Stimulus payment expectations--and realities

The last batch of direct-deposit stimulus payments is scheduled to go out this week to electronic early birds: qualifying taxpayers who 1) arranged for direct-deposit of their refunds and 2) filed early enough to have their tax returns processed by April 15. After this week, other folks can start to expect their payments, either by direct deposit or by paper check. In general, you'll get your stimulus payment the same way you got your refund. (For guidance on when yours might arrive, check the IRS's payment schedule).

As I've mentioned before, there are a number of reasons why you might not get your stimulus payment by direct-deposit even if you got your refund that way. That can be frustrating, but not the end of the world. You should get the payment by paper check, most likely by July 11.

But even early birds who already have received their stimulus payments aren't necessarily singing a happy tune. A number of readers tell me they expected much more. The IRS says it will be sending hard-copy notices to taxpayers to explain the calculations it used to determine their payments. So sit tight.

While you're waiting for that notice, however, you can read the IRS's general explanations, below, for lower-than-expected stimulus payments. Foremost, keep in mind that the stimulus payments of $600 per single/head-of-household filer and $1,200 per married couple are maximum amounts, not flat sums. They can be less, depending on your income.

You might not get the maximum stimulus payment because:

* You are single and your net income tax liability is less than $600. If you file Form 1040 net income tax liability is the amount shown on Line 57, plus the amount on Line 52.
* You are married and your net income tax liability is less than $1,200.
* You are single and your adjusted gross income (AGI) is more than $75,000. On Form 1040, AGI is the amount on Line 37.
* You are married filing a joint return and your AGI is more than $150,000.
* You owe back taxes.
* You have non-tax federal debts such as unpaid student loans or child-support obligations.

I'd add that dependent chidlren age 17 and over don't qualify for the $300-per-child stimulus payment. Adult dependents don't qualify either.

Look for more at the IRS Web site, www.irs.gov. If you're still not satisfied upon seeing your IRS notice, you can try calling 1-866-234-2942 and wait for a human being to help you. But I'd wait a few weeks to do so, as those lines are currently very busy.

--Tobie Stanger

Where's my stimulus payment (tax rebate)?

The IRS recently posted a new interactive worksheet on its Web site, "Where's My Stimulus Payment?" It's intended to help taxpayers determine the status of their stimulus payment: how much it is, when it should arrive, and how it will be delivered. You only need three pieces of information to use it: the Social Security number of the first person listed on the tax return, filing status (single, married filing jointly, etc.), and the number of exemptions claimed on the return.

You are welcome to try it, but don't be surprised if you end up frustrated. The IRS interactive indeed told how much my husband and I, who filed separately, would receive of the basic stimulus payment by this Friday. But didn't explain why we wouldn't get credit for our 14-year-old daughter, whom my husband claimed as a dependent.

Several colleagues and commenters on this blog tried the system and got the equivalent of no answer at all. One got the response, "We are sorry but we cannot tell you the status of your Stimulus payment." Another got, "We are sorry. Specific information about your Stimulus payment is not available."

In fact, it appears that "Where's My Stimulus Payment" is only useful when the payment is nearly in your hands. As it told one colleague, "Specific information about your Stimulus Payment will not be available until about one week before your payment is scheduled to be issued. " An IRS spokesman told me basically the same thing.

A lot of good that does.

In the mean time, check the IRS's rebate payment schedule, which may be able to tell you the week in which you can expect your rebate.

And if you received your rebate and disagree with the amount or don't understand why you got what you got, call the Refund Hotline at 1-866-234-2942 and wait for a human being. An IRS representative wasn't able to help me because I didn't have certain information at hand, but perhaps you'll be luckier.

--Tobie Stanger

Your stimulus payment is on the way...eventually

If you played all your cards right and happen to have the right Social Security number, you could get your economic stimulus payment (rebate) this week. The IRS says the first rebate payments--of up to $1,200 per couple and $300 per child--are going out via direct deposit this week to qualifying taxpayers who 1) had their returns processed by April 15; 2) arranged for direct deposit of their refunds and 3) have Social Security numbers ending with the last two digits between 00 and 20.

The rest of us will have to wait a little longer. Those who meet conditions 1) and 2) but have higher Social Security numbers should see their rebates by May 16. The remainder of folks who filed on time could wait as long as July 11, especially if they opted to have their refunds--and hence their rebates--sent by mail. In general, your rebate will be sent the same way as your refund.

That said, there are exceptions. Even if you opted for direct deposit of your refund, your stimulus rebate will be mailed if:

•You opted to direct-deposit your refund into more than one account (called a split refund).

•You got your refund through a refund anticipation loan (RAL). The IRS says it will not direct-deposit rebates into such arrangements. Folks who used H&R Block's Emerald Card to hold their refunds, for example, will get mailed rebate checks. (Click here for details from the IRS, and scroll through the section called "When and How.")

•You paid your tax-prep and/or electronic filing fee by subtracting it from your refund. These arrangements, which use third-party banks--such as Santa Barbara Bank and Trust for TurboTax users--are not eligible for rebate direct deposit.

•You arranged for direct deposit of your refund but then had to change or close your bank account after getting it. When the IRS's attempt to direct deposit fails, the agency will send you a rebate check.

The IRS says it soon will be putting an interactive feature on its Web site that will help taxpayers track the status of their rebates, similar to the "Where's My Refund?" page. Check later this week at www.irs.gov.

Tax gripes? Don't imitate Snipes

The sentencing this week of actor Wesley Snipes to three years in prison for failure to pay income taxes is a reminder that, no matter how much you disagree with our tax system, you still must fill Uncle Sam's till.

On its Web site, the IRS has compiled a list of common tax-protest arguments. Agree with them if you like, but follow them at your peril!

Put your tax rebate to work for you

The Internal Revenue Service will start issuing economic-stimulus payments next week and continue through at least July 11. When you get yours depends on when you filed your tax return, whether you arranged for direct deposit, and the last two digits of your Social Security number.

Depending on your income, you could get up to $600 per individual and $1,200 per married couple, plus $300 for each qualifying child. The intent, as you probably know, is to boost consumer spending, and the economy as well.

