Last Updated: January 19, 2009
The W-2s and 1099s have landed in your mailbox. Your files are filled with receipts, waiting for you to sort into neat categories — investments, real estate taxes, health care expenses and the like. And your Form 1040 is about to arrive.
Yes, the time has come to start thinking about filing your 2008 federal and state tax returns. And there's a lot to think about. There's a new fix for the Alternative Minimum Tax or AMT, new credits and deductions for homeowners, and plenty of help if you've lost your job or if you have debt problems. So no matter whether you plan to file your tax return now or wait until April 15, it's worth reviewing some of the changes and tips that could affect whether Uncle Sam owes you money or vice versa.
Subscribe to Tax Tips
First and foremost, consider visiting the Internal Revenue Service's (IRS) Web site and subscribing to the IRS' Tax Tips. Subscribers to Tax Tips get tax information via e–mail from the IRS daily during the tax–filing season and periodically the rest of the year.
The IRS recently announced, for instance, a number of new steps to help financially distressed taxpayers maximize their refunds and speed payments while providing additional help to people struggling to meet their tax obligations. If you are among those taxpayers who might owe back taxes, for instance, Uncle Sam is prepared to go the extra mile. "Depending on the circumstances, taxpayers in hardship situations may be able to adjust payments for back taxes, avoid defaulting on payment agreements or possibly defer collection action, the IRS said in a release. Read IR 2009-002 at the IRS' Web site for more information. In addition, the IRS created the "'What Ifs'" of an Economic Downturn" section on its Web site. That site addresses the tax impact to events such as job loss, debt forgiveness or tapping a retirement fund.
Credits and Deductions
You should also look into the numerous tax breaks available and take every credit, deduction and exclusion for which you might qualify. For instance, if you had less income in 2008, you could qualify for credits for which you previously did not qualify. Plus, there are several new benefits this year, including the First–Time Homebuyer Credit and the Recovery Rebate Credit. (The recovery rebate credit is a one–time benefit for people who didn't receive the full economic stimulus payment last year and whose circumstances may have changed, making them eligible now for some or all of the unpaid portion.)
There have been changes to the standard deduction for real estate taxes, as well. According to the IRS' Web site, you can claim an additional standard deduction, based on the state or local real estate taxes paid in 2008. The maximum deduction is $500, or $1,000 for joint filers.
If you've been involved in a mortgage workout and foreclosure, the IRS noted the following: "For most homeowners, these are now tax–free. Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million. The limit is $1 million for a married person filing a separate return."
If you want to make sure you get your tax refund quickly, consider using the IRS' e–file system. according to the IRS, nearly all taxpayers can e–file for free and accelerate their refunds. In 2008, nearly 90 million tax returns were e–filed. And the average refund last year was $2,429. "These are tough times, and e–file is the best way for people to get cash in their pocket quickly," IRS Commissioner Doug Shulman said in a release. "Filing electronically with direct deposit can get refunds to taxpayers in as few as 10 days." If you haven't e–filed before, consider the e-file option this year, the IRS urged.
Finding a Tax Preparer
Whether you e–file or not, consider hiring a financial professional. You can connect with financial planners in your area by visiting FPA's PlannerSearch®. If you're unsure how to find a tax preparer, consider reading the IRS' tips on finding a tax preparer.
In addition, the IRS created the "What Ifs" of an Economic Downturn" section on its Web site. That site addresses the tax impact to events such as job loss, debt forgiveness or tapping a retirement fund.
And finally, you should be alert for e–mails and phone calls that you may receive which claim to come from the IRS or other federal agency and which mention your tax refund or economic stimulus payment. "These are almost certainly a scam whose purpose is to obtain personal and financial information — such as name, Social Security number, bank account and credit card or even PIN numbers — from taxpayers which can be used by the scammers to commit identity theft," the IRS said in a release.