse punishment later.

The IRS said that, in one week of July, about 400 individuals turned themselves in under the amnesty program. That was four times higher than the number of tax evaders who stepped forward in all of 2008, according to the agency.

The risk of not joining in the amnesty program now is paying much more than you owe and possibly criminal prosecution. The deadline is September 23, 2009. Here’s the amnesty program Q&A page on the IRS web site, in case you think you might need it.

By the way:

At the same time, IRS officials have said other foreign banks are being queried for possibly helping the wealthy evade taxes, although they have declined to be specific.

Ha ha ha ha ha!

Tax evaders rush to beat amnesty deadline, Kim Dixon, Reuters, Sep. 24, 2009

Image credit: zolierdos

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Are You One of the 4400 (Tax Evaders)?

For those of you who have filed or are planning to file an amended income tax return (form 1040X) to receive the (up to) $8,000 first time homebuyer tax credit this year rather than waiting for next year, there is some good news.

Although the IRS is more than likely overwhelmed, the refunds are currently taking about eight weeks to receive. Here is a recent comment from a Consumerism Commentary reader:

Just wanted to let you know that I received my $8,000 (plus interest) from my 1040X by mail yesterday. I mailed my amended return around June 25, so I feel the turnaround was very acceptable. Even though our original refund came by direct deposit, this one came by check; I don’t know why.

There are a few interesting notes to take away from Kimberly’s experience.

The IRS is providing interest payments as if they owed money to the taxpayer since April 15. This is the normal case when the IRS underpays a refund. It’s good to see they are providing interest in the same manner here even though the law was not created until after many people had filed their 2008 tax returns.

Six weeks is a reasonable time frame to expect your credit. Many people I’ve spoken with expected the credits to take much longer, prompting some to suggest waiting until the 2009 income tax return is due. I see no reason to wait that long. Plus, it’s unlikely you’ll receive interest if you wait until April 2010.

Keep in mind that if your paperwork requires manual intervention, like an address change, or if the information you provide does not match what the IRS has on file, your credit could take longer to receive.

The refunds are sent by paper check. I warned of this in earlier articles. Even though you may have designated a bank account for direct deposit when you filed your original tax return, the IRS is sending the refunds through the U.S. Postal Service as if we were still living in the twentieth century.

Have you received your first-time homebuyer tax credit yet? How long did it take?

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Receiving the First Time Homebuyer Credit Takes About Six Weeks

If you have filed your taxes for the most recent year but would like to take advantage of a new credit, such as the $8,000 first-time home buyer tax credit, without waiting for next year, you will need to file an amended income tax return.

You cannot file an amended tax return electronically. This article will explain the process and all it will cost you is a postage stamp.

Note: Some online tax preparation applications like TurboTax and Tax Cut allow you to complete this form online, but you are still required to print and send the forms and supporting documentation through the mail.

1. Have your completed tax return ready. Start with the income tax form you submitted earlier this year, either your 1040, 1040EZ, or 1040A. You will need to include some of this information on the new form. Do not attempt to rely on your memory.

2. Download the blank amendment form. You need Adobe Reader to download and print Form 1040X. It is available on the IRS website or directly from Consumerism Commentary through this link [pdf]. This will always link to the most recent 1040X.

3. Enter your current personal information in the top section. If you have a current version of Adobe Reader, you should be able to click on any blank line of the form to type directly into the document. Ensure you include the proper tax year at the top of the form; if you are completing this form in July 2009 to amend the tax form you filed in April 2009 for the 2008 tax year, make sure you enter the year 2008 in this field. Double-check your Social Security Number.

4. Identify what has changed. The second section of this page of form 1040X has three columns. The first column should contain the amounts you presented on your original 1040. The third column should contain the adjusted value. The second should contain the difference between your first column (original amount) and third column (new amount). For example, if you are adjusting your form to change the amount of your Earned Income Credit (EIC) from $0 to $300, line 13 would read would read in order $0, $300, and $300. If you are changing the EIC from $300 to $0, the line would read $300, -$300, $0.

5. Download the appropriate credit form. If you are filing the amendment because you now qualify for the first-time home buyers tax credit, download form 5405 [pdf] and use this form in the same manner to calculate your rebate. Enter the result from line 6 of form 5405 on line 15 of form 1040X.

6. Finish the calculations on 1040X. Continue until the first page of the form is complete and be sure to make note of any additional forms you need to provide based on the adjustment you are making.

7. Complete the second page of 1040X. You can skip Part I of the second page if you are not changing your number of exemptions and are not changing your exemption for families displaced by Katrina or midwestern storms. Part II is required. Explain why you are amending your return. Here is an example:

I am filing this amendment to claim the new first-time home buyer tax credit for the house purchased on July 1, 2009. Please see the enclosed documentation to support my ownership.

8. Print and sign the tax forms. Ensure you are printing all forms relevant to the amended tax return including any forms related to credits you are claiming. Don’t forget to add your signature where required.

9. Mail the forms and supporting documentation. In addition to the forms, include any evidence pertaining to the credit you are claiming to ensure the IRS will process your request quickly without questioning the validity of your claim. For example, you might want to include a copy of your bill of sale, your title, or your mortgage documentation.

Send your complete package to the address corresponding to your state.

I might include “(1040X)” at the end of the first line of the address to help route the form to the correct department faster.

It is unlikely the IRS will directly deposit any additional refund owed to you due to your amended return even if your initial refund was directly deposited, so you can expect to receive a check. Many people are reporting the IRS is very slow in providing these checks so ensure all of your documentation is in order and be prepared to wait four months or more.

Always remember that I am not a tax professional. Even if I were, this should not be considered tax advice. Ask your tax accountant if you have doubts whether to file an amended return.