If you're planning to spend your payment, our colleagues at the Home & Garden blog have compiled a list of top-performing home-related products that you might consider buying.

But you may have better uses for the money, such as using it to pay down debt. For example, if you're carrying a balance on your credit cards, you can put your check toward paying it off. Similarly, if you're facing even a modest reset of an adjustable-rate mortgage this month (for example, a 20 percent increase on a $1,500 monthly payment), the tax rebate can help cushion that blow.

If you don’t need to use your stimulus check to pay off debt—and you don’t plan to go on an economy-boosting shopping spree—there are plenty of ways to put the money to work for you. If you are saving for retirement, you can put it in an Individual Retirement Account or Roth IRA. If you are setting aside money to help pay college tuition for a child or grandchild, you can put your rebate into a 529 college savings plan.

Other options that don’t require large minimum deposits are bank CDs, many no-load index funds, and U.S. Savings Bonds or Treasury Inflation-Protected Securities (TIPS) via Treasury Direct. 

Using your economic stimulus check to jump-start your own savings could end up being the best $600 or $1,200 you ever spent.—Chris Horymski

Last-minute tax tips

If you've waited until today to file your taxes, you're either preparing for a long wait at the post office, or doing some button-pushing at the computer. Here are tips for both types of filers.

•The IRS says that if your mailed return is lost in transit and you can prove that you mailed it on time, you won't be penalized. So if you're mailing your return, be sure to choose Certified Mail, which lets you verify the date and time of delivery online. You'll get a stamped receipt at the time of mailing. Someone at the IRS is then required to sign at the time of delivery. The cost for Certified Mail is $2.65, plus the cost of postage. You can also ask for a return receipt for an additional fee. (FYI, the Postal Service says Certified is a better option than Registered Mail, which is for items of value. Your tax return may be very valuable to you and the IRS, but viewed as a collection of paper sheets, it's worth little.)

•Even if you're mailing your return, you can arrange to have your refund and stimulus rebate direct-deposited. It's a great way to ensure that the money arrives quickly and doesn't get lost. Some payments cannot be direct-deposited however, so click here for details.

•If you're preparing and filing electronically, you still have lots of last-minute prep options, both within the IRS's Free File system and outside of it. We reviewed three major Free File options, CompleteTax, TaxAct and TaxCut. In our recent test, it took about an hour to prepare a relatively simple federal and state return online with all three products. TaxAct and TurboTax also offer free, basic tax-prep software and filing outside of Free File for those folks who don't meet the Free File requirements. FYI, the TurboTax folks say they have the fixed the system issues that caused problems for late electronic filers last year.

•All the major software packages have IRS Form 4868 to file for an automatic extension. If you file for an extension, your deadline is October 15. Remember, with an extension, you still have to pay today what you think you owe. You won't be penalized later if your payment is at least 90 percent of the actual amount due.

•The IRS says it will be adding a section to its Web site to enable folks to track the status of their stimulus payments, similar to the "Where's My Refund?" section it offers now. So stay tuned!

Should the IRS do your taxes?

What if you could go to the IRS Web site and prepare and file your tax form yourself—for free—without the need for a  third-party program like Intuit's TurboTax or H&R Block's TaxCut? Would you do it? And would it be worth it for the federal government to let you do it?

According to the Computer and Communications Industry Association, a trade group that includes Intuit and eFile Tax Returns among its members. not only would the government lose money providing the service, but taxpayers wouldn't want it anyway. Their report, published today, concludes—no surprise—that the private sector does a much better job servicing taxpayers than the IRS ever could, so there's no need for the government to step in.

The IRS's stated goal of increasing the rate of electronic filing to 80 percent of individuals wouldn't be served by such a change, either, the report says. There are enough viable options out there—including the IRS's FreeFile, available to 70 percent of taxpayers—to encourage folks to file electronically. Most folks who are going to file electronically are already doing it themselves, or through a tax preparer, the report says.

What's more, taxpayer concerns about government abuse of their private information, lax government information security, and inaccurate answers to tax questions favor solutions from the private sector, the report says.

"We've done polls showing a healthy skepticism regarding privacy," says Edward J. Black, president and CEO of the CCIA. "We see the software companies as a viable buffer. ... People did not feel totally comfortable with a complete turnover of information to the government."

But Joe Bankman, a professor of law and business at Stanford Law School. sees a government role in tax preparation as a defense of taxpayer rights. The government already has a lot of taxpayer information, he notes; it requires employers, banks and investment companies to report that data before passing it on to taxpayers on W-2 and 1099 forms. "If you’re suspicious of the government, you’d want to know what files they’re keeping on you for tax purposes," he says.

Bankman's idea is for taxpayers to be able to see that tax-related information online before they file. "The government could start the ball rolling by saying, 'This is in our computer.' If that is all there is, you can file online." he says. "And if there’s more to do, you can go to a preparer and see if you can do better." 

Bankman says the system could also make the act of preparing taxes less, well, taxing for lots of people. He helped the state of California set up its ReadyReturn program, in which single taxpayers with very simple returns—just W-2 income—go online to check their California tax forms, prepared by the state, then click to authorize and file. Bankman says that while the state didn't publicize its pilot program for its inaugural season four years ago, up to 20 percent of those eligible used it, and the responses were 99 percent positive.

Bankman says a government-sponsored tax preparation system could be expanded to serve the two-thirds of taxpayers who are non-itemizers, with only wage and interest income.

"Visa doesn’t send you a blank piece of paper and say, 'Write down your [credit card] transactions," he notes. "It's the Visa model we want."

What do you think? Should the IRS, not private companies, provide the means to prepare and file your taxes directly? —Tobie Stanger

To extend or amend? What to do during this unusual tax season

Those of us born with the "P" gene (for procrastination) are probably just peering into our tax files. This year, the lure of the stimulus payment, or rebate, might actually encourage some traditional laggards to finish on time. After all, the IRS says that folks whose returns are processed by April 15 will get their rebates as early as May 2.

