Another tax season has passed, and my wife and I have submitted our return. We received our refundquickly and put it to good use - paying off some of our medical bills. Each year as the tax season passes and the remainder of the year commences, we discuss what led us to the refund or the extra tax owed. We then adjust our W-4 forms and financial activity to suit our plans for the next year's return.
Payroll deductions
We both teach school full-time, so we make modest salaries. We range in the 12-15% tax bracketdepending on the tax laws of the year. We are not wealthy, but we have learned over time how make things work with our moderate income. We have the normal payroll deductions that most people would have: taxes, social security, Medicare, health insurance, and dental insurance. Florida has nostate income tax. We elect other payroll deductions as well, and many of ours qualify for pre-tax deductions.
Part-time employee vs. Freelance writing
· Part-time employee
I cannot understand this law. In the early part of 2011, I worked as an online adjunct for a college. I made approximately $2350 gross pay for four months of work. I had approximately $343 (15%) deducted as taxes, which is fine with me. After 19 years I grew accustomed to the job's tax rate. However, I stopped working the job after April.
· Freelance writer
I spent the last four and a half months of 2011 writing freelance and made approximately $2600 with no Federal withholding. I expected to pay 15% ($390) in taxes. When I entered this information into my return, I discovered that I had to pay $900 (35%) in taxes. That is a difference of $557 more in tax as a freelance contractor rather than an employee. I have no idea why the rules are so different for the same range of income, but they apparently are. At least I now know what to expect for next year and can prepare for it.
Deductible donations
We keep track of every transaction into and out of our credit union accounts on checkbook software. We give to our church all year long, and we make other various money and merchandise donations at times throughout the year. We keep all receipts from all donations in our tax folder so we can know at any time our total for the year to date. These donations reduce our taxable income, so we can calculate how much more refund we will receive or how much less extra tax we will owe depending on the year.
Adjusting our W-4 forms
We must consider our W-4 forms carefully from one tax season to the next. We must decide if we want more taxes deducted and have less net pay or have less tax deducted but more net pay. A large refund looks great, but it means we had too much tax deducted from our salaries. We deduct for our joint marital status with one dependent (our son) on our W-4 forms. That way, we have a little more in our paychecks each payday and still have a nice little something to look forward to each spring.
When I taught as an adjunct employee, I would claim single with no dependents on that W-4 and have additional taxes withheld from that extra income to reduce our tax burden the next spring. That job has gone away, so I now have to plan and save to cover the tax for my writing, which does not withhold tax.
Careful planning each year
The process resumes each year, and it takes careful planning. We keep track of tax law changes as much as we can. It does not always work the way we want, but we normally get that modest refund to help get us through our summers or pay down some bills. Careful planning and discipline allow us to reach our goals just as with any other major financial goal. Straying from the plan can ruin our goal very easily. Thankfully, we have learned from past mistakes, and we now understand how to manage all of our financial activity much better.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share?Sign upwith the Yahoo! Contributor Network to start publishing your own finance articles.
Here is a great article I read about Employment and Self Employment Taxes. It is from SmartMoney taken from Yahoo Finance, written by Bill Bischoff. You have been hearing a lot about raising taxes and tax breaks. That all has to do with Income Tax. These are the other (not so) little taxes that everyone pays. As it stands right now, the money will run out, so one of two things needs to happen. We need to pay in more, or there needs to be less paid out. Over the next 20 years, I bet you can expect both of these things to happen, as well as the age ceiling raised for when you get your payouts.
-David Bixel
SmartMoney
While you hear a lot about the federal income tax, you don't hear much about the Social Security tax. That's odd because for many folks especially the self-employed Social Security tax can be the bigger hit. Here are some little-known truths about how the Social Security tax works and how much it can amount to.
As an employee, your wages are hit with the 12.4% Social Security tax up to the annual wage ceiling. Half the Social Security tax bill (equal to 6.2%) is withheld from your paychecks. The other half is paid by your employer. Unless you understand how the tax works and closely examine your pay stubs, you may be blissfully unaware of how much the Social Security tax actually costs.
The Social Security tax wage ceiling for both 2010 and 2011 is $106,800. If you made that much or more last year, the Social Security tax hit on your 2010 wages was a whopping $13,243 (12.4% x $106,800). Half came out of your paycheck. Your employer paid the other half.