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How to File an Amended Income Tax Return (Form 1040X)

As you are reading this, if you are in fact reading on the same day this was written, both the federal and New Jersey government are reaching deep into my bank accounts. At the end of the day, I will find myself worth several thousand dollars less than at the beginning of the day. Today is the day quarterly estimated taxes are due for those of us who live in the United States and for those who opt or are required to make these payments.

Last year, I didn’t pay enough through estimated tax payments and I was subject to a small penalty tax. I believe I’ve calculated the correct amounts this year to avoid paying extra. Like last year, I enrolled in automatic tax payments for both the federal and state income taxes. This saves the trouble of sending checks, but it necessitates having the right amount of money in my bank account at the right time.

To handle this requirement and to further automate my finances, the accounts are funded monthly to ensure I’m saving enough for both quarterly estimated payments and what will likely be another significant final tax bill next April.

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Estimated Income Tax Payment Due

Marginal tax rates are one of the most misunderstood financial concepts, and I intend to write more about this in the future. This misunderstanding occasionally leads people to mistakenly believe that earning $1 over the barrier into the next tax level would result in a significantly higher tax bill because all income would be taxed at a higher rate, but that’s not true.

But knowing the brackets will help you plan your tax payments, and the IRS released this information at the end of last year.

Married individuals filing joint returns and surviving spouses

Heads of households

Unmarried individuals (other than surviving spouses and heads of households)

Married individuals filing separate returns

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2009 Federal Income Tax Brackets and Marginal Rates

Now that Tax Day has come and gone again, and anger is subsiding, let’s spend some time thinking about what a better system might look like.

Have you heard of the “Fair Tax” proposal? I may be late to the knowledge party (Flexo mentioned it briefly in December 2007 when comparing presiential candidates’ ideas), and it’s likely I had disregarded it because I was confusing it with various Flat Tax ideas, which failed miserably in the 1990s. But it’s different; here are the basics:

It’s a Tax on Spending and Nothing Else

Let’s start with the greatest part first: Federal income taxes get repealed. This includes personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes. That’s just about all the big boxes on your 1040. Instead, the Federal government collect revenue from sales of new goods and services (unlike Europe’s VAT idea, used goods are not taxed again).

According to the people who’ve calculated what would be a “fair” tax, a national sales tax of 23% would completely replace the need for all those kinds of income taxes. We’d be collecting the same amount of revenue. In short: because you take home your whole paycheck, the amount you spend or save is entirely up to you. Things in the store would appear to cost more than you’re currently used to, but a $77 item would still cost you $77 (read the complex bit contrasting tax-inclusive and tax-exclusive).

Wealth isn’t Penalized

Under our current progressive income tax system, you’re taxed more when you earn more. Subsequently, wealthy people (for whom I admit I do not yet feel sorry) are likely to complain that they are being “taxed to death”. The most common understandable complaint sounds like this: I don’t benefit x% more from common Government services more than anybody else, why should I pay x% more? And the unsatisfactory answer is always: because nobody else can afford it. (Then the argument goes off onto various tangents, some of which make sense.)

In the Fair Tax proposal, you choose how much you get taxed by choosing how much to spend. One of the assumptions behind the proposal is that if a) you already have plenty of extra money after your budgetary needs are met and b) you’re taking home your whole paycheck, that you’ll buy things that you want. I know I would, and I’m not exactly wealthy.

It’s Meant to be Revenue-Neutral

Replacing Federal income taxes with a 23% Fair Tax is supposed to mean that almost* all common services being paid for will continue as usual.

I ran our household finances through the Fair Tax Calculator and came up with these results:

• 2.40% more spendable income
• $1,984 more purchasing power
• $3,114 less federal taxes

These are fairly modest differences, which makes me feel better, and helps convince me that the idea really is “revenue neutral” and not a scheme to shut down Government services without considering the consequences.

^* Taxes would be much, much simpler, and so the IRS would probably have to lay off some people. CPAs, likewise, would probably need to find other work.

Essential Goods and Services are Not Taxed

Well, sort of. Just like many groceries don’t have sales tax applied now, there are essential staples that none of us can live without that under the Fair Tax plan, you would get reimbursed for. The novel thing is that you’d get a “prebate”: a rebate before it happens. This is different depending on the size of your household, see the full table.

Conclusion

I’m not ready yet to conclude whether this is a better idea. It’s certainly simpler, and on its face it’s very tempting and does indeed seem more fair. I’m going to keep reading all the Pros and Cons I can find (from only reputable news sources, naturally). In the meantime, I’d love to get your opinion.

Start by comparing Fair Tax to Barack Obama’s tax plan and browse the FAQ, where proponents have answered nearly every question I had.

Finally, this isn’t just an idea floating around in the ether. There is a bill proposed in the U.S. House that is up for consideration. If you like the idea, I encourage you to call your congresspeople.

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Basics of the Fair Tax

As a result of the American Recovery and Reinvestment Act of 2009 (see our roundup of ways to take advantage), 2009 and 2010 are good years to make some of the “green” home improvements you may’ve been considering. I’ve had a little trouble, however, navigating and understanding the many tables and footnotes, so I’m condensing the basics here for our mutual benefit.

Tax Credits for Smaller Improvements

I’m sure we all wish we had geothermal energy and solar roofs and that we were selling our unused energy back to the electric company, but installing those things is still a huge initial investment. Here are the more likely things we can do in the meantime, and get a special benefit when it comes time to do our taxes, not to mention saving money on monthly electricity bills.

Get back 30% of the cost of any of the following. You can implement any combination of this list, but your total tax credit won’t exceed $1,500. Also noteworthy: these don’t apply to building a new house (there are separate tax credits for new home builders as well as commercial buildings and cars).

