Tax Tips for Maximum Refunds
Photo: DonkeyHotey via Flickr.com
By Mike Thompson,
If you are low- or low-middle income, or if you know of family and friends in this boat, there are several steps to attain the best results when submitting tax returns.
(1) Bear in mind your wages may be as high as $40,000 if a child is in your home, or as high as the $50,000 range if your household includes several, to qualify for the benefits of the Earned Income Tax Credit (ETIC) or the Child Tax Credit.
(2) "Children" can be as old as 18 as of last Dec. 31, or 24 if they are full-time students. Foster children or children in a grandparent's care can be counted too.
(3) Free-of-charge tax preparation often is available through VITA, Volunteer Income Tax Assistance. Inquire at your local United Way office, community action agency or public library.
(4) Be aware that there is no such thing as a rapid refund. The IRS cuts checks in the order in which tax forms are received. Many tax preparers (including some car dealers and rent-to-own shops striving to make a sale) offer "rapid refunds," but they actually are loans for which they assess sky-high fees, similar to payday loans. Your refund is collateral. So if you accept this option you may be paying the equivalent of a triple-digit annual interest rate, just to get your money a couple weeks ahead of time.
The EITC is very important, often worth thousands of dollars for a household. The tax credit was conceived and signed by, of all people, President Richard Nixon, as a method to include an anti-poverty work incentive, rather than simply doling out welfare grants. Presidents Bill Clinton and Barack Obama both expanded the EITC, and Michigan is among 24 states that also have their own versions, although much more modest than the federal credit.
Last year, reports the Center for Budget and Policy Priorities (eitcoutreach.com), 27 million families benefited from the EITC. Sadly, believe it or not, another 9 million qualified but failed to make the claim, for one reason or another. This begs the question of why the IRS makes things so complicated, but at any rate, this is why the center conducts national educational outreach.
The high levels of qualifying income may surprise some folks:
* Up to $13,980 for a childless individual, or $19,190 for a childless couple.
* For a home with one child, up to $36,920 for a single parent and $42,130 for a married couple.
* For a home with two children, up to $41,952 for a single parent and $47,162 for a couple.
* For a home with three children, up to $45,060 for a single parent and $50,270 for a couple.
On a political note, readers may recall Mitt Romney's sad assertion during last year's campaign that "47 percent" of Americans pay no federal income taxes and thus feel entitled to freebies from the government. The EITC is a main reason for the 47 percent figure, but of course these filers pay many other sources of taxes, including payroll deductions for Medicare and Social Security.
Furthermore, the Center for Budget and Policy Priorities notes that a mere 9 percent of federal entitlement spending, in contrast to Romney's laments regarding freeloaders, goes to unemployed adults. Other shares include 53 percent for senior citizens, 20 percent for people with disabilities and 18 percent for working adults.
When visiting a tax preparer, the following paperwork is desired:
* Photo ID.
* Social Security card, for self and appropriate dependents.
* Dependent birthdates.
* W-2, Social Security and 1099 income statements.
* Last year's tax returns (the prior two years of you feel you missed deductions in the past; recovery still is possible).
* Proof of payment of property taxes or rent.
* For tenants, landlord's name and address.
* Proof of payment for child day care, and provider's tax identification number.
* Department of Human Services statement, if appropriate.
* Divorce and alimony documents, if appropriate.
*Bank account and routing numbers.
(Final note: If you annually are receiving a large EITC, and if you would prefer larger regular take-home paychecks throughout the full year, consider asking your employer for a W-5 form, Earned Income Credit Advance Deposit Certificate. Less money will be withheld. For instance, if your EITC is $2,600 and you get paid weekly you can take home an added $50 with each paycheck (divide your own refund by 52). Biweekly, it’s $100 (divide your own refund by 26). Of course, this means you no longer can count on such a large lump sum tax return check at the start of next year. It's a tradeoff; your choice. If you work multiple part-time jobs, take caution in exercising the W-5 option so as not to under-withhold. Don't be shy about asking an employer because it makes no financial difference to them one way or another; in fact, they are legally required to provide and process the W-5.)
Lyn Lomasi is founder and owner of the Brand Shamans Content Community. Services include ordained soul therapy and healing ministry, business success coaching, business success services, handcrafted healing jewelry, ethereal and anointing oils, altar and spiritual supplies and services, handcrafted healing beauty products, and more!
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