The time is coming faster than you think. Yes, it’s crunch tax time.
I know I’m breathing a little better. For the first time in years, my husband and I aren’t going to be up all night April 14 trying to gather our tax records. But if you’re still not there, here are some last-minute tips and mistakes to avoid, courtesy of the Internal Revenue Service:
* Be sure to choose the right filing status. Many people who are single, recently separated or divorced often make a mistake by either not claiming “head of household” when they can or claim it when they don’t meet the requirements for that status. For example, one of the requirements is that during the tax year you paid more than 50 percent of the costs of keeping up a home for yourself and qualified dependent(s), which by the way could be your child, grandchild or parent.
For more information on your filing status, check out IRS Tax Topic 353 at www.irs.gov. Also don’t assume if you’re married that’s it’s financially better to choose “married filing separately.” Doing so could make you ineligible for some tax breaks. If you’re married and you’re not sure which filing status to use, compute your taxes separately and jointly and see which method results in a smaller tax liability.
* If you know you can’t file by Aug. 15, request an extension. You can get an extension by filling out IRS Form 4868 “Application for Automatic Extension of Time to File.” Just keep in mind that regardless of whether you file for an extension, you still have to pay any taxes you owe by April 15. I know that last piece of advice sounds nonsensical. If you have to pay your taxes, doesn’t that mean you have to do some work to figure out how much you owe? Yup. But nonetheless, pay up or risk a penalty.
* If you realize you have a huge tax bill this year, don’t panic. You can apply for an IRS installment agreement. To request an installment agreement, submit Form 9465 “Installment Agreement Request” and send it with your return. You can also send a written request. Just attach it to the front of your return. In your letter, you’ll need to specify the amount you can pay and the day you wish to make your payment each month. The IRS says it usually responds to such requests within 30 days. You’ll be told whether your request is approved, denied or if additional information is needed.
If you can’t pay, contact the IRS at 800-829-1040. There are other options. For example, if you’re experiencing some unusual economic hardship, you may qualify for an “Offer in Compromise.” Under such an offer, the IRS may accept less than what you owe (under certain circumstances). Whatever your situation – you need more time to pay or you simply don’t have the money – it is better to initiate the call than to have the IRS chase you down.
* Did you write off all the points paid as a result of a mortgage refinance last year? If you did, you may have made a common tax mistake. Generally, points paid for an original home mortgage can be fully deducted in the year the points were paid. Yet, points paid solely to refinance a home mortgage usually must be deducted over the life of the loan.
However (isn’t there always a however when it comes to the tax code?), if you used money from your refinancing to make home improvements (and if you meet certain other requirements), you may be able to deduct more points. For more information on deductions related to refinancing see IRS Tax Topic 504 or Publication 936 “Home Mortgage Interest Deduction.”
And how do you figure out how much in points to deduct? Here’s an example from the IRS: Let’s say you paid $2,000 in points and your loan calls for 360 payments on a 30-year mortgage. You could deduct $5.56 per monthly payment, or a total of $66.72 if you make 12 payments in one year. In other words, if you have a 30-year mortgage you don’t divide what you paid by 30 but by the number of payments you have to make over the life of the loan.
* Many people incorrectly believe that you can’t deduct the interest on a home-equity loan or line of credit unless the money was used for home improvements. The fact is, you can deduct all the interest on a home-equity loan of up to $100,000 ($50,000 or less if married filing separately).
Finally, when you file your return, there are several ways to check on its status. You can go to www.irs.gov and click on the link for “Where’s My Refund?”
Don’t have a computer? No problem. If it has been at least four weeks since you filed your return, you can call the IRS at 800-829-4477 to check on your refund. Before making the call, be sure to have the first Social Security number shown on your return, your filing status and the amount of your refund. The telephone refund system is updated each weekend, so if you can’t get information about your refund, you may need to wait another week.
Now, go do your taxes.
Washington Post Writers Group