The deadline to file individual income tax returns is two weeks away. Have you filed yet?
More importantly, have you thought about the credits and deductions for which you might be eligible?
“People who do their own tax returns might overlook some of the available credits or deductions just because they don?t know,” said Bob Cassel, a tax professional with Baltimore-Washington Financial Advisors.
Credits and deductions
There are credits and deductions available for education costs, retirement contributions, charitable donations and energy-efficient home improvements.
“It?s important to keep records of everything so you can claim these deductions,” said Jane Brewer, co-chair of the tax department at KAWG&F, an accounting and consulting firm with five offices in the Baltimore region.
If you contribute money to the Maryland College Investment Plan, designed to help families save for college, you can deduct a maximum $2,500 a year per beneficiary. Contributions made in excess of $2,500 per beneficiary in a single year can be carried over and deducted for up to 10 additional years.
If you?ve made contributions to a traditional Individual Retirement Account, you might be able to take a tax deduction forthe contributions, depending on your income and whether you are covered by an employer?s pension plan, according to the IRS. You can?t deduct Roth IRA contributions, but the earnings might be tax-free if you meet the conditions for a qualified distribution.
For homeowners who have made energy-efficient improvements to their houses, including adding a solar water-heating system, a portion of the cost can be deducted under the Maryland Energy Administration?s Solar Energy Grant Program.
When deducting charitable contributions, taxpayers must have a bank record or a written record from the recipient showing the name of the organization and the date and amount of the contribution. Donations greater than $5,000 require specific forms to claim deductions.
Tips for last-minute filers
The IRS, along with Maryland and Baltimore political leaders, have urged taxpayers eligible for the economic stimulus payment to file their tax returns to receive their payments in a timely manner.
There are millions of retirees, disabled veterans and low-wage workers who aren?t normally required to file but must do so to receive a stimulus payment. In May, the IRS will start sending stimulus payments of up to $600 for individuals who earn less than $75,000 and up to $1,200 for married couples who earn less than $150,000.
Brewer suggests filers make sure they know how big changes in their life in the past year ? new job, home or spouse ? can affect the tax process.
“When there is a major change in your life, sometimes people don?t realize how it can affect their taxes,” Brewer said.
A new job means a new paycheck, and possibly more income withheld. A marriage or divorce will change your filing status and could lead to an increase or decrease in assets. And having children means you now have a dependent that might qualify you for new credits or deductions.
Withmore people filing tax returns than usual this year because of the economic stimulus package, tax professionals such as Cassel are ready for two more hectic weeks of work.
“We?re going to have our heads buried in tax returns,” Cassel said. “Usually I?m so tired by the end of it, all I want to do is go to sleep.”
