We're in the home stretch of the 2011 filing season. But there's still time to make some tax moves to make your filing easier and perhaps reduce what you owe Uncle Sam.
But the daily tips will stop on April 18, this year's extended filing deadline day.
After that date, the tips will revert to weekly postings, as was the case from mid-April through December last year.
Many of the tips in these monthly compilations are courtesy Bankrate's annual tax guide. But some tips are Don't Mess With Taxes originals.
So now that you're through perusing the last couple of months' tax tidbits, here are the Daily Tax Tips for April 2011.
- Paying your taxes electronically -- If you find that you owe the IRS, consider making an e-payment. The agency has entered into partnerships with banks, tax software developers and credit card processors to make tax e-payments easier and more appealing. Most filers are familiar with credit card payments that can be made online or by phone. Some debit cards also are accepted by the three companies that process the payments for Uncle Sam. Remember, though, when you use this option you'll pay a service fee. To avoid that charge, set up electronic funds withdrawal, or EFW, which is essentially the reverse of the direct deposit process. Or you can pay your tax bill via the IRS' Electronic Federal Tax Payment System, or EFTPS. (April 1, 2011)
- 10 IRA terms -- As the April tax deadline approaches, folks tend to pay extra attention to IRAs, primarily because this is the only tax break you can take after the end of a tax year. If you haven't maxed contributions for 2010 in either your traditional IRA or a Roth account, you can do so by April 18 this year. And be sure you know the tax retirement plan lingo, such as these key IRA terms, to ensure that you make the best retirement plan moves, during tax filing season and beyond. (April 2, 2011)
- Don't fall for tax scams -- It's bad enough dealing with your annual tax-filing responsibilities. Don't make matters worse by falling for tax scams. Con artists usually try to scare taxpayers -- your return is wrong! -- into responding or clicking to a fake website where personal financial information can be stolen. Or the criminals make appealing offers, such as free tax help or more refund money. Don't fall for either. Tax phishing schemes are just that, schemes. The IRS doesn't contact taxpayers by email. And remember, if something, tax or otherwise, sounds too good to be true, it probably is. (April 3, 2011)
- Taking federal tax deduction advantage of state sales taxes -- Unless you live in one of the five states that don't collect sales taxes, a lot of your money each year goes toward this levy. You probably pay even more when you add in your local sales taxes. But these taxes can come in handy at federal tax-filing time. You can deduct sales taxes on your federal 1040. The IRS even calculates for you the state amount that the average taxpayer in your state pays each tax year. You will, however, have to complete a worksheet to come up with the local amount you want to add to the IRS amount. And if you bought a car or other motorized vehicle, you can add the taxes on that purchase to the table amount, too. Remember, though, in most cases you must itemize to deduct sales taxes. And if your state collects both income and sales taxes, you have to choose which tax you want to deduct. You can't claim them both on your Schedule A. (April 4, 2011)
- Let your Uncle Sam help pay some college costs -- College costs are high and go up every semester. But everyone's favorite relative, Uncle Sam, can help cover some education expenses thanks to tax code provisions. The tax-free earnings of 529 plans are a popular way to pay for college. Coverdell education savings accounts offer another way to sock away a few bucks for schooling. Then we have the above-the-line deductions for student loan interest and college tuition and fees. And don't forget the education tax credits: American Opportunity and Lifetime Learning. A little bit of studying up on these tax breaks can get you an A+ on your taxes and your student's education. (April 5, 2011)
- Putting foreign taxes to domestic use -- If your portfolio contains some international holdings, you might have paid foreign taxes on the assets. At tax filing time you can claim those payments to help reduce your U.S. tax bill. You have two options. If you itemize, you can deduct the taxes on Schedule A. The amount is included along with income or sales taxes and property tax payments. Or you can claim the foreign levy as a tax credit. You must file the long 1040 to take this credit. A credit is usually better than a deduction, since the credit amount can be used to offset dollar-for-dollar any tax you owe. (April 6, 2011)
