Tax Credits for Education Benefits Parents

Everyone hates taxes but one good thing about the U.S. tax code is the astounding number of tax credits and deductions that are geared towards taxpayers with children. These credits and deductions run the gamut from simply having children to college education credits and deductions.

Most of these credits and deductions phase out or get reduced over certain income levels, but these income levels are high enough to permit most Americans to claim these credits and deductions on their tax returns.

Credits vs. Deductions
The first thing to understand is the difference between a tax deduction and a tax credit. A deduction reduces a taxpayer's taxable income by the amount of the deduction, while the tax credit is a dollar for dollar credit against taxes owed. This generally makes a tax credit more valuable than a deduction.
In 2009, a taxpayer married filing jointly who has three children is eligible for the earned income tax credit as long as adjusted gross income and earned income is below $48,279.

Education Benefits
The next group of credits and deductions are designed to promote education and soften the cost of that education for the taxpayer. There are a number of different programs under which taxpayers may be eligible. The contributions are not tax deductible, but earnings grow tax free, and withdrawals are not taxable if used for qualified education expenses. This is also one of the few tax breaks from the IRS that can be used for College or qualified secondary and elementary education expenses.

Education Deductions
The Higher Education Tuition Deduction is a deduction up to $4,000 for qualifying education expenses at the college level. This reduces your income subject to tax when you file your return.

Education Credits
The American Opportunity Credit is a credit up to $2,500 for qualified college educational expenses paid for each student eligible. Expenses include tuition, fees, books and other supplies. This credit is an expansion of the Hope credit for 2009 and 2010 which bumped the $1,800 limit up to $2,500 and increased the period it can be claimed from the first two years of college to the first four years.

The Lifetime Learning Credit is a credit up to $2,000 for qualified college educational expenses paid for each student eligible. Like the Hope Credit, the maximum tax credit is doubled to $4,000 for students attending eligible schools in a Midwestern disaster area.

No Double Dipping
One thing to note about the deduction and education credits above is that taxpayers can only claim one of them per student. For example, you can only claim either the expanded Hope credit or Lifetime Learning credit in the same year for the same student. Taxpayers should calculate the benefit for each credit they are eligible for and then claim the one that reduces taxes the most.

Get Proper Advice
These credits and deductions can be complex so please consult a tax advisor prior to claiming them. An excellent resource is the IRS web site, which has the entire set of rules in Publication 970, including eligibility and income levels at which the credits and deductions begin to phase out.

The U.S. tax code has evolved over the last generation to include many tax deductions and credits that provide benefits to taxpayers with children. These deductions and credits can significantly reduce the tax burden and should be claimed by those eligible.

Local Companies Job Creation Tax Credits

Five local companies are receiving job creation tax credits in Columbus (the capital and largest city in the U.S. state of Ohio) with a total value of $3.27 million in exchange for retaining 1,780 jobs and creating 547 more, the state Department of Development announced Tuesday, March 30.

The projects include:
ConAgra Foods Packaged Foods, LLC will receive a 15-year, 70 percent tax credit valued at $1.99 million in exchange for a $59 million project in Troy expected to create 191 jobs and retain 371 more. The company, which soon will add Slim Jim beef jerky production to its pizza production business at a Troy plant, would be required to maintain operations in Troy for at least 18 years.

Pierre Foods Inc. will receive a six-year, 50 percent tax credit valued at $279,020 in exchange for a $21.5 million project in West Chester Twp., Butler County, that’s expected to create 40 jobs and retain 849 more. The company, whose brands produce a line of fully cooked beef, pork, chicken, turkey, peanut butter and bakery products, would have to maintain operations at the site for at least nine years.

RealPage Inc. will receive a six-year, 50 percent tax credit valued at $635,571 in exchange for a $14 million project in Deerfield Twp., Warren County, that’s expected to create 87 jobs. The company, which specializes in rental housing software, would have to maintain operations at the site for at least nine years.

Sugar Creek Packing Co. will receive a six-year, 45 percent tax credit valued at $136,436 in exchange for a $3.25 million project in Dayton expected to create 79 jobs and retain 406 more. The company, one of the nation’s largest independent bacon processors, would have to maintain operations at the site for at least nine years. Sugar Creek Packing Co. also will receive a six-year, 45 percent tax credit valued at $84,245 in exchange for an $84,245 project in West Chester Twp., Butler County, expected to create 50 jobs and retain 75 more. The company would have to maintain operations at the site for at least nine years.

The Hartz Mountain Corp. will receive a five-year, 45 percent tax credit valued at $138,525 in exchange for a $2.6 million project in Harlan Twp., Warren County, expected to create 100 jobs and retain 79 more. The company, which was founded in 1926 and has branched out from just selling supplies for birds, cats and dogs, would have to maintain operations at the project site for at least eight years.

Tax Provisions for Tax-Payers

With April 15 quickly approaching, a lot of people are digging out their W-2 or 1099 forms to begin filing taxes.

