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.
OK, procrastinators, here’s a friendly reminder: Time is running out. In less than two weeks it’s April 15, the deadline for filing your federal and state tax returns.
The good news: With very few tax changes for 2013, there aren’t any big head-scratchers to sort out this year. That’s a big change from a year ago, when the tax-filing season was delayed by a flurry of last-minute tax-law changes enacted by Congress.
But that doesn’t mean you can coast entirely this year. It’s still easy to trip yourself up with math errors, filing mistakes or even forgetting to report your fantasy football winnings.
Here are some last-minute items worth noting:
Don’t panic, but do file
“A lot of people panic this time of year,” said California Franchise Tax Board spokeswoman Denise Azimi, either because they can’t pay what they think they owe or don’t have all their paperwork together.
If that’s you, don’t avoid the April 15 deadline. You’re better off filing the return on time and paying what you can, then waiting 30 days for a billing notice with the exact amount of tax due. “You can then get on a payment plan and pay it off over time,” said Azimi. “It’ll save you a lot of headaches and money down the road.”
If you don’t file, you could be subject to penalties and interest, which can only add to your tax burden. Monthly installment plans, with a one-time startup fee, are offered by both the FTB and Internal Revenue Service.
Avoid the easy errors
One of the biggest mistakes, especially for those filing a paper return, is basic math. Double-check everything before you file.
If you’re filing an electronic form – and more than 80 percent of California and federal taxpayers now e-file their returns – the math computations will be done for you. But you can still make errors by inputting the wrong Social Security number, the incorrect tax-filing status (married, head of household, filing jointly, etc.) or mistyping your bank routing number for direct deposit of a refund.
Another common error is misstating what you paid last year in estimated tax payments. In California, it’s the No. 1 mistake on state tax returns, said Azimi. To see what was paid for 2013 taxes, taxpayers can go online and create a “MyFTB” account to access their tax history and other information.
And above all, don’t forget to sign and date your return.
Don’t overlook tax credits
When filing, be sure to look for state or federal tax credits that might apply, such as home energy-efficiency improvements, college costs, child care expenses and charitable donations.
One of the commonly overlooked credits is the federal Earned Income Tax Credit, known as the EITC. Designed to help low-income working adults, it’s a refundable credit, so even if you don’t owe taxes, you could still get money back in your pocket. (It’s federal only, not available on state returns.)
It’s based on income and family size, but can be as much as $6,000. Generally, your 2013 earned income must be below $51,567 for couples filing jointly with three children or less than $14,340 for a single with no children. To see if you qualify, search for the “EITC Assistant” tool on the IRS.gov website. The average credit last year was $2,300, according to the IRS.
Fantasy football income?
Another source of tax return errors is not reporting all your income, even from that online fantasy football league.
“If you don’t report the income, you can expect to hear from the IRS,” said Sandra Block, senior associate editor with Kiplinger personal finance magazine, in an email. If you received a Form 1099-MISC for casino winnings or a Form 1099-DIV for dividends, for instance, be assured that the IRS received a copy, too.
“The IRS views fantasy football in the same way it views gambling and lottery winnings, which are also taxable,” said Block. “Even if you find buried treasure in your backyard – as happened to a couple in Northern California last year – the found property is taxable at its fair market value.”
And she wryly noted: Stolen property is also considered taxable, but “it’s unlikely that most criminals report it.”
New for donors
For charitable contributions, three new funds have been added to California tax forms: the American Red Cross, Keep Arts in School and Protect Our Coast and Oceans. They are among 20 funds listed on state tax forms, including those for Alzheimer’s research, breast cancer, seniors’ programs and state parks. Taxpayers can check a box to make contributions – in any amount – that are either deducted from their refund or added to their tax payment.
In 2011, the last year that statistics were compiled, more than 294,000 Californians made more than $4 million in donations on their tax returns, according to the FTB.
Think twice on refunds
Lots of taxpayers relish getting that refund in the mail or direct-deposited to their bank. But personal finance advisers say that’s not necessarily a good thing.
“As much as people love getting a big check from the IRS, it’s not good money management,” said Kiplinger’s Block. “By adjusting your withholding, you can give yourself an automatic raise and use the money to pay off debt or increase your retirement savings.” She recommends asking your employer to adjust your W-4 form, so you’ll immediately get more take-home pay that can be allotted to savings or debts.
And she noted, being owed a refund can make you vulnerable to fraud due to identity theft, which has been a nagging problem for the IRS. In recent years, thousands of taxpayers have discovered that someone else, using stolen Social Security or other data, has filed a tax return in their name, stealing their tax refund. As part of a beefed-up enforcement effort, the IRS said this week that it prevented $17.8 billion in refund-fraud attempts in 2013, obtaining more than 1,000 indictments and 400 convictions of tax return fraudsters.
Ask for help
With the tax-filing deadline just days away, don’t despair. Sharpen those pencils or, better yet, hit the computer keyboard, pick up the phone or seek out free tax-preparation help that’s still available through April 15.
Franchise Tax Board
For help with your California tax return, call (800) 852-5711 or go online: www.ftb.ca.gov . The website has tax forms, links for free e-filing and answers to frequently asked questions. Taxpayers can also chat online with an FTB tax agent weekdays from 7 a.m. to 5 p.m. (Click on “FTB LiveChat” on the home page). Walk-in help is also available, 8 a.m. to 5 p.m. weekdays, at the FTB’s Sacramento office, 3321 Power Inn Road, Suite 250. You can also find instructional videos on FTB tax topics at YouTube.com .
