To Itemize or Not to Itemize?

Happy Valentine’s Day! But more importantly, happy first-day-to-submit-itemized-deductions!

Starting February 14, the IRS can accept itemized deductions. You hear a lot about things you can “write off” on your taxes, but what does that really mean?

IRS gives everyone a standard deduction, meaning a certain amount of their income will not be taxed. The standard deductions for this tax year are:

• $5,700 if you are single, or married but filing separately
• $11,400 if you are married filing jointly or qualified widow/er (spouse died in 2008 or 2009 and you support children)
• $8,400 if you are Head of Household

*These values increase slightly if you are 65 or older, or are blind.

You can itemize deductions if the total of your specific deductions is more than the standard amount above. Some common deductions are:

• Property taxes
• Mortgage interest
• Charitable donations
• Medical expenses. These are only deductible if your out-of-pocket expenses are 7.5% of your income. If you earn $10,000, you must have $750 of medical expenses to include these.
• Sales tax. You do not need to save all your receipts—the tax software calculates this amount for you based on your income. You can add to this amount if you made a big purchase, like a car, and have a receipt showing the sales tax paid.

So, should I itemize, or not?

Example: Rose is Head of Household and has 2 sons. She earned $30,000 in 2010. She paid $2,000 of property taxes, $3,500 of mortgage interest, and donated $2,000 to her church. The software estimates that she paid $705 in sales tax. Her younger son broke his leg over the summer and Rose had to pay $1,000 that insurance didn’t cover.

Rose should take the standard deduction. She cannot take the medical deduction since she didn’t pay 7.5 percent of her income for these expenses. The rest of her expenses total $8,205 which is less than the $8,400 the standard deduction gives her.

What’s the Diff?

Just like we promised, here’s the next most frequently asked question, answered!

Free tax preparation is something that we’re seeing advertised a lot by paid tax-preparation companies. What’s the difference between the free services you offer and those offered by other preparers?

To pay or not to pay?

• With us you get 100 percent of your money, including all the credits for which you qualify.
• Families who qualify for the Earned Income Tax Credit or Child Tax Credit are going to lose a portion of their money in tax preparation fees if they go to a paid preparer.
• At Neighborhood Tax Centers all of our services are free.
• A good rule of thumb for people to remember is that families with children, including single-parent families, are going to qualify for a refund and will have to pay a service fee if they go to a paid preparer.

We want to remind you that Neighborhood Tax Centers is a program of the non-profit organization Neighborhood Centers Inc. With Neighborhood Tax Centers you can be reassured that you will receive 100-percent free, quality tax preparation by IRS-certified preparers.

Where’s My Refund?

If it has been more than 15 days since you e-filed, or 6 weeks since you mailed your tax return, you can access the IRS “Where’s My Refund?” page here > Get Refund Status

You will need your social security number or ITIN, filing status, and the exact amount of your expected refund. The site will tell you when your refund will go out, or if your refund may have been taken for an overdue federal debt like student loan payments, child support, or back taxes.

También es disponible en español.

It’s National EITC Awareness Day

Today is Earned Income Tax Credit (EITC) Awareness Day, the one credit that could put more than $5,600 in worker’s pockets!

Ronald C. Green, City of Houston Controller, presents the proclaimation for EITC Day in Houston.

Neighborhood Tax Centers held a press conference this morning to spread the word to Houston residents, along with the City of Houston Controller, United Way of Greater Houston, Mayor’s Office for People with Disabilities, City Council Members Jarvis Johnson, Mike Sullivan and the IRS.

It was a beautiful day in front of the Neighborhood Tax Center located within our Baker-Ripley Neighborhood Center in the Gulfton/Sharpstown area.

An estimated four out of five eligible workers claim their EITC. That means Houston is missing out on millions of federal dollars that workers can claim by filing a tax return. EITC provides a financial boost for working people. They’ve earned it. Now they just need to file a tax return and claim it!

Half of Houstonians make less than $50,000 a year, so many are eligible for free tax preparation.