• Exterior Windows
• Storm Windows
• Skylights
• Exterior Doors
• Storm Doors
• Roofs (metal or asphalt)
• Insulation – Includes seals to limit air infiltration, such as caulk, weather stripping, and foam sealants
• Central A/C
• Air Source Heat Pumps
• Furnace (Natural Gas, Propane or Oil)
• Hot Water Boiler (Gas, Propane, or Oil)
• Advanced Main Air Circulating Fan
• Water Heater (Gas, Oil, Propane, or Electric Heat Pump)
• Biomass Stove

Be Prepared and Pay for the Right Things

Don’t get caught without the right equipment or paperwork. Here’s what you need to do in order to benefit for the next two tax seasons.

• Equipment must be able to last for at least five years – a two-year warranty is sufficient to prove this.
• Not every equipment model qualifies – and if it was placed in service before Feb. 17 2009, the qualifications are different. Click an option in the list above for more.
• Save your receipts and warranty
• Improvements made in 2009 will be claimed on your 2009 taxes (filed by April 15, 2010) — use IRS Tax Form 5695 (2009 version) — it will be available late 2009 or early 2010

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Basics of 2009 Energy Efficient Tax Credits

According to TurboTax, New York City is the third worst city in terms of procrastination. I can identify with this; I am one of the world’s worst procrastinators, a level I’ve accomplished through lots of practice. This year, I filed my taxes in the middle of March, the earliest I have ever completed the process. Normally, I file at the last minute like many others in my metropolitan area.

Here are some important tips for those of us who wait until the very last minute, suggested by TurboTax.

“Even procrastinators have things they can do to save money on their taxes. Taxpayers have up until the April 15 deadline to contribute to an IRA.”

I contributed to a Roth IRA for 2008 as a lump sum earlier this year and my SEP IRA just a few weeks ago when I filed my taxes. At the end of 2007, when I normally would have begun initiating my 2008 Roth IRA contributions to begin January 1, 2008, I debated whether to dollar-cost average every month or invest in a lump sum. I decided to take the latter approach, but I didn’t invest until 2009. In retrospect, this was a good decision with prices lower this year. There was no way I would have known that when I made the decision, however.

“Don’t forget charitable contributions made in 2008. Even mileage to and from volunteering is deductible.”

Only those who decline to take the standard deduction and itemize deductions instead can deduct charitable contributions. Many people contributed less to charity in 2008 thanks to the economic recession, but these are times in which charities need the funds and volunteers more than ever.

“Go online. Taxpayers can go online to prepare and e-file taxes up to the 11th hour at www.TurboTax.com, it’s fast, easy and convenient.”

Of course, TurboTax is only one of several choices for filing your taxes online up to the last minute. I used TaxAct this year, and H&R Block is another popular choice. These three options often cost money, but you might qualify for free e-filing.

“E-file. Taxpayers can avoid the long lines at the post office and can get their refund back in as little as 8 days with direct deposit.”

That’s great news if you’re getting a refund. I ended up owing the government a boatload of money this year, including a small penalty for not paying enough in estimated taxes. When you owe money and file online, it’s easy to schedule an electronic check payment for April 15 no matter how early you file.

“Not going to make the April 15 deadline? File for an extension. Taxpayers will get an extra 6 months to file (to October 15, 2009). But remember, an extension to file is NOT an extension to pay taxes. If a taxpayer owes money, they will need to pay their tax bill by April 15, or face penalties.”

Qualifying taxpayers who are purchasing a house between April 15 and October 15 may want to file an extension as well, in order to qualify for the $8,000 first-time homebuyer credit without going through the trouble of filing an amended return or without waiting for filing 2009 tax returns next year.

If you need more time to file, and you believe you’ll owe taxes but you’re not quite sure how much, it might not hurt to pay your best guess on April 15 when you file for an extension. If you determine that you owe more, you will reduce your penally, and if you determine than you owe less, the government will send a refund.

I’m just glad that my taxes are finished. It is one less thing for me to worry about. As a procrastinator, I can freely admit that life is less stressful when you take care of responsibilities initially rather than putting them off to the last minute. And it’s a struggle for me to live up to that goal.

If you were wondering, here is the full list of the top ten cities for tax procrastination, according to TurboTax:

1. San Francisco, California
2. Houston, Texas
3. New York, New York
4. Chicago, Illinois
5. San Diego, California
6. Phoenix, Arizona
7. Seattle, Washington
8. Los Angeles, California
9. Dallas, Texas
10. Las Vegas, Nevada

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Tax Tips for Procrastinators, Lazy People, and Late Filers

Smithee has been keeping me up-to-date with a major part of the 2009 economic stimulus, the $400 for individuals or $800 for couples tax credit. Here are some things to keep in mind about this stimulus going into effect today, called the “Making Work Pay” credit in the law that established it. Smithee says the $400 or $800 credit could have been dumber, but I find it smart and dumb for different reasons.

This variation of the economic stimulus is taking the form of a small bonus in each pay check from April through December. The increase will occur thanks to an automatic change in tax withholding put into effect by your employer.

A small increase in each pay check is “better” than receiving a lump sum payment. I suppose this depends on the definition of “better.” First of all, the lump sum payments to taxpayers in 2001 and 2008 did little to stimulate the economy directly. Surveys suggested that recipients used the lump sum as “found money” or an increase in wealth and directed the funds towards savings accounts and debt repayment. In normal circumstances, adding a lump sum to savings on a large scale should boost the economy, though not as much as spending. The theory is the banks will take the deposits and turn the money around by lending money to businesses. But thanks to the “credit crunch,” that didn’t happen in 2008.

Also, when lump sums do encourage spending, it’s usually for large purchases. If you buy an electronic device, clothing, a car, or most other large purchases, you aren’t necessarily boosting the local economy. When stimulus is presented in small bits over time rather than one lump payment, is is perceived as an increase of income rather than wealth and it encourages a gradual incorporation of the extra money into daily spending. Tax payers are more likely to spend the extra stimulus, even if it is only about $10 to $20 a week. Perhaps this increase will mean one more dinner at a restaurant, contributing to the health of local businesses.

