There are a few things you should know as you get ready for the 2010 tax filing season. The US Congress and the economy may impact your refund.
Not So Fast!
Are you one of the millions of Americans who's used to filing your taxes as early as you receive all your paperwork? Maybe you may like getting the chore done and out of the way, or maybe you like getting your refund early. Things may be different for many 2010 filers.
As 2010 drew to an end, so did some income tax deductions or tax breaks that many Americans had enjoyed for several years. When the Tax Relief Act became law in late 2010, those tax breaks were extended. Good news, right?
Generally, yes. It means more money in the pockets of millions of taxpayers. Unfortunately, if you're an early filer, the new law will postpone your refund. That's because the IRS has to make sure its computers are ready to process the deductions. It may not be ready until late February or early March.
The delay is only for taxpayers who itemize deductions - like sales taxes, tuition costs, and some teaching-related expenses. If you don't file early or itemize deductions, you shouldn't have a problem.
What You Can Do
There are some things you can do to get things rolling as soon as possible:
- Check the IRS web site periodically for news and updates about when the IRS will be ready to process returns containing the extended tax breaks
- Use a tax preparation program or software. These are often updated very quickly, so you can prepare your forms now and then e-file when the IRS is ready
- Do something. Don't just sit and wait for the IRS. Start gathering your receipts and other documents you need to prepare your return
New Home in 2010?
- You closed on the sale on or before September 30, 2010
- The home is your principal residence - where you intended to live full-time, so vacation or investment properties don't count
- You (or your spouse) haven't owned a principal residence during the last three years (you're a first-time buyer). If you weren't married at the time you bought the home in 2010 and you bought it with your partner, you may still qualify for the credit, though
- If you lived in the same principal residence for at least five years, sold it, and bought a replacement home in 2010, you may be eligible for a credit (long-time owner credit)
For first-time buyers, the credit on your 2010 taxes is 10 percent of what you paid for the home, with a cap at $8,000. The credit for long-time owners is also 10 percent of your purchase price, but the cap is $6,500.
What You Can Do
If you think you may qualify for one of these credits or if you're not sure:
- Carefully read the IRS help documents to see if you qualify. Also look at the instructions for the IRS form used to claim the credit
- A tax software program should take you through the qualification process step-by-step, but make sure you review your return for accuracy
- If you have any trouble with the credit, talk to a tax attorney or financial adviser, You don't want to risk losing thousands of dollars in tax credits!
A little extra cash can be a lifesaver in a tough economy. It may be tempting to take advantage of some offers made by tax preparation companies. You may have heard of rapid or instant refunds, or some other program promising an advance payment against your tax refund.
These are really called refund anticipation loans (RALs). It sounds simple and very tempting: The company prepares your tax return, files it with the IRS, and gives you a loan based on what your refund should be. Usually, you can get the loan money by a check or pre-loaded debit card within 24-48 hours after your return is filed.
Your refund is used to pay off the loan and the fees connected to the loan. This is where you need to be careful. You could end up paying hundreds of dollars in fees and expenses for the loan. Your refund may be swallowed up:
- The bank making the loan charges fees - (usually taken from your loan by the bank before you get any money
- The bank or preparation company runs a credit check, and you're charged those fees
- The interest rate is usually high
- Tax preparation and other fees are taken out of your refund
What You Can Do
If you want your refund fast:
- Be sure you get a full explanation of all fees you'll be charged for a RAL
- Look at other options. E-filing is fast, it's free for many taxpayers, and you could get your refund in 8-15 days
Be prepared this year. Knowing what you need and where to find it can help take a lot of stress out tax season and add a lot to your bottom line.
Questions for Your Attorney
- I changed my mind after taking a RAL, but the tax preparation company said it was too late and I had to pay the loan fees. Can it do that?
- I didn't take the homebuyer's credit on my last 2009 return. Can I take it on my 2010 return?
- Is the cost of tax preparation software tax-deductible?