Watch Tonight: The American Tax Cheat

Tonight “The American Tax Cheat” premieres on CNBC at 8pm central.  From this morning’s Today Show segment, 15% of tax payers have admitted to cheating on their tax returns.

How can you figure out or assure that the company you’re using is on the level?  It’s a difficult task… The IRS is starting to help you out a little bit. They’re starting a program where they’re registering tax preparers and you can look at this kind of as a good housekeeping seal of approval. About 600,000 tax preparers signed up with them but there are over 900,000 in the United States and there are a lot of people who claim to be things they aren’t.

Your other option would be to go with a free Volunteer Income Tax Assistance Program (VITA) that’s already certified by the IRS. In fact, all volunteers that are preparing your taxes are trained and certified themselves to make sure they are giving you the most refund you can get accurately and legally.

Neighborhood Tax Centers is one of these programs. Learn more on www.neighborhood-centers.org/tax or call 2-1-1 to find the location nearest you!

Watch The Today Show segment >

Strange But True Tax Deductions

A story that appeared on Click2Houston.com the other day featured some weird and wacky tax deductions that people claimed and actually received!

U.S. Tax Court decisions are littered with such seemingly strange deductions as depreciated ostriches, babysitting fees, Bermuda business conventions and clarinet lessons as overbite treatments.

But even those deductions are nothing compared to our choices for the five weirdest tax deductions ever successfully claimed. As you race to finish up your own taxes this year, read on for inspiration.

Read 5 Strange-But-True Tax Deductions >

Help! I Need an Extension!

Even though we have 3 extra days to file our taxes this year, you might not feel like it’s enough. What if you aren’t ready to file? Can you file an extension? What IS an extension, anyway?

IRS Form 4868, Application for Automatic Extension of Time To File, gives you until October 17, 2011 to file. However, you still must pay the taxes that you owe, if any. The late payment penalty is usually ½ of 1% of any tax not paid by April 18, 2011. It is charged for each month or part of a month the tax is unpaid. The maximum penalty is 25%.

Alternatives to filing an extension:

If you owe money, it may just be best to file your tax return by April 18, 2011. If you cannot afford to pay, IRS can help you set up a payment plan. You’ll pay interest on the payments, but will not have any penalty for not filing taxes or filing late.

If you’re getting a refund, but just lack a piece of information (education expenses, child care, interest income), you can file a return by April 18, and later file a 1040X form, known as an amendment, to include the additional information. The Tax Center at Baker-Ripley Neighborhood Center will be open all summer and fall to help with these forms and issues, free of charge. Call 2-1-1 for those hours beginning in May.

Last Minute Tax Tips

Do we really need to say it? That the tax deadline is exactly one week away?

Scary stuff if you are using a paid preparer for the first time and start hearing about all these tax scams that are out and about.

The truth is, you may qualify to have an IRS certified preparer file your taxes for FREE! Half of Houstonians make $50,000 or less, are you one of them?

Neighborhood Tax Centers is a program of nonprofit Neighborhood Centers Inc. and is supported by the United Way of Greater Houston and the IRS. Together we train and certify volunteers that are ready and willing to make sure you get the most out of your tax return.

There’s still time to visit us at one of our 17 locations, with little to no wait.

Regardless of whether you end of doing your taxes yourself, pay someone, or have them prepared for free, be aware of your rights and responsibilities as a tax payer. Read CNN’s article, “12 Most Common Tax Scams” >

Extensions, Do you Need Them?

These kind of extensions are all better than a FILING extension!

For the majority of families and individuals, there is no reason to file an extension.  If you are owed a refund, don’t you want to file your return and get your money now?  If you owe money, filing an extension does not help you.  The extension gives you until October 17 to file your return but the amount you owe to the IRS is due on April 18.

Filing an extension does not extend the time to pay; penalties and interest will start accruing after April 18 on the amount you owe the IRS.

If you are unable to pay your taxes, file a tax return anyway on or before April 18 to avoid the “failure to file” penalty and pay all that you can by the April 18 deadline. Then, you can work directly with the IRS to set up a payment plan.  Please note that it is very expensive to owe the IRS and the IRS will charge you a fee to set up a payment plan.  The more you are able to pay by April 18, the less you will pay in penalties and interest.

Neighborhood Tax Centers are ready to prepare your tax return to help you meet the filing deadline of April 18.

If You Know you Owe…

It is costly to owe the IRS!

If you owe the IRS and fail to file a return by the deadline, you will have to pay a Failure to File penalty, a Failure to Pay penalty and interest on the balance due. By timely filing
the return, you can avoid the Failure to File penalty. Balance due returns can be electronically filed, with or without payment.