For 2011, the tax hit is less, thanks to a one-year 2 percentage-point reduction in the Social Security tax withholding rate on wages -- from the normal 6.2% to 4.2% (your employer's 6.2% rate is unchanged). For 2012 and beyond, however, Social Security tax withholding on your wages will jump back to the standard 6.2% rate.
While many employees may not realize the magnitude of the Social Security tax, self-employed folks know it all too well. That's because the self-employed must pay the entire 12.4% tax rate out of their own pockets, based on the amount of their net self-employment income. This is one big reason why companies often prefer to treat workers as self-employed independent contractors rather than employees. Companies don't owe any Social Security tax on amounts paid to independent contractors.
For both 2010 and 2011, the Social Security tax self-employment income ceiling is $106,800 (same as the wage ceiling for employees). So if your 2010 self-employment income was $106,800 or more, you paid the Social Security tax maximum of $13,243 last year (12.4% x $106,800 = $13,243).
In 2011, the hit will be less thanks to a one-year 2 percentage-point reduction in the Social Security tax rate on self-employment income -- from the normal 12.4% to 10.4%. For 2012 and beyond, however, the Social Security tax on self-employment income is scheduled to return to the standard 12.4% rate.
To give you an idea of how the Social Security tax can add up over your working life, consider my personal situation. In 35 years behind the grindstone (about half as an employee and the other half self-employed), I've paid $219,000 in Social Security tax. My employers paid another $41,000. That amounts to $260,000 in total. During my time as a self-employed guy, I've had some years where my Social Tax bill exceeded my combined federal and state income tax bills.
Believe me, if I could get the $260,000 back, stop paying the tax, and forego receiving any benefits, I would do it in a heartbeat. In fact, if I could just stop paying the tax in exchange for walking away from any future benefits, I would do that too. Why? Because I have big doubts I will actually receive the promised level of benefits when the time comes.
And thanks to the government's official contention that there has been little to no inflation over the past few years, the Social Security tax ceiling has been stuck at $106,800 since 2009. However, the latest Social Security Administration projection says it will start rising again in 2012 and beyond. The projected ceilings for the next nine years are as follows.
If these numbers pan out, the maximum Social Security tax hit in 2020 would be $19,009 (12.4% x $153,300). That's assuming Congress doesn't increase the tax rate, which could easily happen. There's also a chance the ceiling will be increased beyond what you see here or even entirely removed in an attempt to put the system on a sounder financial footing. If there's no ceiling, you would owe Social Security tax on wages and self-employment income on every dollar you earn.
Another misunderstanding about Social Security: Some people think the government has set up an account with their name on it to hold the money to pay for their future Social Security benefits. After all, that must be where all the Social Security taxes on people's wages and self-employment income go, right? Wrong. There are no individual accounts. In fact, when the Social Security system runs a surplus (which it has in most years until now), the federal government sucks out the excess cash and issues the system an IOU. But the only way those IOUs will ever be paid is through future taxes. Meanwhile, the system is now projected to run out of money (including those nebulous IOUs) in 2036 unless taxes are raised or benefits are cut.
A $5,000 or $6,000 deduction for IRA contributions, a $4,000 deduction for college tuition and fees, a $1,000 child tax credit — these are hefty tax breaks for which a taxpayer may understandably yearn. But they’re small beans when compared with the tens of thousands of dollars in savings some reap through deductions and credits.
How about taking a $50,000 deduction for state and local taxes paid, a $37,000 deduction for medical expenses, a $28,000 deduction for mortgage interest, or a $21,000 deduction for charitable contributions?
Those are the average amounts claimed for each of those deductions in 2008 by taxpayers with adjusted gross income higher than $250,000, the group with the highest average claim for each of those deductions that year, said Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill.-based tax publisher and unit of Wolters Kluwer. (The average dollar amounts are rounded, and count only those taxpayers who claimed that particular deduction.)
Some tax breaks “basically don’t have any limit,” Luscombe said. For example, to take the medical-expense deduction your expenses must exceed 7.5% of your adjusted gross income.
