If you haven’t sent in your return yet, there are still some last-minute moves you can make between now and Wednesday:
CONTRIBUTE TO AN IRA
You have until Wednesday to put money in and designate it as a 2008 contribution.
You may contribute up to $5,000 this year. If you’re age 50 or older, you may contribute an additional $5,000 as a catch-up contribution.
“The IRA remains a great tax strategy, since many qualifying taxpayers can deduct the full $5,000 a year for a traditional IRA contribution and qualifying married couples can deduct up to $10,000 a year,” said Larry Contreras, owner of Liberty Tax Service in The Colony, Texas. “Generally, if someone isn’t covered by an employer’s retirement plan, that person can deduct the full amount.”
Contributions to a Roth IRA aren’t deductible, but if you meet certain requirements, you don’t pay tax when you withdraw the money at retirement.
TO ITEMIZE OR NOT?
Decide whether you should itemize deductions or take the standard deduction. Both will reduce the amount of income on which you are taxed, but you can use only one.
“The only sure way to determine which method saves the most tax dollars is to run the numbers,” said the Texas Society of Certified Public Accountants.
Use Schedule A – the IRS form for itemized deductions – to list all your deductible expenses and compare the total with the standard deduction for your filing status. If your actual itemized expenses exceed the standard deduction, you’ll save money by itemizing.
If not, take the standard deduction, which for the 2008 tax year is $5,450 for single taxpayers and $10,900 for married couples filing a joint return.
An itemized deduction that taxpayers shouldn’t overlook in this economy is the one for job-search expenses. You can claim this deduction only if:
– You’re not looking for a job for the first time.
– You’re searching for a job in your current occupation.
– There wasn’t a “substantial break” between the ending of your last job and your search for a new one.
Just how long is a “substantial break?” That’s not clear.
“There is no set amount of time for this wording,” said IRS spokesman Clay Sanford in Dallas.
“A deduction such as this could be disallowed based on facts and circumstances of an individual situation,” he said.
If you’re eligible, you can deduct employment and outplacement agency fees you paid in looking for a new job. You also can deduct amounts spent preparing and mailing your resume to prospective employers.
If you travel to an area and, while there, you look for a new job, you may be able to deduct your travel expenses. But the amount of time you spend looking for work is important in determining whether the trip is primarily personal or primarily to look for a new job.
Even if you can’t deduct the travel expenses, you can deduct the expenses of looking for a new job while in the area.
CHECK ON TAX CREDITS
Make sure to claim the tax credits to which you’re entitled.
A tax credit is a dollar-for-dollar reduction in your tax liability as opposed to a deduction, which lowers your taxable income.
If your income declined last year, you might be eligible for tax credits you couldn’t claim in the past. The earned income tax credit, child care credit and the Hope and Lifetime Learning education credits are all income-based, so even if you couldn’t claim them before, check to see if you can now.
Also, taxpayers who didn’t receive their full economic stimulus payment last year may qualify for the remainder as a tax credit on their 2008 returns.
There’s also a new $8,000 tax credit for first-time homebuyers. You can claim the credit on your 2008 or 2009 tax return if you buy a house this year before Dec. 1.
FILE ON TIME
If you owe tax and don’t file on time, the total late-filing penalty is usually 5 percent of the tax owed for each month, or part of a month, that your return is late, up to five months.
If your return is more than 60 days late, the minimum penalty for late filing is the smaller of $100 or 100 percent of the tax owed.
If you can’t file by Wednesday, file for an automatic extension, which will give you until Oct 15. The IRS form you need is Form 4868, Application For Automatic Extension of Time To File U.S. Individual Tax Return. You can get this from from the IRS’ Web site at www.irs.gov or by calling toll-free 800-829-1040.
Be aware that a filing extension is NOT an extension of time to pay. You still must pay your taxes by Wednesday.
IF YOU CAN’T PAY
If you’re unable to pay your taxes, contact the IRS. Based on your circumstances, you may be granted more time to pay your tax in full.
Other options are an installment agreement with the IRS or an “offer in compromise.” That’s an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than is owed.
“Absent special circumstances, an offer (in compromise) will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement,” the agency said.
As a last resort, you can pay your taxes with a credit card, but be prepared to pay a “convenience fee” of 2.49 percent for processing your tax payment. And it can be expensive.
For example, the 2.49 percent adds $199 to an $8,000 tax bill.
“Consumers should avoid paying their income taxes with a credit card,” said Bill Hardekopf, chief executive of LowCards.com, a credit card information and shopping Web site.
LAST-MINUTE TAX TIPS
Here are some last-minute tax tips:
– Take advantage of all tax credits and deductions to which you’re entitled. Tax credits can be more valuable because they’re a dollar-for-dollar reduction in your tax liability; deductions lower your taxable income.
– File your tax return on time. If you can’t file by Wednesday, file for an extension.
– Consider filing your return online but take steps to protect your personal information.
– Double-check your math. Taxpayers filing paper returns should also double-check that they have correctly figured the refund or balance due and have used the right figure from the tax table.
– Sign your return. Both spouses must sign a joint return.
© 2009, The Dallas Morning News. Source: McClatchy-Tribune Information Services.