By Don Bolding
Killeen Daily Herald
The deadline arrives this week for employers and financial institutions to issue W-2s and 1099s. The deadline is when most of them issue them, so late this week, the annual flood of returns begins from people seeking refunds from the Internal Revenue Service.
This year, most people are wondering when those tax rebate checks are coming. With changes to filing regulations, the question of who will get them, and when, remains.
One thing is certain: Taxes need to be filed and figured right.
The real hitch is that some people won't be able to file electronically until Feb. 11 this year. In an age when the difference between filing electronically or by mail can mean a difference of a month or more in when a refund check arrives, it can mean a lot.
Now some forms for education credit, child and dependent care credit and mortgage interest credit are late coming on line. That affects some people who went to college, some who paid for day care and some homeowners.
One other form affects first-time homebuyers in the District of Columbia and probably wouldn't affect many people in Central Texas.
Affected people are still better off waiting until they can use the Internet, though, since a refund from an electronic return can come to the mailbox or by direct deposit in as little as 10 days, and the return is more apt to be accurate.
CPAs deal mostly with the most complex returns, said Penny Stephenson, a certified public accountant for 10 years with Lott, Vernon & Co. in Killeen,, "and the IRS really wants to go electronic, so they're making it easier to e-file more and more complex returns every year."
In this area, with all its defense contractors, CPAs deal with a lot of foreign income issues, and they deal with far more business returns than the average paid preparer, as well as more complex individual returns.
But Stephenson, who is also a certified fraud examiner, also worked for a commercial seasonal tax service for a number of years, and she has some advice for people who use those services seeking one-day refund anticipation loans and similar products. Her advice will help the reputable preparers, who tend to be nationwide franchises.
"Read the contract and see what they're going to do," she said. "Go to a company that's been in business a long time, and go to one with a guarantee so that a preparer's mistake won't cost you a penalty."
Guarantees are only good for mistakes the company made, though, so the taxpayer is still responsible for supplying the right information.
"A lot of people get into trouble because they don't keep track of records," she said. "They might have received $200 from self-employment or from a savings account somewhere and forgot to put it down, but if the IRS has a record of it, they'll send you a letter."
Many people have multiple W-2s from employment or 1099s of various kinds from savings or retirement accounts, stocks and bonds or contract labor. The issuers have to send records of all these to the IRS, which compares them with what the taxpayer reports.
"Review last year's tax return to see how it compares with what you have this year. It may show something that should be present that you should hunt down," Stephenson said.
Don't shortchange the government, but don't cheat yourself, either. Many people are better off taking the standard deduction, obvious at the top of the 1040 or any of its variations, but if taxpayers are homeowners with consequent mortgage interest and real estate taxes, or if they have large amounts of out-of-pocket medical or dental expenses, charitable contributions, or casualty losses, they should whip out a Schedule A and compute all their expenses to see if itemizations are greater than the standard deduction.
Mortgage interest and real estate taxes alone, reported by the lender on a Form 1098, may exceed the standard deduction, and if they do, the taxpayer can pile on donations to charity, unreimbursed work expenses and many other categories.
But it all has to be backed up by written documents. Now, as never before, Stephenson said, the IRS is cracking down on fraudulent returns.
They're also trying to protect taxpayers against "phishing." The IRS doesn't ask for information by e-mail. If someone claiming to be the IRS asks for information or says you have a refund coming when you haven't filed a return, you can send it to "email@example.com", and they'll track it down.
Another priority is frivolous claims of exemptions from paying taxes, such as objections to military action in the Middle East or assertions that the income tax is unconstitutional.
The penalty for refusing to pay taxes after being corrected about it is $5,000 – $4,500 more than it used to be.
Again on the taxpayer's side, millions of dollars that could be claimed under the Earned Income Tax Credit go begging every year because taxpayers don't check to see if they qualify for it.
Subject to some restrictions, married people filing jointly earning less than $39,783 or singles with two children and an income less than $37,783 qualify for small amounts, and they can get up to $4,716 with earned income around $20,000.
People with one qualifying child can get up to $2,853, and even people with no children and very low incomes can get over $400.
Most people seeking overnight "refund anticipation loans" (RALs) from commercial preparers know they qualify for EIC. Competent tax preparers won't miss it, and the best have software that triggers it for qualifying taxpayers and give them a choice about whether to apply for the RAL. If they don't, they pay only for the tax computation and possible optional services.
People who don't qualify for the EIC usually find RALs prohibitive, and they're unavailable to military personnel because of regulations established last year that limit interest on their loans to 36 percent APR. RALs are bank loans with APRs much higher than that, although very short-term.
The tax service deducts interest and fees amounting to a few hundred dollars on behalf of the lender, which receives the refund.
CPAs usually don't offer RALs. Anyone, though, can determine if they qualify for the EIC by running through checklists at the Web site irs.gov and find the proper forms for it, and they can use the same site to find free electronic filing options, and refund recipients can get their checks, EIC and all, in a couple of weeks.
Texas State Comptroller Susan Combs said that EIC payments to people who qualified and submitted the forms averaged $2,151 last year. She also urged taxpayers not to miss the standard exemption offered for state and local sales taxes to people in states with no state income tax.
Whether you or someone else computes your taxes, says the Texas Society of Certified Public Accountants, double-check your arithmetic and make sure Social Security numbers and names are right, and make sure you're using the right filing status.
The TSCPA has a Web site, ValueYourMoney.org, with a lot of filing tips, and the IRS Web site, irs.gov, has answers to nearly any question about individual tax returns. The entire voluminous Publication 17, a complete guide for individual taxpayers with an index, is available under "forms and publications."
But whatever you do, the TSCPA advises consulting a tax professional. The IRS won't prosecute for honest mistakes, but they can be expensive if they find them, and you may be missing a lot of money you could be saving even if you read all the material and misinterpret it.
And it's easy to do.
Contact Don Bolding at firstname.lastname@example.org or call (254) 501-7557