- Reporting your investment earnings -- The IRS wants to know how much unearned income you make. How you tell the agency depends in large part on the types of earnings and how much you made. Dividend and interest income less than $1,500 in each category, for example, means you don't have to file Schedule B with your Form 1040 or Form 1040A. You simply list your earnings directly on your tax return. Capital gains distributions also can go right on your personal tax return, Even if you escape the extra form filing, you'll have to do some extra calculating if your earnings are taxed a the more favorable capital gains tax rates. But it's worth the effort to get a smaller tax bill. (April 7, 2011)
- Kiddie tax rules for young investors' income -- When the historic Tax Reform Act of 1986 took effect, it included provisions to keep parents from sheltering income by putting accounts in the names of their lower-taxed kids. But as parents wised up to this rule and Uncle Sam started looking for more ways to get more tax money, the kiddie tax provisions were tightened, first in 2006 and then again the following year. Now, a young investor must be 19 to take advantage of his or her potentially lower tax rates. Even after the youth turns 19, the kiddie tax still applies to his or her investments if he or she is between ages 19 and 23 and a full-time student. And remember that for kiddie tax age-purposes, only investment earnings are taken into account. Wages and other earned income received by a child of any age are taxed at the child's normal ordinary rate. (April 8, 2011)
- Put your tax refund to work on your retirement -- What did, or will, you do with your tax refund? One way to put it to further tax use is to contribute it to your IRA, either a traditional or Roth account. With a traditional IRA, you might be able to get a tax deduction when you file next year. A Roth doesn't offer an immediate tax break, but you won't owe taxes on the money when you take it out in retirement. Either way, you can use your check back from the IRS to build your tax-favored nest egg. (April 9, 2011)
- Avoid common tax filing mistakes -- Nobody's perfect, but with a bit of attention you can avoid some common tax filing mistakes. Each filing season the biggest problem for taxpayers is usually a new law. This year's confusing tax provision is the Making Work Pay tax credit. Although it's acutally in its second year, the credit is still a major cause of errors on 2010 returns. Homebuyer tax credit claims also are problematic, as is the perennial tax error of math miscalculations. Double check your return before you hit send or drop it in a postal service mail box. Making sure it's error free will mean that the IRS won't have to spend extra time on your 1040. Even better, it will help you get any refund as soon as possible. (April 10, 2011)
- Reporting your capital gains or losses -- If you sold a stock or other property, regardless of whether you made or lost money on it, you have to file Schedule D. This two-page form, with all its sections, columns and special computations, looks daunting and it certainly can be. Your extra work, however, will likely be rewarded by tax savings. If you lost money, this form will help you use those losses to offset any gains or a portion of your ordinary income. And if you profited from your transactions, it will help ensure you don't overpay Uncle Sam for your capital gains. (April 11, 2011)
- Take advantage of home energy improvement tax credits -- If some of the improvements you made to your home last year helped make it more energy efficient, make sure you claim your tax credit when you file your 2010 return. It could be worth a tax savings of up to $1,500. If you haven't yet upgraded your home's energy efficiency, not to worry. Residential energy-efficient tax credits also are available for 2011, but they're not as generous. The credit amounts depend on the types of energy home improvements and range from $50 to $500. But the breaks this year still are tax credits, which are better than deductions because credits reduce your tax bill dollar-for-dollar. (April 12, 2011)
- Double check Social Security numbers -- A mismatched name and Social Security number on a tax return could be costly. At best, it could slow down a refund. At worst, it could unexpectedly increase a tax bill when, for example, the IRS disallows a child-related credit because you didn't enter in the correct tax ID for your youngster. These nine digits also are identifiers for all sorts tax related information, such as income statements, savings account interest, investment account earnings and retirement plan contributions. In most cases, the IRS gets copies of forms and statements with your Social Security number and if that doesn't match what you put on your 1040, you'll spend time explaining the discrepancy to the IRS. Stop that added discussion before it happens by paying extra attention to Social Security numbers when filling out your tax return. (April 13, 2011)