As with any federal tax preparation, filers will want to make sure they understand the significant changes within the IRS tax codes. As a CPA, here are the top 10 tax provisions that I believe could impact income tax preparation for 2009:

1. The first-time home buyer’s credit: Taxpayers should not forget that the well-publicized credit of $8,000 is available for those who purchased their first home in 2009. The IRS recently extended this credit so home buyers who sign a contract by April 30 and complete the sale by June 30 also can claim this credit.
2. Purchasing a new car: In Texas and other states without a state income tax, the IRS has allowed a deduction for the sales tax paid on the purchase of a new car for several years now.
3. Making work pay credit: Couples who earned less than $190,000 ($95,000 if single) in 2009 are eligible for a tax credit of 6 percent of their earned income, up to a limit of $800 ($400 if single). This is a major change, since virtually all returns filed will contain this credit in some form. Taxpayers can claim this credit on Schedule M of the tax return. This is a new form designed specifically for this credit.
4. Mileage rates: Business travelers can claim 55 cents per mile for business travel in 2009. The IRS will also allow 24 cents per mile for medical mileage, and 14 cents per mile for charitable mileage.
5. Unemployed benefits: For 2009, the first $2,400 of unemployment benefits received can be excluded from income. Previously, all unemployment benefits were taxable.
6. Losing a home during the housing crisis: Taxpayers who lost their homes during the housing crisis will not have to pay taxes on the amount the mortgage company wrote off on their debt. For example, if a taxpayer went into foreclosure on a home with a mortgage of $200,000 and the mortgage company sold the home for $185,000, the taxpayer will not have to claim the $15,000 difference as income.
7. Filing late fees: The penalties for filing late returns have increased. Now, if a return is more than 60 days late, the minimum penalty is $135 or 100 percent of the unpaid tax. In other words, late filers could end up owing double their original balance in a very short time.
8. Casualty losses: The minimum threshold for an event to qualify as a casualty must now be 10 percent of your income plus $500. Previously, it was the same percentage amount plus $100. This will make the casualty loss more difficult to claim.
9. Paying your taxes with credit cards: For those who pay off their tax liability with a credit card and incur a “convenience charge” to do so, that charge will now be deductible on their next itemized return.
10. Estimated tax thresholds lowered: Small businesses only need to pay in 90 percent of the previous

Top Tax Scams Reported by IRS

Income tax-related scams are a growing crime. Americans of all ages and incomes continue to fall for or perpetrate some of the oldest scams around. Here are the top scams as compiled by the Internal Revenue Service

Tax preparer fraud
The courts are filled with actions taken against tax preparers who allegedly have taken a portion of their clients' refunds, charged inflated fees or promised refunds too good to be true. Choose your tax preparer carefully.

Hiding income offshore
Americans continue to try to hide some of their income in offshore banks, brokerage accounts or other fraudulent foreign accounts. For many, this may be the time to come clean: The IRS says taxpayers who voluntarily disclose such fraudulent schemes may fare better in a criminal prosecution than those who don't come forward on their own.

Filing false or misleading forms
Some taxpayers file false or misleading returns to claim refunds they are not entitled to. Those who are caught face penalties, possibly even criminal prosecution. One common scheme involves people who receive Social Security benefits and report incorrect withholding and income amounts to avoid paying any taxes.

Abuse of charitable organizations and deductions
Numerous schemes involve tax-exempt organizations. One common scheme involves overvaluing noncash donations for income tax purposes. Another involves donors who maintain a level of control over a donated item that served as a tax deduction.

Frivolous arguments
Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. If a scheme seems too good to be true, it probably is. One of the most common schemes involves filing a phony return or reporting no income for a particular tax year. Another involves the fuel tax credit. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But others who aren't entitled to the credit have claimed it anyway to reduce their tax liability.

Abusive retirement plans
Some taxpayers use various schemes to avoid the limits on contributions to retirement accounts, such as IRAs, or to avoid penalties on early distributions. Taxpayers also should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or who suggest strategies for avoiding annual contribution limits to retirement plans.

Disguised Corporate Ownership
Some taxpayers try to disguise the ownership of a business or financial entity to avoid paying some or all of their tax liability.

Misuse of Trusts
For years, some financial advisers have urged taxpayers to transfer assets into trusts as a way to shield income from taxes. While many trusts are legitimate parts of tax and estate planning, others are not. Whistleblowers also may provide allegations of fraud to the IRS and may be eligible for a reward by filing Form 211, Application for Award for Original Information, and following procedures outlined in Notice 2008-4, Claims Submitted to the IRS Whistleblower Office under Section 7623.

Phishing
Phishing is a tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. IRS impersonation schemes flourish during the filing season and can take the form of e-mails, tweets or phony Web sites. Many times, the e-mails and other correspondence appear to be authentically from the IRS. Scammers also may use phones and faxes to reach victims. Some scam artists tell consumers they are entitled to a refund and that they must reveal personal financial information to get it.

If you get an e-mail that appears to be from the IRS but seeks personal information, do not open it or attachments or click on any links in the e-mail. Forward the e-mail to phishing@irs.gov.

Heavily Built Tax Break Spared in Health Care Bill

The health care bill that passed this week offers subsidies to people with low income so they can afford health insurance. To help pay for those subsidies, people with large incomes will have higher tax bills.

It sounds like a rout for Robin Hood, but President Obama and Congress ultimately spared one big tax break the health savings account that Republicans love and senior members of George W. Bush’s administration had championed. In fact, the legislation makes it likely that many more people will take advantage of the accounts by the middle of the decade, keeping even more money out of the hands of the government.

Consumers were able to sign up for H.S.A.’s beginning in 2004, though similar accounts had existed before that. When you deposit money into an account at a bank, you pay no federal income taxes on the money you deposit, it grows tax-free in the account and there’s no levy on earnings once you tap into the account for qualified expenses. It’s a rare triple play in the world of tax breaks.

But it comes with some big restrictions. You have to use the money for health care costs to qualify for the tax break. And you can put in only $3,050 in 2010 if you’re just covering yourself or $6,150 if you’re also covering your family. (If you’re 55 or older, you can make an extra $1,000 contribution. Anyone of any income level can put in money, and an employer can contribute, too.)

Why were H.S.A.’s created in the first place? The big idea was that if people had to pay more out of pocket each year, they’d have an incentive to shop around and be less wasteful with their health care spending. The cumulative effect of millions of people doing that would supposedly lower costs. Tax savings from the accounts, meanwhile, would lure the uninsured into high-deductible plans, which often have lower premiums. And if the new enrollees were young and healthy, their premiums could subsidize coverage for the old and the sick.

