That’s right, it’s time to dig in and start thinking about completing your 2011 income tax return.

To help you get started and perhaps give you a little motivation nudge, I have put together a 2011 tax return guide that will cover some of the basics. This isn’t meant to be a comprehensive guide, rather, just a jumpstarter to get you going.

Keep in mind that I am not a tax professional, so don’t rely on me as one. Serious questions should be taken to a tax professional (or at least answered by reader, Natalie H., who I’m sure is critiquing this tax guide).

When can I Start Filing my 2011 Taxes?

You’re free to start anytime, as long as you have your W2′s, 1099′s, and any other tax related forms that you are expecting.

However, when and should are two different matters. I’ve found that there can be a number of updates or last minute changes to tax software that don’t hit until early or mid-February. On top of that, I have received 1099′s after January. So I typically wait until late Feb. or early March before filing.

When are Taxes Due?

There is another tiny quirk this year with the tax deadline date, as there was in 2011. The 2012 tax deadline (for your 2011 taxes) is Tuesday, April 17th vs. the typical April 15th due to Emancipation Day.

What exactly does the tax deadline mean? It is the day you must have your return to the IRS postmarked or submitted electronically (e-filed).

What About a Filing Extension?

If you need an extension to your 2011 tax return, you must file IRS Form 4868 by April 17, 2012. The deadline for extended tax filing is October 15, 2012 (an additional 6 months). This doesn’t mean you can simply get away with not paying your taxes for 6 months, you have to submit your estimated taxes due (if you owe) by April 17, and then submit your paperwork by October 15.

Is there Anything I Can Still do to Impact my 2011 Taxes?

It’s not too late to still have an impact on your 2011 taxes, believe it or not.

The primary impact you can still have comes from contributing to a traditional IRA, Keogh, or SEP IRA.

You will want to check out the 2011 maximum IRA contribution limits and Traditional IRA income phaseout limits for deductions to make sure you are eligible.

You can still contribute up until the tax deadline for the 2011 calendar year, which will lower your overall adjusted gross income (AGI) and potentially bring you a bigger return or cut the taxes you owe.

On top of that, if your income is low enough, you might also qualify for the 2011 Saver’s credit.

To Itemize or Not

Itemizing your deductions, versus taking the standard deduction, may prove fruitful too. If you are self-employed, have a home or mortgage, or have a lot of out-of-pocket medical expenses, you may have a good shot at saving more through itemized deductions than taking the standard deduction. Doing so might even put you into a lower 2011 tax bracket so that some of your income isn’t taxed at the higher rate.

If you did any of the following during 2011, it could impact your return:

• Made home energy efficiency improvements? You could qualify for a 2011 energy tax credit.
• Had a child this year or was guardian for at least half a year? You could claim a child tax credit.
• Had self-employment income? You can deduct business related expenses.
• Have huge out-of-pocket expenses for medical purposes? Deductible, at a certain level.
• Paid tuition? Deductible.
• Paid interest on a mortgage or property tax? They’re deductible.
• Made a 2010 Roth IRA conversion? You can still spread out your income tax liability over the 2011 and 2012 tax calendar years.

E-File your Tax Return

Efiling is the way to go. It allows you to get your return faster and the error rate is much lower than on paper returns. I’ve written about the best and cheapest ways to efile in the past. I’ve used both Turbotax and H&R Block to efile in the past, and they are equally great products. Both offer a free 1040-EZ federal e-file version. Filing state returns electronically will cost you anywhere you go, as will more complicated returns.

I Got a Huge Tax Return! Awesome, Right?

Getting a huge tax return is not something to brag about. Getting a tax return simply means that you gave the federal government an interest-free loan over the previous year.

If you keep getting huge returns, you may need to make some changes to your withholding tax allowances (you do this through your payroll department at work). Even though they might seem cool, huge tax returns are interest free loans to the government that erode in value due to inflation, sorry to say.

A better goal would be to have a slight amount due back to the government, without having to pay a penalty. That way, the government has given YOU the interest-free loan.