So, tax sleepyheads might ask, why not just do the best we can to file on time, get the rebate, and catch mistakes later with an amended return?

Here's why that strategy is a loser:

• If you haven't already filed, you probably have missed the cutoff for having your return processed by the IRS in time for the May rebate distribution, says Eric Smith, an IRS spokesman.

• Filing the amended return, 1040X, is a pain. The three-column form isn't easy to navigate, and unless your return is simple, you're going to need a professional's help, says Bill Malgieri, a CPA in Elsmford, N.Y.  "It's not something the average taxpayer will do, especially if something on the return is relatively complicated," he says.

Malgieri and Smith agree that it's best to file for an extension, using IRS Form 4868, pay what you think you owe by April 15, and then file 1040 by the final deadline of October 15. While it's true you'll have to wait for your rebate--and any refund--you'll avoid the complications of an amended return. "I’ve seen too many situations where people rush and don’t do it right," Malgieri says. "That's what the extension is really for."

 

IRS opens its doors on Saturday

The IRS says some 300 its walk-in offices will be available to assist taxpayers this Saturday from 9 am to 1 pm, local time. Click here and then click the link to Taxpayer Assistance Centers for a downloadable list of participating offices.

All IRS offices are open on weekdays from 8:30 am to 4:30 pm. Anyone is eligible for free tax assistance, but the agency particularly stresses its availability to retirees, disabled veterans and others filing a tax return solely to receive the economic stimulus payment (rebate). Click here and scroll to the bottom of the screen for a list of documents the IRS recommends you have at the ready when you visit.

The IRS also sponsors a free phone-in help line. Consumer Reports Money Adviser recently assessed this service, as well as several free online tax-help services and found the IRS help somewhat useful, but not always accurate. (The IRS itself acknowledges that its service is geared more toward simple returns and toward the mechanics of filing.) If you have complicated tax questions, you are better off talking to a professional, we found.

April 15 tax-filing and IRA deadline extended for some

Most of us have until April 15 at midnight to file our taxes and establish tax-deductible IRAs for tax-year 2007. But the IRS has extended the deadline for victims of several recent natural disasters. Folks in parts of Illinois have until May 6, those in parts of Georgia and Missouri have until May 19, and residents of parts of Arkansas have until May 27.

In addition, the IRS says, because members of the military and support personnel generally have a deadline extension until 180 days after they leave the combat zone, they also have an extension of their IRA contribution deadline. Beyond that, under the special HERO Act provision, the time window is still open for members of the military who received tax-free combat pay in 2004 or 2005 and wish to make IRA contributions for those years. The deadline for making these special back-year contributions is May 28, 2009.

Regardless of when you set up your IRA, consider in advance which works best for you: A tax-deductible, traditional IRA, or post-tax Roth IRA. Click here for our findings from Consumer Reports Money Adviser.

CompleteTax, TaxACT, TaxCut: Which to choose in Free File?

The IRS says more folks are taking advantage of Free File, its program that allows many taxpayers to prepare and file their federal taxes for free online. In Free File, you can choose among 19 authorized services to prepare and file your return. It's a good bet that many taxpayers will consider the popular TaxACT, from 2nd Story Software; TaxCut, from H&R Block; or CompleteTax, from CCH.

Recently my friend Chris and I tested all three to see which offered better value and ease of use for a typical Free File customer. (If you want to use them in Free File, you must enter their sites through www.irs.gov, not through their regular URLs, where you'll usually pay a fee to prepare and file your federal return.) Chris, like an estimated 70 percent of Americans, had  2007 household adjusted gross income below the $54,000 cut-off point that Free File requires.

We didn't try TurboTax, the market leader. While it has a free federal version on its regular site, it excludes a lot of taxpayers preparing through Free File. Only those with adjusted gross incomes of $30,000 or less, active military personnel with AGI of $54,000 or less, and folks who qualify for the Earned Income Tax Credit can prepare and file with TurboTax in Free File. (We noticed only after we used CompleteTax that its AGI requirement--$32,000--is nearly as strict in Free File. We present our CompleteTax results here anyway.)

In a nutshell, here's what we found:

•All three programs—CompleteTax, TaxACT and TaxCut—calculated the same federal and state refund amounts. That's encouraging for folks concerned about accuracy.

•All three took about an hour to do, including preparing a New York State return. Chris's relatively simple returns involved inputting data from a couple of W-2s, a 1099 for interest income, a charitable donation receipt, and a couple of other documents. If your return is more complicated, you should expect that it'll take longer to complete.

•TaxCut Free File will serve anyone 50 and under with an AGI of $54,000 or less. We found that of the three it was easiest on the eye, and included some nifty features. While both TaxCut and TaxACT had cool counters on the top right recalculating the refund as we worked, only TaxCut told us when the return was 65 percent finished, 90 percent finished, etc. TaxCut had the most useful checklists before each new topic so Chris knew what she needed to have ready and only had to answer parts of the interview pertaining to her. TaxCut also provided handy summaries at the end of each section for review. Both TaxCut and CompleteTax anticipate taxpayer questions by posting typical questions—and links to answers--to the right of each screen.

•CompleteTax had the most jarring look, but it was somewhat more intuitive. For example, to input information from your W-2 form, you fill out an identical-looking form online. Of the three programs, CompleteTax was the only one with the option to import W-2 information from your employer, which should ensure accuracy and save your a few minutes (your employer has to participate with CompleteTax’s electronic W-2 program). However, CompleteTax had a number of annoying pop-ups related to filling out the forms, and what seemed like an unnecessary requirement to mark each page as complete . We also didn't like that CompeteTax made Chris disclose the bank account where she wanted her refunds deposited before it divulged her final refund amounts.

•TaxACT’s Free File service works for anyone between 19 and 54 with an AGI of $54,000 or less. It was a fairly simple program with some nice features: a refund counter like TaxCut, commonly-asked questions on the right margin, and a clean-looking layout. But there was no convenient checklist at the beginning of every section; we had to slog through a series of questions, and then wait for the program to process and refresh each page after completion. In all, however, it took about the same amount of time, overall, as the other programs.

