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Do You Know These Tax Tips for 2011?

1040_form.jpgFebruary 2011

It's that time of the year again. Time to file your income taxes. Each year always brings changes. Being aware of the tips in this report may help you get that chore done more efficiently.

Filing deadline is April 18th. You have until April 18, 2011, instead of April 15, to file your income tax return for 2010. The reason is that the Emancipation Day holiday in the District of Columbia falls on Friday April 15th. District of Columbia holidays affect tax deadlines just like federal holidays, so that gives everyone 3 extra days. If you request an extension, you will have until October 17th to file your return.

The IRS is no longer mailing tax packages. The continued growth in electronic filing helped the IRS to decide not to mail tax packages. If you need a paper form, you can download it from the IRS site or pick up the forms from a post office, library, or your local IRS office.

IRS2Go. This is a smartphone application that allows you to check the status of your tax refund. You can also get tax tips and other information. IRS2Go is free and is available for the iPhone and Android.

IRS on Social Media. On YouTube, the IRS has short videos on tax related topics in English, American Sign Language (ASL) and a variety of foreign languages. On Twitter, IRS tweets include tax-related announcements, news for tax professionals and hiring initiatives.

Electronic filing. In 2010, around 70 percent of individual tax returns were e-filed. Were you one of them? The term e-file covers both preparing your return and sending it to the IRS electronically. When you e-file your return, your return is processed more quickly. The IRS typically processes an electronic return in less than 2 weeks. You'll receive your refund, if direct deposited, in about 10 days. Other advantages of e-filing are up-to-date forms and better accuracy. You can take advantage of e-filing in a variety of ways.

  • Use a tax professional to prepare and e-file your taxes. As of 2011, many paid tax preparers are required by law to e-file federal tax returns for individuals, trusts, and estates.
  • Use tax software to complete and e-file your return. You can use online tax software or load it onto your computer. Most tax software will walk you step-by-step through completing all the forms you need.
  • Use IRS Free File. This program is available only from the IRS site. If your AGI (adjusted gross income) is $58,000 or less, then you can use commercial online tax software provided by the companies of the Free File Alliance. This program also provides free fillable forms which are online versions of the paper forms. Check out this page on the IRS site for more information.

If you e-file, then you must sign the form electronically with your Self-Select PIN or Adjusted Gross Income from your 2009 tax return. This article from the IRS has more information.

One other tip, the federal-state e-file program lets taxpayers file their state returns at the same time as their federal return. This is available in 37 states and the District of Columbia.

Free tax return preparation. There are several programs available that offer free tax help for those who qualify. The IRS offers the Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs. This article from the IRS has more information.

Receiving your tax refund. Are you one of the millions who receives your tax refund by direct deposit? With direct deposit, you'll receive your refund faster than with a paper check. It also prevents your check from being lost or stolen or returned to the IRS as undeliverable. Did you know you can split your refund into multiple checking or savings accounts? Or buy savings bonds? To allocate your refund to more than one account or purchase savings bonds, fill out and include Form 8888 with your return. This article has more about these direct deposit options.

Tax Changes. As typical of any year, there are numerous tax changes for 2010. This page on the IRS site covers the tax changes for individuals in more detail. Here are some of the more notable changes.

  • Limits on personal exemptions and itemized deductions are gone. In the past, persons with high-incomes would lose part of their personal exemptions if their adjusted gross income (AGI) was more than a certain amount. Also certain itemized deductions were limited. For 2010, there is no limit on itemized deductions. The limit will resume in 2011 but at pre-2006 levels.

  • Self-employed health insurance deduction. In the past, self-employed individuals have not been able to deduct their health insurance premiums when calculating their self-employment tax. For 2010 only, they can deduct health insurance premiums for themselves and their family in the calculation of their 2010 self-employment tax.

  • Adoption credit. For 2010, the maximum credit for costs related to adopting a child has been increased to $13,170. Also, the credit was made refundable. This means that you can claim the credit, even if you owe no tax.

  • First-Time Homebuyer Credit Repayment rules. If you claimed the homebuyer credit for a home you purchased in 2008, you may have to repay the credit according to the original rules. The circumstances and reasons why are too confusing to explain clearly here. However, the IRS will send a notification to taxpayers who claimed the credit explaining if, why and when you have to repay the credit. Generally the credit is repaid over 15 years. This article from the IRS has more information.

  • Real estate tax deduction for non-itemizers is gone. In 2008 and 2009, unmarried and married individuals who could not itemize deductions could write off a portion of their state and local real property taxes by claiming an increased standard deduction. This tax break expired in 2009 and is not available for 2010.

A tip for 2011: Over-the-Counter Medicines and Drugs. Beginning January 1, 2011 distributions from Health Savings Accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), Health Flexible Spending Arrangements (health FSAs) and Health Reimbursement Arrangements (HRAs) cannot be used to reimburse the cost of over-the-counter medicines or drugs unless they are purchased with a prescription. This change does not apply to items for medical care that are not medicines or drugs. For more information check out this questions and answers page.

Filing one's taxes is never fun, but these tips should make the job a little easier. If you're expecting a refund, be sure to check out the great savings options at Educators. Tax refunds are a great way to begin that emergency savings fund, education fund or perhaps a new car or first house fund. Whatever your savings goal, going direct deposit with Educators, makes getting started a breeze!

Prepared by Remar Sutton and Associates and licensed to Educators Credit Union. Copyright 2011. All rights reserved.