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Archive for the ‘Tax and Refund’ Category

It has been said that there are only two certainties in life: Death and taxes – and sometimes it’s hard to tell which one people dread the most! Without a doubt, taxes are a necessary evil, giving both state and federal governments the ability to provide aid to needy citizens, improve public spaces like roads and parks, enhance the school system, and more – but that doesn’t mean that anyone actually enjoys dropping their tax return in the mail every April. Fortunately, there is one way to make the entire process a little less agonizing: Discovering ways to find free money in your tax refund! There are many different credits and deductions that you may be qualified for, and they can add up in a big way – although they may not always be immediately obvious. Here are a few of the most commonly overlooked credits and deductions to get you started:

Education. If you’re a student – whether full or part-time – you may be able to qualify for a special credit that will help cover the cost of books, tuition and more. Similarly, if you are studying a subject that is pertinent to your career, you may be able to deduct your expenses. Ask your accountant or tax specialist for more information. Sales tax. That’s right – you may be able to deduct the cost of your state’s sales tax, particularly on “big ticket items” like a new car or a major electronics purchase. Energy-saving home improvements (i.e., solar panels). In the interest of helping citizens “go green,” the government is offering tax credits for many different home improvement projects that will help families reduce their collective carbon footprint, such as the installation of solar panels in the home. Charitable donations. Most people remember to write off cash donations, but don’t forget about goods and items you may have donated as well, such as clothing, canned food, books, or used electronics. If you donated an item worth more than $500, make sure to have it appraised – and include the appraisal fees in your deduction. If you frequently travel for charity (for example, if you drive to a different town in order to volunteer), you can even include your transportation costs in the deduction. Home selling fees. If you’ve sold your home over the past year, don’t forget to deduct property tax for the portion of the year you still lived in the house, real estate agent fees, closing fees, and other pertinent expenses. Work-related travel expenses are a popular deduction, but many people overlook additional opportunities for free money, including the cost of transportation, lodging, cleaning business suits, shipping items (like luggage), and access to phone, fax or Internet while on the road. Finally, don’t forget to account for your tax preparation fees! If those costs exceed 2% of your adjusted gross income, you can write them off – and don’t forget about the cost of transportation to and from your accountant’s office.

As with any tax credit or deduction, always keep detailed records and save your receipts when necessary – these documents may prove themselves to be invaluable in the event of an audit.

There are more than 107,000 refund checks that have been returned to the Internal Revenue Service due to address errors, totaling $123.5 million. If yours was one, you can still get your refund. All you have to do is update your address information with the Internal Revenue Service.

If you update your address just one time, the Internal Revenue Service will send you all and any of the checks you missed. Undeliverable refund checks averaged over $1000 this year and about $990 last year. Some taxpayers have missed more than one check.

Most IRS refund checks are delivered by the United States Postal Service every year. Only a small percentage turns up undeliverable.

All you have to do to update your address with the Internal Revenue Service is go to their website at IRS.gov and click on the place that asks the question; Where is my refund? This tool enables you to check the status of your income tax refunds. You will have to submit your Social Security number, the amount of the refund you are seeking and the year, along with your filing status. You will then be apprised of the status of your refund and what to do to correct delivery issues.

The Internal Revenue Service is campaigning to have taxpayers use direct deposit to collect their refunds. Direct deposit removes any possibility of lost, stolen, or undeliverable refunds. It saves both you and the IRS a lot of hassle. Direct deposit can be used for your refund whether you file your income tax return electronically or through the United States Postal Service.

The Internal Revenue Service is also campaigning to encourage taxpayers to file their returns electronically because it eliminates lost returns, errors, and hastens the issuing of your refund. The combination of an e-filed return and direct deposit works best for the taxpayer and the IRS.

Did you know you can get a refund for a return that you already filed? Yep, it’s true. If you think you forgot a deduction on a previously filed return, you have three years to tell the IRS about it and receive a refund.

Here’s how it works: You can file an amended return up to three years after the due date of the return in question.

So, for Year 2007 returns originally due April 15, 2008 — you have until April 15, 2011 to file a correction. For Year 2006 returns originally due April 15, 2007 — you have until April 15, 2010 to file a correction. And for Year 2005 returns originally due April 15, 2006 — you have until April 15, 2009 to file a correction.

Now the question becomes: Is it worth it? I mean, do you really want to spend the time and energy doing more tax paperwork. I know, I know — you’ve got better things to do with your time.

So here’s an incentive to make it worth your time: If I offered you a little part-time job that paid about $180 per hour, would you be interested? I think so.

Well, that’s how you should look at the task of filing an amended tax return. Do the math: You discover $1,200 of unreported deductions on your return from Year 2005, 2006 or 2007. So you do the research, prepare the proper forms (or have your accountant do it), and send them off to the IRS.

If you are in the 30% tax bracket (say, 25% federal plus 5% state), you will get a $360 refund for your efforts. And even if it took you 2.0 hours of paperwork drudgery, Uncle Sam just paid you a cool $180/hour. Not bad, eh?

