February 23, 2012

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Why Do Some Tax Refunds Take Much Longer to Get to the Taxpayer?

February 22, 2012 By

The tax season for 2012 is in full swing and as is expected, many taxpayers will be anticipating tax refunds from Uncle Sam for overpaid taxes and from refundable tax credits. For taxpayers who file using the IRS e-filing system and who elect the direct deposit option of receiving their refunds, the IRS works at processing the refunds within 10 days. In fact, according to the IRS website, taxpayers who filed on the e-filing opening day of January 17th should have received their refunds by January 25th.

However, even with the improvements in the IRS that have lead to the shortening of the waiting time for refunds, there are still some taxpayers who have to wait very long before getting their tax refunds. There are various factors that may cause such a delay;

  • Paper Check Refunds – Taxpayers who do not opt for the direct deposit option of receiving their tax refund will have to receive their tax refunds by paper check through their mail. Paper check refunds take a much longer time to get to the taxpayer than bank deposits. For taxpayers who file electronically and request for the bank deposit, the IRS works at having the funds transferred in less than 10 days. For taxpayers who file electronically but request for a check, the check is mailed by the IRS after a much longer time. There are further delays – for the mail to get to the taxpayers mail box and for the taxpayer to cash the check.
  • Paper Filing – For taxpayers who opt to file their taxes manually on a hard copy form, the refunds will even be delayed further. The tax return form will need to be reviewed manually by an IRS employee and this can get to delay the tax refunds for much longer. The IRS has been encouraging taxpayers to file electronically as this enables the automation of reviewing of tax returns thus reducing on time and resources.
  • Credits Requiring Attachments – Some tax credits can only be claimed if the taxpayer files a manual return. Returns that require the taxpayer to attach a supporting document or file Form 1040 attached to other tax forms will require a manual tax return. For example, people claiming the Adoption Credit will need to file manually and attach documentation for the claimed expenses.
  • Entries Requiring Manual Scrutiny – For some confusing tax credits, deductions or entries, the IRS can choose to manually review all the tax returns for taxpayers who claimed such reliefs or have such entries even if the taxpayer filed electronically. Manual scrutiny will therefore mean that the refunds will be delayed. For example, in the 2011 tax season, taxpayers who had claimed the First Time Home Ownership Credit in 2008 and that required repayment experienced prolonged delays in their tax refunds as the IRS scrutinized each return manually.
  • Delays Within Bank – Delays can also be caused by the taxpayer’s bank. According to the IRS website, the IRS states that it transfers tax refunds for taxpayers who file electronically within 10 days of filing. The IRS then places a disclaimer that delays may be experienced for some taxpayers depending on the taxpayer bank procedures.
  • Errors and Discrepancies – If a tax return has errors that are identified in the tax system, the refunds will not be processed and instead, the IRS will send a correspondence requesting you to explain the error. It is therefore, important that you carefully review your returns before submissions to avoid delays from simple careless mistakes. However, for some minor errors such as an addition mistake, the IRS may correct the tax return and process it within the normal timelines.
  • Filing an Amendment – Filing an amendment can also significantly delay your tax refunds. Therefore, if you had made an error on your original returns and have filed an amendment, you may have to wait a little bit longer before you get your refund.
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Had a Baby at the End of 2011? Here’s Some Great Tax News!

February 21, 2012 By

Did you have a baby before December 31st, 2011? Well, the tax code is set such that all benefits that accrue to a taxpayer do so annually, irrespective of the time of the year one gets to qualify. This means that if you had your child on December 31st of a given year, you get the full tax benefits of the child for the whole of that year. This is more of a bonus for those who get their children late in the year. The same tax bonus is available for parents who adopt a child late in the year. Therefore, if you are planning to harvest on this tax bonus, it may be wise to plan your timing for having your child or for adopting one. There are various tax breaks that you can claim for the whole year, irrespective of the time of the year that your child was born or adopted.

