A college student can be worth $2,500 under the American Opportunity Credit.
Last week I wrote about three educational and energy credits that reduce your taxes. I mentioned one deduction, too. So what’s the difference between a tax credit and a tax deduction?
A tax credit directly reduces the taxes you owe. So if you do your taxes and owe Uncle Sam $5,000, a $2,500 tax credit means you pay just $2,500 in taxes.
A tax deduction reduces your taxable income, which is what determines how much tax you pay. So if your gross income was $45,000, a $2,000 tax deduction means you pay taxes on $43,000.
In short, a tax credit saves you a lot more money than a tax deduction, so never skip a chance to claim a valid tax credit. Got questions? Leave a comment and I’ll do my best to answer.
More than 75 percent of all taxpayers get a refund, according to Turbo Tax, which says refunds averaged $3,000 last year. Three-fourths – could that be true? If it is, what are you going to spend your refund on?
If you’re still filling, here are three tax credits and one deduction to watch out for (in a good way). I summarized these tax tips from H&R Block.
- Energy credits. If you made an energy-efficient improvement to your home in 2010, you might be eligible to claim the non-business energy property tax credit. It is for (more…)
SnapTax from TurboTax
There is a new way to file your federal and state taxes that claims to be easy and cheap. Whip out your iPhone or Droid to download TurboTax’s SnapTax and then file your taxes from the palm of your hand. The app is free to download but costs $15 when you file. The $15 covers both your state and federal 1040-EZ return.
The way it works is that SnapTax takes a picture of your completed W-2 (yes, you still have to fill it out), asks a few questions about your status, checks your math, then presents you with a “File Now” button. Tap it to file your tax returns electronically.
This works great for folks who have very, very simple returns. The price tag – $15 for both returns – is not bad, though if you make less than $58,000 you can file your taxes for free on a computer. You can also mail in your returns for free. Just remember to make a copy for your files!
My returns are too complicated to use SnapTax, but would you take advantage of something like this?
JD Hancock/Flickr
I compiled seven tax tips from the IRS, CompleteTax, and H&R Block, including how to file for free, and what you can deduct while job searching.
1. File for Free. If you make less than $58,000, you are eligible to file your federal taxes for free using the IRS Free File program. That makes about 98 million Americans eligible. To file your taxes for free click on the above link, then click on “Free File” in the right column. Choose one of the Free File Alliance members that comes up that meets your tax needs. Once you pick a company you’ll be transferred to the company’s website to work on and file your taxes. Speak Spanish? Three of the 19 participating software companies also offer this service in Espanol. If you do not have Internet access at home, there are 29 locations across the country where you can use the Free File software.
2. Another free filing option. (more…)
Taxes ware so high in Monopoly, as kids my sisters and I abolished it. Credit: alancleaver_2000/Flickr
End of year tax tips are rolling in. Below I paraphrased the best 15 tax tips that I received from Grant Thorton, TurboTax, H&R Block, and Free From Broke.
1. Get a tax question answered for FREE at FreeTaxQuestion.com through Jan. 31, 2011. It can be about personal, federal, state, or business taxes. You’ll get an email or personal call back at a time you request.
2. Understand how changes to FSA’s, HSA’s, and HRA’s due to the Affordable Care Act will affect your taxes.
3. Adjust timing of income and deductions. If tax rates are expected to rise next year, see what wiggle room you have to count income and deductions in the current tax year. Paying taxes now at a (more…)
Over time, your IRA should grow like this guy! Credit: o5com/Flickr
Do you have a retirement account? Are you contributing?
If not, make it a goal to set one up by the end of the year. You can make a contribution for calender year 2010 as late as the date you file your 2010 taxes, which means you have until April to save up!
I recently set up a SEP retirement account, which is like a 401(k) for self-employed folks. I did not contribute a cent to a SEP last year because after maxing out my Roth IRA, I did not have anything left. It was the first year I launched BargainBabe.com and my income was meager.
This year I am delighted to (more…)
Get a free DVD rental from any Redbox at a Kroger grocery store. The expiration date is unknown so don’t delay.
Get 30% off tax software at H&R Block. And remember, the basic version is free!
Check out all the deals and coupons on my WalletPop blog. Later today there will be a 15% off coupon for Kohl’s and a coupon for a free ream of paper at Staples.
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This post is brought to you by Mint.com, a hot spot for personal finance software.