Bottom line: For ease of use, we preferred TaxCut and CompleteTax. But for folks who have to file a state return and can't file for free with their own state, TaxCut at $29.95, is considerably more expensive than both CompleteTax at $14.95 and TaxACT at $13.95. If you don't have to file a state return or your state offers its own free online filing, TaxCut is a better choice. If you must pay to complete and file a state return electronically and fit the tough AGI criteria, go with CompleteTax. Otherwise, TaxACT is  a quite reasonable choice.

Of course, there is nothing to stop you from filing your federal return online in Free File and using that information to fill out and send in a paper form for your state income tax. It depends on what your time is worth. Because the software automatically transferred all the federal information directly to the state tax forms, Chris spent at most 10 minutes filling out her New York forms. For many people, that convenience is worth $13.95.

—Tobie Stanger

Calculate your tax rebate

We've tried the IRS's new online economic stimulus payment calculator, released yesterday, and found it easy and fast--about 5 minutes to fill out. To get an accurate result, you'll need to plug in information from  your completed 2007 federal income tax form. Check the IRS's Web site for a schedule of when you can expect your rebate.

Get your stimulus tax rebate faster: The IRS tells how

Want to get your tax rebate faster? File your taxes early and electronically, and arrange for direct deposit.

The IRS drove home that message today when it announced its schedule for delivering economic stimulus rebates. Folks whose federal tax forms are processed by the IRS by the April 15 deadline and who arrange for direct deposit can expect their rebates to be sent to their bank accounts no later than May 16. You're more likely to have your taxes processed by April 15 if you file electronically.

The IRS will deliver stimulus payments based on the last two digits of filers' Social-Security numbers; the lower those digits, the earlier the payment. If a couple is filing jointly, the first Social Security number on the tax return is the one that counts in determining the payment schedule.

For folks whose returns are processed by April 15 and arrange for direct deposit:
Those whose last two Social-Security number digits are between 00 and 20 are expected to get the first payments, by May 2.
Those with last digits between 21 and 75 should get their payments by May 9.
Those with last digits between 76 and 99 should get theirs by May 16.

In contrast, the IRS says it will begin to send out paper checks on May 16, even for early filers. The agency says it expects to send out the last checks to on-time filers by July 11. You may have to wait a few days extra for the checks to reach your mailbox.

If there's a problem with processing your return, your payment--whether by direct deposit or paper check--could be delayed beyond those target dates. And anyone filing for an extension will have to wait for their rebate for at least two weeks after they get their refund.

IRS spokesman Eric Smith notes that by filing electronically, you can expect your rebate from two weeks to two months sooner than if you filed by mail. Even if you owe the government, you can file now and arrange for payment on April 15; that way, even with no refund, you'll get your rebate faster.

"If you've never tried electronic filing, this is the year to do it," Smith told us. "If you're getting a refund, you'll get it sooner. If you're getting a rebate, you'll really get it sooner."

While you're waiting for the rebate, try the IRS's new economic stimulus payment calculator to determine how large a rebate you'll get. To do a proper estimate, you'll need to have filled out your 2007 Form 1040, 1040A or 1040EZ.

IRS Free File Frustration: Make it simpler, please!

Frank Y., a Consumer Reports Money Adviser reader from Terre Haute, Ind., has been discovering some of the same things I've been finding in my research on the IRS Free File site. The IRS says that anyone with 2007 adjusted gross income of $54,000 or less is eligible for Free File, a program that lets you prepare and file your federal returns online free via 19 participating companies. Even with the income limit, Free File is designed to serve 70 percent of American taxpayers. (To take advantage of free federal filing, you must go through IRS Free File.)

As Frank found, in reality the system can be restrictive, and is often confounding.

Problem #1: "Each Free File participant [company] decides who to allow to file for free. Their rules are quite different as well as quite confusing."

True. While some companies hew to that $54,000 rule, not all do. Market leader TurboTax, for instance, says you have to 1) have an adjusted gross income (AGI) of $30,000, 2) qualify for the Earned Income Tax Credit (with an AGI of up to $39,783), or 3) be an active member of the military. Only military folks can have AGIs of up to $54,000 and still do Free File using TurboTax. CompleteTax requires folks to have an AGI of $32,000 or less, period. 

Competitors have other limiting criteria in addition to an AGI of $54,000. TaxCut, eSmart Tax, and OnLine Taxes say you must be age 50 or younger. Conversely, TaxSlayer's  target users include taxpayers age 65 or older. (The company also serves folks age 25 and younger, and several other very specific populations.) Scads of Free File companies only serve residents of certain states.

The easiest way to wade through the clutter of qualifiers to find a company you can use is through the IRS's interactive worksheet. Plug in your income and personal characteristics, and up pops a list of companies that can do the job.

Still, I have to ask: Wouldn't it be easier and more fair to taxpayers to let everyone use the service of his or her choice?

Problem #2: "It's only in the fine print that you learn what the programs can handle."

Frank mentions the TurboTax Web site, which he says only indicates in the fine print:  "Complex tax situations not covered:  Investments, Rental Properties." "When you click on the (small) link for information about coverage," he notes, "you get a list of the forms that are covered and the forms that are not covered—with absolutely NO explanation as to what situation each form covers. ... In order to know whether you can use the Free File system you have to understand the purposes of all of the IRS forms, which one does not know unless one has already filled out the tax forms (or is a CPA)."

Good point, though TurboTax is hardly alone there. For example, at 123Easytaxfiling, we found a list of 11 "limitations and unsupported items," including decedent returns, portions of Schedule A related to  certain charitable contributions, and sections of the 1040 dealing with some retirement and health insurance deductions for the self-employed. FreeTaxUSA  doesn't support 19 IRS Forms, including Form 8839 for the Adoption Credit, and Form 4684, for casualty losses. Average1040 lists the forms it does cover, and leaves you to guess what it's left out.