Personal Tax Exemption on Dependents

For a start, you can claim personal tax exemptions on all your dependents for a given year. This personal tax exemption is deducted from your Adjusted Gross Income (AGI) and consequently, reduces the amount of tax that you get to pay. For the tax year of 2011, the tax code allows for an exemption of $3,700 for every dependent that you claim on your tax returns. This means that your adopted or natural child gets you this exemption for 2011 even if born or adopted at the end of the year. This exemption is only accorded to those whose income fall in or below the 28% tax bracket. The personal tax exemption is provided to taxpayers as an adjustment for inflation and increases in cost of living.

Child Tax Credit

Besides the personal tax exemption, the taxpayer who gets a child within a given year is also entitled to the child tax credit. The tax credit is given for every child that a taxpayer has. There are income limitations to claiming the tax break and therefore, people who earn from the higher tax brackets may be locked off from this benefit. For 2011, singles who earn above $55,000, head of households who earn above $75,000 and those who file jointly and have an income above $110,000 cannot claim the Child Tax Credit. However, for the rest of taxpayers who earn below these caps, claiming the credit is easy as all you do is list all your children on the tax return form 1040 and you get to claim $1,000 per child in 2011. This is an extra $1,000 bonus for the parents who get a child late in the year.

More Earned Income Tax Credit

Another tax relief that you are entitled to for your child is higher Earned Income Tax Credit (EITC). EITC is a tax credit that is provided to lower income earners. The qualification and amount of EITC that a taxpayer gets is dependent on the number of children that one has. Therefore, having an extra child, irrespective of the time of the year that you get the child, will increase the amount of EITC that you can claim or even get a taxpayer who would otherwise not qualify for the credit get into the qualification bracket.

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8 States Increase Minimum Wage Rate in 2012

February 20, 2012 By

At the wake of 2012, eight states reviewed their minimum wage rate and had the rate increased in line with inflation rates. The move has come as a welcome boost for many low income American families that struggle to make ends meet. These 8 states that have increased their minimum wage rate are Florida, Ohio, Washington, Arizona, Montana, Colorado, Vermont and Oregon. The increase in the rate ranges between 28 cents to 37 cents an hour and this translates to between $582 and $770 a year.

Federal Minimum

The Federal law sets the minimum wage rate for the whole of the United States at $7.25 per hour. Some states, such as the eight mentioned above, have the rates higher than that of the national minimum. Having the rate above that of the federal minimum is ideal, especially for states that have a higher cost of living, as this works to compensate the lower income earners. In fact, there are 10 states that review their minimum rates annually (including these 8 that hiked in 2012) to ensure that the rate is adjusted to inflation and thereby, conserve the ability of low income earners to retain their purchasing power. The remaining 2 states that make annually adjustments for inflation include Nevada that makes its reviews in July and is therefore, to make its hike then, and Missouri, whose adjustment rate has remained below the federal rate and therefore, the minimum federal rate continues to apply in this state.

As of January 2012, there were 19 states including, D.C., that had their minimum rate above the federal minimum. The remaining 31 states have their minimum rate at the federal minimum of $7.25 per hour.

EITC – Tax Relief for Low Income Earners

Besides setting the rates for the minimum wages that an employer should pay a worker, the government also provides further relief to low income earners. The government provides a tax credit of up to $5,751 to such taxpayers. The tax credit is referred to as the Earned Income Tax Credit (EITC) and the amount of tax credit that one can claim depends on ones income, the filing status and the number of dependent children that a taxpayer has, among other factors. The IRS has places of service on their website to assist taxpayers determine if they qualify for the credit and how much they can claim. For the 2011 tax year, taxpayers with no children can only claim the EITC if their income is less than $13,660 for those who file as singles or head of households, and $18,790 for those who file jointly. The maximum amount of credit that they can claim is $464. For taxpayers with one child, the cap for income to claim EITC goes up to $36,052 for single filers and $41,132 for those who file jointly and the maximum credit they can claim is $3,094. For taxpayers with 2 children, they can only claim the relief if their income is below $40,964 for single filers and $46,044 for those who file jointly. The maximum credit that they can claim is $5,112. Finally, taxpayers with 3 or more kids can claim the EITC if their incomes go up to $43,998 for single filers or $49,076 for joint filers with a maximum credit of $5,751.

