There’s
a little over a month left until the income tax filing deadline. If you’re like
me and on a budget, you might be putting this off as long as possible so you
can save money; not just because you may have to pay additional tax, but also because of the skyrocketing cost of
tax preparation. Luckily for all of us, there have been some wonderful
organizations and companies who have joined together to offer free tax filing
services! We’ll take a look at different free services and tips and tricks for
filing your taxes and getting the best refund you can!
First,
how do you know what the proper amount of income tax is? Well, not every type
of income is taxable. Municipal bonds provide a tax free interest, but you’re
going to get a lower return on them which some refer to as an implicit tax.
Disability benefits are tax free if the premiums are paid by the individual, not
the employer. Some Social Security benefits are not taxable or only partially
taxable depending on your income. Foreign
income is federally tax-exempt up to a maximum of $96,100 if you are employed
by a multinational company and work abroad for an entire year. If you pay taxes
in the country you’re living and working in, you may be entitled to a credit on
your US returns. Income from long-term capital gains is not taxed as federal
income, but at a lower capital gains rate. The rate can be zero in lower income
brackets. A married couple with adjusted gross income below $70,700 and single
taxpayers below $35,350 will pay no tax on capital gains. (Yahoo! Finance)
Second,
there are deductions and credits that you might be eligible for that can reduce
or eliminate your income tax owed. The standard deduction and personal
exemptions you have can eliminate your federal income tax owed. For example, a
married couple filing jointly with two children can earn $27,100 and reduce
their federal tax liability to zero just by apply the standard deduction of
$11,900 and personal exemptions of $3,800 each. This before applying credits
like the Earned Income tax credit or EIC that can reduce that tax bill even
farther.
Depending on where you live and whether
you’re self employed, you can deduct property taxes and health insurance
premiums as well, without having to itemize. (Yahoo! Finance) Some credits are aimed at assisting taxpayers with modest
incomes. The EIC has a maximum of $5,891 and is available for working adults
with children who fall into the lower income brackets. Other credits include
the American Opportunity Credit, which offers a maximum of $2,500 per year for
qualified students; the Saver’s Credit for low and moderate income taxpayers
who want to save for retirement’ and the child and dependent care credit for
expenses paid to a care provider.
For wealthier taxpayers, when you itemize,
a qualified charitable contribution can provide an immediate federal income tax
deduction of up to 50% of that year’s adjusted gross income (AGI). You can even
spread the deductions across several years. Qualified medical expenses that
exceed 7.5% of AGI (7.5 is the number for 2012, in 2013 the number will be 10%)
can be deducted if you itemize. These things can include capital improvements
to your home to accommodate an illness or injury.
These are all LEGAL things! I want to be
very clear on this point. If you find a “tax pro” who promises they can get you
a better refund than anyone and you go with them, you are liable for the tax
fraud they commit. If you get audited and caught lying, you will pay taxes on
any fraudulent tax expenses, several types of penalties and interest on
everything. You need to read over your taxes, because once you sign them and
send them in; you are putting yourself in the danger of perjuring if they are
anything but one hundred percent truthful.
Your names need to match your ID cards.
Your SSNs need to be correct. You need to make sure there are no alimonies,
IRAs or retirement numbers showing up that you don’t have any knowledge of on
your 1040. If you are blind or over 65, make sure those boxes are checked
because it increases your standard deductions. Unless you own a home or have
very high business or medical expenses and contributions, you probably don’t
need to itemize. If line 40 of your return shows a higher amount than the
standard deduction, look at Schedule A.
Common frauds occur by entering numbers
such as mortgage interest and contributions when you didn’t spend on those. The
numbers are usually the IRS averages for those expenses. Child Tax Credits, EIC
and Education credits are another area in which frauds get you bigger refunds.
The IRS gives you more money, even if you paid nothing in. If they are on your
return, they better be real. And if they are, usually refunds are slowed down
by having them on there – being that its “free money” and all. Your withholding
is also a common area of fraud and natural error. And finally, if you get
direct deposit on your refund, make sure you quadruple check your routing and
account numbers! Make sure it’s your account and that the account is open. If
you use the wrong number and someone else gets your refund, the IRS cannot and
will not help you. You will have to sue that person to get your money back
unless they are a good person and hand you your money. Here are eleven changes that you must know about
before paying taxes this year.
Now, on to free tax preparation; the fees
for tax prep can range wildly, with many companies offering your federal return
for “free.” What they neglect to say, is that you will then pay higher state
return prep fees, and additional fees for having your refund direct deposited
into your account(s). They even offer to take those fees out of your refund for
you (and charge more fees for doing that). So, how to pay nothing? Well, if you
make less than $57,000, CASH Coalition of Buffalo offers free
tax prep online here.
They also have in-person tax prep. The IRS offers VITA (Volunteer Income Tax Assistance) and TCE (Tax
Counseling for the Elderly)
for people making $51,000 or less. UB School of Management offers free tax prep for those making $50,000
or less.
The Armed Forces Tax Council provides free tax preparation assistance
for military personnel and is a part of the IRS-funded VITA program. Volunteers
are especially trained in tax issues frequently encountered by people who work
for the Air Force, Army, Navy, Marine Corps, and the Coast Guard. You can
locate an Armed Forces Tax
Council VITA site on Military OneSource. Military
OneSource also offers free access to H&R Block At Home if you prefer to do
your taxes yourself.
Tax-Aide from
AARP provides free tax preparation for people and operates similar to the
VITA and Tax Counseling for the Elderly. You can find a local Tax-Aide site by
calling, toll-free, 1-888-227-7669 or by visiting AARP.org/taxaide. If you are experiencing a problem that you think cannot be
handled online or over the phone, you can visit your local IRS Taxpayer Assistance Center.
Phew. That’s a lot of information to take
in, I know. Hopefully this helps answer your questions and benefits you
greatly. If not, I hope you’ve been pointed in enough directions to places and
people that can help you far better than we can.