We don’t know yet whether all of this can help cure what ails health care. But it is definitely a spectacular tax dodge for those who can afford to max out their contributions and not touch them for decades. Plenty of doctors and tax lawyers have their own H.S.A.’s. And they would know, wouldn’t they?

But for anyone who will soon be paying higher taxes because of the health care bill, taking some of it back through an H.S.A. contribution is pretty easy money if you qualify. And for everyone else who ends up in an eligible health insurance plan, it would be wise to at least cycle some money through an account.

Homebuyer Tax Credit Bill in California

Gov. Arnold Schwarzenegger signed a bill aimed at selling California's vacant homes and encouraging new construction by extending a $10,000 state tax credit for first-time homebuyers.

The governor signed a bill the state Legislature passed on a bipartisan vote earlier this week. It provides a state tax credit to first-time homebuyers who buy new or existing homes from May 1 until the end of 2010. Homebuyers can claim 5 percent of the purchase price against their California taxes, or up to $10,000.

"I have been up and down the state pushing this important housing bill that will get people off the fence and into homes while creating jobs and stimulating our economy," Schwarzenegger said in a statement.

Earlier this year, Schwarzenegger called on lawmakers to extend the homebuyers tax credit as part of his job-creation initiative. At 12.5 percent, California has the fifth highest unemployment rate in the nation.

The state passed a similar tax break last year that capped the total credit available at $100 million on new homes bought through February.

The new bill makes another $100 million available for buyers of new homes and $100 million for those who buy existing homes. According to the Franchise Tax Board, the state allocated that credit to 10,569 applicants after receiving more than 12,000 applications.

The governor said the expanded tax credit will help cities and counties get more properties back on the tax roll and put more people to work.

Also Schwarzenegger vetoed a tax bill that would have provided relief to those who had mortgage debt forgiven in 2009. The governor said in his veto message that he could not support the bill because lawmakers inserted a tax penalty opposed by businesses.

6 Ways to Handle Tax for the Struggling Taxpayers

Filling out and filing those tax returns is not fun, but it's not as painful as coming to the end of the form and realizing you owe more than you have left in your checking account.

That's likely to happen to more people than usual this year. Many reduced the amount of taxes withheld from their take-home pay in 2009 so they could collect their Making Work Pay credit in every paycheck. Some over adjusted and had too little withheld. Others lost jobs, and collected taxable unemployment benefits that they weren't paying taxes on.

With many taxpayers still struggling with less work and less pay than they are used to, there will be lots of unhappiness and worry when those numbers emerge at the bottom of the form. The Internal Revenue Service says it's going to be more lenient than ever in working out deals to help folks who can't pay.

There are good ways and bad ways to handle the big-bill-no-cash situation. Here's what you need to know now.

1. Don't hide. The penalties for not filing a tax return are severe, amounting to 5 percent of the amount owed per month, up to 25 percent the total owed. And simply ignoring the situation is sure to increase your stress levels.
2. Don't be in a hurry to put the balance on your credit card. You'll have to pay 2 percent to 4 percent off the top, just to do the transaction. Then you'll pay interest at your credit card's high annual rate, until you've paid off the balance. If you have a credit card that is offering a decent low-interest cash-advance offer, you can write a check against that card and deposit it into your checking account and then use that cash to pay your tax bill. But good low-interest (and low-fee) credit card cash advance offers are hard to find these days.
3. Do look for other sources of cash. That can be anything from borrowing from a relative to hosting a yard sale, to taking money out of a low-yielding savings account. Don't take money out of a tax-deferred retirement or college savings account to pay a tax bill. Consider writing a check on your home-equity line of credit.
4. Ask the IRS for a short-term loan. If you think you'll have the money within 4 months, you can simply stretch out your payments to the tax agency. You'll need to file an online payment agreement at the IRS website . You will have to pay a penalty of 0.5 percent per month (that's one-tenth of the penalty for not filing) plus interest at an annual rate of 4 percent a year. That is not a bad deal.
5. Ask for even more time. That same interest and penalty rate also be stretched out over a longer period of time, if you agree to make regular payments. You can have the IRS deduct money from your paycheck or bank account on a regular basis, or simply agree to make regular payments on your own. If you owe less than $25,000 and can pay it off in under three years, the IRS is likely to approve your installment plan without much fuss. You can use the same online payment form to set up an installment plan.
6. If you have big problems, look for big solutions. If you are teetering on the edge of bankruptcy, with no hope of ever paying your bill, you may be able to get the IRS to agree to accept a smaller amount. This is called an Offer in Compromise, and it is not the easy pennies-on-the-dollar deal hawked in often fraudulent television ads. The agency approves only one in four of the requests it got last year. However, the IRS says it's going to grant more leeway to its agents to accept these offers this year. It will, for the first time, allow agents to make forward-looking judgments about whether taxpayers will have the income in the future to pay bills based on their income in the past.

For many taxpayers who used to be flying high but now are skating on the edge, which could be a big help.

Top 10 Tax Procrastinating Cities

Big D apparently hates to do its taxes.

Dallas has once again made TurboTax's annual list of top 10 tax procrastinating cities. For the second year in a row, it has come in at No. 9.

TurboTax based the list on its customers last year, so perhaps it's more accurate to say that users of its service in Dallas are procrastinators.

Two other Texas cities are also full of tax procrastinators. Austin came in at No. 4, and Houston can be proud (or not) of its No. 1 ranking.

With three cities, the Lone Star State ties California for being with biggest procrastinating state on the list.