A friend of mine is getting a massive tax refund – almost $10,000. I’m frustrated that my friend lets the government keep his money interest-free for a year. But he likes the big cash influx, which he is more likely to save than if he had received a slightly bigger paycheck every two weeks during the year. Here is what he said when I asked him about his return.
“What are you going to do with it?”
“Put it in the bank.”
“All of it?”
“Yes. Why not?
“Isn’t there anything you want to spend it on?”
“Not really.”
I guess he didn’t get the memo that Americans are big consumers. Not that I want him to spend it all. I’m just surprised that he is not going to spend a fraction of it on himself.
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If you are getting a refund, here are five things to do with it:
- Pay off high-interest credit card debt.
- Pay off any other high-interest debt you may have.
- Boost your emergency savings account.
- Contribute to your IRA, Roth IRA, or other retirement fun.
- If you’re in a good place on the above four, spend a little on yourself!
If you haven’t filed, here are three places you can file your taxes online for free. Remember to review the new tax credits available and use all the tax coupon codes available. If you are looking for paid help, here are tips to hire a tax professional.
David Reber's Hammer Photographer/Flickr
Here are three places where you can file your taxes online for free.If you are doing your taxes yourself, check out these basic tax tips to get started. If you are hiring a tax professional, make sure to ask these five questions.
Okay, here is how to file your taxes online for free.
Option No. 1. You can file your federal returns for free using the traditional IRS Free File, which offers step-by-step help if your adjusted gross income is $56,000 or less (this number could vary slightly for 2009). The software puts your answers directly into the forms and does the math for you. You can get a refund in as quickly as 10 days if you opt for direct deposit. This service is also available in Spanish.
Option No. 2. You can fill in your own tax forms without the help of software using the Free Fillable Forms, thanks to a partnership between the IRS and the Free File Alliance LLC, a group of private sector tax software companies.. This hands-off approach lets you prepare and e-file your 1040, 1040 A and 1040EZ federal returns. There are no income limits as with Option No. 1. State forms are not included.
Option No. 3. If you are a senior, you can get free tax preparation and filing help through AARP.
If your returns are complicated and you want to buy Turbo Tax or another program, remember to use a tax software coupon code!
Jeremy Brooks/Flickr
There are a few new credits you can use on your income tax returns, according to Wells Fargo. Check out these credits, which I’ve summarized from a Wells Fargo press release,before you take the standard deduction of $11,400 if you are married filing jointly, or $5,700 if you are single or married filing separately.
The cool thing about tax credits is that if you end up with a negative tax liability, you will get a check from the government!
Disclosure: I am not a tax professional. Consult with a tax professional or research these credits further if you believe you are eligible.
- Got a student in college or putting yourself through school? Check out the American Opportunity Credit, designed to replace and improve the Hope and Lifetime Learning Credit. Your can make as much as $160,000 for married couples filing jointly or $80,000 for single filers and still claim this credit. You can claim the first $2,000 you spend on college expenses and 25 percent of the next $2,000 to get a total credit of no more than $2,500.
- If you lost your job recently, you don’t have to pay taxes on the first $2,400 in unemployment benefits. The same goes for your spouse. Double unhappiness turns into double deductions!
- Buy a new car or sell one? You can deduct the sales tax you paid on your new car, truck or motor home as long as you purchased it after February 16th, 2009. You can deduct the taxes up to a purchase price of $49,500, but if you make a lot of money ($250,000 for married filing jointly), the credit slides downward.
- You do not need to report your financial gains from the Cash for Clunkers program as income.
- If you bought a fuel-efficient vehicle in 2009 you may be eligible for green tax credits.
- Are you a first time home buyer? You may be able to get 10% of the purchase price up to $8,000 back in credits. To qualify you must have bought your home between Jan 1, 2009 and April 30, 2010. You have to live in your home as your principle residence for at least three years or else pay back the credit. The government considers you a first time homebuyer if you have not owned a home as your principal residence in the past three years.Theres also a $6,500 credit if you traded up to a new principle residence. The credit applies to mobile and manufactured homes but not vacation properties. Some income restrictions apply.
If you have questions Wells Fargo’stax centerhas more info.
Related posts on BargainBabe.com:
Tax calculator, forms, and tips
Where do your tax dollars go? (image)
Five questions to ask before hiring a tax pro
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This post is brought to you by Mint.com, a destination for budgeting software.