How to See your Tax Refund Status

If, after submitting your return and finding out you’re going to be getting a refund, you’d like to check on your tax refund status, do it on this IRS site.

Keep in mind that the IRS never will send you an email with this option, so go to www.irs.gov and go direct to the site. Then click ‘where’s my refund’.

Reader Tax Tips

A few weeks ago I gave away 5 copies of H&R Block to readers, who offered their tax tips as part of the contest. Here are some of my favorite reader tips:

From Crystal:

“My tax tip: Fully review your return prior to signing. Many of us are tempted to just sign away without reading and reviewing what our tax preparer has done because we “trust” them. In the event you are audited (like a family member of mine was) you can’t tell the IRS “I didn’t know my tax preparer put that”.”

From Bob:

“My favorite tip, which may be obvious to some, is that your spouse may NOT be claimed as a dependent. Per the IRS “On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.””

From Mike:

“Pay your January mortgage bill, and student loans in December so you can deduct the additional interest when you file!”

From Ron:

“My favorite tax tip is to wait til near the end to file since your software will keep getting tax updates well into April.”

From Danielle:

“My tax tip: For recent grads working in a new state, make sure you read up on what type of state tax forms are appropriate for you to use based on your situation. Take the steps to obtain residency in the new state to avoid grey areas down the road.”

From Melissa:

“This is the first year that I will file “by myself”, for myself… while in college and grad school, my parents had their CPA file my taxes along with theirs. Due to that, I don’t really have a tried and true “tax tip” HOWEVER I did learn my lesson one year… ALWAYS make sure to update your address whenever you move! One year my tax refund was sent to my old address (an address in Phoenix, when I had moved to Denver months before for school) and it took me a YEAR to go through calling the IRS every month to FINALLY have the return sent to my parents address in Tucson! Absolutely crazy!”

From Natalie:

“Turn a personal loss into a business loss. For example, if you have a home underwater and need to sell consider renting for a while (6 mo to a year) before you make the final sale. Make sure to file Schedule E to report the rental income and expenses so the IRS knows you were using it as a business. Then when you sell, you can count the loss against your income. This can make a big difference if you are in a higher income tax bracket. “

Great tips, everyone!

Relax!

Taxes get a bad name, but they are not all that bad.

You can easily do them yourself in an afternoon, and if you don’t have many deductions, within an hour or two.

Put on some good music, have a glass of wine, and just relax.

2011 Tax Discussion:

• What are you dreading or looking forward to with your 2011 taxes?
• What tax tips do you have for the 2011 tax year?

2011 Income Tax Return Guide is copyrighted by 20somethingfinance.com without consent to republish.

I have 5 authorization codes for free copies of H&R Block’s at Home Premium (formerly TaxCut), online tax prep program. This is their highest level of online tax prep support and includes everything in the deluxe level plus self-employment income coverage. You can also get a lower version, if you’d like. It retails for $49.95 and includes 1 free federal e-file.

I ran a similar contest last year that did not include a state efile, but this year’s also includes 1 free state efile on top of that (normally $34.95) for a total value of $84.90 to the 5 winners!

I have used H&R Block the past couple of years and would not hesitate to recommend them.

H&R Block products guarantee free one-on-one audit support with an H&R Block agent, in the event that you get audited – to give you a little peace of mind during tax season.

How to Win the H&R Block Giveaway

Pretty simple stuff, but make sure you follow all of the steps (it should take you 2 minutes tops!):

1. ‘Like’ the 20SomethingFinance page on Facebook (if you already have, you’re covered).

2. Go to the 20somethingfinance.com home page and +1 it.

Just hit the little +1 button in the top right corner on the home page. It looks like this:

3. Add me to your circles on Google+ (if you already have, you’re covered)

4. Add a comment to this post with your favorite tax tip. Include your Facebook name (should be the same as your Google+) as your commenter name and your real email in the email form when you comment (this is private, others can’t see this and I need to be able to contact you if you win). This is how I’ll find you, so don’t miss this step!

That’s all! I’ll cross-reference your comment with your Facebook and Google+ and randomly pick the 5 winners.