Failure to File Penalty

• This penalty only applies if you have a balance due. If you are eligible for a refund, there is no penalty for filing late.
• Penalty is 5% of the amount due for each month the tax return is late, up to a maximum penalty of 25%.
• If your tax return is more than five months late, simply multiply your balance due by 25% to calculate your failure to file penalty.

Failure to Pay Penalty

• Penalty is 0.5% of the amount you owe for each month the tax is not paid in full.
• There is no maximum limit to the Failure-to-Pay penalty.
• The penalty is calculated from the original payment deadline (April 15) until the balance due is paid in full. The extension to October 15 is only an extension to file, not an extension to pay.

Interest

• The IRS 2010 interest rate on underpayment of tax is 4%.
• Interest is calculated for each day your balance due is not paid in full.

IRS Payment Plan / Installment Agreement Costs Money
The IRS charges a user fee to set up an installment agreement. The user fee for new installment agreements is $105 or $52 for agreements where payments are deducted directly from your bank account. Taxpayers with income at or below established poverty levels can apply for a reduced user fee of $43. There is also a user fee of $45 regardless of income to reinstate defaulted agreements or restructure existing agreements.

Avoid installment agreement user fee by paying full amount within 120 days
You will avoid the $43 – $105 user fee but penalties and interest will still be charged.

See also 4012 section on “Balance Due Returns.”

The Clock is Ticking…

We hate to be the bearer of bad news, but if you haven’t done your taxes yet, you only have 3 weeks from today!

From the Houston Chronicle:  Taxing times: Local experts share tips for one of the most stressful times of year

One of the first things to remember this year is tax returns must be filed by Monday, April 18, this year instead of the traditional deadline of April 15.

The IRS changed the date because Emancipation Day, a holiday honored in Washington, D.C., falls on Friday, April 15, this year, and Washington, D.C. holidays affect tax deadlines the same way as federal holidays.

Through Neighborhood Tax Centers, an IRS Volunteer Income Tax Assistance program for families making up to $50,000 and individuals making up to $30,000.

Tax Day by Tax Year – Filing Deadlines for 2010 Tax Returns >

Can I Claim My Kid?

You may know you can claim your children on your tax return. A qualifying child can be a son, daughter, niece, nephew, brother, sister, or grandchild. But how exactly does this help you, and when can you NOT claim your children? Children on a tax return offer the following tax benefits:

• Personal Exemption: For every child, and adult, on your tax return, IRS takes off a certain amount of taxable income, reducing the taxes you owe before any credits (“tax liability”).
• Child Tax Credit: This credit takes $1,000 off your tax liability for every child under 17. If your child turned 17 in 2010, you no longer get this credit, though you can still claim your child and get the personal exemption.
• Earned Income Credit (EIC): If your child is under 19, or under 24 and a full time student, and you meet certain income guidelines, you can receive EIC for them. EIC is refundable, meaning that even if you owe no taxes you can get this credit as a refund.

Q: My child had an after school job. Can I still claim him/her?

A: Yes. If your child is under 19, or under 24 and a full time student, you may claim them no matter how much they earn.

 

Q: My child is 25 but only worked a little last year and lives with me. Can I claim him/her?

A: If your adult child earned under $3,650, they are considered a “qualifying relative” and you may get a personal exemption for them. But, you cannot receive Child Tax Credit or Earned Income Credit.*

 

Q: My 20-year-old son worked but only earned $6,000. He doesn’t go to school and I support him. Can I claim him?

A. No. Since he earned more than $3,650, is over 19, and is not a full time student, you cannot claim him.

 

*To get EIC, your child can be any age if they are totally and permanently disabled.

Tax Deadline Approaches: What To Keep In Mind

From 39 News online: Tax Deadline Approaches: What to Keep in Mind

Watch the video! >

OOPS! I made a mistake!

You filed your taxes early and got your refund. You’re all done for the year! Then, in the mail, you get a W2 for that job you worked for a week in January, or that bank interest you forgot about! Or, you didn’t know you could claim your nephew that you supported all year. What do you do?

Neighborhood Centers can help you file a revision to your taxes, known as an amendment, on a 1040X form. Like all our services, this is free of charge!

How do I do it?

If you did your taxes with Neighborhood Tax Centers, just bring the forms or changes with you to the site where you filed. If someone else did your taxes, we can still help—just bring a copy of your tax return and all the original information so that we can re-create it.

Changes on a 1040X may result in an additional refund, or you may owe IRS. But, it’s not too late to make changes and get your tax return right! We are here to help!