Your Tax Question Answered

The countdown is on. This Thursday is April 15th--Tax Day. If you haven't filed yet, there are a few things to keep in mind. John Spence, from Jackson Hewitt tax service, answered a few tax related questions.

IS IT TOO LATE TO FILE AN EXTENSION?
o Speak with a tax preparer to see if you even need to request an extension – you may have everything you need to file on time
o It is important to note that filing for an extension only gives you until October 15 to file your return.
o If you need an extension, remember: an extension of time to file a tax return is not an extension of time to pay.
o Taxpayers who do not file by the April 15 deadline must file IRS Form 4868 and pay at least 90% of their tax liability (if they owe) to avoid penalties and interest.

WHAT SHOULD WE KNOW IF WE CAN'T PAY RIGHT NOW?
WHAT ARE THE PENALTIES?
o When you file your tax return by the April 15 deadline and find you have a tax liability, if you are unable to pay the full amount of taxes you owe, it is important to pay as much as possible to avoid a high assessment of penalties and interest.
o Talk to your tax preparer about the various payment options including: the IRS Installment Agreement, payment by credit card, and scheduled direct debit from your checking or savings account.

WHAT ARE SOME OVERLOOKED DEDUCTIONS
o Education: student loan interest payments (up to $2,500 for payments made in 2009); parents with a qualifying child in school can also claim the Tuition and Fees Deduction, if they meet the eligibility requirements
o Property: sales tax paid to buy a new vehicle; commission to brokers or agents for the sale of property or property management; moving expenses; and general casualty and theft losses
o Job: professional journals, magazines, and newspapers; required uniforms and work clothes not suitable for street wear; dues to professional organizations; and business expenses; also, through the Self-Employed Health Insurance Deduction, those who were self-employed during 2009 can deduct up to 100 percent of medical insurance costs for themselves and their families
o Medical: crutches, canes, orthopedic shoes, hearing aids, eye glasses, contact lenses; hospital fees for services such as nursing, physical therapy, lab tests, and x-rays

WHAT ARE SOME OF THE NEW TAX LAWS AND CHANGES THAT WILL AFFECT MOST OF US?
o First Time Homebuyer Credit: This credit gives first-time home buyers the ability to deduct up to $8,000 ($4,000 if filing separately) of the cost of the home, provided that they close by June 30, 2010. Taxpayers (and their spouses) who have lived in their home for five consecutive years out of the eight years preceding closing on a new house may qualify for a reduced credit of $6,500 ($3,250 if filing separately).
o New Home Energy Credits: Taxpayers can receive a credit if they made a home more energy efficient by caulking doors and windows, adding new insulation to attics, buying an energy-efficient hot water heater and more.
o New Education Credit (American Opportunity Tax Credit): The credit increases to a maximum of $2,500 of eligible expenses for the first four years of post-secondary education; 40% of the credit, up to $1,000, is refundable. The credit also includes the cost of books and software required for courses.
o Deductions for New Vehicle Purchases: Taxpayers who purchased a vehicle in 2009 can deduct both state and local sales and excise taxes paid for vehicles they purchased after 2/16/2009 and before 1/1/2010.
o More Workers Eligible for Additional Child Tax Credit: If you earned $3,000 or more and you have dependent children under the age of 17 you may qualify for up to $1,000 per child in refundable Additional Child Tax Credit. This credit can increase your refund or lower your balance due.

WHAT ARE THE BENEFITS OF ELECTRONIC FILING?
o IRS e-file is faster than mailing a tax return, more accurate and includes a confirmation of receipt, so taxpayers know their returns have been received before the deadline.