2011 Income Tax Tips

It’s that time of year again where 1099s and W-2s are being delivered from your boss or arriving in the mail, which means it’s time to get serious about those income tax returns. Before you breakout your accounting skills or go to a mobile app to get your taxes done, we’ve done a little tax filing 101 research for you via the IRS website and a few other trustworthy financial websites to provide you with some tips to help you get the most money back without causing you a lot of stress.

File A.S.A.P!
The deadline for filing tax returns with the Federal government this year is a little different – people in most states have until April 18. However, Montana, Tennessee and Georgia still have due dates of April 15.  In addition, due to the late passage of the tax bill, the IRS says it needs until February 14 to be ready to accept itemized returns. Still, get everything ready, and FILE AS SOON AS YOU CAN!

Let H&R Block file your taxes for FREE
H&R Block is offering to file for free, either online or on-site, 1040EZs through February 15. Check out H&R Block’s Official Website for more details.

Don’t Paper File Unless You Have To
H&R Block is reporting that the IRS is saying that they will process electronically-filed returns before paper ones. Don’t inadvertently delay your refund by filing physical paperwork rather than electronically.

Unemployment Monies Are Taxable
Be aware that the first $2,400 is no longer tax-free. In 2010, all unemployment benefits are fully taxable.  But if you’ve been looking for work, tally up all your expenses, like hiring a search firm, traveling for an interview, or getting your resume prepared. If your job search cost is 2% of your adjusted gross income, then you may qualify.  Also, if you’re taking a class to update your job skills, look into education credits like the Lifetime Learning Credit (up to $2,000).

First-Time Homebuyer’s Credit Pitfalls
If you bought your home in 2008 and took advantage of the first-time homebuyer’s credit, it was actually an interest-free loan that you have to start paying back starting this year, according to. Misleading, we know! According to H&R Block, if you took the maximum First-Time Homebuyer’s credit of $7,500, you need to repay it in 15 annual installments of $500.  If you purchased your home in 2009-2010, then the first-time homebuyer’s credit is in fact a credit. However, you must stay in that home for three years or you will have to repay that credit.  For more details, check out Bankrate.com’s breakdown of this confusing back and forth tax credit.

Be Informed About What You Can Deduct on Your Taxes!
If you’re providing more than 50% of the financial support for your aging parents, you may be eligible to claim them and get about $3,600 of exemptions. If you are doing the same for grown children because they are struggling, you may be able to claim them as well and score up to $3,600 in exemptions.  Due to the new Obama health care reform bill, children under 27 can go back on their parents’ health insurance if needed, which a parent can claim on their taxes as well.   Also – keep in mind of college education deductions.  You can cut the costly price of a college education down a little bit by taking advantage of the American Opportunity credit, which allows you to request a $2,500 credit for each child who is currently attending college or a degree-granting program. And of course, remember any contributions to charity, energy saving home improvements and much more are also deductible!

Make Sure You File
Whatever you do, file your tax return! Even if you don’t have the money to pay the IRS — you can always work out a payment plan. If you take the alternative route of NOT filing, you can and most likely will be faced with penalties, late fees and a lot of stress from the IRS.   If all else fails and you cannot file your taxes by the due date (according to your state), you can file for an automatic six-month extension.  However, the extension only extends the time to file your returns, not to pay your taxes.  If you properly file the extension, you will avoid being assessed ‘late filing penalties’ of 5% per month, up to a total of 25%. However, if you file the extension and pay the balance owed on your prior year taxes after April 15, you will still be assessed a minimum of 1/2% per month plus interest at the federal established rate. If you owe taxes and file your return and pay your taxes after April 15, you will incur late filing and late payment penalties, plus interest. Therefore, if you need to file an extension, you must send in a payment for the taxes owed to avoid penalties and interest. This is true for state and local income tax returns as well. If you pay too much with your extension payment, you can have the excess refunded, or applied to the following tax year.  For more information check out the IRS’s payment plans and installment agreements page.

About the Author

Samantha Savory is a 20-something-year-old recent communications graduate whose mission is to financially succeed and thrive in this economy. She writes about personal finance and anything related to shopping and saving money.