While the form of the credit is good, I expect more problems a year from now when it’s time to file 2009 income taxes based on the fiasco that was the 2008 economic stimulus credit.

The Making Work Pay credit is a new tax credit that will be claimed on 2009 and 2010 income tax forms. In 2008, millions of tax payers received an economic stimulus payment, essentially new money to be spent or saved. But when the time approached for filing 2008 income taxes, the Recovery Rebate Credit appeared on 2008 income tax forms. Much confusion ensued. The 2008 economic stimulus payment was simply an advance of this new Recovery Rebate Credit. So those who already received the economic stimulus payment could not claim the Recovery Rebate Credit. If they could, they would have been receiving the same credit twice.

The confusion that this created is bound to return in the form of the Making Work Pay credit. The extra tax withholding starting today is an advance of the Making Work Pay credit, which will likely appear as another line item on the 2009 income tax forms, just like the Recovery Rebate Credit.

Many people will have the correct amount of tax withheld. Your employer makes a number of assumptions. First, your employer knows about only the income they provide you. If you earn $60,000 from your day job, your employer will adjust your withholding because based on the information they have you qualify for the tax credit. If you earn an additional $40,000 outside of your primary job from your investments or from a second job, your total income disqualifies you from receiving the Making Work Pay credit. If you don’t instruct your employer to adjust your withholding, you will have to repay the credit to the government when it comes time to file your tax return.

Second, if you are married, filing jointly, and your spouse works, both employers may reducing withholding enough for the entire couple. In this situation, similar to the above, you could end up owing the government money for receiving too much in your pay checks.

Some employers began offering the reduced withholding early. The new withholding formulas are based on calculations assuming the adjustment occurs on April 1. Some employers have opted to adjust the withholding early. As a result, the employer will be offering employees a larger credit than they are entitled to. Any under-withholding as a result will be sought by the IRS when tax payers file 2009 income taxes. If an employer applies the new withholding formula late, then the employee may be entitled to an additional credit when he or she files the return.

Economic stimulus payments, to be effective rather than to be seen as “bread and circuses” or politicians buying votes from the public, should be incorporated into income as much as possible, but shouldn’t be buried in the tax code, creating confusion and frustration among taxpayers.

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Watch Out for the Making Work Pay Credit (2009 Economic Stimulus)

Earlier today, the IRS officially began accepting 2008 electronic tax returns for individuals claiming the $8,000 tax credit for qualifying first time home buyers who purchased a house in 2009. If you qualify and have purchased your home this year, you can now file your taxes using TurboTax, TaxAct, H&R Block, or any other software vendor. Previously, if you attempted to claim the $8,000 tax credit on-line, the IRS would have rejected your return.

Note that if you plan on buying a house later this year before December 1, you still qualify for the tax credit, but you cannot claim it yet. Either file for an extension or claim the $8,000 credit when you file your 2009 taxes. If you’re expecting a big refund this year and you don’t want to delay that refund by filing for an extension, you can file now and file an amended return later.

The maximum credit of $8,000 ($4,000 for those who are married filing separately) is limited at 10% of the purchase price of the house, and the total credit you qualify for begins to phase out for taxpayers with a modified adjusted gross income of $75,000 or $150,000 for joint filers.

Here are the full details about claiming the $8,000 first time home buyer tax credit this year.

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IRS Now Accepting Tax Returns Claiming $8,000 First Time Home Buyer Credit

In general, if you have to ask whether you need to report certain income to the IRS, the most likely answer is, “Yes.” Here are some examples, courtesy of MSN Money.

Q. I hosted a party to sell products to my friends (and use my social circle for multilevel marketing from some corporation), and the company’s representatives brought me gifts. Do I have to report this?

A. Yes.

If you host a party at which sales are made, any gift you receive for giving the party is a payment for helping a direct seller make sales. You must report it as income at its fair market value.

See Publication 463.

Q. My sugar-daddy (er… loving husband) died and I had to pay to collect the reward (er… life insurance). Do I have to report this?

A. Yes.

Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract.

Q. This year, I’ve been taking bribes to keep the caviar smuggling ring off the FBI radar. Do I have to report this?

A. Yes.

If you receive a bribe, include it in your income.

Q. I ran for office this year and used campaign contributions to pay for my second cousin’s bodyguards and my daughter’s wardrobe. Do I have to report this?

A. Yes.

These contributions are not income to a candidate unless they are diverted to his or her personal use. To be exempt from tax, the contributions must be spent for campaign purposes or kept in a fund for use in future campaigns… Excess campaign funds transferred to an office account must be included in the officeholder’s income on Form 1040 in the year transferred.

Q. Instead of buying a Hummer for $70,000, I paid $80,000 for the vehicle and received a $10,000 rebate. Do I have to report this?

A. Yes, well, sort of. When you sell the car, figure your loss by using the sales price of $70,000, not $80,000.

A cash rebate you receive from a dealer or manufacturer of an item you buy is not income, but you must reduce your basis by the amount of the rebate.

Q. I successfully sued a hip hop artist for sampling my music. Do I have to report this?

A. Yes. The article goes into detail to determine what kind of income is reportable.

To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces.

Q. I successfully sued my boss for emotional distress. Do I have to report this?

A. Yes.

If the emotional distress is due to a personal injury that is not due to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress.

Q. I lost my job and my credit card’s insurance stepped in and made my payments for me. Do I have to report this?

A. Yes.

Generally, if you receive benefits under a credit card disability or unemployment insurance plan, the benefits are taxable to you. These plans make the minimum monthly payment on your credit card account if you cannot make the payment due to injury, illness, disability or unemployment. Report on Form 1040 the amount of benefits you received during the year that is more than the amount of the premiums you paid during the year.

