NEW YORK (2/28/11)--Before filing your tax return this year, become familiar with important changes since tax year 2009. Then take advantage of every credit, deduction, and free resource available (The New York Times
Feb. 18). Last year, millions of taxpayers didn’t understand that they needed to complete Schedule M to claim the Making Work Pay tax credit. Luckily, the Internal Revenue Service (IRS) gave eligible filers the credit anyway, but don’t count on that going forward. First stop: IRS Publication 17, which has a link for “What’s New for 2010.” And there are plenty of other resources to guide you through the tax-filing process, including websites, tax software, and free local assistance. Here are some suggestions:
* Find all tax deductions. A deduction reduces the amount of your taxable income. Common examples include mortgage interest you paid, charitable contributions, and medical and dental expenses that exceed 7.5% of your adjusted gross income. For more information about tax deductions for the 2010 tax year, visit irs.gov or efile.com/tax-deduction. * Don’t overlook a single tax credit. A credit is better than a deduction because it cuts your actual tax bill. Common examples include the child tax credit, dependent care tax credit, savers credit, and first-time homebuyer tax credit. For a list of family, work, and home-related tax credits, visit efile.com/tax-credit/federal-tax-credits. * Let go of some tax breaks. Tax breaks that disappeared for tax year 2010 include the exclusion from income of up to $2,400 in unemployment compensation, which means that all 2010 unemployment payments are taxable; and a deduction for state or local sales or excise taxes on new vehicle purchases (unless you bought the vehicle in 2009 after Feb. 16, but you paid the tax in 2010). And the first-time homebuyer’s credit is available only if you signed a contract before May 1 and closed before Oct. 1, 2010 (New York Times Feb. 18). * E-file if possible. Visit irs.gov for options. Or you can e-file with commercial tax software or through a paid tax preparer. Shop around, and take into account the filing costs for both federal and state returns. * E-file with Free-file if you’re eligible. If your income is less than $58,000, visit irs.gov for information about 20 tax software companies that make their products available for free; some also support state tax returns for free. If you make more than $58,000 and are comfortable preparing your own tax return, consider Free File Fillable Forms at irs.gov/freefile. * Use direct deposit. This is the fastest, safest way to receive your tax refund. * Get free help from VITA. The Volunteer Income Tax Assistance program offers free tax help to low- to moderate-income taxpayers, generally with incomes $49,000 and below. Certified volunteers are at VITA sites throughout the community—neighborhood centers, senior centers, libraries, schools, malls, and many credit unions. Most offer free e-filing. Call 800-906-9887 for the nearest VITA site. * Visit Taxpayer Assistance Centers (TACs). If you don’t think your tax issue can be handled online or by phone, TACs provide face-to-face assistance through April 9. Visit irs.gov/localcontacts to find the TAC closest to you. * Use Taxpayer Advocate Service (TAS) as a last resort. The TAS helps taxpayers resolve problems with the IRS. It’s free and confidential after you’ve tried to resolve the problem through regular IRS channels. Call 877-777-4778.
Finally, plan ahead. The average refund last year was $3,003. Rather than giving an interest-free loan to Uncle Sam, file a new Form W-4 with your employer and have less money withheld from your salary, putting more money in your pocket throughout the year. For more information, read “Don't pass up retirement tax credit” and “Find a qualified tax preparer” in Home & Family Finance Resource Center