After the holiday decorations are down and the new year is underway, then you know it's time for tax filing season. Before you get started, be sure to watch for some tax credits you may be qualified to request and for some law changes which could affect your tax return.
The IRS is sending 16.5 million 1040 tax packages to taxpayers this month who have filed paper tax returns in the past. The number of paper packages has dropped rapidly in recent years, falling from 34 million packages in just four years. The paper packages are becoming much less common as the popularity of electronic filing soars.
Taxpayers can file their returns electronically (e-file) one of three ways: through their tax preparer, through over-the-counter software or through IRS Free File.
IRS Free File is a partnership between the IRS and a consortium of tax software manufacturers who offer free software and free electronic filing to taxpayers who meet certain criteria. For 2008, taxpayers who earned $54,000 or less will be eligible for Free File. Approximately 70 percent of all taxpayers, or 95 million people, will meet the income criteria. Taxpayers must access Free File through IRS.gov.
"E-filing is so convenient because you can stay warm inside your own home and do it from your personal computer day or night--no more getting out in the cold or juggling your schedule to find time to go to the post office. What's more, e-file lets you get your refund in as little as ten days when you e-file and choose direct deposit," said Clay Sanford, an IRS spokesman in Dallas.
Sanford said e-file is much more secure because there's nothing to expect in the mailbox as refunds are electronically transferred directly into your checking or savings account. If you owe tax, the same safety measure applies because there is no need to write a check. With e-file, taxpayers can even file early and pay later by scheduling an electronic funds withdrawal to be debited on or before April 15, 2008. Also, refunds can now be split to go into separate accounts by using IRS Form 8888. Use Form 8888, for example, if you want some of your refund to go into checking and some into savings.
Last year, nearly 80 million tax returns used e-file, representing about 57 percent of all returns.
"The state of Texas is following the same national trend," Sanford noted. "Close to 5.6 million Texas returns were e-filed last year, and that figure is expected to grow."
This year, the individual income tax packages mailed to taxpayers do not include any tax credit forms and certain other forms due to late tax law changes involving the alternative minimum tax (AMT) "patch." Copies of these forms are available on IRS.gov. Taxpayers who e-file should update their tax software to ensure that they are using the updated forms.
The AMT changes also mean that as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax (AMT) legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law. The IRS has targeted Feb. 11 as the potential starting date for taxpayers to begin submitting the five AMT-related returns affected by the legislation.
The February date allows the IRS enough time to update and test its systems to accommodate the AMT changes without major disruptions to other operations related to the tax season. Although some taxpayers will not be able to file their returns until Feb. 11, the effect of the delay may be lessened by the fact that based on previous filing patterns only 3 million to 4 million taxpayers filed returns with the five affected forms during these early weeks of the filing season.
The Feb. 11 delay caused by the AMT patch will affect any taxpayer using any of these five forms:
Although these five forms require significant additional reprogramming due to the AMT patch, the IRS has been able to reprogram its systems to begin processing seven other AMT-related forms, including Form 6251, Alternative Minimum Tax - Individuals. Taxpayers filing these seven forms should not experience delays in filing, and the IRS expects to begin processing those returns starting on time.
Electronic returns involving those five forms will not be accepted until systems are updated in February. Similarly, paper filers should wait to file as well. All other e-file and paper returns will be accepted starting in January. Especially for taxpayers affected by the AMT changes, e-file with direct deposit is the fastest way to get a refund.
Taxpayers also should be aware of important tax credits such as the Earned Income Tax Credit (EITC), the Saver's Credit and the Child Tax Credit. Taxpayers must meet certain income limits for all three but tax credits such as these can significantly lower tax bills or increase refunds.
"Fire up your computer, and go to 1040 central at IRS.gov," Sanford added. "From e-filing and tracking your refund to figuring out your withholding, it's one of the best places to go for help and tax information."
1040 central also has all the latest tax news, publications and updates about tax law changes.
The IRS also has issued an increasing number of warnings over the last few years about e-mail scams targeting individuals, businesses, exempt organizations and other taxpayers.
"Just beware of those cyberspace crooks who may be taking advantage of tax season to try to dupe people out of their personal information," Sanford said.
The scams, popularly known as "phishing" scams, use phony e-mails that falsely claim to come from the IRS. As a rule, the IRS does not send unsolicited e-mails to taxpayers. Taxpayers who receive an unsolicited e-mail communication claiming to be from the IRS can forward the message to email@example.com using instructions posted on IRS.gov.