“That puts a floor on it, but as far as a top number, the more medical expenses you have, the higher the deduction,” Luscombe said. (Some deductions discussed here are restricted or disallowed under the alternative minimum tax.)
For taxpayers with adjusted gross income of $30,000 to $50,000 in 2008, the average deduction for state and local taxes was about $3,800; for medical expenses, $6,000; mortgage interest, $9,000; charitable contributions, $2,200, according to CCH.
For taxpayers with AGI of $50,000 to $100,000, the average deduction for state and local taxes was about $6,000; medical expenses, $7,000; mortgage interest, $10,600; charitable contributions, $2,700.
The mortgage-interest deduction is limited by the value of your home — generally speaking, you can claim it for interest paid on mortgage indebtedness up to $1 million, plus another $100,000 of home-equity debt. See this IRS page for more on the mortgage-interest deduction.
Meanwhile, some credits don’t have an upper limit, Luscombe said. The residential energy-efficient property credit for installing solar, wind or geothermal systems is worth 30% of the amount spent — whatever that amount is.
But don’t confuse that credit with the one for home energy-efficient upgrades, such as new windows and doors. That credit was worth up to $1,500 in 2010 but lawmakers reduced it for 2011, in the Tax Relief Act passed in December.
Other credits have a top limit, but it’s hefty: The adoption tax credit is worth up to $13,170 in 2010, up from $12,150, and it’s now refundable. Read more about the adoption credit on IRS.gov.
Almost Half of Taxpayers Don’t Owe Federal Income Tax
Taxpayers may enjoy the bounty, but these deductions and credits — plus other tax breaks that never show up on our returns, including those we get through 401(k), Roth IRA and 529 plans — all add up to a lot of money the U.S. government is not collecting.
While the definition of what should be counted as a so-called “tax expenditure” varies, “by any measure, the revenue losses from tax expenditures are large,” according to a Tax Policy Center report, co-authored by Eric Toder.
“Adding up all the tax expenditure estimates in the 2010 federal budget, we calculate a sum of about $1.1 trillion in fiscal year 2012, or about 6.7% of projected gross domestic product.” Read the report.
That’s a lot of tax breaks.
“Our tax system is such that for 2010 we estimate 45% of American households will pay no income tax, because of the combination of credits and deductions and so forth,” said Roberton Williams, a senior fellow at the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution in Washington.
And that includes high-income people, he said. For instance, recent IRS statistics showed that about 2,000 people with income of $1 million or more don’t pay income tax, Williams said. “A part of it is that money is earned overseas and is subject to foreign taxes; a part of it is they have a lot of money in tax-exempt bonds so they don’t pay tax on that income,” he said.
“For one reason or another these very, very wealthy people have set up their financial situation in such a way that they avoid U.S. federal income taxes entirely.”
Keep in mind that some of the largest tax expenditures don’t show up on your tax return. For instance, the value of employer-provided health insurance isn’t counted as income for most taxpayers.
Few Deductions Available to Some Taxpayers
Still, for his clients — most of whom are high-net-worth retirees who’ve paid off their home mortgage — deductions can be hard to tap, said Rial Moulton, a certified financial planner and certified public accountant in Spokane, Wash.
For a married couple filing jointly, the standard deduction in 2010 is $11,400, and it’s $5,700 for a single filer. “To think about itemizing, you have to have [deductions that total] more than that,” Moulton said. “For most people in our area, if you have your house paid off, it’s hard to get above that number unless you have significant health-care costs.”
Meanwhile, for taxpayers at a lower income level, one of the most valuable deductions is the earned income tax credit, worth as much as $5,666 for those with three qualifying children in 2010. For a family with three children to be eligible, AGI can’t exceed $43,352 for head-of-household filers and $48,362 for married-filing-jointly filers. Read this IRS page for more information.
There’s also a saver’s credit, worth up to $2,000 for married-filing-jointly couples and up to $1,000 for single filers, but that maximum credit phases out as income rises. And the maximum adjusted-gross-income limit to get any of the credit is $55,500 for married-filing-jointly filers and $27,750 for single filers. See this IRS page for more information.