But Dallas residents have plenty of company in kicking the tax-return can down the road. The IRS estimates that as many as 20 percent of all Americas put off sending in their tax returns until the last two weeks, according to TurboTax.

TurboTax’s rankings are based on the largest number of people that file between April 14 – 17. Here are your biggest putter-offers for 2009 (with previous year ranking in parents):

1. Houston – (#2)
2. Chicago – (#4)
3. New York – (#3)
4. Austin, Texas – (#11)
5. San Francisco – (#1)
6. Seattle – (#7)
7. San Diego – (#5)
8. Los Angeles – (#8)
9. Dallas – (#9)
10. Las Vegas – (#10)

Green technology in California's Tax

Moving swiftly to save hundreds of millions in state funding for public transit projects, the Legislature struck a deal Monday with Gov. Arnold Schwarzenegger and approved millions in tax breaks for two groups whose fortunes are tied closely to the state's economic recovery homebuyers and green-technology manufacturers.

By delivering the tax breaks which were blessed in uncommonly strong bipartisan votes lawmakers ensured the governor would reverse him and sign $1.1 billion in budget fixes sent to his desk last month. Those fixes involved a complex shuffling of fuel taxes meant to reduce the state's $20 billion deficit while pouring more cash into public transportation.

The deal reached Monday provides $200 million in new tax credits for homebuyers, to be split evenly among those buying a home for the first time and anyone buying a newly constructed home. Anyone qualified who makes a purchase between this May and August 2011 will receive a credit for 5 percent of the home's purchase price, up to $10,000 over three years.

Additionally, companies that make "green" technology products like solar arrays and electric cars will be freed from having to pay any sales tax when purchasing their manufacturing equipment over the next 10 years. The proposal is meant to drive hundreds of millions of dollars in new manufacturing to California, including Silicon Valley.

"Green technology is California's present and its future"

Both exemptions will take effect as soon as the governor signs them, which he is expected do after stumping for them up and down the state recently. "The package of bills as written will provide significant benefit to the state's general fund and will help put Californians back to work."

The green-tech tax credit won't affect this year's budget, according to the Department of Finance, since it's meant to attract investment that hasn't yet materialized.

A third bill sent to the governor included technical changes to the gas-tax swap, ensuring that commuter rail lines and transit agencies didn't see a spike in diesel prices. The governor's fuel-tax plan would have eliminated state transit funding by shifting the state's sales tax on gasoline to a special excise tax, in the process giving consumers a 5 cent tax cut on each gallon of gas. The governor was upset that Democrats tweaked that plan to eliminate that reduction in favor of increasing transit money.

Payroll Tax Incentive for Employers

Two new tax benefits have become available to employers who hire workers who were unemployed or working part time.

These new benefits are a part of the Hiring Incentives to Restore Employment Act that was signed into law Thursday.

To qualify for the benefits, employers must hire unemployed workers between February 3rd of 2010 and January 1st of 2011. This could give them a 6.2% payroll tax incentive. The reduced tax will have no effect on the employee's future Social Security benefits and employers would still need to withhold the employee's 6.2% share of Social Security taxes and income taxes. Medicare taxes would still apply to wages.

Additionally, for each unemployed worker retained for at least a year, business may claim an additional general business credit of up to $1000 per worker when filing their 2011 income tax returns.

"These tax breaks offer a much-needed boost to employers willing to expand their payrolls, and businesses and nonprofits should keep these benefits in mind as they plan for the year ahead," said IRS Commissioner Doug Shulman.

Latest Kansas Budget Plan in Schools

The House Appropriations Committee passed a $5.1 billion budget proposal at Topeka, KS USA, that includes no tax increases and would cause public schools to lose $172 million.

The amount that the state spends on kindergarten through 12th grade would stay the same next year as this year, but the schools would get less because they won’t receive $172 million in federal stimulus funds.

Gov. Mark Parkinson had asked the Legislature to make up for the loss of federal funds, and spend $33 million more to increase per-pupil funding. However, the House committee recommended that the state not kick in any more money.

The committee measure also seeks to save about $21 million through a 5 percent cut for most state workers, which could cause state offices to close at 3 p.m. on Fridays.

Other proposed cuts include:

• A hiring freeze on some agencies.
• No increase in state contributions to the state pension fund.
• A 1 percent budget reductions for most state agencies. Education would not be cut further. The Department of Corrections and some social services caseloads also would not be cut.

While the House committee was talking about cutting the budget, a Senate committee was debating raising taxes a proposal that went nowhere. The Senate taxation committee failed to approve anything in a bundle of tax increase bills. The original plan was to increase taxes on cigarettes, alcohol, sugary drinks and raise the overall sales tax by a penny.

Time up For Home Buyer Tax Credit

Time is almost up on the federal home-buyer tax credit, the government’s gift of up to $8,000, crafted to jump-start a stalled housing market. Just about six weeks remain for buyers to get those contracts inked.

For those just now getting into the market who wants the cash, you’re going to have to move quickly, that pushed hard for this credit and its two extensions in February and December 2009. “You’ve got to be prepared to make quick decisions.”