Deadline to Enter: 12 PM EST this Sunday, Jan. 22 (at which point no further entries will be counted). I’ll reach out to the winners the following week and email you the confirmation codes so that you can get started on your taxes online and update the post with a comment once I have done so (so you’ll know if you didn’t win as well).

Update: This contest has ended. If you didn’t win and have a simple return, you can always file with the basic edition for free with the H&R Block At Home Online free edition (state costs extra).

Good luck!

H&R Block Online Tax Prep Reader Giveaway! is copyrighted by 20somethingfinance.com without consent to republish.

Why isn’t April 15 the IRS tax deadline for filing, like it is most years?

April 15, 2012 falls on a Sunday. Since there is no mail service to postmark returns on Sunday, it pushes the deadline forward to Monday. However, that Monday is Emancipation Day – an observed holiday in the District of Columbia. Emancipation Day marks the day of the year (April 16) to observe President Lincoln’s signing of the Compensated Emancipation Act – a law that freed 3,000 slaves in the District of Columbia.

D.C. holidays, by law, are treated the same as federal holidays in how they impact tax deadlines, and the tax filing deadline cannot be a holiday. If you remember, Emancipation Day also extended the 2011 tax deadline as well – to the following Monday.

As a result, the 2012 tax deadline falls on Tuesday, April 17, 2012.

When is the Tax Filing Extension Date?

If you need to request a tax filing extension, you must file IRS Form 4868 by April 17, 2012. The deadline for extended tax filing is October 15, 2012.

What is the Tax Deadline?

Remember that the tax filing deadline is simply the date you must either postmark or efile by. It is not the date the IRS must receive your tax return.

The IRS begins accepting efile and freefile returns January 17, so you might as well get started!

If you are a late starter, what should you do? E-File and do your own taxes. The best Efile methods are Turbotax and H&R Block. They both have free federal efiling.

There you hate it, a bit of a history lesson, and some pertinent tax filing information.

Related Posts:

• 2012 Energy Tax Credits
• 2012 IRS Maximum 401K Contribution
• 2012 Tax Brackets

2012 Tax Deadline is copyrighted by 20somethingfinance.com without consent to republish.

If you were planning a modest home improvement update that would save you future energy costs and reduce your carbon footprint in the hopes that it would be partially funded by a home energy tax credit from the IRS, you may be disappointed in 2012.

There still are energy tax credits in 2012, but they have been significantly reduced. With the 2011 energy tax credit, you could claim a 10% tax credit on some very common money-saving home updates, which included:

• HVAC: Air conditioning (AC) and furnaces
• Windows and doors
• Roofs
• Water heaters
• Insulation
• Biomass stoves

Unfortunately, all of these tax credits disappear in 2012 – probably due to the inability to Congress to agree on any sort of spending plan. It wasn’t long ago (2009-2010) that the American Recovery and Reinvestment Act offered up fantastic 30% tax credits up to $1,500. Now that we have “recovered”, that is gone.

30% Energy Tax Credits in 2012

What you are left with for energy tax credits in 2012 are fairly generous 30% tax credits on huge energy installation projects that are geared towards environmental die-hards:

• geothermal heat pumps (no upper limit, both principal residences & second homes apply)
• solar energy systems (no upper limit, both principal residences & second homes apply)
• small wind turbines (no upper limit, both principal residences & second homes apply)
• fuel cells (up to $500 per .5 kW of power capacity. Principal residences only)

For more info, check out the Energy Star Energy Tax Credit site.

Related Posts:

• 2012 Tax Rate Brackets
• The Child Tax Credit
• 2012 IRS 401K Contribution Limits

2012 Energy Tax Credits Reduced is copyrighted by 20somethingfinance.com without consent to republish.

One of the benefits of inflation (yes, its a silver lining) is that it can lower your tax liability. In the fall, the IRS announced inflation-adjusted tax bracket (aka tax tables) changes, and there was roughly a 3% increase in each bracket.

What are Tax Brackets or Tax Tables?