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5 Tax Tips for 2012 Worth Considering

February 17, 2012 By

The beginning of a year is always an ideal time to reflect on ones life. However, as you make plans and resolutions for the new year, it is also advisable to consider the various tax implications of these moves. Besides this, it is also important to make resolutions and decisions concerning your taxes. Properly planning of taxes at the beginning of the year can save you lots of money and time. Below are some tips that may help you as you make such tax plans;

Consider Implications of Life Changes to Your Taxes

As you plan for various decisions that you want to make in 2012, it is important that you consider the tax implications of such plans. Many of the significant life decisions come with significant tax implications. Getting married, getting or adopting a child, buying a house, selling your house or car, retiring, going into business, changing your job, going back to school, or divorcing your spouse all have a huge impact on your taxes and you may need to consult with a tax professional on the implications before making the move.

Better Filing Will Save Your Time and Probably Cash

Keeping proper tax records will save you a lot of time when it comes to filing returns. The process of keeping proper records can be tedious but if you get used to it, you will subconsciously get to keep the records well. In order to have proper filing, you will need to know the important documentation that is needed for your taxes. Depending on the tax reliefs that you will be claiming and the incomes that you have made, you need to properly file all receipts for educational related expenses, health expenses, receipts of any sale of asset such as a house, receipts that have local and state sales taxes, statements from your stock broker and such tax related records. You should also properly file all the Form 1099 that you receive as these correspond with tax entries that you will be making on your tax return form. Having proper records will not only enable you to easily prepare the taxes but will also protect you from any issues that may arise with the IRS.

Self Employed? Consider Tax Implications of Each Business Move

If you are self employed, the beginning of the year is also an important time for you to plan your taxes. Unlike those employed, self employed individuals have more control over their tax deductible expenses and the way they handle tax issues. You therefore need to plan and consider taxes as you plan to expand your business, get into partnerships and joint ventures, sell of business stakes, renting new property and applying for a license. Proper planning beforehand can save you lots of money in taxes.

The Independent Contractor or Employees Question

Another important tax consideration you may need to make in 2012 is determining whether your workers are independent contractors or employees. For a long time now, employers have not been keenly categorizing their workers and to avoid tax implications, many have been lumping up various employees as independent contractors. However, the IRS has announced that it will be applying more scrutiny to employers who pay workers as independent contractors. If an employer is found to have been erroneously paying employees as independent contractors, they may be liable for taxes foregone, interest, and penalties. It is therefore, an important time to review this and get into compliance.

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Tax Preparer Compliance Update and Related TIGTA Report

February 16, 2012 By

The IRS introduced new tax preparer rules that came to effect in January 2012. The rules have been put in place to increase surveillance and ensure professionalism in the tax preparer industry. All tax preparers are now required to apply for a Preparer Tax Identification Number (PTIN) license. This license is to be renewed every tax year. For professionals including CPAs and attorneys, getting the PTIN will be automatic as long as there are no outstanding issues with the IRS. For the other tax preparers, they will be required to sit for an exam to evaluate their ethics and their competence in handling taxes. Besides this competence test, these preparers will also be required to undertake a 15 hours tax training every year before renewing their license. 

12% Yet to Comply

According to the rules that were introduced in 2011, every tax preparer who sort to practice in 2012 and who is not a qualifying professional needed to have sat for the competence test by December 31st of 2011. As of this date, 12.5% of preparers were yet to comply. This means that in 2012, there will be less preparers available to assist taxpayers with their returns.

TIGTA Report Reveal Felons and Prisoners Received PTINs

An audit by the Treasury Inspector General for Tax Administration (TIGTA) revealed that there were some anomalies about the preparers who managed to register in time for the 2012 tax year. According to the audit report, there were 962 prepare who had received the PTIN license but who had been imprisoned in the last 10 years. A vast majority of these people did not disclose their felony convictions. Furthermore, to add the proverbial insult to injury, about 320 of these prepares were actually serving a sentence at the time of application. In fact, 43 of them were actually serving life sentences!