Q. I received assistance from a non-profit program to help pay for the down payment of my house. Do I have to report this?

A. Yes.

If you purchase a home and receive assistance from a nonprofit corporation to make the down payment, that assistance is not included in your income. If the corporation qualifies as a tax-exempt charitable organization, the assistance is treated as a gift and is included in your basis of the house. If the corporation does not qualify, the assistance is treated as a rebate or reduction of the purchase price and is not included in your basis.

Q. I got a job with the help of a headhunter who charged me for his services. Do I have to report this?

A. Yes.

If you get a job through an employment agency and the fee is paid by your employer, the fee is not includible in your income if you are not liable for it. However, if you pay it and your employer reimburses you for it, it is includible in your income.

Q. I found an abandoned car and kept it while the person who lost the vehicle likely wept. Do I have to report this?

A. Yes.

If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its fair market value in the first year it is your undisputed possession.

Q. My travel agency gave me a free tour of Paris. Do I have to report this?

A. Yes.

If you received a free tour from a travel agency for organizing a group of tourists, you must include its value in your income. Report the fair market value of the tour on Form 1040 if you are not in the trade or business of organizing tours.

Q. I hit the jackpot in Atlantic City. No one was around to hear the bells, I didn’t attract any attention, and I am sure there were no cameras in the casino. Do I have to report this?

A. Yes.

You must include your gambling winnings on Form 1040. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings.

Q. I split $54,000,000 in lottery winnings with 12 of my coworkers. Do I have to report this?

A. Yes.

Winnings from lotteries and raffles are gambling winnings. In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses and other noncash prizes.

Q. I inherited a tenement and the tenants who I haven’t evicted are now paying rent to me. Do I have to report this?

A. Yes.

If property you receive this way later produces income such as interest, dividends or rents, that income is taxable to you. If property is given to a trust and the income from it is paid, credited or distributed to you, that income is also taxable to you. If the gift, bequest or inheritance is the income from the property, that income is taxable to you.

Q. I sold my comic book collection. Do I have to report this?

A. Yes.

If you collect stamps, coins or other items as a hobby for recreation and pleasure, and you sell any of the items, your gain is taxable as a capital gain. However, if you sell items from your collection at a loss, you cannot deduct the loss.

Q. I am a street pharmacist and all my income is cash. Do I have to report this?

A. Yes.

Illegal income, such as money from dealing illegal drugs, must be included in your income on Form 1040 or on Schedule C or Schedule C-EZ (Form 1040) if from your self-employment activity.

Q. I’m a doctor, and pharmaceutical companies pay me incentives to push their drugs. Do I have to report this?

A. Yes.

You must include kickbacks, side commissions, push money or similar payments you receive in your income on Form 1040 or on Schedule C or Schedule C-EZ (Form 1040), if from your self-employment activity.

Q. I flashed my breasts at a wet t-shirt contest hosted by WTIT in a Miami Beach bar during spring break and won a prize. Do I have to report this?

A. Yes.

If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest or other event, you must include it in your income. For example, if you win a $50 prize in a photography contest, you must report this income on Form 1040.

Q. I won the Nobel Peace Prize (in addition to being Time Magazine’s 2006 Person of the Year). Do I have to report this?

A. Yes.

If you were awarded a prize in recognition of accomplishments in religious, charitable, scientific, artistic, educational, literary or civic fields, you generally must include the value of the prize in your income.

See Publication 525 for more information.

Q. I saw my girlfriend on America’s Most Wanted and ratted her out to the police. I collected a sizable reward for material information leading to an arrest. Do I have to report this?

A. Yes.

If you receive a reward for providing information, include it in your income.

Q. I bought art depicting dogs playing poker several years ago and sold the work this year to a rich idiot for a nice profit. Do I have to report this?

A. Yes.

If you sold an item you owned for personal use, such as a car, refrigerator, furniture, stereo, jewelry or silverware, your gain is taxable as a capital gain. Report it on Schedule D (Form 1040). You cannot deduct a loss… However, if you sold an item you held for investment, such as gold or silver bullion, coins or gems, any gain is taxable as a capital gain, and any loss is deductible as a capital loss.

Q. I found a bunch of LCD HDTVs which I can only assume had fallen off a truck. I sold a few out of the back of my own truck. Do I have to report this?

A. Yes.

If you steal property, you must report its fair market value in your income in the year you steal it unless, in the same year, you return it to its rightful owner.

Can you think of any other situations in which you may not be sure whether you’re required to report your income to the IRS?

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Am I Required to Report All Income to the IRS?

Update: The IRS is now accepting tax returns claiming the $8,000 first-time home buyer tax credit.

Earlier this month, and in some cases at the end of February, major tax software providers like H&R Block, Intuit TurboTax, and TaxAct updated their programming to allow qualifying taxpayers to claim the $8,000 tax credit for first-time home buyers. There was only one problem with providing this level of customer service. Although the IRS provided the guidelines to software vendors to begin accepting this credit, the IRS hasn’t updated their own systems to accommodate the new law.

Thus, many taxpayers who claimed the $8,000 credit and filed their tax return electronically found their submission rejected by the IRS. Despite the speed at which the software vendors provided the update to customers, the IRS was still unprepared.

Those who filed with the first-time home buyer credit and found their retuns rejected should resubmit after 7:00 PM Eastern Time on March 30. If you wait until March 31, you will be safe. If you haven’t submitted your tax return yet, wait until then to ensure your return will not be rejected at first.

If the software you use for filing your taxes charges a fee, you will only be charged for one filing, even if your first was rejected by the IRS.

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IRS Accepting Returns With $8,000 First-Time Home Buyer Credit March 30

Thanks to the American Recovery and Reinvestment Act of 2009, formerly known as the “stimulus bill,” first-time home buyers are eligible for a refundable tax credit of up to $8,000 this year. Here is what you need to know in order to claim the credit.

