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Avoid costly penalties for late tax filing

—Jason Alderman

Be forewarned: Income tax season is upon us. Procrastination is probably never a good thing, but when it comes to the IRS, it can be downright expensive. To help keep you on track, I’ve compiled a few suggestions that can save you last-minute grief—and money:

Meet IRS deadlines. Make sure you postmark or electronically file your 2008 tax return by no later than April 15; otherwise, you may incur a late-filing penalty hat’s generally five percent of taxes owed, per partial or full month, plus interest.

As long as you meet the filing deadline—even if only to request an extension—the monthly penalty drops to 0.5 percent, plus interest. Contact the IRS ahead of time if you won’t be able to pay your taxes on time; they may even waive the penalties, depending on your circumstances. Call (800) 829-1040 or visit IRS.gov for more information.

Quarterly tax filers. If you file quarterly estimated taxes (as many retirees and self-employed people do), April 15 is also the deadline to make your first quarter 2009 estimated tax payment, even if you don’t file a 2008 return until later in the year.

Know tax code changes. As usual, there are numerous changes to the tax code for 2008. Visit the “1040 Central” section on the IRS website (www.irs.gov/individuals) to learn more.

A few highlights of the changes for 2008:

•People who don’t itemize deductions can now add up to $500 ($1,000 for couples filing jointly) in property taxes paid to their standard deduction amount.

•For 2008 and 2009, people over 70 ½ can donate up to $100,000 from their IRAs to charity without first having to declare the distribution as taxable income. This is particularly advantageous for those who don’t itemize deductions.

•Several other taxpayer benefits that had expired have been reinstated for 2008 and 2009, including the following: the option to deduct state sales tax instead of deducting state and local income taxes; the educator’s above-the-line deduction for up to $250 in expenses; and the above-the-line deduction for up to $4,000 in qualified college tuition and fees.

Ask for help. If calculating your own taxes is too confusing or time-consuming, consider hiring a professional. A sharp preparer could save you a bundle by finding hidden credits or deductions. If cost is an issue, several free options are available to seniors, military, and low- and middle-income taxpayers:

•The IRS sponsors the Volunteer Income Tax Assistance Program (VITA) and Tax Counseling for the Elderly (TCE). Search “Free Tax Preparation” on the IRS website for information.

•AARP volunteers provide free tax preparation to low- and middle-income taxpayers, particularly those over age sixty (www.aarp.org/money/taxaide.)

•Military personnel and their families worldwide can get free assistance through a program overseen by the Armed Forces Tax Council and offered through VITA. Check with your base for details.

Avoid common mistakes. People in a rush often fill in incorrect, illegible, or incomplete identification information, forget to sign and date the return, don’t attach needed documentation and supplemental forms, or make math errors. Double-check everything.

And finally, do yourself a favor and start organizing your 2009 paperwork now so you won’t have to scramble next spring. Visa’s free personal financial management site, Practical Money Skills for Life, features an interactive, downloadable tool called My Budget Planner to help you categorize and track income and expenses. The tool is available online at www.practicalmoneyskills.com/mybudget.

Jason Alderman directs Visa’s financial education programs. Sign up for his free monthly e-newsletter at www.practicalmoneyskills.com/newsletter.


 

TIDES project aids entrepreneurs

—Travis Willett-Gies

The TIDES project has begun to provide local entrepreneurs support in the areas of business planning, marketing, and finance. The project, a pilot program funded by the TIDES foundation, provides comprehensive ongoing business advising to participants for a nominal fee of $10 per month.

Fehrunissa Willett, director of the project, says, “The enthusiasm, creativity, and determination that these entrepreneurs bring to their businesses is really inspiring. Our participants are truly examples of the entrepreneurial spirit which will play a vital role in our country’s economic recovery.”

The participants in the TIDES project are a diverse group of entrepreneurs who are creating businesses in the arts, professional services, and retail. In addition to receiving weekly one-on-one consulting for their business needs, the entrepreneurs also participate in a monthly group meeting which offers discussion time as well as business training. Ms. Willett believes that “with more and more people running businesses from a home office, it is vital that a community of entrepreneurs is formed to encourage networking, communication, and support.”

The TIDES project is currently housed in the Heartland New Mexico Building, which provides local businesses with office space and business support services. Wayne and Nancy Ullery, managers of the building in Bernalillo, are showing their support for the TIDES project by offering a welcoming professional environment for the project office.