The issue of having convicts as prepares is especially serious as there have been quite a number of tax return frauds that have been done from prisons in the past. In response to these frauds, the IRS had committed to keep those in prisons from having preparer licenses.

Rules did not Prohibit Prisoners from PTINs

Having prisoners and people who had recent felony convictions being licensed with the PTIN license may not have been entirely an oversight on the part of the IRS. This is because the rules of application for preparers did not require one not to be a prisoner. This means that the preparers actually held the licenses legally.

IRS Commits to Increase Vetting of Preparers

Following the TIGTA audit report, the IRS has adjusted its tax preparer rules and from beginning of 2012, no person who is serving a jail term will be permitted to be a preparer. This means that all the 320 convicts will have their licenses suspended. The IRS has also committed to ensure that no person with an IRS criminal record gets a PTIN license.

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Is Making Work Pay Credit Available for 2012?

February 15, 2012 By

The Making Work Pay tax credit was a credit that was available for the lower income earners. It was set to provide some form of relief to qualifying taxpayers given the toughening economic times. For the tax year 2010, the taxpayers that qualified for the relief made the claim in their returns made in 2011. As people prepare to make returns for the tax year 2011, many taxpayers are still confused about whether the credit is still available and how to make a claim for the relief. Below is information that will help you resolve any confusions with this credit:

  • Credit Not Extended for 2011 – The Making Work Pay Credit was lapsed in 2010 and is no longer available for claiming by taxpayers. This means that taxpayers cannot make a claim for the credit for their 2011 taxes to be reported in 2012.
  • Payroll Tax Holiday Replaced Work Pay Credit - A Payroll Tax Holiday was introduced in 2011 as a replacement for the Making Work Pay Credit. However, unlike the former credit, the payroll tax holiday reduces the taxes that one pays on his or her payroll. This means that the amount of income that one makes every payroll went up in 2011 to reflect this holiday. There is therefore no credit or relief to be claimed during tax time in relation to this relief.
  • Claiming Payroll Tax Holiday for Self Employed – If you are self employed, you can claim the Payroll Tax Holiday when filing returns. You will make an adjustment to your self employment tax rate by 2% from 12.4% to 10.4% and claim the difference.
  • Tax Holiday Set to Lapse in February 2012 – The Payroll Tax Holiday will only apply for 2011 and has only been extended until February 2012. This means that unless Congress makes a further extension, the payroll relief will be lapsed come March 2012 and you may notice a corresponding slight decrease in your net earnings from this month onwards.
  • Option to Amend 2010 Returns – If you did not claim the tax credit in 2011 for the 2010 tax year, you still have an opportunity to claim the credit. To do this, you will need to file an amendment to your 2010 tax returns. However, before you file an amendment, you should first confirm that you did not receive the credit. The IRS did include the credit for many taxpayers who had not made a claim for the tax relief and you may have been provided with the credit even if you did not claim the credit. If you ascertain that you were indeed not given the credit, you then need to check whether you indeed, qualified for the credit and how much of the credit you can claim. You can then file an amendment indicating the correct credit that was due to you. You have 3 years from the date of filing the original tax return form to make an amendment after which, the amendment may not be done.

 

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How to Avoid a Dependency Tax Relief Tussle with Your Ex

February 14, 2012 By

For those of you who find yourselves with a Valentine today, congratulations! However, many out there may be flying solo on this day. Some may even have bitter feelings towards Valentine’s Day, especially if one’s previous relationship ended on a bad note. One major issue that plagues divorced couples is the issue of claiming dependents. If you have children who are under the custody of both you and your ex wife or husband, then determining who gets to claim the child or children as dependents can be a gray area. At times, the children get to stay at both the house of your ex and in your house and you get to share most of the bills attributing to the children. Many times, the spouse or parent who has the bulk of the responsibility of raising the child gets to be locked out from claiming the children as dependents due to lack of information. Below are some tips that can help beat your ex when it comes to claim expenses and tax reliefs for your children.

