Tax Basics
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From filing requirements to withholding amounts, learn about tax basics here.
Tax Basics Stories
Are you an early filer? If so, odds are you're getting a refund
There are a few things in life that are clear cut. You like Pepsi or you like Coke, you like Ford or you like Chevy and you file your taxes early or you line up at the post office at 11:58 on April 15th. For most people, choosing when to file your taxes boils down to one thing; will you owe Uncle Sam or will you be paying off the HDTV you bought for the Super Bowl with your refund. The good news is that, statistically, if you do file early you are more likely to receive a refund -- and a generous one at that.
How to avoid tax penalties after an audit
The good news: You survived an audit. So what now?
If you are audited and the result is that there are no adjustments to your return (or if you get a refund), it decreases your odds of being audited in subsequent years. If you are audited on the same items two years in a row with no additional taxes due, the IRS manual actually recommends that you not be audited for the same items for another year.
But what if you are audited and the IRS finds that you owe additional tax? You'll want to resolve those outstanding tax liabilities as soon as possible in order to avoid further interest and penalties.
5 tips for maximizing tax deductions
When it comes to deductions, many taxpayers miss out -- not because they don't qualify for the deductions, but because they fail to keep good records. It's often difficult to remember on April 15 all of the miles you've driven, charities you've supported and taxes you've paid. Here are five tips for maximizing your tax deductions throughout the year:
Reducing taxes step by step
By now, you're aware there's no magic bullet to reduce your taxes. But you can take several steps to reduce your overall tax bill this April. Here are 11 items to consider before filing your federal income tax return:
How to prepare for a tax audit
It's no secret that the IRS is ramping up the number of audits in an attempt to close the "tax gap." That's the term the IRS is using to account for the difference between the taxes it believes it should have collected and what it actually managed to collect. For 2001 (the last year for which data is available), the tax gap was $345 billion.
Audits can be divided into two general categories: paper audits and people audits.
Common tax credits explained
Tax credits are popular ways to reduce your overall tax burden. Credits are dollar for dollar reductions in the amount of tax due, so it's a pretty big bang for your buck. Here are five of the most common tax credits:
Credit for child and dependent care expenses. The credit for child and dependent care expenses can be fairly significant, depending on the amount that you paid and your income level. The credit is equal to a percentage of the expenses you actually paid for child care less any reimbursements from any program or social services agency. The credit starts at 35% of expenses if your adjusted gross income is less than $15,000 and phases out to 20% of expenses if your adjusted gross income is more than $43,000. The maximum credit available is $3,000 for one qualifying child and $6,000 for two or more qualifying children.
8 commonly overlooked tax deductions
If you keep good records, deductions can be a great way to reduce your taxable income. Increasing your allowable deductions means the less tax you owe and the more money you get to keep.
To maximize your deductions, it's a good idea to familiarize yourself with tax rules -- there are likely many deductions that you're missing out on. To get you started, here's a list of eight commonly overlooked tax deductions:
What you need to know about the housing tax credit
By now, you've probably heard lots of chatter about the first-time home buyers credit. The tax credit was originally part of the American Recovery and Reinvestment Act of 2009 and applied only to first-time homebuyers. In 2009, bowing to pressure from the real estate community, Congress passed the Worker, Homeownership, and Business Assistance Act, which extended and expanded the credit. The credit now applies to sales from January 1, 2009, through April 30, 2010.
For purposes of the credit, a first-time homebuyer is defined as someone who has not owned a principal residence during the last three years. For married taxpayers, you have to consider the history of both the homebuyer and the homebuyer's spouse. If one spouse is disqualified, neither can claim the credit. This means that, so long as you are considered married (even if you were not married to your spouse for the entirety of the past three years), you do not qualify for the first-time homebuyer credit if your spouse does not qualify.
Energy tax credit explained
We're having a real winter this year. As opposed to a few winters past, we've already seen several snows and have had the heater cranked up for months. I happen to live in an old house (and by old, I mean about 130 years), so heating it can be a challenge. Our old unit isn't cutting it anymore, and we're going to have to replace it. Fortunately, we might get a tax break for doing so.Under current law, taxpayers may be eligible for a federal income tax credit for the purchase of a new energy-efficient water heater, air conditioner or furnace. But it doesn't stop there. The credit also applies to such improvements as windows and doors, roofs and insulation. You can find a detailed list of qualifying purchases on the Energy Star Web site.
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