To file an amended federal income tax return, use Form 1040X. Both Form 1040X and its instructions are available at the IRS website. You should also file an amended state return (assuming your state has an income tax), so check with your state’s tax department to get the appropriate form.

Don’t forget: if you’re able to find $1,200 worth of unreported deductions on one previously filed return (resulting in tax savings of $360), there’s a good chance the same situation exists for the other 2 “open” years.

End result: $360 x 3 = $1,080 in total tax savings.

o Insolvency

Cash flow insolvency is the inability to pay debts upon demand. Balance sheet insolvency simply means that you have more debts than assets. It is possible to be cash flow insolvent at the same time you are balance sheet solvent. This happens when you have money bound up in non-liquid assets. Many taxpayers have experienced this recently, when they have been forced into foreclosure due to the inability to pay their mortgage.

When your liabilities exceed your assets, you are insolvent. If a lender forgives your debt under insolvency, you can file for insolvency exclusion in that amount on your income tax. Otherwise you will have to enter the forgiven debt on your income tax report. Recently many homeowners realized that the cost of their mortgage exceeded the value of their home. These homeowners qualified for the insolvency exclusion on their taxes.

The amount you can exclude can be no higher than the amount by which your liabilities exceed your assets. If the debt forgiven qualifies under the tax code and is used for running a farm, it might not be income at all.

o Chapter twelve or thirteen bankruptcy

If you file a chapter twelve or thirteen bankruptcy, you will file the same income tax report. Include your entire income, as is normal procedure. But do not include any canceled debt on your federal income tax return. Losses in property must be reduced by the total canceled debt.

o Chapter seven or eleven bankruptcy

Under chapter seven or eleven bankruptcy filings, a separate estate is created from your estate prior to filing. You, as a taxpayer and your bankruptcy estate are two distinct entities. Under chapter seven, a trustee is appointed to your estate. The trustee sees to the liquidation of your non-exempt assets. Under chapter eleven, you stay in charge of the estate. You are given debtor-in-possession status. All monies earned after the bankruptcy filing are yours and not part of the bankruptcy requirements. If your bankruptcy petition is rejected, you are responsible for filing an Internal Revenue Service tax form 1040X and become responsible for your income taxes as if you had never made the bankruptcy petition.

You have to file an income tax return during the bankruptcy process. You will not include, deductions, credits, or income belonging to the bankruptcy estate, as it is an entity separate from you. You can choose to end your tax year the day before you file your bankruptcy petition.

If you file for bankruptcy after the first of January, any refund you receive from taxes that year, even if you have yet to file, is an asset in your bankruptcy.

If you file a Chapter 7 bankruptcy in New York, you might be wondering how it will affect your tax refund. There are several factors that determine whether you can keep your refund, or whether you will lose it under the Chapter 7 filing:

Here is something that I just learned about and thought I would pass this on to you. Did you know that identity theft has hit the income tax process? Thieves are taking your personal information, filing a false tax return and getting your refund!

How is this possible? You might assume that the thief would have to know everything about you, because tax returns aren’t simple documents. There’s dependent information, property taxes, employer records, all kinds of information that we all take great pains to make sure is correct. But, these details aren’t checked instantly for accuracy. You and I only make sure they’re accurate in case we’re audited months or even years after we file our returns. The person who steals your tax refund won’t be waiting around for an audit. Once he, or she, has your social security number and the tax-id number of any company, (s)he simply makes up the rest of the information. That’s right, all that’s needed to steal your refund is your social security number and a fake 1099 and/or W-2. The tax return doesn’t even need a real return address. If the false tax information is taken to a company that offers instant cash tax refunds, the thief can walk away with the money and simply disappear.

So what do you do about this? Make sure that your information is very difficult to get. I realize that can be challenging. It’s ironic, but the more they warn about identity theft, the more we have to produce our proof of identification. How do you keep your information private when you practically have to wear it on your sleeve to get anything done? Here are the standard things that I have told you about previously that you should have already incorporated into your life:

1. Shred all information before throwing it away.

2. Never use easily guessed passwords (your own name, your birthday, etc). Your password should always contain letters, a number and even symbols if they’re allowed.

3. Don’t save your passwords in your computer.

4. Don’t leave your outgoing mail in your home’s mailbox, bring it to a mailbox.

Here are a few more tips that I haven’t told you about:

1. When you are getting rid your old computer, it is not enough to delete your information, take the time to have someone erase your information professionally. Another alternative is to destroy the hard drive before selling or recycling your old computer.

2. When using a photocopier for your personal information, make sure it doesn’t have a memory drive to store copied images. You’ll want to make sure that you’re walking away with the only copy of your documents.

3. Keep your financial records in a locked file cabinet or a well hidden location. Many of us have house cleaners, repair people, and even acquaintances coming in and out of our homes. We can’t watch them every second that they’re there. They could be getting your personal information when you aren’t watching.

Last year alone, there were over 20,000 complaints with the IRS that the wrong person got their refund. Don’t let this be you.