Making Tax Time Less Taxing

TAX HELP IF YOU'RE OUT OF WORK:

If you've lost your job, it is time to think about letting the tax system work for you. The folks who publish the "JK Lasser Your Income Tax" guide have some suggestions.

First, if you are collecting unemployment benefits, remember that they are taxable. But you can elect to have the federal income tax withheld from your benefits. That could help you to avoid paying later.

If you are continuing your health benefits, the JK Lasser people remind us that you may be able to deduct what you pay to your former employer for COBRA health insurance coverage, but only if you itemize your medical expenses.

Only medical costs that are more than 7.5% of your adjusted gross income is deductible as an itemized deduction. If your old employer decides to continue your health care coverage at its expense, that benefit is tax free, even if you are no longer at work.
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A GOOD TIME TO STUDY:

With job opportunities in short supply, the attraction of either going to college or staying in school becomes greater.

For those looking to get smarter, there's a payoff come tax time that will make you feel intelligent as well.

That's because you may be able to deduct eligible tuition and related expenses that you pay for either yourself, a spouse or a dependent.

It might be that you claim one or more adjustment to your income or you are eligible for the Hope or Lifetime Learning Credit. Another option is claiming certain education costs as business expenses.

The deductions begin to phase out or are eliminated as taxable income rises.
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CHANGES FOR 401b PLANS:

If you teach, or are otherwise working in the nonprofit world, tougher IRS rules cover your retirement plan.

The result for millions of workers is fewer investment choices and tighter restrictions how funds may be used.

The changes involve 403(b) plans. For the past 40 years, these plans have been allowed to operate with less oversight than the 401(k) plans in the for-profit sector.

It means employers now have to take a more active role in managing the plans. The IRS is requiring organizations offering 403(b) plans to adopt more detailed documents listing specific vendors, eligibility rules and guidelines for withdrawals, as well as loans and distribution upon retirement.

While the goal is to provide improved retirement plans for these workers, some employers have been left with higher-cost investment options. Many employees are having to switch their investment providers.
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TAXING MISTAKES:

We're only human after all. Given that, and the fact that filing income tax forms can be complicated stuff, there is a risk of making an honest mistake. So, what do you do if you've filed a federal return and realize after the fact that you made a mistake?

If it is a simple math error, chances are that it will be caught and corrected by the IRS as the return is processed.

If you didn't report all of your income or failed to claim a tax credit that you are due, then you should file an amended return, using Form 1040X.

Submit it after you get your refund, or by the time the return is due, whichever comes first.

If you need to file an amended return, do it within 3 years after the date you filed the original, or within 2 years after the date you paid the tax, whichever is later. A return filed early is considered filed on its due date.
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THE RIGHT FORM FOR YOU:

There's a choice to make when filing your federal income taxes. You'll need to choose from one of three tax forms, whether filing electronically or on paper.

The 1040EZ is the simplest tax form that you can file, and is ideal for people who have less complicated finances. Use the 1040EZ when your income is primarily from salary or wages and is below $100,000, your filing status is single or married filing jointly.

The 1040A is the way to go when your income is below 100K, you are claiming certain tax credits and deductions for IRA contributions, student loan interest or higher education costs or have capital gains distributions.

If you need to itemize your deductions, or your income is $100,000 or more, then the long form 1040 is the way to go. It also is needed for reporting income from self-employment, or from the sale of a property.
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HELP FOR DISTRESSED HOMEOWNERS:

Troubles can escalate quickly when a person loses his or her job or falls behind on income taxes or mortgage payments.

Trying to provide some relief, the IRS has made changes to make it easier for distressed homeowners to avoid having a federal tax lien block either a mortgage refinancing or sale of a home.

This is where the government makes a claim on property where income taxes are owed.

While it can take 30 days to process an application to get rid of a tax lien, or to have it take a back seat to a lender's claim, the IRS says it's working to speed the requests because of the recession.

There's no official form for such a request, but Publication 784 provides additional information on this potentially troublesome challenge.
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HIRING A TAX PRO:

For many people, the older they get, the more complicated their lives become financially, and the more difficult it is to accurately prepare their own tax returns.

And when it comes to tax preparation, that might mean you need the help of a tax return specialist.

When shopping around for help, you should probably try to avoid choosing someone who promises that they can get you a larger refund.

And stay away from someone who guarantees results, or bases their fees on a percentage of the refund given to you.

If you get audited, remember that only an enrolled agent, a tax law specialist or a certified public accountant or tax attorney can represent you before the IRS. You can check with your local Better Business Bureau or the state bar association to see whether or not a tax professional has a bad track record.
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TAX CHANGES:

There are a number of changes worth noting as you fill out your 2008 tax return. They include increased exemptions approved by Congress for the alternative minimum . It has risen to nearly $70,000 for a married couple filing a joint return and more than $46,000 for singles and heads of households.

Several breaks due to expire have been extended, including the deduction for state and local sales taxes, a tuition and fees deduction and an educator expense deduction.

The standard deduction, chosen by most taxpayers who prefer not to itemize, has risen. It is $10,900 for married couples filing jointly, and $5,450 for singles and married individuals filing separate returns.

For more tax tips, click here .