Tax Day is officially here.
If you still haven’t filed, then you’re among the minority. As of the end of last week, the IRS had received nearly 100 million tax returns — roughly three-quarters of the returns it expects to get this tax season.
For procrastinators who are owed a refund, it won’t hurt to file late . Penalties are only incurred if you owe tax. But it’s still a good idea to file for an extension, just in case you end up being wrong and actually owe money.
So far this tax season, about 12 million taxpayers have requested extensions.
The average refund is $2,792, up 1% from last year, and people are using them for everything from hosting a crawfish boil to paying off student loans.
But because your refund may be one of the biggest checks you may receive all year, be careful to protect your identity . Scammers are also on the prowl during tax season, and the IRS has issued an alert about a new phone scam where IRS impersonators are calling taxpayers and asking for personal information or demanding that they pay back taxes.
The IRS has also warned taxpayers to watch out for fake charities, emails from IRS impersonators and shady tax preparers who do things like claim bogus children or convince you to hide income offshore.
The recently discovered Heartbleed bug , a security flaw that exposes Internet users’ passwords, has also raised questions about whether it’s safe to file online, though the IRS says taxpayers should ignore the bug and still file their taxes.
If you want to be extra safe, you can file the old-fashioned way — by snail mail. Although the vast majority of filers prefer to file online, with nearly 90% of all returns submitted electronically this year.
Another thing to watch out for: audit red flags . While the chance of being audited is less than 1% on average, certain actions are more likely to spark scrutiny from the IRS. Common triggers include overstating your charitable donations, being a millionaire, and claiming the Earned Income Tax Credit — a commonly abused credit.
You can even claim a boyfriend or girlfriend as a tax break , but your significant other will have to earn less than $3,900, live with you year-round and you must pay for more than half of their expenses.
Once you’ve filed, relax and celebrate with any one of dozens of Tax Day deals , including free cookies, curly fries, massages and paper shredding.
Source: Money.Cnn.Com. ” Your Taxes are due! ” By Blake Ellis. April 15, 2014.
Your tax preparation software may tell you how much you owe in federal income taxes for 2013, but it won’t tell you how your money is spent by the federal government.
No worries. The National Priorities Project did the math for you, based on actual federal spending in 2013.
Broadly speaking, for every dollar you pay in federal income taxes , about half goes to military spending (27%) and spending on federal health programs (22.7%). The latter covers everything from Medicare and Medicaid to the Children’s Health Insurance Program.
The next biggest chunk of your income taxes (13.8%) goes to paying interest on U.S. debt.
After that, 9.8% is used to support unemployment and jobs-related programs, such as career training and temporary assistance for needy families.
Veterans benefits get about 5% of your federal income taxes, as do food and agriculture programs.
Running the government, including overhead costs and spending on various agencies and offices, such as the FBI and immigration services, comes in at 4.5%.
Four percent, meanwhile, goes to housing programs, such as community development block grants, while 2% is spent on education, including everything from Head Start programs to Pell Grants .
And less than 2% is spent on each of the following: science, international affairs, transportation, and energy.
Here’s what that all means in dollars-and-cents spending for someone who paid $15,000 in federal income taxes for 2013:
- Military: $4,064.34
- Health: $3,409.19
- Interest on the debt: $2,080.26
- Unemployment and Labor: $1,468.10
- Veterans benefits: $758.00
- Food and Agriculture: $756.88
- Government: $682.39
- Housing and community: $598.84
- Education: $304.69
- Energy and Environment: $278.17
- International Affairs: $226
- Transportation: $204.03
- Science: $168.11
See how the total you paid in federal income taxes for 2013 breaks down .
Note: The National Priorities Project ‘s calculations exclude payroll taxes. Payroll taxes fully pay for Social Security benefits. But they only cover a portion of Medicare’s expenses — the remainder is covered by general federal revenue and premiums.
Source: Cnn.com. ” How Washington spends your taxes “. By Jeanne Sahadi. April 11th, 2014.
If ever there was a year to look for deductions to your tax bill, this is it. The reason? Millions of Americans will be paying more because of higher tax levels imposed by Obamacare and the ironically named American Taxpayer Relief Act of 2012. But even if you aren’t subject to the higher rates, it still pays to get all the breaks you can.
- PRIVATE MORTGAGE INSURANCE. The home mortgage interest deduction is a perennial favorite of homeowners and while that deduction is now on a phase out schedule for high earners, others may benefit from the private mortgage interest deduction. PMI is an insurance policy that lenders require if you can’t make a 20 percent downpayment on a home. And, 2013 is the last year you’ll be able to claim the deduction unless Congress changes its mind.
You’ll find the amount of PMI you paid on your bank’s mortgage interest form 1098. The break is available to homeowners who took out their mortgage after Jan. 1, 2007.
And, like a lot of deductions, this one has income phase outs too. The sweet spot for this break is an adjusted gross income below $109,000.
- CARING FOR A DEPENDENT PARENT. This is more complicated than it sounds, but if you can claim a parent as a dependent, you can save on taxes. Your parent must live with you and get more than half of his or her support from you. Keep in mind the parent’s earnings must be less than the tax exemption level. The devil is in the details with this one, and you should consult a tax professional. But if you meet the requirements, you’ll be able to claim an added personal exemption on your income tax return.
An added plus, any medical expenses you pay for that parent can contribute to the threshold for deducting medical costs. To meet that threshold, you have to spend 10 percent or more of your adjusted gross income on medical expenses. (That threshold increased from 7.5 percent last year.
- COLLEGE LOAN INTEREST. Parents struggling with the high cost of education will find they can deduct up to $2,500 of annual interest on loans to pay for college. Income phase outs exist, naturally, so high earners might want to consider taking out a home-equity loan instead, which in most cases, will allow you to deduct interest.
- HOME EQUITY LOAN INTEREST. You probably know that mortgage interest is deductible. Interest on mortgage debt up to $1 million is deductible, but phases out at higher income levels. Interest on home-equity loans totaling up to $100,000 also is deductible, no matter what you do with the money.
- JOB SEARCH. If you were looking for a job last year as millions of Americans were, the costs of that job search is deductible. File them under miscellaneous expenses. You don’t have to be successful to claim the deductions. If you do land a new gig, you can also claim relocation expenses for the new job. Consult a pro to determine exactly what you can deduct.
There are more deductions — many more — but you should be aware that some of them are IRS audit bait. Here are a few of the deductions that might get you a second look, if not an audit:
- Home office deductions. This one draws attention especially if you claim a salaried income.
- Non-cash charitable donations, especially if you donate a car to a charity.
- Earned income tax credit. This benefit for low-wage earners is often abused and the IRS will take a close look.
When it comes to deductions, one of the things IRS auditors keep in mind is just how you stack up with other taxpayers. CCH Inc. recently calculated average deductions, and while you shouldn’t use these as a hard and fast guide to your own tax return, it makes sense to have a general idea of what people in your income bracket pay. For example, folks with an income range of $50,000 to $100,000, claim medical expenses of $7,312 interest of $9,320 and charitable contributions of $2,815. These households pay federal taxes of $6,111.
So the point, here, isn’t to discourage you from the taking all the breaks that are due to you. In fact, I say take absolutely everything you are eligible for. The IRS expects nothing less.
Source: Fox Business. “Taking Advantage of Tax Deductions”. By Gerri Willis. March 12, 2014.