— With the April 15 tax deadline approaching, do you have questions about filing, credits and more? Here, the National Association of Enrolled Agents, the IRS and TODAY financial editor Jean Chatzky offer tips to help you through the paperwork.
A: If you are out of work and looking for a job right now, there are tax breaks. The cost of looking for a job in the same field as the one in which you were recently employed can be claimed as a miscellaneous itemized deduction — even if you haven't landed a new job yet. So if you're a salesperson looking for a new job in sales, those related expenses are deductible. If you decide to go into teaching instead, those expenses would not be.
Deductible expenses include transportation costs, lodging, resume services and long distance phone calls. Add these job-hunting expenses to your total miscellaneous deductions (including tax preparation fees, investment fees and unreimbursed job expenses from when you were employed). You can only deduct the amount of the total of miscellaneous deductions that exceed 2 percent of your adjusted gross income.
If you're paying the full cost of your health care since losing your job, health insurance premiums can be included with your medical and dental bills as deductible expenses as long as you itemize.
A: Most of the 119 million taxpayers who received a full economic stimulus payment in 2008 will not be eligible for the new Recovery Rebate Credit. But if your income decreased due to a job loss, and you only received a partial benefit or no benefit at all, you may now be eligible. The amount of the credit is up to $1,200 for married couples or up to $600 for all other filers.
Even though you may have made too much money to qualify in the past, this year you may be eligible to receive a child tax credit, additional child tax credit or earned income tax credit. Income limits restrictions apply. For the Child Tax Credit, you can claim up to $1,000 per child as long as your adjusted gross income is under $110,000 for a married couple filing jointly or $75,000 if you're single. A couple making less than $38,646, with two or more kids, can get a credit up to $4,824 with the Earned Income Tax Credit.
A: Most investors are staring at steep investment losses. There aren't really any tax breaks available for the losses in your 401(k) but there are for other accounts.
Investors can claim up to $3,000 in capital losses in investment accounts against ordinary income.
Investors who have been burned by a Ponzi scheme, such as in the Bernard Madoff case, can claim much more. Last week, the IRS issued guidelines that allow investors who have been victims of a Ponzi scheme to claim their losses as a "theft loss" rather than a "capital loss" and include not only the net amount invested, but also the fictitious income reported on tax returns in the year the scam was discovered.
A: Homeowners are really suffering due to declining home values, and there is tax relief for them. If your mortgage debt is partly or entirely forgiven during tax years 2007 - 2012, you may be able to claim special tax relief and exclude the debt forgiveness income. Normally, debt forgiveness results in taxable income. However, under the Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude up to $2 million of debt forgiven on your principal residence. The limit is $1 million for a married person filing a separate return.
There are tax credits for homebuyers. If you bought a house in 2008, you can take a credit of $7,500, but you're required to repay that credit over 15 years. It's like an interest-free loan. Under the stimulus package, buyers who purchase a home in 2009 have the option of taking a credit for up to $8,000 on their 2008 or 2009 return. That is an actual credit; you don't have to pay it back. The good news is you can get some money for the home.
The earned income tax credit, EITC. That is a married couple that is filing jointly with an income of under $42,000 and they have two or more children ... they can qualify for a credit of more than $4,800. Many people inadvertently overlook this.
If you own a home, but you don't itemize, you can add your real estate taxes to your standard deduction, up to $1,000 for married couples that are filing jointly. Particularly valuable for retirees.
A: More and more people are e-filing. People should definitely e-file. The IRS says e-filing by home computer is up 20 percent through early March and more than half of all people e-file. E-filing is more accurate than doing your return manually. When you use software/e-file, it's 20 times more accurate than doing it by hand.
A: For the ’08 filing season, last year, $2,576. This year they're at $2,800. That number tends to rise gradually through the years, but not very much.
A: You get your refund much quicker, in as little as 10 days. It also is safer ... can't have a lost check.
A: The IRS realizes many people are in financial distress, and people can't pay their full tax bill by April 15. Contact the IRS and they can work out extensions or payment plans. The worst thing to do is to not file a tax return because you can't pay your tax bill. That'll just compound your problems. The penalty fee is far worse for late filing than for late payment.