No one likes filing taxes. And the government doesn’t make it easy on taxpayers. Each year, Congress enacts laws that change both the federal tax code and the way in which we file our taxes.
This year has seen more significant changes than others thanks to the bad economy. Congress, for instance, recently extended the first-time homebuyer tax credit and approved a new tax credit for buyers who aren’t purchasing their first residence. This is good news for homebuyers, but bad news for anyone interested in filing their tax returns quickly.
“Every time they simplify the tax code, our business goes up,” said Grafton “Cap” Willey, managing director of the Newport, R.I., office of accounting firm CBIZ Tofias.
Jim Chakires, a certified public accountant and owner of Apex CPAs and Consultants in St. Charles, said there are more credits for the middle class right now than he has ever seen.
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THREE TIPS FOR PLANNING YOUR TAXES 1 File electronically, if you can Filing your taxes electronically is fast and easy. Most electronic filing systems also flag possible errors, saving you the headache of worrying about a possible audit. 2 Determine early on if you need outside assistance Most of us can file our taxes on our own. However, those whose taxes are more complicated — they run their own home offices, they are self-employed — might need the assistance of a CPA or other tax professional. Determine whether you’ll need outside help as soon as possible. 3 Don’t wait until April 14 This sounds obvious, but the longer you wait to begin working on your taxes, the more stressful the process will be. Begin working early in the year; that way you’ll be able to find answers to any questions you have without that April 15 deadline looming. |
“A lot of the clients, they’re just more in tune to maximize their refunds,” Chakires said. “ A lot of families are hurting right now. ... some clients are really dependent on refund money.”
Randy Rupp, a CPA and partner with Mueller and Company LLP, said the sheer volume of paperwork can be intimidating.
“The reading that someone has to go through to make sure all the ‘i’s are dotted and all of the ‘t’s are crossed can be significant,” Rupp said. “Capital Hill (wrote most of these) tax codes, and they’re a bunch of attorneys. They write it in a way that you almost need to have someone interpret it.”
Changes that taxpayers should watch for this year
1 If you bought, or are buying, a home
Congress in November passed legislation Congress in November passed legislation tax credit of $8,000. Legislators also created a new housing credit. The so-called move-up buyer credit provides $6,500 to buyers who are purchasing a home that is not their first. In either case, buyers qualify for their tax credits if they sign a contract to purchase a new and existing primary residence between Dec. 1, 2009, and April 30, 2010. Of course, first-time buyers who purchased a home while the first version of the first-time homebuyer tax credit was in effect also should take the credit on their taxes this year.
“Anyone who is purchasing a home definitely wants to review the homebuyer tax credits,” says Ryan Himmel, a certified public accountant and founder and chief executive accountant and founder and chief executive officer of New York-based BidaWiz.com. “That’s a significant credit that you don’t want to miss out on.”
Chakires said that while the tax credit is available, he hasn’t seen many people who have been able to get it.
“It’s so difficult to get financing,” Chakires said. “The banks are locking up the money. You would think (it would be easy, but it’s not).”
2 If you’re going green
Homeowners who add energy-efficient windows, extra insulation or geothermal heating and cooling systems to their homes will be rewarded at tax time this year. Under the newly reinstated Residential Energy Credit, homeowners can claim a credit of as much as 30 percent of the cost of all of the qualifying energy improvements that they make to their homes. Homeowners can claim a maximum credit of $1,500 for 2009 and 2010.
“This has become a much bigger issue for us this year,” Rupp said. “We get more lower tax level (clients) that will come in, just not sure how to handle completion of the form to claim (green energy credits).”
3 If you have children in college
The Hope Credit has become the American Opportunity Tax Credit. Parents can take a tax credit of up to $2,500 for each of their children in college. Course materials and school supplies, including computers, count as qualified tuition expenses.
Reduce your chance of an audit
The IRS audited 1.4 million income tax returns in fiscal year 2008, with many of these audits coming because taxpayers committed some common mistakes.
Whether it’s something as complicated as claiming an incorrect business deduction or as simple as writing down an incorrect Social Security number, certain taxpayer mistakes act as red flags for IRS examiners.
If you want to lessen your chances of an audit this year, make sure to avoid these common mistakes:
Don’t be sloppy The most common mistakes taxpayers make come down to sloppiness, said Grafton “Cap” Willey, managing director of the Newport, R.I., office of accounting firm CBIZ Tofias. People will write numbers that are illegible.
They’ll write down an incorrect Social Security number or birth date for their spouse. Or they’ll add figures incorrectly.
“The biggest expense to having your income taxes prepared is not the preparation,” Chakires said. “It’s the amount of taxes you pay. ... cheaper isn’t always better.”
Willey said you must check everything when doing taxes.
“The simple mistakes can attract the attention of the IRS,” Willey said. “And most of these mistakes can be eliminated if taxpayers slow down and proof their return.”
Bad deductions People who run home-based businesses often make the mistake of claiming too many deductions.
“I have clients who work from home who think that they can deduct everything,” said Ryan Himmel, a certified public accountant and founder and chief executive officer of New York-based BidaWiz.com.
Rupp said failure to report carry-overs also can hurt taxpayers in the way of not collecting money.
“We’re sitting on one right now that we’re amending,” Rupp said. “(This client) had $16,000 coming forward in taxes and just failed to bring forward (a tax credit). ... Often times those carry-forwards are buried back in the schedule,” and you forget about them.
Claiming dependents incorrectly Claiming your dependents seems like an easy task. You simply count them up. But it becomes more complicated for parents who are divorced. Only one parent is allowed to claim any one child.
“Numerous returns are rejected by the IRS because both parents, filing singly, have claimed the same child,” said Kristina Stamatis, senior tax accountant with Elmira, N.Y.-based Mengel Metzger Barr and Co.
Rupp said this is where it gets difficult for broken-up couples.
“There’s a lot of he-said-she-said,” Rupp said. “That’s probably the messiest thing, just dealing with newly divorced or newly separated couples.”
No evidence of charitable donations Too many taxpayers fail to keep records of their charitable contributions during the year. This is unfortunate because the IRS requires written proof of charitable deductions. Stamatis has some simple advice: “Keep your receipts!”
Filing too early Believe it or not, there are many taxpayers who don’t wait until April 15 to file their taxes. Many people, in fact, file their taxes long before the deadline. Some even file them too early, according to Stamatis. These early birds file their returns before they receive all of their 1099 forms from investment brokers.
Remember, brokers now have until Feb. 15 to provide 1099 forms to investors.
— Staff reporter Hal Conick and GateHouse News reporter Dan Rafter contributed to this report.