I can't blame the companies entirely. In some cases, their Free File editions are meant for simpler returns; they make their money from upgrades for more complex cases. But that lack of completeness is another annoyance for taxpayers. It's just one more thing you have to check out carefully before taking the plunge. And as Frank says, most folks don't know what they need just by looking at the form number or title.

Problem #3: "In order to know whether you are eligible to file for free you have to know your AGI - which of course is computed as you figure your taxes."

Yeah, this one always flummoxes me. You could go through the entire program—at least an hour for even the simplest returns—and discover you're ineligible. What a pain!

Frank finishes up his e-mail with some pointed words, which will resonate with anyone who doesn't make a living in tax preparation:

"The tax code will never be simplified until every elected official is required to complete his/her own tax return plus those of all immediate family members—all without ANY assistance from any other person and with a video camera recording the whole experience so that it can be posted on the Web for the education and entertainment of the taxpayers who have to deal with the mess created by these officials.  Every time I look at attempts to simplify taxes and make things easier for low-income people I see that the exact opposite has again happened. ... When you add to this the confusion caused by inaccurate statements and misleading information provided by both the IRS and the Free File companies, it is enough to make one long for the good old days when the only thing people could complain about was the top tax rate of 93%."

Inaccurate? Not really. Misleading? Possibly. Confusing? Absolutely.

Thanks, Frank, for expressing so well that seasonal frustration felt by Free Filers, and everyone else.

—Tobie Stanger

Some rich folks can get stimulus tax rebate while those with far less can't

I'd like to rename the Economic Stimulus Act of 2008 the Law of Unintended Consequences.

That came to mind the other day when I read a reader's question. He and his wife received at least $3,000 in Social Security benefits last year, enough to qualify them for an economic stimulus rebate. But, he wanted to know, if they made more than $150,000 in tax-free bond interest in 2007, would that disqualify them?

The answer, shockingly, is no. They can get the rebate.

The law says you have to have at least $3,000 in earned income and/or certain benefits like Social Security to qualify for the basic rebate. When a couple's earned income reaches $150,000, the basic rebate begins to shrink, and at $174,000 in adjusted gross income, the rebate phases out completely. So many upper-middle class people, by Congress's definition, get left out.

However, tax-free bond interest isn't considered earned income. It's not figured into adjusted gross income, either. So, no matter how high that tax-free income is, it doesn't disqualify someone from getting the rebate. Further questioning determined that my reader and his wife had other income besides Social Security last year, so they could be eligible for a rebate of up to $1,200.

Contrast that with a query I got today from another reader, a single mother of two whose only income is child support. She's not eligible for the basic rebate of up to $600 for single filers and heads of household because child support is not considered earned income. And because she can't get the basic rebate, she also is ineligible for the $300-per-child rebate that's provided for by the law.

The Economic Stimulus Act of 2008 was billed as an aid to the working middle class. The solons who crafted it were criticized for leaving out the very poorest people, who didn't make enough earned income to qualify. With this twist, we learn that not only were the poorest left out, but some very rich people still can benefit. Is this really what Congress had in mind?

--Tobie Stanger

Free File opens to more tax rebate candidates

The IRS announced today that it has opened up its Free File electronic tax filing system to more people—specifically folks who don't normally file a tax return but seek this year's economic stimulus payments, or rebates. That's a boon to some 23 million low-income earners, seniors and veterans who this year must file a federal tax return to get their rebates. Now, they can fill out and file the required form online free of charge, and get their rebates more quickly and securely than by using the Postal Service.

If you're among those seeking a rebate who otherwise have no legal requirement to file taxes, click here to be directed to the Free File Economic Stimulus Payment page.

If you usually file tax returns, you still may be eligible to use Free File. It's available to taxpayers with adjusted gross income of $54,000 or less—about 70 percent of taxpayers, according to the IRS. Click here to be directed to the regular Free File page.

Avoid the tax preparer from hell

A recent survey by the  Better Business Bureau found taxpayers often unsatisfied with the service and value of their tax preparers. Shockingly, nearly a third alleged that their preparer had made an error on their return that cost them money in fines and/or added fees. Nearly 20 percent found their preparer unresponsive, and about the same percentage mentioned disputes over billing.

Amazingly, more than 6 percent said the preparer never filed the tax return!

Finding a competent and trustworthy preparer can be daunting. If you still haven't found one, start now. The later the season gets, the less time a competent preparer will have to spend with you. Not sure how to choose? Click here for ideas from Consumer Reports Money Adviser.

Stimulus tax rebate: Will we have to give it back?

Several readers have asked me whether the federal economic stimulus payments that 130 million of us will start getting in May are really just pre-payments on our 2008 taxes. Next year, will we get smaller tax refunds--or owe more--because we're getting a tax rebate now?

My source at the IRS says no. This will not affect our tax refunds next year or in any future year. This is a one-time payment that won't bite us in the rear later on. You won't owe federal tax on this rebate, either. (For more details, click here for the IRS's fact sheet and scroll to the bottom of the page.)

For 2008 only, the government is providing a basic tax credit of up to $600 per single filer or head of household, $1,200 per married couple filing jointly. The credit is based on what you report on your 2007 tax return. If your 2007 tax was lower than those maximums, your credit is less. For example, a single filer who paid $400 for 2007 would have a $400 credit. Eligible individuals will recieve another $300 for each qualifying child under 17. The credit phases out as your income increases.

This rebate is a pre-payment of that credit. It won't reduce your refund next year or increase what you'll owe. It may affect how you fill out your 2008 tax return, so hold on to any notice on it that you receive from the IRS.

Remember last year's telephone excise tax rebate? Mr. IRS tells me to think of it that way. It's essentially a one-time freebie.

Of course, looking at the big picture, it's not a freebie. The government has to get the money from somewhere to pay us all. If it borrows, it has to pay that money back by reducing expenditures somewhere or eventually raising taxes. So yes, in larger sense, we--or future generations--eventually will have to pay for it. But from the point of view of the individual taxpayer in the here and now, it's a gift.

