Tax Prep Tips for the Procrastinator
This post is for the millions of Americans who wait until the final days to prepare and file their federal income tax returns. I am one of them, although strategically so. I haven’t received a refund in years, so I run a preliminary income tax obligation assessment in the beginning of December. Using that, I adjust my withholding from my final paychecks of the year, to make sure that I don’t incur an under-withholding penalty. After that, I periodically add data to the return as year-end statements are received. But I don’t finalize and file the return until the last day, because I am in no hurry to send the final installment on the sickening amount of taxes the government extracts from Mr. and Mrs. ToughMoneyLove.
So these tax tips are for the real procrastinators and those who work best when they are right up against a deadline. The tips are mostly based on my experiences this year as a volunteer tax preparer. There are a few patterns that have developed regarding tax issues that folks tend to overlook or are just not aware of.
Tips on Taxable Income
1. If you received payment for services you provided or for stuff that you sold, it’s probably income. Lots of people think that someone needs to send them an official statement (such as a W-2 or Form 1099) before money they received becomes reportable income. Not so. If you are one of those families who annoy neighbors with monthly garage sales, or are an eBay/Craigslist professional, you likely have income to report from those sales. If you did lawn work in the summer for cash, that’s income. Sorry. I know there are a lot of tax cheats out there in the cash economy but I don’t want you pretending that you are just ignorant.
2. If you had gambling winnings, you must report them. This includes payouts in the casino, from the lottery, and even the bingo hall, whether in cash or prizes received. I had several folks get tripped up on this because they thought if their gambling losses exceeded their winnings, they had no income to report. Sadly, this is not true. The losses can be deducted, but only if you itemize.
3. If you received non-employee income for services, you may owe payroll taxes. The IRS wants to know if you paid your payroll taxes (Social Security and Medicare) on income received as a contractor. Don’t forget this part. This is a big audit area. I should know. Mrs. ToughMoneyLove triggered an audit for us on this issue some years ago. I prepared several returns this year where even senior citizens who had part-time consulting gigs has forgotten about payroll taxes.
Tips on Tax Deductions
Most people are much better at not forgetting deductions. The real bad memory lapses tend to fall into the income ledger. Funny how that works. I will mention a few deductions that seemed to be a problem.
1. Property taxes for those who don’t itemize. This was a little gift from the government this year, for those who do not have enough other deductions to itemize. If you are a homeowner, you can deduct up to $500 in property taxes paid ($1000 for joint filers). This amount gets added to your standard deduction.
2. Sales taxes on big ticket items. If you are fortunate (like we are) and live in a state with no income tax, you are allowed to deduct sales taxes paid. Most people base this deduction on a percentage of their taxable income. However, you can add to that total the sales taxes paid on large expenditures, such as the purchase of a car or boat. I had a few folks who were not aware of this.
3. Mileage Deductions. If you use your car in business, you can deduct business miles driven (not commuting). You can also deduct mileage for travel to change jobs, to receive medical care or for charitable work. Some people were unaware that the mileage allowance changed mid-year. Through June 30, 2008, the standard mileage rate allowances were 50.5¢ per business mile, 19¢ per mile for medical or moving travel, and 14¢ per mile for charity-related miles. The IRS increased these allowances for the second half of 2008 to 58.5¢ per mile for business travel and 27¢ per mile for medical or moving travel. The rate for charitable driving did not change.
4. Insurance premiums. If you itemize, check out the article I wrote on my Go To Retirement blog about deducting health and long term care insurance premiums.
5. Capital loss carry-over. If you sold investments in 2007 and incurred net losses in excess of $3,000, you can carry at least part of that loss over into 2008, so be sure to check. Similarly, make a mental note to do the same thing in 2009 for any 2008 net capital losses in excess of $3,000.
Tips on Tax Credits
There are so many tax credits available now, it is hard to keep up with them. Some are refundable, some are not.
1. Recovery Rebate Credit. This credit is the “mother of all confusing credits.” I say this because so many tax filers seem to forget how large of a stimulus payment they received in 2008 or they remembered the wrong amount. For other people, they were entitled to a larger stimulus payment than they received, so they are eligible for the RRC. If you are uncertain as to the amount you received in 2008 as a stimulus payment, use the IRS “How Much Was my Stimulus Payment?” tool. If you want to figure out if you are eligible for this credit, use this IRS Recovery Rebate Credit information.
I get this question a lot: “Do I have to pay tax on my stimulus payment?” No.
2. Child Tax Credit. A lot of people seem to be confused about the Child Tax Credit. If you are eligible for this credit, it is worth $1000 per qualifying child. The basic test for a “qualifying child” is:
- It must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them.
- He/she was under age 17 at the end of 2008.
- He/she did not provide over half of his or her own support for 2008.
- He/she lived with you for more than half of 2008.
Some folks forget that the credit applies to relatives other than your actual “child” and don’t claim the credit. Other people forget that the credit ends when the child reaches 17. (I have no idea why that age was selected instead of 18.)
For more hints and tips on for last minute tax filers, check out my Year End Income Tax Guide (parts 1 and 2).
I hope you find some information that saves you some tax money. Good luck.
Image credit: Manuel Millway