PERSONAL FINANCE
Afraid to file a tax return because you can’t afford to pay all you owe? Don’t be.
Federal tax officials say they’re going to be unusually accommodating this year to help taxpayers who are strapped because of the souring economy.
“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,” said Internal Revenue Service Commissioner Doug Shulman at a recent news conference.
Although there is no set policy on how to handle taxpayers who are unable to pay this year’s bill, Shulman said he has instructed his staff to be sensitive and flexible. Taxpayers do need to file a return, he emphasized. But if they can’t pay, they should call the IRS to work something out.
The agency also launched a five-point plan to help those who are behind in past tax debts, giving IRS agents the ability to suspend collection actions, adjust payments for back tax bills and provide lenient treatment to those who need to miss a payment on an existing installment agreement.
Shulman said the agency also would be quicker to release liens and levies in hardship cases and would review rejected requests from taxpayers who asked to be allowed to pay only a portion of their tax, to make sure they were not unfairly rejected because of home equity that’s since evaporated.
Then, too, officials said that some people may be in better shape -- at least from a tax standpoint -- than they think. A passel of new tax deductions and credits went into effect for the 2008 tax year, which may allow millions of additional people to collect refunds.
Some of the more significant changes:
Recovery rebate credit. If you did not receive an economic stimulus payment last year -- or didn’t get the full amount -- you may be able to claim it on this year’s return. Millions of people automatically received stimulus payments last year. But some people who qualify did not receive them or got less than they were owed because the automatic payments were based on 2007 tax return information, even though the credit is based on 2008 income.
If your income was significantly different in 2008 and you think you were unfairly disqualified, you should apply for the rebate credit. (People who didn’t get stimulus payments earned either too much or too little in 2007. You need at least $3,000 in qualifying income -- usually wages -- but will be phased out from receiving full payments if you earned more than $75,000 single or $150,000 married.)
If you prefer, the IRS will figure out the credit for you, or if you can wait to file until February, the agency promises to offer an online calculator at www.irs.gov to determine the amount.
First-time home-buyer credit. If you buy a personal residence between April 9, 2008, and June 30, 2009, you may qualify for a credit of up to $7,500. Credits reduce your tax on a dollar-for-dollar basis, unlike deductions, which simply reduce your taxable income. However, this credit must be paid back over time. It’s essentially a 15-year interest-free loan aimed at making home purchases more affordable.
The catches: It’s not available for those who are simply trading up or buying a vacation or rental property. You can’t have owned another home within three years of the qualifying purchase. It also phases out for single filers who earn more than $95,000 and married couples filing jointly who earn more than $170,000.
Improved earned income credit. More people can qualify for the generous earned income tax credit, and the amount of the credit has risen. The credit, aimed at aiding the working poor, now can be claimed by families with two or more children who earn up to $41,646. The maximum credit amount: $4,824.
Higher mileage deductions. Those who drive for work can deduct up to 58.5 cents per mile for miles driven after June 30. Before June 30, the mileage rate was 50.5 cents.
Inflation adjustments. Standard deductions, personal exemption credits and marginal tax brackets have all been adjusted for inflation, so those earning the same amount as they did in 2007 will pay less tax. In addition, there’s a new standard deduction of up to $500 for singles and $1,000 for married couples for those who pay real estate taxes.
Aid for Midwest disaster victims. A wide variety of tax relief programs were put in place to help people who suffered catastrophic losses from last summer’s floods and storms.
The relief includes liberalized casualty loss rules, additional exemptions and deductions for people who came to the aid of disaster victims, and special rules for those claiming the earned income tax credit and for those who needed to tap retirement savings. For details, go to www.irs.gov and search for Publication 4492-B.
Greater access to free filing. The federal government’s free electronic filing will be available to anyone who wants to use it this year through an online tax form program. The software that helps interview you as a way of preparing your tax return is available only to those earning up to $56,000. For everyone, the agency is posting electronic forms that can be prepared much like hand-prepared forms.
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kathykristof24@gmail.com
Kathy Kristof is a personal-finance author and syndicated columnist.