- Fix tax return mistakes by filing an amended return -- The tax code is incredibly complex. Couple that with trying to finish your 1040 as quickly as possible just to be done with your annual filing task and you often end up making a mistakeGood news. The IRS gives you a second chance to get your tax return right. You can file an amended return, Form 1040X. You three years from the return's due date to correct any error. If the error is for the current tax year, wait until the IRS processes your first return, then send in the correction so as not to confuse the agency with dual returns. And even if your corrections mean you end up owing a bit more, you still should send in a 1040X as soon as you discover your tax-filing mistake. The IRS is likely to find it, too, and it's always better when you come to the tax man rather than the other way around. (April 14, 2011)
- Federal tax bill payment options -- Is Tax Day is a "pay" day? Don't panic. If you don't have enough cash on hand to meet your tax obligations, you have options. You can pay your tax bill by credit or debit card. This year the IRS has authorized three vendors to handle plastic tax payments. Or you can set up an installment plan by filing Form 9465 with the IRS. Finally, if you truly won't be able to pay your full tax bill, an offer in compromise might be the solution. Remember, though, that each also carries added costs. But in a pinch, they might be your best options if you owe the IRS. (April 15, 2011)
- Tax Day countdown -- The 2011 filing deadline is just days away. To help you complete your 2010 return with as little tax damage as possible, check out these final tax weekend tasks. You'll find links to all this filing season's tax tips, common tax mistakes to avoid, free filing options and places where you can get free tax help. And don't forget about estimated taxes. If you make these quarterly tax payments, the first one for the 2011 tax year is due Monday, April 18, too. (April 16, 2011)
- An extension to pay might be an option -- Yes, the usual refrain when it comes to seeking a filing extension is that Form 4868 will get you more time to file your tax forms, but any taxes you owe are due on April's regular Tax Day. But as is the case with taxes, there's usually an exception. And that means that some taxpayers might be able to get a short-term extension to pay the taxes they owe. The IRS grants certain filers up to 120 to pay their tax bills as long as they can show they don't have the money to pay their bill in April but will very soon have the cash on hand now to pay in full. If you're in that situation, call the IRS at 1-800-829-1040 to discuss your tax payment cash flow situation and the possibility of getting an extension to pay. (April 17, 2011)
- File something today! -- It's Tax Day. If you put off your tax tasks until today, then you are almost out of time. Ideally, you're far enough along on your Form 1040 to finish it by midnight if you e-file, although I wouldn't push it to the wire just in case of computer trouble. Or you found a post office open late that will make sure your envelope gets the mark that lets the IRS know you timely filed. If not, then your next best move is to file Form 4868 to get an extension. It's always better to take more time, especially since the IRS automatically gives your six more months, than to file your return in a hurry and make some costly mistakes. Just remember, if you owe the IRS, send in that amount or as much as you can with your extension request. (April 18, 2011)
BONUS TAX TIP: It's better to file late than never -- If you missed Tax Day on Monday, April 18, all might not be lost. It's in your best interest to file a return as soon as possible. Penalties and interest started accruing on April 19, but you can put a stop to them by filing. Sending in a 1040 will stop the IRS' failure to file penalty, which is even tougher than its failure to pay fee. Now about that charge, if you can send in any amount that you owe, that will help reduce the fee and let the federal tax man know that you're serious about meeting your tax obligations. But the key is to file and file soon!
Again, thanks for continuing on our filing season long tax tip journey.
If you filed for an extension, these tips will help you get your Form 1040 to the IRS by that Oct. 17 deadline.
And stick with the ol' blog after your 2010 taxes are filed because tax planning throughout the year is the best way to minimize future tax bills. The Weekly Tax Tip series to help with that goal will begin on Wednesday, April 27.