In honor of the countdown, here are six things to keep in mind

1. This round is actually an extension, but it doesn’t just cover first-time buyers. Move-up buyers are also eligible, though they only qualify for up to $6,500.
2. Only the contract has to be signed on or before April 30. The home purchase must be completed by June 30. Real-estate experts advise signing the contract as soon as possible and leaving plenty of time for closing, given lenders remain extra careful these days. Don’t try to squeeze in a July 1 deal. It won’t work.
3. The definition of a first-time buyer isn’t as limiting as the words indicate. In this case, the “buyer” hasn’t owned a principal residence in three years. For married taxpayers, both parties can’t have owned.
4. It might seem genius to “buy” a home from your parents, but skip any such notion. You can’t purchase a home from most family members: Parents, children, grandparents and grandchildren are excluded.
5. Consider that prices might fall after the credit expires: Buyer traffic will undoubtedly decline once this enticement goes away. As sellers adjust to this slower new reality-they’ll be more than likely to shave prices.
6. Of course, there’s talk of another extension, given housing’s recovery remains choppy. Some think the time has come to end the program pushed to extend the tax credit last fall but last month it’s time to let it expire. It’s worn out its benefit, if you extend it again, it isn’t going to do much, and what you’re doing is providing a tax break to folks who bought anyway.

Health Insurance After-tax Basis Medical Expense Deduction

The prescription from accountants says that with incomes down and insurance premiums up more Americans are qualifying to take medical and dental deductions on Schedule A of their individual tax returns.

The most common mistake people make is assuming they need a big health-care expense to qualify since their eligible medical and dental expenses must be greater than 7.5% of their adjusted gross income.

While that may have been true in the past, over the last three years Canning, who also has a tax practice, has seen an increasing number of clients meet that 7.5% threshold thanks to skyrocketing insurance premiums, deductibles, co-pays and coinsurance.

If you have employer-sponsored health insurance, find out whether you pay your premiums on a pretax or after-tax basis. Only premiums paid on an after-tax basis may qualify for the medical-expense deduction.

Add up out-of-pocket costs
To take the deduction, first, you must itemize rather than using the standard deduction. Second, you can only deduct the amount that is above the 7.5% threshold. And if you are unlucky enough to be subject to the alternative minimum tax, that limit rises to 10% of adjusted gross income.

With a spouse out of work and higher out-of-pocket costs for two elective surgeries, a longtime client is taking the medical deduction for the first time. If you were out of work and received the federal government's 65% subsidy for your Cobra coverage, you also can still deduct the remaining 35% that you paid. "The tax deduction eases the blow.”

While you don't need to add the premium assistance to your gross income, you may have to pay back part of that subsidy if your adjusted gross income was between $125,000 to $145,000 for individuals, and $250,000 to $290,000 if filing jointly. And if your AGI was more than $145,000 or $290,000, respectively you must repay the Cobra subsidy in full as part of your income tax.

Surprising medical deductions
This year, the IRS didn't add anything to its long list of what qualifies as deductible medical and dental expenses, but many eligible costs may surprise taxpayers because they're not covered fully or at all by insurers.

Preparing taxes Ideas

Preparing taxes is nobody's idea of a good time, but for most taxpayers, there's a payoff: a sizable refund check. This year, though, residents of several states will have to wait up to five months to receive their state tax refunds because of budget shortfalls.

The federal government hasn't run out of money at least not yet. Still, at a time when many people need their refund checks to pay the bills, some taxpayers' federal tax refunds have been delayed.

Taxpayers who file their federal tax return electronically and arrange for direct deposit typically receive their refunds in about two weeks, the IRS says. But here are some reasons your federal tax refund could arrive later than expected:

You failed to claim the Making Work Pay credit.
Of the 60 million individual tax returns filed by early March, more than 2 million contained an error related to this credit, the IRS says.

Last year's economic stimulus package provided most taxpayers with a tax credit of $400, or $800 for married couples. The IRS adjusted its withholding tables so the credit was spread out through the year.

But when you file your tax return, you need to claim the credit on Schedule M, says Michelle Eldridge, a spokeswoman for the IRS (tax software programs will do this automatically). This is particularly important for taxpayers such as workers who are self-employed who didn't receive the credit through withholding, or only received a partial credit.

You received a Making Work Pay credit and an Economic Recovery Payment.
As part of the stimulus package, Social Security beneficiaries received a one-time Economic Recovery Payment of $250. Since the maximum a taxpayer can receive from both programs is $400, those seniors will have to reduce their Making Work Pay credit by the amount of their Economic Recovery Payment. Failure to do this could hold up your refund.

If you're not sure whether you received the $250 payment, you'll have to check your bank records. The IRS didn't send out a notice about the payment, and neither did the Social Security Administration. The Treasury Department delivered the checks last year in the same manner Social Security beneficiaries received their regular benefits. If you received your Social Security benefits through direct deposit last year, your check went directly into your bank account.

You claimed the home buyer's credit.
Taxpayers who were first-time home buyers in 2009 are eligible for a tax credit of up to $8,000, while repeat buyers are eligible for a credit of up to $6,500. That's a nice benefit, but you may have to postpone buying those window treatments.

Taxpayers who claim this credit are required to attach a copy of their settlement statement to their tax return. That means they must file their return by mail instead of electronically. Congress added this requirement last year in response to reports of widespread fraud in connection with the credit.

VITA Tax Refund Help

The volunteers who help low income people fill out their tax returns at Springfield Partners for Community Action are busy early this year, seeing a rush of taxpayer’s weeks before the April 15 deadline.

"With this economy, people need the money now," Martin D. O'Connor, tax advocate and head of the Volunteer Income Tax Assistance or VITA program said. "They have bills to pay now and they can't afford to wait. They need their money now."

Springfield Partners' VITA program expects to help 3,500 to 4,000 low income Springfield residents fill out tax returns this year. The VITA program is open to taxpayers who earned $49,000 or less in 2009.

The Internal Revenue Service also estimates that more taxpayers will qualify for the earned income tax credit this tax season after suffering unemployment and cutbacks in pay and hours during 2009.

The federal government also changed the tax credit this year allowing for an enhanced credit for people with three or more children. The benefit used to stop growing after the second child.

