Stressed out over taxes? Follow these tips

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The Internal Revenue Service has kicked off the 2009 tax filing season by encouraging taxpayers to take advantage of several new tax credits and deductions.

The agency also is announcing a major enhancement to the Free File program that will allow nearly all taxpayers to e-file for free and accelerate their refunds.

The IRS wants to ensure that all taxpayers receive the tax credits and deductions they’re entitled to and are aware of electronic filing options that will get refunds out as quickly as possible.

Maximizing refunds and speeding refund delivery

Taxpayers should look into the numerous tax breaks available and take every credit, deduction and exclusion for which they qualify. People who had less income in 2008 could find they qualify for credits for which they previously did not qualify.

There are several new benefits this year:

•?First-time homebuyer credit: Those who bought a home recently (or are considering a purchase in early 2009) should take note. There’s a unique credit of up to $7,500 that works much like a 15-year interest-free loan.

•?The recovery rebate credit: This credit is figured like last year's Economic Stimulus Payment except that Recovery Rebate Credit amounts are based on tax year 2008 instead of 2007. Most people already received their full benefit in the form of the Economic Stimulus Payment. However, a taxpayer may qualify for the Recovery Rebate Credit, if, for example, he or she did not get an Economic Stimulus Payment, had a child in 2008 or had a change in income level. This credit will be included in a taxpayer’s refund, not issued as a separate payment.

•?Standard deduction for real estate taxes: Taxpayers who don’t itemize can claim an additional standard deduction based on the state or local real estate taxes paid in 2008. The maximum deduction is $500, or $1,000 for joint filers.

•?Mortgage workouts and foreclosures: For most homeowners, these are now tax-free. Eligible homeowners can exclude debt forgiven on their principal residence if the balance of the loan was less than $2 million ($1 million for a married person filing separate).

IRS.gov, the official IRS Web site, has more information on these and other popular credits, such as the child tax credit, the earned income tax credit and alternative fuel vehicle credit.

E-file, e-pay and direct deposit

Electronic filing options speed refunds to millions of taxpayers. Taxpayers who e-file and choose direct deposit for their refunds generally receive their refunds within 10 days. Those who file a paper return and get a mailed check wait about six weeks.

This year, taxpayers can begin filing electronically on January 16.

The IRS in 2009 is again offering free tax preparation and filing through the Free File program to filers with an adjusted gross income up to $56,000 – that’s about 98 million Americans.

This year the IRS and its partners are offering a new option, Free File Fillable Tax Forms, that opens up Free File to virtually everyone, regardless of income. The Free File Fillable Tax Forms option allows taxpayers to fill out their tax forms on-screen just as they would on paper and then file them electronically through IRS.gov. This option does not include an “interview” process like other free file offerings, but allows taxpayers to enter their tax data, perform basic math calculations, sign electronically, print and e-file their returns. It may be just right for filers comfortable with the tax law or those who use software to prepare their returns but file using paper forms.

Both the fillable-forms option and the previously available Free File offerings are available through the IRS.gov Web site beginning in mid-January.

Help for people who owe taxes

Taxpayers with financial problems who discover they can’t pay when they file their 2008 tax returns have options available. IRS.gov has a list of “What If?” scenarios that deal with payment and other financial problems. These scenarios, in question-and-answer format, provide information on specific actions taxpayers can take. Taxpayers unable to pay in full can contact the IRS to discuss additional options to pay.

With many people facing some financial difficulties, the IRS is taking several additional steps to help people who owe back taxes from previous years as well.

“We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today,” IRS Commissioner Doug Shulman said. “We want to go the extra mile to help taxpayers, especially those who’ve done the right thing in the past and are facing unusual hardships.”

Taxpayers who are behind on tax payments from last year and need assistance should call the phone number listed on their IRS correspondence. There could be additional help available for these taxpayers facing an unusual hardship situation. Depending on the circumstances, taxpayers in hardship situations may be able to: adjust their payments for back taxes to avoid defaulting on payment agreements; defer collection actions during hardships; or benefit from changes to the agency’s Offer-in-Compromise process.

1040 Central and taxpayer-friendly features

The IRS.gov Web site features a new “rotating spotlight” feature on the homepage. The spotlights, which change every few seconds, give the public direct access to more of the IRS Web site’s vast amount of helpful resources and electronic tools.

Taxpayers also can click on 1040 Central to find help preparing and filing their tax returns. This popular IRS.gov feature is a “one-stop shop” for filing-season needs.

Finally, the IRS is producing a number of podcasts this filing season that will be available on IRS.gov. These short audio interviews cover a wide range of topics and are a new way for the IRS to reach out to taxpayers.

Tags: tax, tips, irs, refunds, efile