--Tobie Stanger

A free way to value your donated goods

TurboTax's ItsDeductible software is now available free online. This is a great resource if you've donated household goods, clothing and other items and don't know how much they're worth for the purposes of a deduction. ItsDeductible uses market valuations of used goods sold via eBay, which is more likely to be accepted by the IRS than your own guesses. I was able to print out a summary of the donations to each charitable organization but not an item-by-item tally. (You'll probably have to buy TurboTax if you want that level of detail.) Instead, I already had every donated good itemized on paper. I hope the IRS deems that sufficient.

I found ItsDeductible a far more comprehensive and specific source than Goodwill Industries' valuation guide, which is merely a three-page download with value ranges. (If you want to check it out, click on and download "Valuation Guide for Material Donations" on the right side of the above link.)

Don't forget: The IRS says donated items must be in at least good condition to be claimed as deductions. For more information, check out Publication 526, Charitable Contributions, at www.irs.gov.

--Tobie Stanger

Tax stimulus refund: More help for Social Security recipients, vets and others

The tax stimulus package signed this week includes tax rebates of up to $300 for folks who don't normally file taxes, including recipients of Social Security, Veterans Administration, and Railroad Retirement benefits who received $3,000 or more last year.

If you're among those affected, you'll have to file IRS Form 1040A for 2007. For help, the IRS recently published a sample of how to fill out Form 1040A. To see it, click here, scroll to the bottom of the news release, and click on and open the PDF file for Sample Form 1040A.

Tax refund? Tax stimulus rebate? How to get both of them faster

This tax season, many of us can look forward not only to a tax refund, but also to a one-time tax rebate, ranging from $300 to $1,200, plus $300 for every child.

To get that rebate, you must file a 2007 federal tax return.  And if you want that new rebate faster, you should file your 2007 taxes electronically and arrange for direct deposit of your tax refund. Doing so will automatically will also ensure direct deposit of your rebate. The IRS asserts this route is faster and more secure than snail mail.

How long can you expect to wait for your refund if you do it all electronically? As little as 10 days from the time the IRS confirms it got your return. And your rebate? The IRS says the earliest rebates will be distributed in early May.

Though the IRS hasn't said so, it stands to reason that early filers would get their rebates early as well. Conversely, it's a sure bet that if you file for an extension, you'll have to wait beyond that time for your rebate. That's because the IRS must have your 2007 return before it can determine the size of your rebate.

Other rebate facts:

•You must have at least $3,000 in income to get the rebate. At $75,000 in adjusted gross income for individuals and $150,000 for couples filing jointly, the rebate begins to phase out.

•If you're eligible to be claimed as a dependent on someone else's tax form, you're ineligible for the rebate. For example, college students who earned more than $3,000 can't get the rebate simply by asking their parents to forego claiming them as dependents.

•A number of folks who normally wouldn't file an income tax form, including certain veterans,  Social-Security recipients, and recipients of Railroad Retirement benefits, may be eligible for the rebate. But they MUST file a 2007 return in order to get it.

•If you've filed a 2007 return already but haven't included the benefits mentioned above--which might qualify you for a rebate--you can file an amended return, Form 1040X, available at  www.irs.gov.

•Beware of e-mail and phone messages on the rebate that purport to be from the IRS. They are most certainly are scams.

Tax rebate: What's in it for you

Interpretations of the Economic Stimulus Act of 2008--aka the Refund We're Supposed to Spend Act--are dribbling out in the tax world even before the law is signed by President Bush later this week. The IRS is offering bits and pieces of info, including the promise that it will start sending checks by mid-May. There are lots of details still to be worked out. Here's what we do know:

The Act provides up to $600 per single filer, $1,200 per married couples filing jointly with earned income in 2007 of $3000 or more. Each qualifying child you claim will earn you another $300 rebate.

Folks with any combination of earned income, Social Security benefits and certain veterans' benefits of at least $3,000 are eligible for a rebate of $300, or $600 for joint filers. (For more details, click here.)

If for 2007 you owe the IRS less than $600 as a single filer or $1,200 as joint filers, you'll only get a rebate equal to what you owe. For example, if you're a single filer and expect to owe $500 for 2007 but otherwise qualify for the rebate, you'll only get a $500 refund. But next year, you'll have another chance on your 2008 tax return to get the rest of the money.

The higher your income, the less you'll get. The rebate starts to phase out when your earned income reaches $75,000 as a single filer and $150,000 as joint filers. The phase-out for the basic rebate is complete when your adjusted gross income reaches $87,000 as single filer and $174,000 for couples filing jointly. But according to the Congressional Joint Committee on Taxation, you're still eligible for the child rebates beyond those income limits. (To determine if you'll get anything, subtract the income ceiling of either $87,000 or $174,000 from your adjusted gross income and multiply that sum by 5 percent. Subtract that result from the maximum you would have received had there been no phase-outs.)

Here are some examples of what taxpayers can get, gleaned from tax experts CCH and the Congressional Joint Committee on Taxation. And check back here for more details in coming days.

Tax Rebates: What you can expect

Taxpayer                               Qualifying Income                            Rebate
Single                                            $3,000 in Social Security benefits                              $300
Single                                          $50,000 in earned income                                             600
Single/one child                         $50,000 in earned income                                             900
Married couple/two children      $60,000 in earned income                                         1,800
Married couple/four children     $70,000 in earned income                                          2,400
Married couple/two children    $175,000 in adjusted gross income                                 550

Source: CCH  Wolters Kluwer, Joint Committee on Taxation

Spend that tax rebate check? Probably not...

Americans are already thinking about what they'll do with the tax rebates outlined in an economic stimulus bill that President Bush has said he will sign next week. The rebates will be as high as $600 per individual and $1,200 per couple, plus $300 for each child. The Administration and Congress have agreed that the economy could get a shot in the arm if Americans spend that money on goods and services.

But a new poll by CCH, publisher of CompleteTax tax-prep software, shows only 21 percent of Americans plan to spend most or all of those funds at the mall. Nearly half (47 percent) said they would likely use it to pay down debt, and another 32 percent would save it.

You could look at that as heartening news--that Americans are finally getting serious about paying down record debt and improving upon our historically low savings rate. Or you could wonder if people are so burdened by debt and monthly bills that new spending is no longer a choice.