The amount of the refund varies according to a person's income and number of dependent children. For example, a single person with no dependent children would have to earn no more than $13,440 a year to qualify. But a parent of three or more children can qualify with an income of $43,279 or $48,279 for two parents married and filing jointly, according to the IRS.

The maximum tax credit ranges from just $457 for someone with no dependent children to $5,657 for someone with three or more qualifying children. Last year, 24 million people received $50 million in benefits. The average refund was $2,000.

California State Tax Free Bonds

Despite all the talk about California going bankrupt (which it can't, legally) or being like Greece, investors scooped up the state's tax-free general obligation bonds this week. Demand was strong enough that Treasurer Bill Lockyer increased the size of the sale by $500 million to $2.5 billion today.

Individual investors bought about 55 percent of the bonds, primarily the shorter-term maturities, during a two-day retail order period that ended Wednesday. Institutional investors bought the rest of the bond issue today.

Strong demand allowed the state to pay slightly less than originally planned. Final yields ranged from 1.17 percent for the March 2012 maturity to 5.65 percent for bonds maturing in March 2040. The state had expected to pay 5.7 percent on the 2040 maturity.

"I think (investors) recognize what the treasurer and state officials have been saying forever, that California is still a sound investment. Despite all those negative headlines and our ratings (California has a lower credit rating than any other state), our likelihood of default is virtually zero."

California was lucky that the overall supply of tax-free bonds both newly issued debt and previously issued bonds trading in the secondary market has been unusually small lately. Meanwhile, demand for tax-free bonds has been strong because many investors expect tax rates will be going up. Strong demand and limited supply means investors were willing to pay a slightly higher price and accept a slightly lower yield than some market experts had expected.

Supply has been limited because many states, instead of issuing tax-free bonds, have been issuing Build America Bonds, which pay taxable interest. These bonds, nicknamed BABs, were created by last year's federal stimulus act. States and other government issuers sell them to finance infrastructure projects. Because they are taxable, they pay higher interest rates than tax-free bonds, but the federal government reimburses states for 35 percent of the interest.

Kansas Tax Increase in Alcohol

Kansas lawmakers trying to close a $467 million budget deficit weighed two tax increases, one on alcohol, and another on tobacco. One fared better than the other.

The proposed alcohol tax hike was tabled indefinitely by the House Tax Committee. But the idea is likely to resurface as lawmakers look for alternatives to further budget cuts. The added alcohol tax revenue would have been split between mental health programs and services for people with development disabilities.

But several members of the House Tax committee opposed the bill, HB 2593, for different reasons. Some worried it could hurt businesses that sell alcohol. Others questioned if the tax revenue would actually be spent on its intended purpose.

The bill would have doubled a wholesale tax on beer, wine and alcohol that’s been unchanged since 1977. The current tax is 18 cents per gallon of beer, 30 cents per gallon of wine and $2.50 per gallon of alcohol. The tax, amounting to a few pennies per drink, is passed on to the consumer. The increase would have raised $21.8 million a year.

Community mental health agencies have lost $20 million in state funding due to recent budget cuts. More than 4,000 Kansans with disabilities are now awaiting services.

Meanwhile, the Senate Tax Committee reviewed legislation to increase the tax on tobacco. A committee vote is likely next week. The tax would go up by 55 cents per pack of cigarettes to $1.34, the national average. The increase would raise $69 million.

Anti-tobacco groups argue that the measure, SB 516, would reduce smoking rates, especially among teenagers. They note the state already pays hundreds of millions to defray the cost of smoking related illnesses. School lobbyists and social service advocates contend the tax could help prevent further budget cuts.

But tobacco and convenience store owners maintain that increasing the tax would backfire. They argue that smokers near the state line would travel to Missouri, home of one of the nation’s lowest tobacco tax rates at 17 cents per pack.

Mexico's Value Added Tax for Hollywood Film Production

Mexico has launched a $20-million tax-incentive program in an ambitious move to lure film production from Hollywood and other locales.

Mexican President Felipe Calderon said he hopes the program will make Mexico "the capital of Latin American cinema."

He made the announcement at Baja Studios in the state of Baja California, where James Cameron's "Titanic" and Peter Weir's "Master and Commander: Far Side of the World" were shot in the studio's colossal tanks.

Managed by state-run film financing agency Imcine and Mexican trade and investment body ProMexico, the program offers tax rebates of 7.5% on film productions that exceed the amount of 70 million pesos ($5.5 million). By Mexican standards, where the average budget runs about $2 million, that is considered a high-budget production. The fund will double next year to $40 million.

To qualify, foreign producers must contract local production services. Producers also can write off an additional 10% owed for IVA, Mexico's value-added tax.

"The message is that there is a 17.5% rebate for foreign productions," said Manuel Sandoval, ProMexico's head of strategy and innovation.

H&R Block Traditional Tax-Preparation Business

H&R Block Inc.'s (HRB) fiscal third-quarter earnings rose 6.9% on prior-year losses from discontinued operations as the largest tax preparer in the U.S. suffered from handling 7.1% fewer returns.

"While we are disappointed with our early results this tax season, we remain committed to improving our performance as the remainder of the season unfolds," said President and Chief Executive Russ Smyth. "We expect to outperform our competitors regardless of the external factors like unemployment rates, but we have not done so to-date."

The company, citing industry wide sources, said returns to the Internal Revenue Service were down up to 5% through Feb. 28 from a year earlier. The decline is expected to be half that by the time April 15 arrives. As of Feb. 28, H&R Block said same-office returns fell 6.8% in retail operations and were down 9.4% overall. The company last month warned tax-return preparation was coming up short of what it was a year earlier.