Tax brackets represent the income tax rate you owe for that portion of your income that falls into that bracket. In other words, only income that falls into that bracket is taxed at that rate. As an example with the 2011 tax brackets, if you are married and filing jointly, your tax rate on your first $17,000 of income is only 10%, income between $17,000 and $69,000 is taxed at 15%, and so on.

Many wrongly assume that if your total income peaks at the 28% tax bracket, for example, all of your income is taxed at that rate. Not true. Before we get to the 2012 tax bracket changes, here are some things to consider.

2012 Tax Planning

What this information can do is help you calculate how much of your income may fall into a higher bracket in the table and look for ways throughout the year to potentially bring it down through retirement contributions and other means.

Here are some examples of things you can do to lower your taxable income:

• Donate to a 501(c)(3).
• Make a 401K contribution.
• Get a home energy tax credit.
• Contribute to a traditional IRA. (Note, you can still do this for 2011 until the 2011 tax deadline in April.)
• Claim the child tax credit if you have a new child or dependent.

This may also be a good time to revisit what your overall adjusted gross income might be this year and adjust your tax allowances so that you don’t end up getting penalized for owing too much in taxes or getting too big of a refund (lending your money to the government, interest-free).

2012 Standard Deductions

Standard tax deductions will also lower your taxable income, if you don’t decide to itemize taxes. The 2012 standard deductions have also increased:

• $5,950 for single filers & married filing separately (up from $5,800)
• $11,900 for married filers (up from $11,600)
• $8,700 for head of household (up from $8,500)
• $950 for dependents (same as 2011)

And now, on to the tax bracket changes.

2012 Tax Brackets

2012 Tax Brackets for Singles:

10% – $0-$8,700 (up from $8,500)
15% – $8,700-$35,350 (up from $8,500-34,500)
25% – $35,350-$85,650 (up from $34,500-$83,600)
28% – $85,650-$178,650 (up from $83,600-$174,400)
33% – $178,650-$388,350 (up from $174,400-$379,150)
35% – $388,350+ (up from $379,150+)

2012 Tax Brackets for Married Filing Jointly:

10% – $0-$17,400 (up from $0-$17,000)
15% – $17,400-$70,700 (up from $17,000-$69,000)
25% – $70,700-$142,700 (up from $69,000-$139,350)
28% – $142,700-$217,450 (up from $139,350-$212,300)
33% – $217,450-$388,350 (up from $212,300-$379,150)
35% – $388,350+ (up from $379,150+)

2012 Tax Brackets for Married Filing Separately:

10% – $0-$8,700 (up from $0-$8,500)
15% – $8,700-$35,350 (up from $8,500-$34,500)
25% – $35,350-$71,350 (up from $34,500-$69,675)
28% – $71,350-$108,725 (up from $69,675-$106,500)
33% – $108,725-$194,175 (up from $106,500-$189,575)
35% – $194,175+ (up from $189,575+)

2012 Tax Brackets for Head Of Household:

10% – $0-$12,400 (up from $0-$12,150)
15% – $12,400-$47,350 (up from $12,150-$46,250)
25% – $47,350-$122,300 (up from $46,250-$119,400)
28% – $122,300-$198,050 (up from $119,400-$193,350)
33% – $198,050-$388,350 (up from $193,350-$379,150)
35% – $388,350+ (up from $379,150+)

Tax Bracket Discussion:

• Which tax bracket will you top out in for 2011?
• What do you think about the 2012 tax rate changes?

2012 Tax Brackets & Standard Deductions Changes is copyrighted by 20somethingfinance.com without consent to republish.

The Saver’s Credit (officially dubbed the ‘retirement savings contribution credit‘) is a lesser known, highly advantageous tax credit that the IRS makes available to low and moderate income taxpayers who make retirement contributions to an IRA, 401K, or any other government recognized retirement account.

It’s worth taking a serious look at as it is an actual tax credit, not merely a deduction. If  you’re not sure of the distinction – a deduction simply subtracts the value from your taxable income and you pay taxes on the remaining taxable income. A credit actually gives you the entire dollar value back or subtracts the value from the taxes you owe – making it far superior to a deduction. In the case of the Saver’s Credit, it is non-refundable, meaning it can only subtract from taxes you owe.