The media and the credit reporting companies have done an excellent job promoting the notion of having a good credit score, almost too good a job because people seem to think that their credit score is the most important aspect of their financial life. Getting out of debt is secondary. Saving for retirement is secondary. It is almost as if when you have that perfect credit score of 720 or higher, then your life will suddenly become perfect. The advertising is working because even though everyone in the U.S. can order their credit report for free, every year millions of people are going to services that cost them $36 a year to get their "free" report.
People are obsessed with getting and keeping an excellent credit score. We hear these statements regularly on our financial helpline:
A caller who can't pay their monthly bills because their debt payments are so high says, "I can't go to credit counseling because I heard it will damage my credit score."
A caller who is not saving in their 401(k) and missing out on the company match says, "I don't want to pay off my credit cards. I am keeping a balance to help my credit score."
This makes no financial sense. People aren't going to seek help getting out of debt — lowering the interest rate and possibly the balance owed — because it will hurt their credit score? How is this helpful? If people don't get their debt under control, they may never retire. We'll have a nation of people working into their 80's with no savings but they can all come together and brag about their credit scores.
Don't even get me started with the notion that carrying a balance on a credit card will somehow help the score. First of all it is wrong and secondly, people are actually harming themselves financially — thinking that paying high interest on credit cards instead of paying them off is a good financial strategy.
Don't get me wrong, having a good credit score has value; it can save on the cost of borrowing money so it is helpful to have the best score possible. Just make sure you are basing your credit strategy on sound information — not common myths that get you nowhere.
Let's examine some of the biggest credit myths that can lead to disaster:
Assuming if you pay your bills on time, you don't have to do anything else.
Paying your bills on time accounts for about 35% of your credit score but there is another 65% which includes amount owed (30%), length of credit history (15%), new credit (10%) and type of credit (10%). Consider all of the other factors.
Also remember that there may be errors on your credit report so if you don't check it, you'll never know and your score will be affected. According to Deborah McNaughton, author of The Get Out of Debt Kit, 80% of credit reports have errors (as cited by Bankrate.com). Many of the erroneous reports had missing information that may boost a score, such as missing a revolving account in good standing, or miscellaneous incorrect information such as an incorrect birthday.
Check your credit report. You can receive a free report from each of the three credit reporting agencies once a year at www.annualcreditreport.com. Credit reports are unique to Social Security numbers, so if you are married, you may want to stagger your requests with your spouse every six months. You can also request your actual score for a onetime fee (which is less than $15 through most credit bureaus). Most credit monitoring services will provide your score for free when you sign up for their service.
Assuming when you divorce, your accounts automatically divorce with you. They don't. If you have a joint account and one of the parties on the account is late, you are both late. With some types of loans, such as a mortgage or a car loan, the lender may not accept a letter asking you to be removed from the account after a divorce even if that property is going to your ex-spouse. They will need to qualify for the loan on their own before you will be removed from the account. Take this into consideration because if they don't refinance, and then have late payments, you may find yourself with some credit issues. When possible, close all joint accounts and refinance any debt separately. If it is not possible, maintain some type of control, whether it is an escrow account or at least access to information to make sure the accounts are paid in a timely manner. Don't assume. Also see the last point about closing accounts.
Avoiding consumer credit counseling because it will hurt your credit score. For someone with serious debt, working with a not-for-profit credit counseling agency to develop a debt reduction plan and get out of debt permanently should take priority over credit scores. Credit counselors will work with your creditors to try and reduce your monthly payments, or settle your debt altogether. Debt settlement doesn't affect scores as badly as you would think. In fact, many people don't realize that late payments affect scores more than a debt settlement. Here is an example of how a debt settlement can affect credit scores, and how that compares to late payments.
A late payment hurts your score more than a debt settlement if your score is in the 680 range; it only significantly pulls it down if you are in the 780 range. Let's be honest here, people ready for credit counseling probably don't have the highest scores anyways, and the bottom line is credit scores are fluid — they can be rebuilt. According to Credit.com, a debt write off can stay on your credit report from seven to ten years, but as the information ages, so does its negative impact.
Making late payments aren't that big a deal. According to FICO, a 30-day late payment can affect your score by as much as 110 points. Late payments can have a huge impact on your credit score causing it to drop like a stone. This is one disaster that is relatively easy to avoid. Simply set up all of your accounts with an automated minimum payment schedule from your checking account. This way you'll never miss a payment. You can always pay additional amounts through online banking. Set yourself up for success with this one because it can be an easy one to miss and makes a significant impact.