Have Your Records Properly Kept

It is important that you keep all your records well so as to support your claims. It is advisable to open a file for your children and file all bills and receipts for expenses made towards your children. You should also store all other child related paperwork. This includes receipts for school fees paid, reports from the school, any child care expense receipts, receipts for books bought, computers bought for the children, and medical related expense. Keeping these records well will assist you in various ways. For a start, payments for school related expenses can enable you claim for educational related tax relief. If your child is in a boarding school and you provide more than half of his up keep, then you can file as a head of household even if the child does not live in your house.

File Early to Beat Your Ex

Even if you have all the records in place, you also need to file your tax return early so as to beat your ex in terms of who gets to claim the children as a dependent. This is especially the case for those who share much of the costs and it is hard to ascertain who provides most support. If your spouse files before you and gets to claim children as dependents, you may be denied the opportunity to claim and therefore, ensure that you file your returns as early as possible to avoid such a dilemma. You can file as early as January for the prior tax year and therefore, have all your tax records in place throughout the year so as to enable you file as early as possible and get to make the dependency claim first.

Ensure Records State Your Home as Child’s Address

It is important to ensure that as many records relating to your child or children show your address as the address of the child. Many people ignore changing the address after a divorce or separation and this can place you at a disadvantage when it comes to claiming your child as a dependent. This applies to school records, statement from your child care provider, and any government records.

Consult a Professional if Need Be

In situations that are hard to ascertain the parent to claim dependency, it is best to get advice and help from a tax professional. Get a tax lawyer of preparer who is skilled and experienced in such cases and he or she will advise you on how to best ensure that you get the most benefits for your support.

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Will Congress Extend Locals and State Sales Tax Deduction?

February 13, 2012 By

Since 2004, taxpayers have been provided an opportunity to deduct qualifying sales taxes on their Schedule A of tax returns. Sales taxes and Use taxes are charged on some of the states and cities in U.S. The local and state sales tax deductions therefore, enable those citizens who live in states that have taxes on sales to itemize and deduct part of these taxes. However, the deduction of sales taxes expired in December 31st 2011 and therefore, only purchases made in 2011 will be entitles to the deductions. Furthermore, the deduction is only profitable for citizens whose states either charge very low income taxes on wages or do not charge any income taxes. These states include Florida, Texas, Alaska, South Dakota, Nevada, Washington, Tennessee, New Hampshire and Wyoming.

Enacted in 2004 and Extended in 2006, 2008, and 2010

However, for those of you who did not capitalize on this tax deduction opportunity in 2011, there may still be an opportunity for you to save on your state and local sales taxes if Congress acts as expected. The sales tax deduction has been a temporary deduction and has been extended since 2004. Congress has always extended it by two years and therefore, there was an extension in 2006, 2008, and in 2010. Even if this tax has not yet been extended by early 2012, chances are that Congress will extend it by end of 2012 and have the tax apply retroactively. This will enable you to claim all the taxes for state and local sales that you have incurred throughout 2012.

Tax analysts and professionals are projecting that such an extension will most likely be passed, especially now that 2012 is an election year. In fact, Washington Democrat Representative, Jim McDermott, had in December 2011, sent a letter to the relevant house committee seeking for an extension of the tax deduction. The letter was signed and supported by another 65 representatives from both sides of the political divide. However, the House was out of time in December and the issue was not addressed in good time. Therefore, most signs point at having an extension on the deductions. However, until Congress makes the move, you cannot be sure and therefore, for now, you can only make a claim and bank on the purchases you made in 2011.

Move to Have Deduction Permanent

There have also been moves by politicians to attempt to make the deduction a permanent one as opposed to having it extended for two year sessions every time it lapses. Senator Maria Cantwell (D-Wash.) has been campaigning and mobilizing politicians to support a move to have the break permanent. She argues that the tax break permanency would be fair to taxpayers who have been making the deduction since 2004. She has gathered a bipartisan group of politicians to support her though her numbers cannot marshal the change. In fact, analysts see a move to make the tax break permanent being an uphill task. Given the government deficit and the need for government funding, it is now hard to push for a permanent tax holiday and the best you can bargain for is an extension.