As we’re nearing the end of a calendar year, we’re at an important crossroads of still being able to take advantage of the Saver’s Credit in 2011 and start thinking ahead to 2012.

To qualify for the Saver’s Credit in 2011:

The AGI (adjusted gross income) limit for the saver’s credit is:

• $56,500 for married couples filing jointly
• $42,375 for heads of household
• $28,250 for married individuals filing separately and for singles

To quality for the Saver’s Credit in 2012:

The AGI (adjusted gross income) limit for the saver’s credit is:

• $57,500 for married couples filing jointly
• $43,125 for heads of household
• $28,750 for married individuals filing separately and for singles

How much is the Saver’s Credit?

The short answer is that it depends on your income level and your contribution amount. It will take a bit of effort to determine how much of a credit you will receive, but don’t let that deter you – it’s free money!

The absolute most you could receive in a given year is $1,000 on a retirement contribution of $2,000. In order to figure out what kind of credit you are eligible to receive, you will have to fill out IRS form 8880 (PDF).

The 2011 and 2012 versions of this form have not yet been released, and it will change, so check back for the 2011 version, which will automatically update when released.

Once you figure out the amount of the credit from form 8880, add it to Form 1040 (PDF), or on Form 1040A (PDF)

Is anyone note eligible for the Credit?

Yes. If you are a full-time student for 5 months out of the calendar year, you are not eligible for the credit. Sorry students!

Also, if your income is above the aforementioned limits, you are ineligible.

Saver’s Credit Discussion:

• Have you ever claimed the Retirement Savings Contribution Credit?
• Will you claim the credit in 2011?

Related Posts:

• 2012 IRS 401K Maximum Contribution Limits
• 2011 IRS 401K Maximum Contribution Limits
• 2011 Maximum IRA Contributions
• 2012 Maximum IRA Contributions & Income Limits

Will you Qualify for the Saver’s Tax Credit in 2011 or 2012? is copyrighted by 20somethingfinance.com without consent to republish.

On the same day as the 401K announcement, the IRS also announced that the 2012 IRA contribution maximums and income limits.

The maximum IRA contribution did not increase, but the income limits did for both the Traditional IRA and Roth IRA. Here are the details…

2012 Maximum IRA Contribution

The 2012 IRA contribution maximums did not see a similar increase as 401K and other employer sponsored retirement plans, unfortunately.

They will remain the same as the 2010 and 2011 IRA maximum contribution limit at $5,000 for the 2012 tax year.

That’s three years in a row with no changes. I’d be really disappointed if there were no changes for 2013.

The 2012 Maximum IRA Catch-up Contribution

For those age 50 and over, the 2012 IRA catch-up contribution is still the same as 2010 and 2011 at an additional $1,000 over $5,000 ($6,000 total).

You begin to be eligible for the catch-up contribution if you turn 50 during any day in the calendar year.

Roth IRA Income Limits in 2012

IRA’s provide a great way to limit your tax liability in the present (Traditional IRA) and in the future (Roth IRA). There are, however, contribution phaseout limits based on your income that can limit how much you can contribute. The good news is that those limits (tied to inflation) will increase in 2012.

2012 Traditional IRA Income Limits

Traditional IRA income limits vary slightly from Roth IRA’s in that they are tied to whether or not you your employer sponsors a retirement plan for you.

If you do have a retirement plan with your employer:

• Single or head of household: If your MAGI is $58,000 (up from $56,000) or less, you can take a full deduction. If more than $58,000, but less than $68,000 (up from $66,000) – you get a partial deduction. If over $68,000, you cannot take a deduction.
• Married filing jointly or qualifying widow(er): If your MAGI is $92,000 (up from $90,000) or less, you can take a full deduction. If more than $92,000, but less than $112,000 (up from $110,000) – you get a partial deduction. If over $112,000, no deduction.
• Married filing separately: If your MAGI is less than $10,000, you can take a partial deduction. If $10,000 or more, no deduction.