Either way, if this poll proves to be predictive, it's unlikely the economy will get the shot in the arm the politicians expect. But the extra cash will be helpful to many of us. And maybe our behavior will send a message to the pols: Control your debt and nurture your nest egg before you go out and spend more.

--Tobie Stanger

 

Scamster dance: Don't fall for "tax rebate" hoax

An economic stimulus package proposing tax rebates for most Americans hasn't yet been signed, but scam artists already are using it to try to separate us from our money.

The IRS reported a new scam today, in which consumers get a phone call from someone identifying himself as an IRS employee. The caller tells the targeted victim that he is eligible for a sizable rebate for filing his taxes early and asks for the victim's bank account information for direct deposit of the rebate. Without direct deposit, the caller says, there will be no rebate.

It's a hoax. The economic stimulus package hasn't been signed, and process for distributing the rebates has not yet been finalized.  And besides, the IRS would never contact a citizen that way or require direct deposit for a rebate. If you follow through on this scam, you risk being robbed of your money and your identity.

In another scam—a first, according to the IRS—citizens get e-mails addressing them by name and suggesting they're candidates for tax audits. The e-mail instructs recipients to click on links and fill in account information--data that thieves can then use for identity theft.

Don't fall for this one, either. The IRS says it doesn't send unsolicited, tax-account-related e-mail to any taxpayer.

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If you're wondering what you will get from the economic stimulus package, check this blog regularly. We'll update you on your due—and advise you on sensible ways to use it—as soon as the bill is signed.

--Tobie Stanger

Refund anticipation loans still troublesome for taxpayers

An annual report issued today by the Consumer Federation of America and the National Consumer Law Center once again underlines the insidiousness of refund anticipation Loans, or RALs: short-term, high-interest loans marketed by tax preparers and lenders and often pitched as a way to get your refund immediately.

Trouble is, refund anticipation loans can carry an effective annual interest rate of from 50% to 500%. When application fees are included in the calculation, the interest cost can range from 80% to nearly 1,200%. On a positive note, fewer people took the loans in 2006, the most current year for data, the report says.

Separately, the New York State Division of Human Rights filed civil suits yesterday against tax-prep companies Jackson-Hewitt and Liberty Tax Service for what it called "predatory lending practices targeted to communities of color and military families." The suits allege that the two companies disproportionately target and sell the "abusive" RALs to these populations.

In The New York Times today, officials from both companies denied the allegations.

Taxpayers who opt for these loans may not realize that if they could wait just 10 days, many would get their refunds directly from the IRS, without any interest or high processing fees. The agency says that's how long it typically takes for electronically filed returns with the direct-deposit option. (Without direct-deposit, it's another week, on average.) And any tax return showing an adjusted gross income of $54,000 or less can be prepared and filed online for free.

But I wonder whether more taxpayers than usual will use RALs this year out of concern that their refunds will be late. The IRS says early filers who use certain forms cannot even file until Feb. 11 this year, to accommodate computer system updates. Once returns are filed, they're subject to normal processing speed, the IRS asserts. But people who are vulnerable and in need of cash may be easily convinced that an RAL is a surer thing.

Today's report acknowledges that some people may not be able to wait. For those folks, it notes that H&R Block and JP Morgan Chase have lowered their RAL fees relative to other lenders.

"Taxpayers should avoid RALs in the first place; but if they insist on getting one, they should shop around," the report says.

--Tobie Stanger

 

The latest IRS e-mail scams

Two e-mail scams purportedly from the IRS recently landed in my “in” box from baffled friends. Like all e-mail attributed to the IRS, these were phonies.

One had an official-looking e-mail address with irs.gov on the end. The subject line said, “IRS USA for Businesses: Important messages to all business Accountants and Treasury Managers!” The main message told recipients to download information on recent changes to business and corporate tax laws, and offered an address to click on for more information, including “www1.irs.gov” in the URL.

Point 1:  There is only one official IRS Web site: www.irs.gov.

The other e-mail was scarier because it looked so real. It, too, was sent from an e-mail address with irs.gov on the end, and informed the recipient that she was due a tax refund of $93.60. To add to its verisimilitude, a copyright line for the IRS was posted at the bottom.

Clicking on the provided link led to a Web page with official-looking IRS letterhead, and that very familiar san serif typeface that says “I’m not kidding.” And what did the “IRS” want from my friend? Her Social Security number and a current credit card number—for who knows what kind of mischief. The only thing that gave away the scam was the URL that popped up on that second page: www.drunkenmedia.com.

Point 2: The IRS never communicates with taxpayers via e-mail. Even the electronic confirmation you get after filing electronically comes through the tax-prep software provider, not the IRS.

I checked later and both offending Web pages had been taken down. Someone had obviously reported them, a wise move.

Point 3: Never respond to e-mails that purport to be from the IRS.

Otherwise, you could become the victim of identity theft. Report any e-mails you receive from the IRS to phishing@irs.gov. Check the IRS Web site for more examples of common e-mail schemes.

--Tobie Stanger

Taxes: How low (or high) can they go?

There was a fascinating (to us, anyhow) table in a recent issue of the Journal of Financial Planning. It showed the top marginal tax rates for married couples from 1913 through 2003. Those, you’ll recall, are the highest rates at which income over a certain amount is taxed.

The rates ranged from a low of 7 percent (on income over $500,000) in 1913 to 94 percent (on income over $200,000) in the war year of 1944.

Top marginal rates stayed in the 80 to 90 percent range until the early 1960s, then dropped into the 70 to 77 percent range. Starting in 1980, rates started down, spending most of the 1990s at 39.6 percent. Since 2003 the top marginal tax rate has been 35 percent.

Lesson here? That tax rates can rise and fall over time and today’s relatively low rates may not be with us forever. So, for example, those of us who are still in the workforce can’t assume we’ll be taxed at a lower rate after we retire.

For some tips on paying less tax this year, click here.

Will the IRS say it's sorry?