I’m slogging through my taxes and found these tax tips from CPA Steven Meyerson of JustAnswer.com to be super useful. Steven apparently gets a lot of the same questions year in year out because folks like you and me forget the most basic rules of tax preparation and filing. His tips:
Dealing with kids and marriages: If youre married or divorced be sure that you and your spouses last names match all social security records, because your return will be rejected if they dont. Also, if youre divorced with children, be sure you know whos claiming the kids. The rule is that whoever files first will initially get the credit and if it’s not the right person, correspondence with the IRS will be required by both parties to resolve the matter. To avoid that mess, it’s something you NEED to work out beforehand.
E-filing is the way to go: If youre doing your taxes yourself, you should save yourself some time and money by e-filing using the IRSs Free File program. The online form populates the numbers for you so you dont have to worry about calculating the math. The other upside is that once you submit your return, you will receive your check earlier than if you had submitted it manually.
Use the correct forms: Make sure you use your W2 forms and not a recent pay stub there is a huge difference.
Need an extension? Make sure you file it by April 15, unless you are living out of the country in which case you have until June 15 to file your return or file for an extension.Remember, extensions should include an approximation of the amount you owe, whether remitted or not. Failure to properly estimate your liability could lead to a rejection of your extension request and could result in late filing penalties.
Please Dont Procrastinate: If you want your money earlier, you need to file your return earlier. The closer you file your return to the due date, the longer it will take for you to get it back.
And Dont Pay Extra: Paying to get your return earlier is never worth it. Avoid anticipation loans or quick refunds because the cost isn’t worth having the funds a few day’s early.
Additionally, I found this IRS tax calculator to help you out over the next month. The post office has free hard copies of basic tax forms or you can get them online through the IRS.
Here’s a nifty graphic from Turbo Tax that shows where your taxes go.The chart singles out 11 categories that benefit from taxes, including national defense, international affairs, and health care. Using data from Salary.com, the chart shows for 10 different jobs the average salary, the average tax bill as a percentage of income, and the average tax bill as paid in dollars.
At the top of the heap you have the CEO, who makes $643,846 and pays 34 percent of his income (some $215, 734) in taxes. At the bottom is the janitor, who makes $28,245 and pays 16 percent of his income (some $4,585) in taxes . Strangely, all the workers depicted are men, unless those are burly cross dressing women.
A pie chart next to each job description shows how many dollars go towards each of the recipient categories. The dollars figures are different for each job but the percentages that goes to each category is the same. Note that military spending is by far the biggest recipient of our tax dollars, followed distantly by health and a nondescript category labeled other.
I highly recommend checking out this chart that shows where you tax dollars go.
Some 60 percent of Americans hire others to do their taxes for them, which means a lot of us are looking for a tax pro to hire right now. The March issue of ShopSmart, a magazine put out by Consumer Reports, shares five questions you should ask anyone you’re considering hiring.
1. What kinds of clients do you usually work with? Look for a preparer with clients similar to you.
2. What are your credentials? Look for a preparer who has passed recent state or federal tests and 7 to 10 years experience.
3. Will you file my returns electronically? Filing electronically ensures fewer mistakes and helps speed your refund.
4. Can you give me a price quote? Try to get a price quote by presenting last years forms. Ask for all fees and avoid preparers who base their fee on a percentage of your refund.
5. Do you provide audit help? CPAs and enrolled agents can usually represent you before the IRS, but you might have to pay extra.
In case you missed these resources to file taxes for free:
If you make less than $49,000 you can get free tax preparation and e-filing through the IRS VITA program.
File your taxes for FREE through AARP, even if youre not a senior.
No matter what your income, file your taxes for free online through the IRS Free File Fillable Forms.
And there are lots of coupon codes for tax software, like this tax software coupon for 25% off at H&R Block At Home.
There are plenty of ways to do your taxes yourself and not pay a dime, especially if you make less than $49,000 (see three ways to do this below). But if you are going to hire someone, here are nine tips from author and CPA Stacy Johnson to help you choose a tax pro.
For the last four of Stacy’s tips for choosing a tax pro, visit his site, MoneyTalksNews,and scroll down to below the video.
Resources to file taxes for free
If you make less than $49,000 you can get free tax preparation and e-filing through the IRS’ VITA program.
File your taxes for FREE through AARP, even if you’re not a senior.
No matter what your income, file your taxes for free onlinethrough the IRS’ Free File Fillable Forms.
And there are lots of coupon codes for tax software, like this tax software couponfor 25% off at H&R Block At Home.
