Many taxpayers already have gathered their documents, filled out their forms and sent in their tax return, but many will wait until the last minute. And the tax deadline is looming. But there is good news for most taxpayers.
Economic Stimulus Payments
This year most Americans will receive a check from the federal government – even ones who owe taxes. The Internal Revenue Service will send out more than 130 million economic stimulus payments starting May 2.
In order to receive a payment, you must file a tax return. Individuals who have no legal obligation to file can use the IRS Free File program to help with their return. The minimum economic stimulus payment is $300 for individuals and $600 for married couples.
Tax Credits
Taxpayers always are looking for ways to reduce their tax burden and get more back from the government. A number of tax credits can increase the size of the check you receive.
Homeowners building a new home or making improvements to their home should be aware of energy tax credits. Homeowners can earn a credit by choosing energy-efficient options. Tax credits also are available for improvements to commercial buildings, for manufactured homes and condos and for hybrid (gasoline-electric) vehicles. Details for all these programs are online at www.energytaxcredits.org.
Low-income workers can get a break with the Earned Income Tax Credit. To receive this credit, people who meet the requirements for Earned Income Credit need to file whether or not they owe taxes. The IRS Web site can help in determining whether or not you meet the requirements. Congress enacted this tax credit in the 1970s in part to offset the burden of social security taxes on low income workers and to provide an incentive to work.
Parents or guardians of a child under age 13 or a qualifying spouse or dependent who paid for care in order to work or look for work may be eligible for the Child and Dependent Care Credit. The credit is a percentage of the amount of work-related child and dependent care expenses you paid to a care provider. The credit can be up to 35 percent of your qualifying expenses, depending upon your income.
Basic Tax Preparation and Planning
Before filing your return, gather tax records, review and organize them. If you prepare your own tax return, study this year’s forms and instructions, and begin your preparations. If you do not complete your own returns, deliver your tax records to a qualified tax preparer.
Some taxpayers will qualify for free tax preparation assistance. This assistance is available in most communities for those with low to middle incomes and for the elderly.
The IRS has Volunteer Income Tax Assistance (VITA) sites set up in communities across the country. AARP also provides tax preparation assistance for older taxpayers through their Tax Aide program. VITA sites provide fast electronic tax filing, and some can help taxpayers open bank accounts. To find the VITA location nearest you, call the IRS at 800-829-1040.
The IRS encourages taxpayers to file electronically. E-file offers faster refunds, greater accuracy and no paper return to mail. Last year 80 million people used e-file.
Expecting a refund?
Tax refunds can be sizeable for some families. LSU AgCenter family economist Jeanette Tucker says by carefully planning ahead, a tax refund can help you get out of debt or help you make more money.
“A good use of a refund would be to put it toward repaying debts such as credit card balances,” she said.
Those with no outstanding debts should consider investments. The economist also suggested using your refund to fund a portion of your 2007 IRA. Another good option is to invest in yourself by taking professional improvement classes or job training classes. This could lead to a raise, promotion or a better job.
The IRS offers options when it comes to direct deposits of tax refunds. U.S. citizens entitled to a tax refund can have their money direct-deposited in up to three different accounts.
By using Form 8888, taxpayers can direct refunds to one, two or three accounts, such as checking, health savings and retirement, according to Tucker.
"You indicate the amount you want to deposit directly from your tax return in each account. There is no minimum amount requirement," Tucker said.
In the past, you could receive your refund in the form of a check or a direct deposit to either your checking or savings account as indicated on Form 1040. These options are still available.
Tucker believes this new option will encourage greater savings and more banking.
The LSU AgCenter is one of 11 institutions of higher education in the Louisiana State University System. Headquartered in Baton Rouge, it provides educational services in every parish and conducts research that contributes to the economic development of the state. The LSU AgCenter does not grant degrees nor benefit from tuition increases. The LSU AgCenter plays an integral role in supporting agricultural industries, enhancing the environment, and improving the quality of life through its 4-H youth, family and community programs.
(This AgCenter Lead was updated on April 1, 2008, by Linda Benedict.)