H&R Block and other traditional tax-prep companies such as Jackson Hewitt Tax Service Inc. (JTX) have struggled since consumers began moving to filing taxes online. The company has recently been looking to focus more on its traditional tax-prep business, exiting its brokerage and loan-origination businesses. For the quarter ended Jan. 31, H&R Block posted a profit of $50.6 million, or 15 cents a share, compared with $47.4 million, or 14 cents a share, a year earlier. Earnings from continuing operations fell to 16 cents from 20 cents as revenue decreased 5.9% to $934.9 million.

Analysts surveyed by Thomson Reuters predicted 14 cents in earnings on $950 million in revenue.

Shares in H&R Block were up 3 cents after-hours at $16.77. The stock is down 10% from a year earlier.

Claim a Refund Tax From 2006

While taxpayers are busy preparing their 2009 returns, the clock is ticking down for anyone who still could be claim a refund from 2006.

The Internal Revenue Service, or IRS, has an estimated $1.3 billion in unclaimed refunds due to nearly 1.4 million Americans. In Iowa, about $10 million went unclaimed by about 12,200 Iowans who did not file a federal return in 2006. About 51,400 Illinois taxpayers could get a piece of the $54.74 million in refunds that went unclaimed there.

The IRS stressed that taxpayers must file a 2006 return by April 15 in order to collect the refund. The agency estimates that the median unclaimed return is worth $596 in Iowa and $655 in Illinois.

“Especially in these tough times, we want to encourage people to review their records to see if they had tax withheld from their paychecks for 2006 but didn’t file a tax return,” said Christopher Miller, the IRS spokesman for Iowa. “Maybe they didn’t file because they didn’t make enough money to require filing, but they could be leaving money on the table.”

By law, most taxpayers have a three year window of opportunity to claim a refund even if they did not file a return. For 2006 returns, the window closes April 15, Miller said.

If the time expires and no return is filed, the money becomes property of the U.S. Treasury. The IRS said there is no penalty for filing a late return qualifying for a refund. While back-year tax returns cannot be filed electronically, taxpayers can speed up their refunds by having them deposited directly to their accounts.

According to the IRS, taxpayers will have their 2006 refund checks held if they have not filed tax returns for 2007 or 2008. In addition, refunds will be applied to any amounts still owed to the IRS or to satisfy unpaid child support or past due federal debts, such as student loans.

Miller said taxpayers also could be eligible for additional tax credits, such as the one-time telephone excise tax refund for telephone users including cell-phone users. Available only on the 2006 return, the special payment applied to long-distance excise taxes paid on phone service from March 2003 through July 2006.

The government’s standard refund ranges from $30 to $60, but taxpayers also can base their refund request on the actual tax paid. For more information, see the Telephone Excise Tax Refund page on IRS.gov.

In addition, many low and moderate income workers may not have claimed the Earned Income Tax Credit (EITC).

When Tax Help Needed?

The decision of whether to do your own taxes or hire someone keeps getting more difficult.

Companies continue to offer updates to their do-it-yourself tax tools. With names like CompleteTax, Jackson Hewitt Online, H&R Block at Home and, of course, TurboTax, the tax solutions purport to make doing your own taxes easier.

But even as the Internal Revenue Service plans to regulate paid tax preparers to help prevent taxpayers from paying for bad advice, the tax code continues to get more complicated (it’s now at nearly 14,000 pages). The I.R.S. has also been increasingly filing claims on property or income against taxpayers with little or no property and auditing the middle class, which means you may end up with a lot of extra headaches if you don’t have extra help.

In fact, even the commissioner of the I.R.S. doesn’t do his own taxes. He is among the 60 or so percent of Americans who hire tax preparers to do their income taxes.

Still, you may be unsure of whether your particular situation warrants extra help. So here’s some guidance.

One factor to consider is the convenience. Pay someone to do your taxes if you simply don’t want to spend the time doing them yourself. And you should also look for professional tax help if you find yourself scratching your head as you try to answer the questions in the do-it-yourself tax preparation software.

If your taxes are relatively simple for instance, you just have a W-2 form from your employer and one interest-bearing account then you should be able to handle doing your own taxes.

“When people’s financial situation gets more complicated, they should not be doing their own returns”. The situations are:

• You are self-employed.
• You are an active trader in securities.
• You are part of a limited partnership (think hedge funds or private equity funds).
• You have a trust fund.
• You are going through a major life change like a divorce or retirement.
• You need to file in multiple states or cities.
• You have a significant amount of money in I.R.A.’s and are grappling with how the new Roth I.R.A. rules will affect you.

Other articles like this one offer more situations where you might want to get help, including if you sold a home through a short sale or receive rental income.

What do you think is missing from this list? If you fall into one of these categories, do you seek tax help? Why or why not?

But if you fall into one of the situations propose to talk with tax professionals.

Tax Breaks for Vehicles

You bought a car last year and that monthly payment is causing pangs of buyer's remorse. Take heart that new car could lead you to a refund this tax season.

That's because taxpayers who bought new vehicles in 2009 are eligible for deductions or credits that could help cut their tax bills or boost their return.

SALES TAX DEDUCTION
Tucked within last year's economic recovery act is a provision that allows buyers of new vehicles to deduct state and local sales and excise taxes. Those who bought a vehicle between Feb. 17 and Dec. 31, 2009 are eligible.

Most types of vehicles qualify cars, trucks, motorcycles and motor homes all count. But if you’re new ride last year was a pricey luxury car, your deduction could be capped. Filers can only claim a deduction for taxes paid on up to $49,500 of the sales price.

So on a $25,000 car bought in a state where the applicable taxes come to eight percent, which entitles you $2,000 deduction.