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Smart Ways to Donate to Charity

February 10, 2012 By

There are numerous charitable tax deductions that a smart taxpayer can benefits from. In our houses, there are several items that lie around and no one seems to even notice they exist. These items range from electronic gadgets to clothing and many more that can actually be very useful when it comes to tax matters. There are two options: you either clean up your house by giving them to a friend to itemize or you set out to donate but be prepared to make the list for the IRS.

Listing your Donations

Whenever you make a donation worth more than $500 to your favorable charity, the details of individual items are needed; what was given out, the number of units, the approximated original and current value of each. There is a grid on Form 8283 that contains data required for your tax return, at the bottom of part 1.

Where do you Find the Costs?

Some of these items might have been purchased ages ago and you may not have their real costs. That is no problem as there are several options that you can resort to. One of which is the use the Salvation Army site that provides “thrift shop values.” Some other free tools like Turbo tax and H&R Block can also come in handy. They have databases with the prevailing costs and market values of almost anything that may be under your roof. It is simple, all you have to do is to make a list of what you intend to donate, print out the resulting report and enter the summary in Form 8283. Also, the data can be imported directly to your tax return for you.

The Conditions of Items

The one condition that should never be overlooked is the state of the items you donate to charity. It is mandatory that they need to be in good shape to be useful elsewhere. You can prove this by taking some snapshots of these items, saving them in a folder alongside other tax data or pint them and attach them in your tax file. This can be done with any digital camera or even a phone.

Plan the Donations

Some people accumulate a lot of stuff to send to charities all through the year and as a result, end up with non-cash donations amounting to over $5,000. This requires a written appraisal to be claimed. Getting appraised in towards the end of the year may prove to be an uphill task, especially when you have been donating the whole year. This is why it is advisable to make a plan for your donations. Whenever you deduce that your planned donations for the year may be worth a lot of money, you should save and appraise them and then donate them once a year-preferably towards the close of the year. Some activities may lead to voluminous donations, like death and moving houses, and it is preferred that you have them all evaluated and recapitulated before moving forward.

Sell and Donate the Proceeds

Sometimes you realize you have a lot of stuff worth a lot of hard cash. You should turn them to a second hand dealer or an estate agent, get the cash, and donate the earnings, literary evading the tedious paperwork. Report the sale on Schedule D with the same cost as the sale prices as you don’t have to worry of being taxed.

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How to Make Sense Out of the Tax Code

February 9, 2012 By

The IRS has numerous publications that carry a pool of information on ways of filing your taxes. However, the voluminous tax code is the real home of actual tax relayed rules. The tax code cannot be easily be comprehended by the average Tom, Dick, and Harry. It is for this reason that a flood of sources have been assembled to help make sense of the various rules. There are different sources you can refer to in case you need to understand your income taxes and the pros and the cons of each.

The Internal Revenue Code, Treasury Regulations, and Revenue Rulings

The U.S. code is a government document that outlays the United States laws arranged by subject.  In title 26 of the Code of Federal Regulations (26 CFR), subtitle A of the code, you find the Internal Revenue Code, also referred to as the “tax code.” The tax code contains the official, lawfully binding tax regulations determined by the congress. The tax code is available online on the Government Printing Office (GPO) website. They are also called “tax regulations,” which are the Treasury’s official interpretation of the tax code.

These sources are trustworthy, since they are a creation of the government. Therefore, you don’t have any reason to question the accuracy of the information which can hold up in a court of law. However, the voluminous nature of the content makes it hard to look for the desired information which, to some extent, affects the understanding of the fine details. In case you misinterpret and act based on the same misapprehension, then you carry the blame.

The Revenue Rulings are the IRS’ efficient understanding of the code as it is applied in meticulous situations and can offer a better insight into the rules. However, they lack the weight carried by the code itself or the treasury regulations.

The IRS Publications

The IRS has several booklets that sum up the tax man’s interpretation of the tax code. This literature, which is easier to understand than the tax code, is obtainable in both print or online from the IRS website. The publications are free of charge and readily available. Unfortunately, their explanations cannot hold up in a court of law and to some people still find the publications relatively inimitable.