Closing accounts to clean up your credit. Closing an account may be a good idea if you only opened the account to get a discount on merchandise or have too many credit cards which is causing confusion, but it won't clean up your credit or help your score. In fact, it can hurt your score when the account you close has a long credit history — especially a good one. Your credit history accounts for 15% of your score, so in making decisions which cards to keep and which ones to close, keep in mind how long you've had the account open and close the most recent ones first.
Are credit scores important? Yes, but they are not the "be all and end all." Now that we've dispelled some of the biggest myths, consider what the "be all and end all" is for you. What are your biggest financial challenges and concerns? Our latest research shows that less than 18% of employees feel they are on track for retirement. Are you part of the 82% that isn't? Do you have a personal net worth statement and is it going in the right direction? The point is when you focus on the important financial issues, you have a chance to meet your financial goals. Clean up your credit if you have to, and do your best to keep a good credit score, but let's not go overboard and lose sight of everything for just one number.
December marked another month of positive economic gains in Oregon, with improvements in every major category tracked by the University of Oregon Index of Economic Indicators.
The index rose 2.7 percent in December to 90.5, the third consecutive monthly gain. The index has a benchmark of 100 set in 1997. Compared to six months ago, the index is up 3.5 percent.
Among the positive month-over-month gains in December:
Initial unemployment claims fell to 8,237 — their lowest level since April 2008 — from 10,042.
Employment services payrolls — largely temporary-help workers — were up to 31,452 from 30,499, a signal that firms are looking to boost hiring as the economy improves.
Residential building permits rose to 709 from 564.
Non-defense, non-aircraft capital goods orders rose to 41,228 from 40,730.
Consumer confidence was up to 70.2 from 68.8.
The interest rate spread between 10-year treasury bonds and the federal funds rate widened to 3.11 from 2.57, a signal of investor confidence in the U.S. economy.
December's strong showing combined with positive trends for national economic indicators has alleviated concerns of a double-dip recession, according to the index. And the gains in new orders suggest that business investment spending will accelerate this year.
Gov. John Kitzhaber wants to increase tax breaks for film and television production by $10 million a year.
The recent success of the Portlandia and Leverage television shows build on the state's colorful history of hits and flops, from The Goonies and Drugstore Cowboy to The Hunted and Animal House.
With some states talking about cutting their tax breaks for Hollywood productions, "There are quite a few movie operators and directors looking for a place to land and we thought we might have them come here," Kitzhaber said.
In the scheme of the state's $14.7 billion general fund budget, the tax break for filmmakers is pretty small, about $7.5 million a year currently. Supporters say it has helped persuade filmmakers to spend more than $178 million on projects in Oregon over the last four years.
The standard mileage allowance for business driving inches up for 2011. The rate increases to 51¢ per mile, up 1¢ from 2010. For medical travel and moving, the allowance is 19¢ per mile, a 2½¢ hike. For charitable driving...14¢.
Businesses of any size can claim 100% bonus depreciation for new assets put in service this year. Only assets with useful lives of 20 years or less will qualify, including machinery, land improvements and farm buildings. Used assets are eligible for regular expensing, even though they don’t get bonus depreciation. Up to $500,000 can be expensed. This phases out once $2 million in total assets are put in service
1. "Like it or not, you may need help with your taxes."
When Cindy Hockenberry and her husband sent in a tax-penalty payment in 2007, they knew there was a chance their math might not jibe with the IRS's. When that turned out to be true and the amount was much higher than expected, they decided to dispute it. Fortunately for them, Hockenberry's a pro. As tax research coordinator at the National Association of Tax Professionals, she spotted a glitch in the IRS's calculation; after visiting the local IRS office, the agency admitted its mistake and lowered the penalty. "There's no way the average taxpayer would have noticed," she says.
As recently as 2000, less than half of all taxpayers were using a preparer. Today 80 percent use software or a tax pro, "because they're scared of making a mistake," says Nina Olson, the National Taxpayer Advocate. "That's a sign the system's too complex." A pro may not be necessary for basic returns that include just a W-2 and, say, mortgage interest; in those cases, TurboTax will do. However, if you've made a lot of market moves or run a side business, consider a preparer. (You can find one at www.natptax.com; expect to pay $150 to $200 per return.)
