By Jason Alderman
April 15 is right around the corner. If a chill just went down your spine, chances are you haven’t yet organized your income tax paperwork, let alone filed your return.
Even if you can’t file or pay your taxes by April 15, it’s vital to at least request an extension by then; otherwise, the penalty on taxes owed increases dramatically – generally an additional 5 percent of taxes owed for each month you’re late, plus interest, up to a maximum penalty of 25 percent.
However, if you file your return or request an extension by April 15, the penalty drops to 0.5 percent per month, plus interest. Contact the IRS early if you won’t be able to pay on time; they may even waive the penalty, depending on your circumstances. Call 1-800-829-1040 or visit www.irs.gov for more information.
Another way to avoid a penalty: The IRS does accept payment by credit or debit card, with a small convenience fee that is tax deductible. Just be sure you can pay off your credit card balance within a few months, or the interest accrued might exceed the penalty.
Here are several 2009 federal income tax changes to keep in mind as you fill out your return:
New homeowner tax credit. If you bought a home in 2009 and hadn’t owned one during the previous three years, you may be eligible for a credit of up to $8,000; in addition, existing homeowners who bought a new primary residence after November 7, 2009, may also be eligible for a credit of up to $6,500. Eligibility rules and deadlines are complicated, so read “First-Time Homebuyer Credit” at www.irs.gov for details.
New vehicle tax deduction. If you bought a new (not used) car, RV or motorcycle between February 17 and December 31, 2009, you can deduct state and local sales and excise taxes, with certain limitations, even if you don’t itemize deductions. Read “Sales Tax Deduction for Vehicle Purchases” at www.irs.gov for details.
Expanded college tax credit. For 2009 and 2010, Hope Scholarships have been replaced by the more robust American Opportunity Tax Credit. Enhancements include:
- Maximum tax credit increases to $2,500.
- Credits can now be claimed for all four years of undergraduate college, instead of only the first two.
- Those with modified adjusted gross income under $80,000 ($160,000 for joint filers) qualify for the full credit; it phases out between $80,000 and $90,000 ($160,000 to $180,000 for joint filers).
- Lower-income families who owe no taxes may file a return anyway and receive a refund for up to 40 percent of the credit amount, up to $1,000.
- Read “American Opportunity Credit” at www.irs.gov for details.
- Unemployment benefits. Up to $2,400 in unemployment benefits is tax-free for 2009.
Numerous free or low-cost tax-preparation services are available to seniors, military and low- and middle-income taxpayers, including:
- IRS-sponsored programs. (Search “Free Tax Preparation” at www.irs.gov).
- AARP volunteers provide free tax preparation to low- and middle-income taxpayers, particularly those over age 60 (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. (Check with your base for details.)
Jason Alderman directs Visa’s financial education programs. Sign up for his free monthly e-Newsletter at www.practicalmoneyskills.com/newsletter.
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