Who qualifies as a first-time homebuyer? A “first-time homebuyer” is anyone who has not owned a house in the past three years. Furthermore, if you don’t live in the house purchased this year for the three years following the purchase, you will have to pay the credit back to the government. This credit is intended for people who live in their own houses, not house flippers or speculators.

What is a refundable tax credit? When tax professionals and the IRS talk about “refundable tax credits,” they do not mean that you have to pay the credit back to the government. A refundable tax credit means that if you owe less tax than the amount of the tax credit, you will receive a refund — even if you have no other tax liability for 2008. That’s not a bad deal. In other words, if you owe $200 to the government before claiming the credit, and you qualify for $8,000 for the first-time home buyer credit, rather than paying the government, you will receive a check for $7,800. Even if you had no income in 2008, owed no tax, and purchased a qualifying house in 2009, the government will send you a check for $8,000.

What if I bought the house last year? If you purchased a house in 2008 and were a first-time buyer, you qualify for the older refundable tax credit with a maximum of $7,500. This does require that you pay the $7,500 tax credit back over the course of fifteen years, starting two years after the date of the purchase. This is still a good deal. As time goes on, thanks to inflation, you are paying back this “loan” with money that has smaller purchasing power.

To qualify for the new credit with the maximum of $8,000, you must be a first-time home buyer and the sale must take place between January 1, 2009 and November 30, 2009.

Do I qualify for the full $8,000? The actual credit you will receive is 10% of the purchase price of the home or $8,000, whichever amount is lower. If your modified adjusted gross income (MAGI) as a single taxpayer is over $75,000 or if your income as a married couple is over $150,000, your credit will be phased out. The credit will be eliminated if your income is above $95,000 (single) or $170,000 (married).

How do I claim the home buyer tax credit? You can claim this credit when filing either your 2008 or your 2009 income tax return. For example, if you believe that your income level in 2009 will be too high to qualify for the credit but you already know that your 2008 income is low enough to qualify for the full amount of the credit, you can claim the credit on your 2008 income tax return.

Complete IRS Form 5405 to determine the credit amount. Here is the official revised copy of Form 5405 [pdf] that takes the new $8,000 home buyer tax credit into account. Take the bottom line amount on Form 5405 and enter the number on line 69 of your Form 1040. Not all online tax preparation software has been updated to include instructions for this new credit. I checked H&R Block Tax Cut, TaxACT, and TurboTax Online, and as of last night all three include only the rules for last year’s $7,500 credit. You may wish to wait for the software to catch up with the IRS before completing and filing your 2008 income tax return. Or, if you don’t want to wait, you can do your taxes by hand. See new updates at the bottom of this article for TaxACT and TurboTax.

If you have filed your taxes already, you will be required to file an amended income tax return if you want to receive the credit this year with your 2008 refund.

Please keep in mind that I am not a tax professional and none of what is written here or anywhere else on Consumerism Commentary should be considered tax advice. You are solely responsible for your own tax return, and any questions should always be directed to your tax accountant or the IRS.

2:00 pm update: TaxACT has contacted me to let me know that as of today, February 25, their software has been updated to correctly figure the $8,000 first-time home buyer credit. I’ve confirmed that the new calculation is now active.

February 27 update: A representative from Intuit has confirmed that TurboTax has now been updated to include the $8,000 home buyer tax credit and the change should be in effect today. I don’t see it as of 4:00 pm, but I will check again later tonight. Originally TurboTax planned on putting this update into effect as late as March 11.

Here is what a TurboTax representative said: “As with any tax changes, especially those that come very late in the season, we are reliant on the IRS to provide guidance so we can update the product accurately and completely. Once the IRS gave us the correct guidance and requirements, we immediately started working to update.”

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How to Claim the $8,000 Home Buyer Tax Credit of 2009

When I first came across the term “refundable tax credit,” I have to admit I was confused about its meaning. And now that the economic stimulus bill will be signed into law today, I’ve seen that my misconception is shared by others.

A tax credit is a dollar amount that decreases the amount of tax you owe. Normally, a tax credit stops once you reach zero tax liability. However, a refundable tax credit can cause your tax liability to cross over zero, resulting in a refund. This is what is meant by “refundable.” Therefore, even if you owe no tax or had no income, a refundable tax credit might result in receiving a check from the government. In effect, there is a possibility that some people, due to refundable tax credits, may find themselves with an “negative effective income tax rate,” receiving more from the government than they put into the system.

“Refundable” does not mean that you have to pay the credit back to the government over time. Depending on the tax credit, this may be the case, but you wouldn’t be able to tell just by virtue of it being called a refundable tax credit. An example of a refundable tax credit is the Earned Income Tax Credit, designed to reduce or eliminate tax paid by low-income workers.

Refundable tax credits create the possibility for scenarios in which certain families pay no income tax and still receive a payment from the government.

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What Is a Refundable Tax Credit?

According to the Internal Revenue Service, 15% of 2008 income tax returns that have been filed already have errors involving the recovery rebate credit. Here is what the government wants you to know:

Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line. To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit now.

The “recovery rebate credit” is what you will receive as part of your tax refund or a reduction to the amount you owe if you didn’t qualify for or receive the full economic stimulus payment in 2008.

I have explained in detail how to claim the correct amount for the recovery rebate credit and how to understand what is really going on with the numbers.

There is still much confusion, particularly among people who file their taxes online or with software that offers a “running total” of the refund or amount due. After taxpayers correctly enter the amount they received for their stimulus payment on the line marked “recovery rebate credit,” they see their refunds drop by the amount they enter.

The immediate reaction is to believe that taxpayers are paying back the money they received for the stimulus to the government. That is not true. The reduction is due to the fact that before you entered your recovery rebate credit, it was $0, so the software believed the government still owed you the stimulus rebate. You can only receive it once, so if you received a credit in 2008, you won’t receive it now.