But your deduction will be smaller if you earn between $125,000 and $135,000 a year, or between $250,000 and $260,000 for married couples filing together. The deduction is eliminated for individuals earning more than $135,000 and for joint filers earning more than $260,000.

The tax break is also available for people living in states with no sales tax, which includes Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon. Filers in these states can simply deduct other fees or taxes imposed by state or local governments, such as a city-wide sales tax.
The deduction is available regardless of whether you itemize your returns. Taxpayers who do not itemize can simply add the tax break to their standard deduction on their 2009 return.

The decision to itemize or not will depend on your income. Most tax preparation software and any tax adviser should be able to help you make the decision.

HYBRID TAX CREDIT
Recent buyers of some gas-electric hybrids, like the Nissan Altima hybrid, may be eligible for a tax credit. Tax credits can be more valuable than deductions because their value counts as taxes already paid; deductions simply lower your taxable income.

The rules of the hybrid tax credit are a bit more complicated. When the tax credit took effect in 2006, the number of tax credit-eligible hybrids each automaker could sell was capped at 60,000. That means the credit has long expired for hybrids from carmakers like Toyota and Honda, which have been selling popular hybrids for a while.

Eligible 2009 model-year vehicles include certain hybrids made by General Motors, Nissan, Chrysler, Ford, and Mazda. Tax credits for these hybrids range between $1,550 and $3,000.

For 2010 model-year vehicles, which went on sale last fall, tax credits are available for certain hybrids made by GM, Ford, BMW, Mercedes-Benz and Nissan. The amounts range between $650 and $3,400. A detailed list of available hybrid tax credits can be found on the IRS Web site.

LOOKING AHEAD: PLUG-IN TAX CREDIT
There is one tax break that will become more available to car buyers this year: a credit meant to spur purchases of plug-in vehicles. The credit is worth between $2,500 and $7,500.

Vehicles qualifying now include the Tesla Roadster, a high-end electric sports car built by Tesla Motors Inc. that costs around $109,000. But automakers will begin rolling out more moderately priced electric cars later this year.

Nissan has said it will start selling an all-electric car called the Leaf. Although it hasn't announced a price, it will be a good deal less than vehicles like the Roadster. GM, meanwhile, will begin selling the Chevrolet Volt, which is expected to cost around $40,000 after the tax credit.

The cap on this tax credit will be much higher than the hybrid tax credit. Automakers can sell up to 200,000 plug-ins before it expires.

Missouri State Tax Refunds Faster Under a Bill

Missouri residents might get their state tax refunds faster under a bill endorsed by the House. State officials currently can hold onto tax refunds for up to 120 days without paying interest.

Legislation given first-round approval in the House would limit that to 45 days. The shorter period would take result immediately when it is signed into law.

The 45-day clock would start on April 15 unless someone is late filing their taxes, and then it would start when the tax return is postmarked. The state's time limit would apply to refunds for sales taxes and personal and corporate income taxes.

Last year, Missouri delayed tax refunds to boost cash reserves. Kansas, California and North Carolina also belated tax refund checks last year because of cash-flow problems. Missouri officials eventually used $250 million of federal economic stimulus money to speed refunds.

Bill followers said the state should not keep tax refunds any longer than is necessary for processing.

According to the state Department of Revenue, tax refunds so far are ahead of last year's pace. Through March 1 the state had issued 726,080 refunds for a total of $281 million. Last year, 714,926 refunds totaling $264 million had been issued.

But Missouri is facing financial problems again this year that have provoked spending cuts from the current budget. Gov. Jay Nixon and legislative budget leaders met Tuesday because state revenues have declined more than was expected in January.

Rep. Jason Smith, who handled the tax bill during House floor debate, said he believes the state should pay all its debts on time including those owed for collecting too much tax.

"This is not the state's money," said Smith, R-Salem. "This is the taxpayer's money, and we shouldn't be holding onto it."

Legislative staff predicated in a cost estimate that shortening the deadlines could force the state to spend more than $100,000 per year. The Department of Revenue estimated that the state could be required to pay several million dollars in interest and that processing tax refunds quicker could cost several million dollars more to hire the necessary extra employees.

Want to Choose your Tax Preparer?

If you decide to hire a professional to help prepare your taxes, it's important to remember that you are still ultimately responsible for what's on your return.

Here are some tips to remember before you hire someone to assist with your taxes:
1. Ask for recommendations.
Word of mouth is the best way to find a reliable preparer, so ask friends and family where they get their taxes done and if they've had any problems with their preparers.

2. Make sure the person is qualified.
Your preparer doesn't need to be a certified public accountant, but it's important to make sure he or she is properly trained and stays up to date on tax law changes. Ask questions about the individual's training, experience and continuing education.

3. Be certain the preparer will have your back in an audit.
Ask the preparer if you'll have support if the IRS questions your return or you get audited. Audits are rare, but can be unpleasant, and you shouldn't have to face them alone. Ask if the preparer has experience handling such problems -- but not too much, which may signal problems.

4. Make sure you're comfortable with their approach.
Some tax preparers can be aggressive in their approach to minimizing your taxes, others can be conservative. Be wary of those who guarantees they can get larger refunds than other preparers, but make sure they're going to claim all of deductions you're entitled to.

5. Check their background.
If you are considering hiring a CPA, check the individual's license with the state CPA association. Ask enrolled agents and others if they are members of a professional organization that holds them to certain standards. Also check to see if there are any complaints against the person with the Better Business Bureau, the state's board of accountancy for CPAs, the state's bar association for attorneys or the IRS office of professional responsibility for enrolled agents. Your state may also track complaints against preparers.

6. Make sure they'll sign your return.
The law requires paid preparers to sign each return they handle, and include an identifying number on the return. If they won't, take your business elsewhere.