In Sacramento, the local IRS office, at 4330 Watt Ave., is open weekdays from 8:30 a.m. to 4:30 p.m. (The office will stay open until 6 p.m. on April 14-15.) Taxpayers can pick up forms and get tax-filing help from IRS staffers. Or call the IRS at (800) 829-1040 (7 a.m. to 7 p.m. local time) or go online to: www.irs.gov . The IRS has dozens of tax-filing videos on YouTube and a free mobile app – IRS2Go – for iPhone and Android phones.
Get free tax-preparation help through the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs, held at various community locations (libraries, schools, churches, etc.) in every county. Volunteers answer questions and will help file returns, primarily for those with incomes below $52,000, the disabled and those over 60. Search IRS.gov by ZIP code to find the nearest locations, including those with bilingual help in Cantonese, Russian, Spanish, Vietnamese and other languages.
Source: Sacbee.com. ” Personal Finance: Countdown to April 15 tax-filing deadline: Are you ready? “. Claudia Buck. April 6, 2014.
While the refund really means you’re getting back money you loaned to the government at no interest, in practical terms it often means an unexpected infusion of cash into your wallet or bank account. Last year’s average income tax refund was $2,755, according to the Internal Revenue Service. That’s a nice chunk of change.
It’s a great problem to have: What do you do with your windfall?
The best choice for one person may not be the best choice for another. But experts agree on one thing: If you have debt, apply your refund to paying it off, whether it’s credit card debt, student loan debt or other consumer debt.
“People should still be focusing first on paying down debt,” says Meisa Bonelli, a Wall Street finance and tax professional whose Millennial Tax company advises entrepreneurs on business and tax strategy.
Debt, particularly student loan debt, should be a primary target because it limits financial options, preventing people from doing what they want with their money, whether it’s buying a house, buying a car or taking a vacation. “Get that debt gone,” she says. “It holds you back from everything else you want to do in life.”
Eric Rosenberg, a financial analyst who writes the blog Narrow Bridge Finance, agrees. “The No. 1 thing anyone should do with a tax refund is pay down debt,” he says.
After he left graduate school with $40,000 in student loan debt,
he focused on aggressively paying it off. Using all his tax refunds and bonuses, he made the final payment just two years and six days after his graduation.
With his student loan debt cleared away, he began saving his tax refunds, with the goal of buying a home. He didn’t apply any of his refund money to splurges — instead, he saved for fun and vacation with his regular income. The refunds were earmarked for bigger things.
“I treated it like it was extra money that I didn’t need to live on,” Rosenberg says. “I always encourage people to think long term, not short term.”
Others believe that giving yourself license to splurge with part of your refund helps you save the rest. Stephanie Halligan, a financial consultant and blogger, signs a contract with herself before she does her taxes, allocating 50 percent of her refund to student loans and 25 percent to long-term savings. She can spend the remaining 25 percent on whatever she wants.
“It’s easy to react on impulse and emotion when your refund hits, so prepare now for what you’ll do with that moolah later,” she advises on her personal finance website, The Empowered Dollar.
If you’re getting a big refund – a check in the ballpark of $1,000 or more for taxpayers who don’t have a side business — consider adjusting your withholding so that you’ll have that money available to you during the year. But those who don’t have substantial savings want to avoid a scenario in which they owe four figures to the IRS at tax time.
“I think people should withhold the maximum they can withhold,” Bonelli says. Rosenberg concurs. As his businesses, running Narrow Bridge Finance and building websites, have grown, his refunds have shrunk. Last year he had to pay the IRS.
Here are the seven smartest things you can do with your refund:
Pay down debt. If you have any consumer debt — student loans, credit card balances or installment loans — pay those off before using your refund for any other purpose. Car payments and home mortgages aren’t in this category, but you can consider paying extra principal.
Add to your savings. “You can never save enough,” Bonelli says. You can use the money to build up your emergency fund, your kids’ college funds or put it toward a specific goal, such as buying a house or a car or financing a big vacation.
Add to your retirement accounts. If you put $2,500 from this year’s tax refund into an IRA, it would grow to $8,500 in 25 years, even at a modest 5 percent rate of return, TurboTax calculates. If you saved $2,500 every year for 25 years, you’d end up with more than $130,000 at that same 5 percent rate of return.
Invest in yourself. This could mean taking a class in investing, studying something that interests you or even taking a big trip. “Do something that enriches yourself or adds value to your life,” Bonelli says. She is planning to take a class in art therapy this year using money from her refund.
Improve your home. Consider putting your refund to good use by adding insulation, replacing old windows and doors or other improvements that would save energy, and therefore money. Or perhaps it’s time to remodel your bathroom or kitchen. You’re adding value to your home at the same time you’re improving your living experience.
Apply your refund toward next year’s taxes. This is common among self-employed taxpayers, who are required to pay quarterly taxes since they don’t have taxes withheld. By applying any overpayment toward upcoming tax payments, you can free up other cash.
Splurge on something you’ve always wanted to do. If you’re out of debt and have substantial savings, this may be the time to take the trip to Antarctica or Australia that you’ve always dreamed of taking. Such an experience can be life-changing, and you never know what impact it will have on your future until you actually do it.
Source: DailyFinance.com. “7 Smart Ways to Take Advantage of Your Tax Refund.” By Teresa Mears. March 31, 2014.