By Anna Lempereur
It’s a three-letter word that ends in “x.” Kids don’t really know what it is, and some adults are terrified by it. It costs money, but once a year can actually get you money back. And oh, does it make people hot.
Say it together now—tax.
Tax season, like spring or baseball or any other season, is the same time every year. But every year right around this time, people start to panic, sweat and lose sleep (not unlike the word you were thinking of). That can lead to mistakes, poking holes in your wallet like a leaking bucket.
People should be cautious of arrears (unpaid, overdue debts) when paying their taxes, because late payments and interest accumulate quickly, says Richard Bohner, Jr., CPA, president of Cycle Financial Services, Inc. According to Bohner, there is an advantage to having a professional do your taxes as opposed to an online program or website.
“All aspects of tax preparation cannot always be answered yes or no,” says Bohner. “Qualified tax preparers can readily update you with specific changes during the year prior to preparation, since they are familiar with your regular activities.” Taxpayers who normally deduct real estate taxes should pay careful attention to this suggestion, because as of this year, they may overlook a deduction for sales taxes paid on a new car purchase if they do not bring the transaction to the “computer’s” attention.
Bohner also says that New York State will no longer notify taxpayers of their prior years’ overpayment in order to save money on mailing costs.
“If included in income and overlooked, the taxpayer will ultimately receive a letter from [the] IRS, stating that they understated income and may be assessed penalties and interest,” he says. “Then the IRS would notify New York State of a change in federally reported income. In this case, New York State then could elect to make an exception to their mailing cost savings plan and follow up with their own version of a letter outlining said deficiency and ultimately create unnecessary correspondence.”
Here are five tips to claiming deductions:
• Create a Tax Book Bohner says that maintaining a good recordkeeping system will ensure that deductions are not overlooked. Pay attention to categories such as medical and dental expenses, interest expenses, car expenses, and other business expenses. Keep all business-related receipts. Maintaining a filing cabinet of your taxes is also a safe option.
• College Tuition For many families, this is the most valuable expense. In the 2009 tax year, you can deduct up to $4,000 for college tuition. The deduction is gradually reduced, starting at $80,000 for single filers and $160,000 for joint filers.
• Individual Retirement Arrangements (IRAs) For those who decided to start an IRA in 2009, you have until the April 2010 deadline to claim anything in this account on your 2009 tax return. Contributions can be made until age 70-and-a-half is reached.
• Auto The amount of mileage that you use your vehicle for business is deductible, meaning that if 50 percent of your traveling is for business, 50 percent of expenses will be deductible. State and local taxes can be deducted if your vehicle was purchased in 2009.
• Child Tax Credit For each qualifying child under 17 years old, you can get a $1,000 tax credit on your tax return. The child must be claimed as your dependent to qualify. The earned income threshold needed to claim the credit has been reduced to $3,000 for 2009.