Tips for getting through taxesIf you’re into numbered forms, itemized deductions, and carrying figures over from line to line, the most wonderful time of the year – tax season, of course – is approaching fast.
If you’re into numbered forms, itemized deductions, and carrying figures over from line to line, the most wonderful time of the year – tax season, of course – is approaching fast.
And if you’re not quite so enamored with the process, well, it’s still coming. To make life a little easier, we sat down with a pair of tax experts and enlisted the help of our local Internal Revenue Service representative to get a handle on the key questions surrounding your soon-to-be-filed return.
No change is good
For many taxpayers, “the good news is not a lot changed from last year,” says Laura Kahn, a tax specialist with Taxman in Fargo. “A lot was supposed to change, but didn’t.”
Those included an enhanced earned income tax credit, a beefed-up child tax credit, and an equalized standard deduction for couples filing married, which eliminates what is commonly referred to as the “marriage penalty.”
The net result of those moves isn’t insignificant: Taxman co-owner and certified public accountant Brent Drovdal did a little back-of-the-envelope math for us and figured a family with two young children and an income of $40,000 a year stands to save about $1,600 in tax liability with the extension of the benefits.
Drovdal said many of the extended deductions have come to be taken for granted by taxpayers. “I think people would be shocked if some of these things actually fell off,” he said.
At the last minute, Congress also patched up the Alternative Minimum Tax to prevent some 20 million middle-income families from seeing a tax hike of several thousand dollars. That act requires a congressional “fix” every year because it isn’t indexed for inflation.
Congress also extended the tax cuts passed in 2001 under the Bush administration, preventing rate increases of 3 percent to 5 percent on the top four tax brackets (those start around $34,000 a year). The capital gains tax cuts passed in 2003 were likewise extended.
A phaseout of itemized deductions and personal exemptions for higher-income taxpayers was also nixed.
One item that won’t affect your tax return but should put a little extra cash in your pocket: The social security portion of employee payroll taxes will drop from 6.2 percent to 4.2 percent.
One area where taxes will rise: unemployment benefits. The first $2,400 of benefits received in 2009 were not taxable; all benefits received in 2010 are.
And if you claimed the original homebuyer’s tax credit in 2008 – which was actually an interest-free loan – it’s time to start paying up: You owe $500 a year starting this year. Conversely, first-time homebuyers who bought a home before May 1, 2010, qualify for an $8,000 credit. Longtime homeowners qualify for a credit of up to $6,500.
Delays for some
Because Congress didn’t act until late in the year on several key items, some taxpayers will have to wait until mid-February to file their returns. The biggest groups affected are filers who itemize deductions, people who qualify for one of the homebuyer or resident credits or have to start paying the original homebuyer credit back, and people who qualify for higher education tuition and fees deduction, according to Taxman’s Kahn.
The IRS said in a statement earlier this month it will begin accepting those returns Feb. 14. The agency says the majority of filers are not affected by the delay.
Even if you’re among those delayed – and especially if you’re not – the IRS is again pushing the benefits of filing electronically. Sue Hales, an IRS spokesman who handles inquiries for North Dakota, said e-filing provides for faster confirmation of receipt, better accuracy, and faster returns.
Hales said more than 240,000 of North Dakota’s 316,000 returns were filed electronically last year. The IRS expects that number to climb by about 5 percent this year, she said. Many online tax sites offer options for free e-filing.
If you still prefer the pencil-and-paper route, keep in mind the IRS no longer mails out tax forms because of the popularity of e-filing. They can be picked up at a number of public locations – check with your local library or post office.
Most of the major provisions of the hotly debated Affordable Care Act don’t kick in yet, but some small businesses can start claiming a credit designed to help offset the costs of providing health care to employees.
To qualify, businesses must employ fewer than 25 full-time employees with average wages of less than $50,000 and pay for at least half of employees’ insurance premiums. Businesses that qualify can claim as much as 35 percent of their health care premium costs, depending on the size of the business.
Drovdal said Taxman hasn’t processed many forms for that deduction yet and isn’t sure if many businesses are aware that it has kicked in.
With tax season upon us, tax experts are ready with advice.
“Everybody needs to put some effort into understanding what the law is for 2010, how things changed, how things didn’t change,” said Greg Rosica, tax partner at Ernst & Young.
- Documents: “Get your records in order; get everything together; don’t be in a rush,” said Barbara Weltman, author of tax guides for J.K. Lasser. Needed records include W-2s, 1099s and receipts for charitable deductions.
- Deductions and credits: Make sure you’re claiming every one you’re entitled to, said Turbotax Vice President Bob Meighan. For example, he said, if you volunteer at the food kitchen, you can’t deduct your time, but you can deduct your mileage to get there. Don’t underestimate the value of goods you donate to charity.
- Check for errors: “Review, review, review,” the Internal Revenue Service says. Don’t forget to include your Social Security number, and sign your return.
- Don’t go it alone: “Software serves as a double-check,” said Mark Luscombe, a principal tax analyst at CCH. So do professional preparers.
- File electronically: “You’re going to get a more accurate return,” says Terry Lemons, chief spokesman for the IRS. It also will help speed your refund, especially if you choose direct deposit.
- Remember the deadlines: This year, taxpayers have until April 18 to file 2010 tax returns.
- Look ahead: It’s not too early to start planning for your 2011 taxes. Are you having too much tax – or too little – withheld from your paycheck? Should you be doing more to save for retirement – and lower your tax liability in doing that? Are you considering selling a house or business? If so, you might want to consider doing it this year, when capital gains rates are still low. “All items ought to be on the list and examined,” Rosica says.
Information from The Associated Press was included in this story.
Readers can reach Forum reporter Marino Eccher at (701) 241-5502