What Should You Do If You Are Audited?

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It’s the ultimate financial nightmare: What if you are audited?

Many of us live in FEAR of a possible IRS audit.

However, less than 1% of taxpayers are audited each year.

Some audits come because of red flags that the IRS recognizes, and others are simply the result of random chance.  In many cases, all that is needed is for you to mail in some documentation that backs up your claim of a deduction or credit.  Getting an audit letter is no reason to immediately panic.

But there is always the chance that you have to go through a more difficult tax audit.

If that happens, though, you have options:Continue Reading

What is the Earned Income Tax Credit?

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Filing taxes can either be very simple or overly complex.

There are so many exclusions, credits, loopholes, and deductions to know about that it can be easy to miss out on credits that you qualify for simply because the tax system is so complex.  One of those tax credits worth knowing about, especially if you are in a low income bracket, is the EITC or Earned Income Tax Credit.

What is the Earned Income Tax Credit?

Tax credits are great because they are a direct reduction in the amount of tax that you owe.  Tax deductions are good, too, but they simply reduce your income that will then be taxed.

A tax credit like the EITC is much more valuable.  It’s important to find out if you qualify for the EITC, especially if you know that you don’t have significant investment returns or income for the tax year.

The Earned Income Tax Credit is meant for people who are working and have low to moderate income.  The credit is designed to provide incentive to keep working rather than relying on government subsidies.  Part of the goal of the EITC is to offset social security taxes that you pay as you earn an income.  As with many government tax credits and deductions there is some controversy around the support the Earned Income Tax Credit provides for individuals or couples with children. Continue Reading

The 4 Most Common Tax Return Scams and How to Protect Yourself

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It’s tax season which typically means hours gathering your data and slogging through the year’s records

Most don’t look forward to tax season, but the usual tax time headache can get even worse if you’re the unfortunate victim of a tax scam.

Every year, there seems to be more ways scammers find to rob you of your tax refund.  According to CNNMoney, nearly 2/3rds of Americans get a tax refund, and the average refund in 2011 was more than $3,000.

With that kind of money at stake, it’s no wonder scammers continue to find creative ways to get their hands on your cash.

As you prepare to file your taxes this year, be aware of these four common tax return scams:

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New Options for Taking the Home Office Tax Deduction

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Even as you gather your documentation to prepare your 2012 tax return, it’s time to look ahead and begin planning your tax situation for the next tax year.

One of the things to consider as you plan for this year is the new option for taking the home office tax deduction.

There are a number of tax-deductible business expenses that you can claim with your home business.  One of those is a deduction for the cost of the space you are using in your home.

If you plan to take the home office tax deduction, you are required to fill out Form 8829, which consists of 43 lines and can include depreciation and carryovers of deductions you haven’t used.  In some cases, the IRS even acknowledges, figuring the deduction can be a bit complex.  Plus, if you make mistakes on this form, it can red-flag your return for an audit.

Recognizing that home offices are becoming increasingly popular for the growing number of self-employed taxpayers, as well as for telecommuters, the IRS has released an optional method of claiming the home office tax deduction.  It comes into effect this year, in 2013, so you will be able to claim it (if you choose) early next year when filing your 2013 tax return.

New Option for Claiming the Home Office Tax Deduction

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TurboTax Online Federal Giveaway

The tax filing due date is quickly approaching!  Have you done your taxes yet?

If you haven’t then I’m here to help.


TurboTax - Choose Easy
The kind folks at Intuit (TurboTax’s parent company) have given me a promotional code for one TurboTax Online Federal Filing product, up to a $100 value.  I’d like to pass that on to a loyal Free From Broke reader.

When I first started doing my taxes I did them myself by hand.  It wasn’t so difficult since there wasn’t a lot going on with my income but it was time consuming nonetheless.

Then I started using TurboTax.  It was immediately so much easier to get my taxes done!  Take a look at our TurboTax Online review for more information on the different TurboTax products.

TurboTax Online Giveaway

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What is Adjusted Gross Income (AGI) and How Does it Affect Your Taxes

We toss different terms around to describe our incomes, one of which is adjusted gross income, but what exactly is adjusted gross income (AGI), and is it an accurate way to describe what we make?

What is Adjusted Gross Income?

In its simplest form, adjusted gross income, or “AGI”, is the broadest measure of income from all sources, but it’s also reduced by certain expenses. (This is where the term “adjusted” figures into AGI.)

Because the income reduced, and because certain income isn’t taxable, it’s not accurate to say that AGI describes total income in any way.

AGI isn’t really a general description of income so much as it’s a term specific to income taxes.

It’s your income as the Internal Revenue Service sees it and wants us to report it.  It is everything that is reported on page one of IRS Form 1040.

But even if it isn’t an objective measure of income, it still has major implications, at least as it relates to income taxes.

AGI summarizes all of your income sources

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Tax Time: What to Bring to Your Accountant

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Sometimes, it makes sense to have someone else to do your taxes.

If you have complex taxes, an accountant can make your life a little easier — and be worth every penny.

However, your accountant can’t work miracles. He or she can only prepare your taxes based on information that you provide. This means that you need to bring in everything needed to have your taxes done properly.

What to Bring to Your Accountant for Taxes

Personal Information

First of all, you need to have all of your personal information.

Bring in your Social Security number, as well as the numbers associated with your dependents.  The first time I used an accountant for taxes, I didn’t bring in my son’s Social Security number. It slowed things down a little bit, since I had to go back home to get it.
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