If you have yet to file your 2008 tax return, don’t panic. The key to getting it done quickly and efficiently is to have a game plan and know what to look for before starting. Use these tips to make doing your taxes easier this year.
* The new stimulus plan does not affect your 2008 Federal tax return unless you bought your first house between April 9, 2008 and June 30, 2009. If you did purchase your first house in this time period, you may qualify for the First-time Homebuyer Credit. To claim the First-Time Homebuyer credit, you’ll need to complete Form 5405. Keep in mind, however, that if you take the credit, you must pay the amount back over 15 years of subsequent tax filings. In other words, the credit is like an interest-free loan.
* Using tax preparation software can help you be more efficient and accurate. Not only does it include the latest tax law changes like the updated First-time Homebuyer Credit, it also does the math for you and notifies you when information is missing. Most products are easy to use and understand, and include advanced tools to find deductions and credits. The price, additional fees, and included forms and schedules differentiate the products. For instance, some include five federal e-files. Other products, like TaxACT Deluxe (download and CD-ROM), include one federal e-file and charge for each additional e-file. Less obvious is the fact that the total price for TaxACT software plus four additional e-files is still less than half the price of the top brand.
If you need to file a state return, most products will save you time by transferring your federal information to your state return. The prices for state software vary, especially for e-filing.
* Nearly 90 million taxpayers e-filed their returns in 2008 and the Internal Revenue Service reports that nearly 52 million tax returns have been e-filed this year. The IRS has made a big push for filing your tax returns electronically this year, and for good reasons. Thanks to the software that checks for mistakes, the error rate for e-filed returns is about 1 percent, compared to 20 percent for hand-filed returns. Those who owe money are also given additional payment options, including credit card, electronic funds withdrawal and the Electronic Federal Tax Payment System.
In order to e-file, you must have either your adjusted gross income (AGI) from last year (line 37 on Form 1040, line 21 on Form 1040A and line 4 on Form 1040EZ) or the 5-digit PIN you created to sign your e-filed return last year. Your AGI or PIN acts as your signature.
* Approximately 75 percent of taxpayers receive a refund. So far this year, the IRS reports that the average Federal refund is $2,811. If you need your refund sooner than later, it’s best to e-file with direct deposit. This method makes it possible for you to have your refund in as few as eight days, compared to up to four weeks with paper returns. Through Form 8888, you can split your refund into more than one account.
* If you can’t pay the full amount you owe, don’t file for an extension. Instead, file your return and pay as much as you’re able to by April 15 in order to avoid penalties and interest. The IRS will send you a bill with a notice and only charge interest and penalties on the unpaid balance. You can contact the IRS at (800) 829-1040 to discuss payment options, including short-term extensions, Installment Agreement or compromise. More than 75 percent of taxpayers eligible for an Installment Agreement can apply using the Web-based Online Payment Agreement application available at www.IRS.gov. Tax extension guidelines and process vary by state, so check with your state’s tax agency if you need a state extension.
* If you must file for an extension, complete Form 4868. Note, however, that filing an extension does not mean you have more time to pay on money you owe. You will pay interest on the balance and may incur a late payment penalty.
Regardless of the question or topic, it’s nice to know you’re never alone. Information about various tax topics is available around the clock on the IRS Web site at www.IRS.gov, and more tax tips and TaxACT product information can be found at www.TaxACT.com.
