April 1, 2009
The Cutting Edge: Tax Tips for First-Time Filers
If this is your first time filing as an independent, or you’ve just started taking hold of your finances, dealing with Uncle Sam solo can be downright confusing and frustrating.
I ran into my own tax snafu this year after taking a stab at using the “very easyâ€ TurboTax Free Edition. I figured, if it’s good enough for Tim Geithner, it’s good enough for me. But, my part-time residency status, newfound independence, and three W-2s from two different states had me stressed out and running to the nearest free filing service.
If you too are venturing into uncharted territory (or already took the leap), here a few tips to ease your tax headache and prepare for next year:
Choose the right deduction. One of the most important tax decisions is whether to opt for a standard or itemized deduction. A deduction is a base amount of income not subject to taxes and can be used to reduce taxpayer’s adjusted gross income (AGI). Filers usually have the option to choose between a standard deduction, usually for taxpayers whose deductible tax expenses are less than $5,450, or an itemized deduction, or filing money spent on goods and services that can be deducted from your adjusted gross income amounting to more than $5,450. Add up any business-, home-, or education-related expenses to determine which is best for you.
Arm yourself. My mom once told me, “Renita, you have to show them what you know.â€ People will take you more serious if they know you’re no fool. Instead of dropping a load of tax documents on a preparer’s desk, fill out a TurboTax form (or other free form) online but don’t send it in. Research the credits and deductions you think you’re eligible for, says Beth Koblinger, author of Get a Financial Life. “The perfect thing to do is to try it on your own with some sort of tax program and go to someone who can help you to check your work and highlight some things you didn’t think about,â€ she says.
Pay what you owe. If you owe Uncle Sam, there are several options to pay off your debt. First, if you have the money on hand, make sure your payment is postmarked by April 15. “If not, [you’ll] get a failure to pay penalty,â€ says Jean Wells, tax attorney and assistant professor at the Howard University School of Business. Remember, IRS interest on outstanding balances is compounded daily. If you can’t cough up the dough, Wells recommends taking out a personal loan or borrowing the money from a family member, if possible. “The interest the IRS would charge would be higher than the normal rate [on a loan],â€ she adds.
The IRS also offers an installment program. To apply, visit IRS.gov and fill out Form 9465. The program includes a one-time charge of $52 and .5% interest on your balance.
— Howard University has the Volunteer Income Tax Assistance Program (VITA) which files taxes for individuals making $22,000 or less and families making $42,000 or less. The program’s Website is littered with helpful tools and resources.
— To find out if you can file for free, visit Irs.gov or you can call the IRS at 800-829-1040 if you have any tax-related questions.
— A great consumer site is 360financialliteracy.org, which is sponsored by the American Institute of Certified Public Accountants.
Renita Burns is the editorial assistant at BlackEnterprise.com.