If you DO NOT have a retirement plan through an employer:

• Single, head of household, or qualifying widow(er): Any MAGI permits a full deduction.
• Married filing jointly or separately with a spouse who is not covered by a plan at work: Any MAGI permits a full deduction.
• Married filing jointly with a spouse who is covered by a plan at work: If your MAGI is $169,000 or less, you can take a full deduction. If more than $173,000 (up from $169,000), but less than $183,000 (up from $179,000), you can take a partial deduction. If $183,000 or more, no deduction at all.
• Married filing separately with a spouse who is covered by a plan at work: If your MAGI is less than $10,000, you can claim a partial deduction. If $10,000 or more, no deduction.

If you have not yet started a Roth or Traditional IRA, I house both of mine at TradeKing because there are no account maintenance or inactivity fees, trades are only $4.95, and their customer service is great.

Happy contributing!

2012 Traditional & Roth IRA Maximum Contribution Limits is copyrighted by 20somethingfinance.com without consent to republish.

The most publicized case has been the state of California, who expects to bring in an additional $317 million a year from internet purchase taxes.

California is actually the seventh state to try to get around a 1992 US Supreme Court ruling holding that sellers can’t be forced to collect sales taxes unless they have a physical presence in the state – with affiliate advertisers or brick/mortars being considered “physical presence”. So what has Amazon, Overstock, and other large internet retailers done to avoid collecting taxes? By cutting off relationships with all of their affiliate advertisers in those states (so they no longer have a “physical presence”).

As always, there’s two sides to every story.

Those in Favor of an Internet Sales Tax:

Those in favor of an internet sales tax in California and elsewhere argue that:

• taxing internet sales levels the playing field with brick and mortar retailers and removes an unfair competitive advantage
• it’s a good way to raise tax revenue in difficult financial times, especially when it is already required
• brick/mortar retailers in states have suffered, which has led to a loss of sales tax revenue

Those Opposed to an Internet Sales Tax:

• Amazon and other large internet retailers are strongly opposed. It would cut into their margins and possibly lower sales volume while not giving much benefits to the states
• Internet retailers argue that this legislation is pushed by brick/mortar retailers like WalMart and BestBuy
• Claim that it’s an added tax on consumers in a time when they don’t need it

As much as I personally don’t want to pay additional taxes, I think the ‘con’ side arguments are fairly weak in comparison – and I don’t like Amazon’s strategy of throwing it’s affiliates under the bus to keep avoiding consumer taxes on purchases. Many will be forced to close their business or move to another state (and eventually there’s only so many states they can move to).

Those are my thoughts – and I want to get yours too.

What’s your Take on the Internet Sales Tax?

Nobody wants to pay additional taxes – I think that’s well established. But, the real question here is more about principal than personal interests.

The two questions I have for you are:

1. Should internet retailers be able continue to not have to collect & remit state sales tax?

2. If all internet retailers were taxed would you buy less stuff online?

(take the polls and share your feedback in the comments)

Related Posts:

•  IRS Audit Red Flags to be Aware of
•  2011 Tax Brackets
•  How to Change Tax Allowances

Internet Sales Tax Debate: Where do you Stand? is copyrighted by 20somethingfinance.com without consent to republish.

Even the mention of an IRS audit makes most people cringe.  Last year the IRS audited a little over 1% of individual returns, and that percentage is expected to increase this year. With that being said, there are some individual profiles and situations that are much more likely to be audited than others. Here are seven situations that may increase your chances for an audit.

1. You work in a cash industry:

If you are a tip earner and/or get a significant portion of your income in cash, you may be more likely to be audited.  If you work in a cash industry, keep a tip/cash journal.  This could save you if there is a dispute.

2.  You claim a loss on a schedule C:

The IRS Schedule C form (profit or loss from a business) is used not only by sole proprietors, but also by by independent contractors or other workers who get a 1099-misc instead of, or in addition to a w2 at the end of the year.  Although the IRS understands it is normal to have a loss on a schedule C, especially for the first year or two of a new business, they may question losses.  This is especially so if this loss offsets wages earned by the same taxpayer and qualifies them for an earned income credit.