In his book “Home Business Tax Deductions; Keep What You Earn,” Attorney Fishman Stephen cautions against reliance on the IRS publications for information. He argues that the manner in which the IRS construes the law in its publications varies from the way a court of law may rule on the same.

Calling the IRS Customer Care

Although a call to the IRS might provide you with the much needed information promptly, the taxman admits in its publications that there is no guarantee that the information you may be given by their officers is legit. It states in its publications that “if we should make an error in answering your question, you are still responsible for paying the correct tax.” This means that there is a considerable probability that you may be fed with wrong information by the IRS officers. In the event that this happens, the IRS denies responsibility and you will be solely responsible for any actions you might take based on wrong information from the IRS officers. In simple terms, you should know slightly better than the IRS officers and detect questionable information.

There are numerous phone numbers for different departments plus instructions on how to seek help provided by the IRS and contained in its Publication 910; Guide to Free Tax Services. This publication recommends that you need to have the tax form, schedule or notice to which your question is related to, key facts on your specific situation, and also, the name of any IRS publication or other sources that you dug out the information from for the answer.

Consult a Volunteer

Volunteer Tax Assistance (VITA) is the name of the IRS program that is tailored towards helping low-to-moderate income individuals with their tax returns. In VITA, the taxman trained volunteers on how to respond to tax related queries and prepare taxpayer returns. It even categorically equips them with sufficient information to handle issues that low income taxpayers encounter, like the procedures of claiming the Earned Income Credit and the Child Tax Credit. Qualified taxpayers-those with income not exceeding a certain threshold-generally $49,000 as of 2010, can access this help free of charge. The downside to this is that these preparers are not professionals, so they may not always provide reliable advice. Furthermore, they are only a resource for relatively simple tax returns and they may not be of much help if you have a substantial income.

Read Consumer Publications

Consumers can take advantage of the numerous credits and deductions they are entitled to by reading the many consumer publications that are tailored towards educating the average person on tax related issues. Books published by Nolo, J.K Lasser, and Ernest & Young are among the widely respected, up-to-date, and are reliable sources of such information. Of all the sources that attempt to interpret the tax code, consumer publications are the easiest to comprehend.

They are generally affordable, costing $25 or less. They are easily available in local bookstores and online. Online versions are preferred to the libraries, which may not have the most recent versions.

Just like other sources we have tackled, the consumer publications also don’t have any force of law and some authors sometimes only write to encourage sales and are opposed to the real information. If the content sounds too good to be true, think twice.

Read what is Read by the Pros

Professionals like the tax attorneys, CPAs, and accountants are better placed to get the tax code interpretation right. Reading their publications may equip you with the much needed information. However, the prices of these sources are quite high. Also, the tone used in these professional literatures is quite unfriendly to a layman. It is for this reason that you may need to bring an expert on board to help you understand the tax code.

Engage an Expert.

An expert is better placed to understand your tax related problems and sort them out. There is a flooded pool of them out there, but the Enrolled Agents and CPAs are the two main providers of the best blend of reliability and affordability. By hiring one of these professionals, you will save yourself a lot of headache, time, and to some extent, money as well. You can access the expert nearest to your area by visiting the National Association of Enrolled Agents or the American Institute of Certified Public Accountants.

Caution: You need to carefully screen these professions by asking the right questions. Failure to do this may land you into trouble as you may engage the services of one with a very liberal or even worse, an abusive interpreter of the tax code. This may dearly cost you if you ever get audited. It is further critical to note that even the professionals have varied interpretations of the tax code.

Conclusion

The complexity of the rules governing income tax can be simplified if Congress enacts a comprehensive income tax reform. It is advisable that you consult the most reliable sources you can afford and understand to help you in comprehending what exactly you are required to pay and what you aren’t. To guard yourself from the IRS audits that may either point that you underpaid or even overpaid your taxes, keep some bucks in your emergency savings accounts… just in case of an IRS audit.

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