2. "You don't have to be rich to get audited."
The IRS's job is to enforce the tax laws enacted by Congress and to collect what's due. Its primary weapon? The audit, whose use has more than doubled since 2000, to surpass 1 percent of all returns, according to the Transactional Records Access Clearinghouse, a Syracuse University data-research organization. The increase can be attributed to the rising number of so-called correspondence audits -- those done through the mail asking for specific information rather than, say, investigating your whole return, says Susan Long, codirector of the organization. "It's more efficient."
One way to get the IRS's audit sensors tingling is to claim deductions much higher than are typical for your income level. We'd share them with you, but the IRS keeps that information under wraps. What's more clear: Big charitable donations have been getting a much closer look, says Bob Meighan, VP of TurboTax. "It's been an area of abuse for a while," he says. To protect yourself, get a receipt for any donation you plan on deducting. And keep those receipts for seven years -- unless it suspects you of outright fraud, that's how far back the IRS will go with an audit.
3. "Fear is often our best weapon."
The threat of an audit is enough to send many folks scurrying to their tax preparer, and no wonder. "With audits, you're assumed guilty until proven otherwise," says Long. It's this fear, coupled with the complexity of the system, that causes some to overpay their taxes by not taking deductions they're entitled to, according to experts. A study by the Government Accountability Office found that 2.2 million people a year overpay, by an average of $438. "Americans are leaving a lot of money on the table," says Roni Deutch, a Sacramento-based tax attorney.
When the alternative minimum tax was introduced in 1969, it affected only a handful of taxpayers with high income and big deductions. But by 2010, it will hit 87 percent of married couples with income between $75,000 and $100,000. That's not what it was designed to do; the AMT was meant to force big earners with lots of deductions to pay their fair share. Now it "brings in a group of taxpayers the IRS has no problem with," says Olson. "The AMT has run its course." The problem is, the AMT hasn't been updated to account for inflation. Instead, Congress has been adjusting exemption criteria on a yearly basis. "It's just a Band-Aid," says Hockenberry.
The Band-Aid in this year's stimulus plan reduces the number of taxpayers subject to the AMT to 4.4 million -- it would've been 30 million, according to the Tax Policy Center. But if you're living in a high-tax state or married with two or more kids, you might find as you calculate both your regular return along with the AMT -- form 6251, which taxpayers are responsible for -- that you could be liable for the latter. Confused? The IRS offers AMT assistance at www.irs.gov; click on "Online Services."
5. "Just because we billed you doesn't mean you owe us money."
Receiving a CP2000, also known as a correspondence audit, sure sounds scary, but in most cases, you don't actually owe any more money. Not that the IRS will make that clear -- it's likely billing you because of a discrepancy on a certain deduction or reported income; then it's up to you to prove otherwise. But as the number of these audits have risen, up 176 percent since 2000, the chance for error goes up as well. The IRS says 98 percent of the audits it sends out require clarification, not payment, but Charlotte Ogorek, an Illinois-based enrolled agent, thinks it's more like 85 percent.
Even if the charge is unfounded, to appeal it could cost you anywhere from $500 to $4,000, depending on how long it takes, says Bill Wandel, a licensed taxpayer rep at JK Harris. If you plan to challenge a CP2000, contact your local taxpayer advocate from the IRS (go to www.irs.gov/advocate to find yours), who will provide advice and representation free. If it turns out you need even more expertise, contact a tax lawyer or an enrolled agent (a professional licensed by the IRS to represent taxpayers in front of the IRS). Find one at www.naea.org.
6. "If you don't pay, we'll sic a collection agency on you."
If you thought dealing with the IRS was bad, wait till you're past due on a payment and get turned over to one of the two private collection agencies the IRS taps to help collect its money. Since 2005, the IRS has been assigning delinquent taxpayer accounts to either Pioneer Credit Recovery or the CBE group of Iowa -- much like any other business or lender. "These are federal taxes," says Olson, the National Taxpayer Advocate. "The IRS should be collecting them." The retention of these private agencies costs $7.65 million annually, yet when the IRS works these cases instead, "it's three times more productive," Olson says. (A spokesperson for Pioneer Credit Recovery and CBE says the issue isn't who can do the work more efficiently; it's whether these taxes would be collected at all without the private collection agencies.)