But that does not mean you’re paying it back. Without the economic stimulus and recovery rebate credit (again, they’re the same thing), your final tax bill or refund would be the same as it is now, if you complete your tax forms accurately.

In the IRS’s words:

Q. Will the payment I received in 2008 reduce my 2008 refund or increase the amount I owe for 2008?

A. No, the stimulus payment will not reduce your refund or increase the amount you owe when you file your 2008 tax return. The combined amount you received in the form of an economic stimulus payment plus any additional amount you receive, if any, in the form of a recovery rebate credit is independent of the normal tax you would have paid.

Here are some more points from the IRS.

Taxability. The economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A or 1040EZ.

Refund delays. IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds for as much as eight to 12 weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.

One payment. In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recovery rebate credit payments.

Refund amounts. The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.

Direct Deposit Requests. Taxpayers who request a direct deposit will receive the refund in the form of a direct deposit even if errors are detected.

Want to get your specific questions answered? Call the IRS Recovery Rebate Credit hotline toll-free at 1-866-234-2942.

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Understand the Recovery Rebate Credit

I’ve started receiving W2s, 1099s, and a variety of other tax-related documentation in the mail and online, which means one thing: It is time to get serious about determining my final tax liability. If I planned right, I will have paid just enough between estimated taxes and withholding to avoid an underpayment penalty, but it’s likely I’ll end up with a hefty tax bill.

I’m leisurely seeking a recommended tax accountant in my area, someone specializing in sole proprietors, to help me out with my filing this year. Theoretically, a professional who understands more of the nuances of the tax code than I understand will help me manage my tax liability. I could do an adequate job with TaxACT, as I have been for the past several years, but I don’t want to part with any more money than I would need to. If I find a good tax accountant, his or her fee would pay for itself through suggestions for deductions or other tips. Also, a professional will allow me to save time for other activities and reduce my stress.

For typical taxpayers, hiring an accountant may be overkill. Before my situation increased in complexity, I was a happy user of TaxACT, as I mentioned above. I switched to TaxACT from TurboTax Online thanks to a lower introductory price. Both of these services allow you to store your past years’ returns in an online repository, but if you want to access older filings, you may need to pay an additional fee. I keep copies of all my tax documentation on paper in a folder, on my personal computer hard drive, and on an external back-up drive, so I can avoid paying fees from TaxACT or TurboTax just to look at my old 1040 forms.

TurboTax and its parent company, Intuit, has been in the news recently thanks to the revelation that Timothy Geithner, the incoming Secretary of the Treasury, used this software to file his taxes and somehow missed paying $34,000 in Social Security and Medicare taxes in 2001 and 2002. He was careful to accept blame rather than fault the software, but TurboTax was quickly linked to the “scandal” after Geithner was pressed to name the method he used for filing. The company quickly responded noting that any software calculation relies on the validity of the data entered by the user. Somewhere, between Geithner and the software, this should have been caught.

In 2001 and 2002 I filed my taxes by hand, so I’m not sure how advanced the error-checking features of TurboTax were at that point. With current incarnations of tax filing software, self-employment taxes would be taken into account and calculated properly if all income were entered accurately, at least among well-known and long-running software like TaxACT, TurboTax, and TaxCut.

H&R Block’s TaxCut is another popular option for self filing, also for a price. But not everyone is required to pay to file taxes. If you qualify, there are ways you can file your taxes for free. Qualifications vary per the method you choose, but you may need to live in a certain state or have an income below a certain maximum.

How do you plan to file your taxes this year? And can you recommend a good tax accountant in central New Jersey?

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How Will You File Your Taxes?

If you didn’t received a payment from the economic stimulus that was devised by the United States government last year and your situation now qualifies you for the credit, you should claim this amount when filing your 2008 taxes.

On the 2008 tax filing forms, there is a line designated to enter this amount, listed as the recovery rebate credit. On the traditional 1040 form, it is line 70. On the 1040A, enter your economic stimulus amount on line 42. The 1040EZ requires the rebate credit on line 9. Here is what the line looks like on the 1040; click on the thumbnail for a larger snapshot.

The instructions for all three forms include a worksheet to help you calculate how much of a credit you should receive towards your 2008 tax due. By following the instructions on the worksheet, you can calculate the credit you should receive based on your 2008 tax situation, list the credit you received last year if any, and subtract the latter from the former to get the amount of the remaining credit owed to you.

If the result is a positive number, you can claim an additional credit. If the result is a negative number, you don’t have to pay back what you received in 2008. You get to keep the excess credit you received. In most cases, if you received a payment in 2008 for the economic stimulus, you will enter zero on this line.

To simplify everything, just enter “RRC” on this line on the tax form. This will instruct the IRS to calculate the recovery rebate for you. Also, if you file electronically, your software will ask you the appropriate questions to calculate the recovery rebate.

Just so it’s clear, the 2008 economic stimulus is a new credit that’s appearing on the 2008 income tax forms that are due in April 2009. Either you received your credit as an advance in 2008 (the “economic stimulus payment”) or you claim it when filing your taxes (the “recovery rebate credit”); thus, the net effect is the same.

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Filing Your 2008 Taxes With the Economic Stimulus (Recovery Rebate Credit)

According to a new study by Joel Slemrod, a professor at the University of Michigan’s business school, and Andrew Johns, an IRS researcher, the more you earn, the more likely you are to cheat on your taxes. The study compiled data from tax returns from 2001, audits, and unpublished data from the Internal Revenue Service.

People who earn more money have been able to get away with paying less income tax than they would, had they followed the rules, according to the data. The misrepresentation of income is usually accomplished by neglecting to include unreported business income on Schedule C or by inflating deductions. Some get caught, but many don’t.