Learn more about National EITC Day and the credit.

What’s Behind H&R Block’s Free Tax Service

You may be wondering what the difference is between using the free tax prep services of Neighborhood Tax Centers, and the ones offered at H&R Block.

The truth is, there’s a huge difference. The most dramatic difference is that the free service from H&R Block is severely limited to people who qualify for filing the 1040EZ form. Anyone who has children (dependents) is out of the running.

The ideal candidate for Neighborhood Tax Centers? Those WITH dependents. We know what credits you can receive and make sure you get them. Here are just a few of the things we can help with under our free services:

• Individual returns with W-2s, self-employed and cash income, social security, pensions
• Returns involving sale of one or two stocks, withdrawal of retirement, education expenses, child care, 1099-C for cancellation of debt on your home or credit cards
• Schedules A, B and C for homeowners, interest and dividends and self-employed
• Tax Credits: Earned Income Credit, Child Tax Credit, Education Credit, Child Care Credit
• For the month of March, we expand our services to include preparation of amended returns and prior year tax returns for 2007, 2008 and 2009.

There is a great write-up of the H&R Block free service from blogger Kenneth Reid:

How and why would the nation’s largest tax filer give its service away for free? In a nutshell: 1) H&R Block is being forced to scramble harder this tax season to compete with other filing services. 2) It’s unable to offer a service that brought in customers in years past. 3) The “free taxes” offer isn’t for everyone.

Accounting and Tax Tips: What’s Behind H&R Block’s Free Tax Service.

Avoiding Common E-File Errors

Electronic filing is convenient and gets taxpayers their refunds quickly. However, e-files can be rejected due to several common errors.

It may sound simple but they're quite common errors that lead to big headaches!

Make sure you have correct names and social security numbers or ITINs for everyone who will be listed on the tax return. It may also help to bring copies of your previous tax returns. If you have multiple last names (like Martinez Valdez), you might have used only one name on your taxes. If you have recently gotten married or divorced, make sure you have changed your name with the Social Security Administration. If you have not, you’ll need to file your taxes with the old name until the change is made.

Make sure you have correct birth dates for everyone on the tax return. Having an incorrect birth date, especially for a child, can cause you to miss out on valuable credits, or cause you to claim credits you are not entitled to (which will have to be paid back).

If you have children and are divorced, separated, never married, or live with parents or grandparents, determine who should claim the children before you go to file your taxes. Generally, if the child lives with you and you provide over half his or her financial support, you are entitled to claim that child. Special rules can apply in divorces. Our intake specialists and tax center managers can help you determine who should be claimed. If your tax return is electronically rejected because someone has claimed him or her, you will have to mail your return to the IRS so that a person, not a computer, may review it.

Happy Filing!

New Tax Laws for 2011 & Credits

This year there are not a lot of changes in tax law.  Most of the tax credits have been extended by Congress for one more year.

We won't be seeing a significant amount of changes in tax laws for 2011.

• Making Work Pay Tax Credit – If you have earned income you may get an additional $400 or $800 for couples.
• For students in college, the American Opportunity Credit has been extended and it provides a credit of up to $2,500 per student per year and you may be able to receive up to $1000 as part of your refund.
• If you earned just a little bit of money in 2010, you may be entitled to get money back through a tax credit.  For example, a parent making over $3000 is eligible for the Child Tax Credit.  And any small amount of earned income may make you eligible fore the Earned Income Tax Credit.
• The biggest negative impact on taxpayers is all of your unemployment benefits are once again taxable.  Last year we had a little reprieve and the first $2400 was not taxable, but the entire amount is taxable this year.

Tax Deadline Extension

If you haven’t yet heard, this year the tax deadline has been extended to April 18th, 2011. A Monday.

We know what most people will be doing that weekend!

Why are people still excited over a tax deadline extension in the year 2011? – 2011-Jan-07 – CultureMap Houston.

PS – If you’re on Twitter, a great resource to follow is @irsnews – all the news about taxes you can handle!