The team of consultants for the TIDES project includes finance, marketing, and planning professionals who have many years of education, training, and experience in business operations. The project’s guiding coalition brings together members of the Bernalillo Community Development Office, local government, WESST, and experienced business owners. Entrepreneurs, guiding coalition members, and TIDES consultants are excited to join together to promote small business growth and job creation in our area.

The TIDES project is a program of Empowering Our Communities in Bernalillo. For more information, contact tidesproject@hotmail.com.


IRS offers tips to avoid recovery rebate credit confusion

In response to errors showing up on early tax filings, the Internal Revenue Service today urged taxpayers and tax preparers to make sure they properly determine eligibility for the recovery rebate credit before they file their 2008 federal tax returns.

Some individuals who did not get the economic stimulus payment, and a smaller number of those who did, may be eligible for the recovery rebate credit. However, most taxpayers who received the economic stimulus payment last year will not qualify for the recovery rebate credit on their 2008 federal income tax return.

An early sampling of tax returns shows about fifteen percent have errors involving the recovery rebate credit. Some tax returns erroneously claim the credit, do not claim the proper amount of recovery rebate credit, or mistakenly enter the amount of the stimulus payment they received on the recovery rebate credit line.

To avoid delays in tax refunds, it is critical that taxpayers know the correct amount of the stimulus payment they received last year, if any, to help determine whether they qualify for the recovery rebate credit now.

The amount of the stimulus payment will not be entered directly on the tax return. For people using a paper tax return, the stimulus payment amount will be required when completing a related worksheet. For people using tax software, the stimulus payment amount will be needed as part of the return preparation process.

How to Get the Recovery Rebate Credit Right

The IRS sent taxpayers nearly 119 million stimulus payments last year. There are three ways individuals can find out how much they received:

Check the amount listed on Notice 1378, which the IRS mailed last year to individuals who received the economic stimulus payment.

Go to the “How Much Was My Stimulus Payment?“ tool that is available on the IRS website, IRS.gov. This can provide the correct amount in a matter of a few seconds.

Individuals can also call the IRS at 1-866-234-2942. After a brief recorded announcement, they can select option one to find out the amount of their economic stimulus payment. They will need to provide their filing status, Social Security Number, and number of exemptions.

With the amount of last year’s economic stimulus payment in hand, the taxpayer can then enter the figure on the recovery rebate credit worksheet or in the appropriate location when tax preparation software requests it.

If the taxpayer or preparer is using tax software, the amount of the rebate recovery credit will automatically be calculated and reported properly. If the taxpayer is using the paper method, the rebate recovery credit as determined through the worksheet should be reported on Line 70 of Form 1040, Line 42 of Form 1040A, or Line 9 of Form 1040EZ. For most taxpayers, the correct entry for the recovery rebate credit will either be blank or zero.

If there is any question at all as to the amount that should be reported for the recovery rebate credit, the taxpayer or preparer should enter a zero on the appropriate line above, and the IRS will determine whether a recovery rebate credit is due, and, if so, how much.

Some of the major factors that could qualify you for the recovery rebate credit include:

Your financial situation changed dramatically from 2007 to 2008.
You did not file a 2007 tax return.
Your family gained an additional qualifying child in 2008.
You were claimed as a dependent on someone else’s return in 2007 but cannot be claimed as dependent by someone else in 2008.


 

Stimulus Payments Not Taxable; Reports of Extensive Refund Delays False  

The IRS has received a number of recurring questions involving stimulus payments and the recovery rebate credit. Here are some important tips to keep in mind:

Taxability. The economic stimulus payment is not taxable and it should not be reported as income on the 2008 Form 1040, 1040A, or 1040EZ.

Refund delays. IRS personnel are aware of reports that errors in claiming the recovery rebate credit could delay tax refunds for as much as eight to twelve weeks. These reports are false. As the IRS detects and corrects return errors concerning the recovery rebate credit, refund delays are currently no longer than about one week.

One payment. In addition, the IRS notes taxpayers will receive a single refund that includes any recovery rebate credit to which they are entitled. The IRS will not be issuing separate recovery rebate credit payments.

Refund amounts. The IRS reminds taxpayers they should not use their regular refund from last year in calculating the recovery rebate credit. Some taxpayers may be confusing their regular tax refunds with the economic stimulus payment they received when completing their 2008 tax return.

Direct deposit requests. Taxpayers who request a direct deposit will receive the refund in the form of a direct deposit even if errors are detected.

For more information, visit the Recovery Rebate Credit Information Center, as well as the rebate questions and answers section on IRS.gov.  

 

     

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