The study shows that those earning between $50,000 and $100,000 understated their income by 8% on average, while taxpayers whose true earnings were between $500,000 and $1,000,000 understated adjusted gross incomes by 21%. As income grows, there are more opportunities to hide income, such as through rental property income, capital gains, and self-employment. Sole proprietors who report self-employment income on Schedule C underreported their income by 57%. Compare that to those who earn a wage or a salary, reported to the IRS by the employer on a W-2 form. These taxpayers underreported their income by only 1%.

The data neglect to count taxpayers who may have certain offshore bank accounts, sheltering money from the Internal Revenue Service. The IRS hasn’t been able to determine the extent of this practice.

How should the IRS proceed in order to collect more legitimate tax payments due? Raise the income tax rate on those who are most likely to cheat? Or will that encourage those who are able to find new ways to underreport income? I’m starting to lean towards a more consumption-based tax system, but I don’t think there is a perfect solution.

Photo credit: rachaelvoorhees
The Distribution of Income Tax Noncompliance, Joel Slemrod and Andrew Johns, October 23, 2008 [pdf]

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Rich People are More Likely to Cheat on Income Tax Returns

This is a reminder in the form of an article I posted a few weeks ago.

If you’ve filed for an extension for reporting your 2007 federal income tax, your deadline is today. Here are some important resources to help you file today without a penalty.

File your taxes for free. The Free File Alliance allows residents in most states to file for free as long as the taxpayer meets certain qualifications. Here is a list of different services that provide options to file your tax return for free.

Economic Stimulus Tax Rebate Calculator. If you haven’t heard, many people who earned income in 2007 are eligible to receive some of their taxes back in the form of the economic stimulus. This calculator helps you estimate how much the government owes you for this particular payment. If you want to receive a payment from the stimulus progran you must file your income taxes by the end of today.

TurboTax Online (the Federal Free Edition) is one of the most popular methods of filing taxes without an accountant. I’ve used this in the past and I was happy with the results.

The online version is good for simple taxes, but if you have more complex situations, you may want to try TurboTax Premier (with support for investments and rental properties) or TurboTax Deluxe to focus on deductions you may receive for mortgage interest paid, donations, or education expenses. Self-employed individuals may opt for TurboTax Home and Business.

H&R Block also offers a variety of software for filing your taxes, all available for completing your federal income tax filing today. TaxCut comes in several different flavors, including software packages on CD-ROM and online editions. One of these online services is directed towards young taxpayers, Tango.

I filed my taxes earlier this year with TaxAct. A few years ago, I switched from TurboTax Online when it was no longer free for me.

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Income Tax Filing Deadline is Today for Those Who Have an Extension

If you’ve filed for an extension for reporting your 2007 federal income tax, your deadline is quickly arriving. Here are some important resources to help you make that deadline.

File your taxes for free. The Free File Alliance allows residents in most states to file for free as long as the taxpayer meets certain qualifications. Here is a list of different services that provide options to file your tax return for free.

Economic Stimulus Tax Rebate Calculator. If you haven’t heard, many people who earned income in 2007 are eligible to receive some of their taxes back in the form of the economic stimulus. This calculator helps you estimate how much the government owes you for this particular payment. The deadline for filing your taxes to receive a stimulus payment is October 15.

TurboTax Online (the Federal Free Edition) is one of the most popular methods of filing taxes without an accountant. I’ve used this in the past and I was happy with the results.

The online version is good for simple taxes, but if you have more complex situations, you may want to try TurboTax Premier (with support for investments and rental properties) or TurboTax Deluxe to focus on deductions you may receive for mortgage interest paid, donations, or education expenses. Self-employed individuals may opt for TurboTax Home and Business.

H&R Block also offers a variety of software for filing your taxes, all available for completing your federal income tax filing before the October 15 deadline. TaxCut comes in several different flavors, including software packages on CD-ROM and online editions. One of these online services is directed towards young taxpayers, Tango.

I filed my taxes with TaxAct, as I have for the past few years, after switching from TurboTax Online when it was no longer free for me.

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Deadline for Income Tax Extension Filing, October 15, is Almost Here

American Presidential elections are a great big spectacle of promises, speeches, mud slinging, rumors, misinformation and debates. A lot of people make their decisions based on soft aspects like a candidate’s personality. I like to look for the hard numbers that you won’t find on the nightly news, and I found a good summary of the Republican and Democratic tax plans’ proposed effects at CNN Money.

The difference is noticeable mostly for people who earn ridiculous amounts of money: the Obama plan would increase their taxes dramatically. But for most people, it looks like either choice won’t make much of an impact. For my family, it means a difference of only a couple hundred dollars.

There are some important caveats in that CNN article that you should read in full in order to be properly informed if this issue is going to play an important part in helping you make your election decision.

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Comparing McCain and Obama’s Tax Plans

Homeowners in New Jersey are eligible for a partial rebate of property taxes paid. If you owned and lived in a house in New Jersey on October 1, 2007, you are eligible. Renters like me are eligible for a separate rebate up to $860.

If you haven’t received an application, you should shortly. The state suggests calling the Homestead Rebate Hotline if you haven’t received this application by July 23.

Tenants will not receive an application. The rebate form for tenants was included in the 2007 income tax package. I checked my state tax return, which I filed via TaxAct, and my rebate application was submitted with my income tax form. As I am neither disabled nor over the age of 65, the maximum amount I can receive for this rebate is $80, a 6.7% increase over last year.

The calculation for the homeowners’ rebate is different. For those under 65 and not disabled, you will receive either 20% of the first $10,000 of property taxes paid (if your income is below $100,000), 10% of your total property taxes paid (if your income is between $100,000 and $150,000), or nothing.

To receive your rebate, you muat file your application by August 15.

2007 Homestead Rebate Program

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2007 New Jersey Homestead Rebate: Receive Up to $2,000