3. Your income and expenses are unusual for your neighborhood:

This is a new one since the IRS switched to its computer audit system.  It compares your income to those of your neighbors and decides if yours is unusual.  The system is more complex than stated here, but basically if you live in a neighborhood where the average income is $150k and you claimed $30k, the IRS’s computer may raise a metaphorical eyebrow. (G.E. note: this is a bit creepy, but it makes sense)

4. Your return is sloppy, inaccurate, or late:

If your return is handwritten, contains mathematical errors, or does not match the information supplied to the IRS on official reporting forms, you may be at an increased risk of an audit.  Although a mathematical error in itself is not a big issue, the IRS may decide that your return is likely to contain more errors and decide it is worth a second look.

5.  You have a high income:

According to Businessweek, in 2010 individuals earning less than 200k had a 1% chance of audit. However, those earning between $200,000 and $1 million had a 2.7% chance, over $1 million an 8.4% chance, and over $10 million a 14.2% chance . This is because the IRS is more likely to audit returns that it thinks will result in a net revenue for the IRS.  Higher incomes mean small changes add up to large amounts.

6. You claim Earned Income Credit:

Earned income credit (EIC) is for low income taxpayers, especially those with children.  It can be several thousand dollars if you are earning near the poverty line and have 2 or three kids.  This is the IRS’s target audience at the moment.  It is unfortunate but true that those the most in need are also the target of the most scrutiny.  This is because the largest credit also attracts the most amount of tax fraud.  The IRS estimates that 25% of people claiming EIC should not get the credit.  I have seen this many times personally, so I don’t think they are far from the mark.

7. You are unlucky:

Although most audits are conducted because something on the return was suspicious, the IRS continues to conduct random audits just to keep us on our toes.

Final Thoughts on Getting Audited:

Although an audit can sound scary, the best way to combat an audit is by keeping good records and filing an accurate return.  The IRS is usually lenient about penalties for honest mistakes if you can show a good reason why you thought your return to be accurate.

Also keep in mind that many audits start as a simple question about a particular item.  If you have the documents to support your return, they may stop there, but if you cannot support your claim, they will keep asking questions.

Make sure to keep your return and all supporting documents for three years from the tax filing deadline or when you filed your return if you filed late.  After that, the statute of limitations has passed for all but the most extenuating of circumstances and the IRS will not bother you. With the 2011 tax deadline falling on April 18, 2010 tax return and supporting documents should be kept until April 18th 2014 if you filed on time.

Audit Discussion:

Have you ever been audited? Share your experience!

Related Posts:

• 2010 Tax Guide
• 2010 Energy Tax Credit
• 2010 Federal Tax Bracket

7 IRS Audit Red Flags you Should be Aware of is copyrighted by 20somethingfinance.com without consent to republish.

If I included every piece of tax information that I’ve written, it would be a mini book, so I’ll link to where  you can read more if it’s something you’re interested in. Keep in mind that I am not a tax professional, so don’t rely on me as one. Serious questions require a tax professional, or at least a good copy of Turbotax or H&R Block.

When can I Start Filing my 2010 Taxes?

You’re free to start anytime, as long as you have your W2′s, 1099′s, and any other tax related forms that you expect to be sent to you. I personally wait until the end of February to start because some financial institutions are slow in getting their 1099′s out.

When can I Submit my 2010 Tax Return?

Right now, but make sure you have all of your forms so that it is complete. There are some notable exceptions to this rule in the 2010 tax cycle, caused by the Obama tax cuts, which were retroactive. This has led to a tax filing delay for some:

• Taxpayers who itemize tax deductions. This is because schedule A needs to be re-worked.
• Those claiming the Higher Education Tuition and Fees Deduction – which is claimed on IRS form 8917.
• Those claiming the Educator Expense Deduction, which is given to K-12 teachers who use money out of pocket to pay for educational materials.