If the IRS puts a private collection agency on your case, Olson says the first thing to do is to request that your case be turned back over to the IRS. The reason: IRS collectors have the authority to offer you a compromise settlement, something the private agencies aren't authorized to do.
7. "Want to go green? We'll help pay."
Tucked into last year's unprecedented $700 billion bailout plan was some pork that even a vegan could love. Congress not only added an extension of the eco-friendly Energy Policy Act of 2005, which was set to expire at the end of 2007, but it also sweetened the pot for homeowners looking to green up their homes.
Want to grab some energy from the sun? Starting in 2009, a number of energy-saving steps will garner tax breaks for green consumers. Installing a photovoltaic system for solar energy, for example, will net you a tax credit worth 30 percent of the total cost; at www.solar-estimate.org you can find out the price and potential savings of installing a system in your neighborhood. Or if you're gung-ho for wind energy, you'll get up to $4,000 or 30 percent of the cost of installing a small home windmill system to generate energy. Check out the National Renewable Energy Laboratory's "In My Backyard" tool at its Web site to see how much energy you can expect to get from a windmill. For homeowners who aren't looking to go quite that green, there will be a $500 onetime credit for installing energy-efficient windows, insulation or a central air system.
8. "April 15 isn't necessarily a hard deadline."
If you're one of the 112 million taxpayers who receive a refund every year rather than owing more, you have a lot more flexibility around the standard Apr. 15 deadline than you might think. Feeling rushed this year? By filling out IRS form 4868, which you can find online, you can buy yourself a no-questions-asked six-month extension on filing your taxes. And you can file the form requesting your extension as late as Apr. 15 without incurring any penalties. The only catch -- and it's significant for some: If you do owe any taxes, then you must still pay those by the 15th.
How do you know if you're going to owe taxes this year? If your life is basically the same year to year, then your refund is pretty much on autopilot, says Bell. But any big changes -- such as a large increase in salary, unexpected commission or year-end bonus, or having a child go from dependent to independent -- could potentially swing you into the loss column. So when in doubt, do the math in advance, or check with a tax pro to see if there's anything you should be worried about.
9. "We may be a government agency, but that doesn't mean your data's safe."
One things you may not be thinking about as you file your taxes this year is that the documents you're sending off to the IRS contain virtually every piece of information an identity thief would ever need to drive your credit, and your sanity, into the ground. And considering that data breaches are on the rise -- up 47 percent in 2008 from 2007, according to nonprofit Identity Theft Resource Center -- protecting your information, which includes your Social Security number and home address, should be paramount. But a recent report by the Treasury Inspector General for Tax Administration (TIGTA), an independent IRS oversight organization, casts some doubt on the agency's ability to protect your information. For example, TIGTA says two new systems the IRS is implementing to manage taxpayer accounts and account data were "deployed with known security vulnerabilities in the controls over sensitive data protection, disaster recovery and system access."
Alarming as this information is, it's hardly a new problem at the IRS, says J. Russell George, inspector general for TIGTA. "We've seen this before when they implement a new system. The organization's unwillingness to change its behavior is potentially harmful to taxpayers," he says. (The IRS had no comment.)
10. "We may still have your refund."
Waiting on a refund? Typically, it takes three to six weeks to get your money back from Uncle Sam, depending on whether you e-filed or sent your paper return through snail mail. Either way, the IRS does a pretty good job, by and large, of getting refund checks out to taxpayers in a timely manner. But the agency's record is hardly perfect: Every year a fraction of refunds -- belonging to more than 100,000 taxpayers, and with an average due of $988 -- never get to their destination.
What's the problem? According to the IRS, these undelivered refunds are mainly due to issues regarding the accuracy of a taxpayer's mailing address or direct-deposit information. For example, people move and don't leave a forwarding address, handwritten returns may be illegible, or the direct-deposit routing number may be off by a digit or two. If you haven't received your tax return in a reasonable amount of time, check out the IRS's "Where's My Refund?" tool on its Web site.