The tax filing delayed start date for these filers is now February 14 (Valentines Day). These filers can start their taxes now, they just need to wait until the 14th to submit.

What is the 2010 Tax Filing Deadline?

Another interesting quirk this year. The tax filing deadline is almost always April 15th, unless it falls on a weekend or a Holiday (in which case it’s pushed to the following Monday). Well, the 15th is a Holiday in Washington DC this year, so the deadline is pushed to the 18th.

A common misconception around the tax filing deadline is what it actually is. Is it the day your return has to be received by the IRS? No. It’s actually the day you have to have your return to the IRS postmarked or submitted electronically. So do one or the other by April 18, 2011!

What if I need a Filing Extension?

You need to file an extension for your 2010 taxes is the same April 18th deadline, and it buys you a a six month extension to October 15, 2011. This doesn’t mean you can simply get away with not paying your taxes for 6 months, you have to submit your estimated taxes due (if you owe) by April 18th, and then submit your paperwork by October 15th. But you might as well just get it done, if you are able. Get that weight off your shoulders!

What Can I Still do to Impact my 2010 Tax Return?

It’s not too late to still have an impact on your 2010 taxes, believe it or not. One of the biggest ways that you can lower what you owe or get a bigger return is through contributing to a traditional IRA, Keogh, or SEP IRA (check out the 2010 maximum IRA contribution limits and Traditional IRA income phaseout limits for deductions). You can contribute and have it count towards the 2010 tax year up until the tax deadline, which will lower your overall adjusted gross income (AGI).

If you’re income is low enough, you might even qualify for the retirement savings contribution credit.

Itemizing your deductions may help too. If you are self-employed, have a home or mortgage, or have a lot of out-of-pocket medical expenses, you may have a good shot at saving more through itemized deductions than taking the standard deduction. Doing so might even put you into a lower 2010 tax bracket so that some of your income isn’t taxed at the higher rate.

If you did any of the following during 2010, it could have a big impact on your return:

• Made home energy efficiency improvements? You could qualify for a 2010 energy tax credit.
• Had a child this year or was guardian for at least half a year? You could claim a child tax credit.
• Bought your first home before April 30th? You are eligible for a first-time homebuyer tax credit. Don’t forget it!
• Had self-employment income? You can deduct business related expenses.
• Have huge out-of-pocket expenses for medical purposes? Deductible, at a certain level.
• Paid tuition? Deductible.
• Paid interest on a mortgage or property tax? They’re deductible.
• Made a Roth IRA Conversion? You can spread out your income tax liability over the 2011 and 2012 tax calendar years.

E-File that Tax Return!

Efiling is the way to go. It allows you to get your return faster and the error rate is much lower than on paper returns. I’ve written about the best and cheapest ways to efile in the past. I’ve used both Turbotax and H&R Block to efile in the past, and they are equally great products. Both offer a free 1040-EZ federal e-file version. Filing state returns electronically will cost you anywhere you go, as will more complicated returns.

I Got a Huge Tax Return, Great! Not so Great…

It always cracks me up when people brag about how big of a tax return they are getting. Getting a tax return simply means that you gave the federal government an interest-free loan over the previous year. My goal, when I do my taxes, is to pay back a small amount, so as to avoid getting a penalty.

If you keep getting huge returns, you may need to make some changes to your withholding tax allowances (you do this through your payroll department at work). Sorry to rain on the parade.

Checking your Tax Refund Status

If, after submitting your return and finding out you’re going to be getting a refund, you’d like to check on your tax refund status, do it on this IRS site. Keep in mind that the IRS never will send you an email with this option. To be safe from scammers, type www.irs.gov into your browser address and go to their site. Then click ‘where’s my refund’.

Remember to Have Fun

I always enjoy sitting down in a dark room in early March with a bottle of Jack and doing my taxes. And you should too! Taxes aren’t so bad, especially if you did things the right way all year long. Have fun! And, yeah, you probably shouldn’t get drunk when doing your taxes.
What tax filing tips do you have?

20SomethingFinance 2010 Tax Guide is copyrighted by 20somethingfinance.com without consent to republish.