National Taxpayer Advocate Nina E. Olson’s annual report, released today, includes a proposal that Congress authorize IRS “apology payments” in cases where an error by the IRS “excessively burdens or harms” the taxpayer. The payments would range from $100 to $1,000.

Olson, a Treasury Department employee whose job is to monitor IRS operations and recommend changes to benefit taxpayers, notes that other countries, including the United Kingdom and Australia, make such payments.

It’s unclear from the report precisely who would be eligible for such payments, which are called “symbolic” and aren’t meant to completely compensate taxpayers.

While this isn’t likely to placate a taxpayer who’s spent many months and lots of money trying to clear his or her name in a tax dispute, it’s an interesting proposal. Indeed, imagine if other government bodies—the U.S. Postal Service, FEMA, the Department of Interior, the Department of Defense—had to do the same.

Don’t get us started!

--Tobie Stanger

Late tax fix means taxpayers will wait for refunds

Millions of taxpayers could find their refunds delayed next tax season due to Congress’s late action earlier this week to fix a glitch in the federal tax law.

The IRS said today that it had started to update its computer system to accommodate changes related to the Alternative Minimum Tax, passed this week by Congress and expected to be quickly approved by President Bush. But even with those efforts, the late start could delay tax-return processing—and refunds—for an estimated 15.5 million taxpayers.

“There could be delays for certain taxpayers, but we’re working to minimize the impact,” said Nancy Mathis, an IRS spokesperson.

Mathis said the IRS could not yet say exactly how many—or who—would be affected. However, based on earlier estimates by IRS Acting Commissioner Linda Stiff and the independent IRS Oversight Board, some 15.5 million returns—and some $39 million refunds—could be delayed.

The agency said it would be working over the next week to finalize its processes. Taxpayers should check the IRS’s Web site for updated information.

On Wednesday, Congress voted to protect some 21 million taxpayers from the AMT, a 1969 provision originally meant to ensure that the super-rich paid their fair share of taxes. Congress’s “patch”—an annual ritual that ran very late this year—insulates all but about 4 million taxpayers from using an alternative method to figure their federal income tax. The AMT, which disallows numerous tax breaks, raised affected households’ average tax burden by about $2,000 last year.

Yesterday’s patch raises the minimum adjusted gross income subject to the tax to $44,350 for single filers and $66,250 for married couples filing jointly.

In theory, people who aren’t AMT candidates, but who claim certain credits factored into figuring the AMT, could also experience delays. Affected credits include those for mortgage interest, education, child and dependent care, residential energy, retirement savings, and adoption.—Tobie Stanger

Charitable giving: Things to keep in mind this year

As you plan your holiday charitable giving, take note of these developments that could affect the ease of donating, and the tax-deductibility of your gifts.

Give (cautiously) via credit card
More charities are arranging to let you donate by credit card every month. The system is convenient, but has some potential pitfalls.

What to do: Check out our advice, “Easier ways to give.”

Save your receipts
The IRS now requires receipts for all deductible donations. Starting this year, all charitable deductions, no matter how small, must be substantiated either by a canceled check; bank record containing the charity name, donation amount, and date; or detailed receipt from the charity. Otherwise the contribution is not deductible.

What to do: Start collecting your charitable acknowledgements, receipts, and cancelled checks in one place now. If you make cash donations, you’ll need either a bank statement or a written communication from the charity noting the charity name, your donation amount, and the date. For more, check IRS Publication 526, Charitable Contributions, on the IRS Web site.

Make your donation count
Make sure your dollars will be efficiently and wisely used by the not-for-profit of your choice. Not every charity is efficient in its use of donors’ money, and not all charities are even recognized by the IRS as eligible to receive tax-deductible donations.

What to do: For advice on how to find the best charity for your money, check out this article from Consumer Reports ShopSmart magazine.

Donate directly from an IRA
This is the second and final year that individuals aged 70½ can make a charitable deduction directly from an IRA—up to $100,000 a year—without having to recognize the income and pay taxes on it. If you do so, however, you can't take a tax deduction for the donation, but it should count toward fulfilling your minimum distribution requirement without adding to your taxable income. This can be a good strategy to avoid the IRS’s rule that limits higher-income taxpayers from fully deducting donations. It’s also good for folks on the other end of the income spectrum who don’t itemize and therefore can’t normally get a tax deduction from a charitable donation.

What to do: Contact your IRA custodian with the names of charities to which you’d like to make donations. Since this could take a little time, start the process now so that the gifts are made before year end, when this tax break is set to expire. The contributions must go directly to the charity. Don’t cash any checks that are sent to you by mistake or you’ll pay the taxes. IRS Publication 526, Charitable Contributions, on the IRS Web site. —Tobie Stanger

Year-end investment moves can trim your taxes

Whether you’re a risk-taking day trader or a buy-and-hold traditionalist, making some savvy moves with your investment portfolio before the year is over can cut your 2007 tax bill. Here are some strategies to consider:

• Take losses. If you own stocks, bonds, or mutual funds that are underwater, consider selling them before Dec. 31. You’ll generate capital losses that can be used to offset any capital gains you realized in 2007. If you accumulate more net losses than gains, you can deduct up to $3,000 of them from your ordinary income each year. If you’re in the 28 percent bracket, a $3,000 loss will trim your Federal tax bill by $840. Excess net losses can be carried forward indefinitely to offset capital gains or ordinary income in future years. Note that the gains you can offset aren’t limited to profits you’ve made by selling securities. Long-term capital-gains distributions from mutual funds can also count.
• Reinvest with care. When taking capital losses, be aware of the “wash sale” rules, which might invalidate your loss if you replace your holdings within 30 days of the sale. Say you take a loss on a real-estate fund you bought at the sector’s peak. If you think the fund will rebound and you buy it back within 30 days, your loss won’t count. But you can buy it back after 31 days or invest in a different real-estate fund at any time. As long as the funds are not substantially identical, you won’t have a wash sale, but you’ll stay invested in that sector.
• Mind your mutual-fund trades. If you’re going to buy fund shares in December, wait until after the fund makes its capital-gains distribution for the year. If you buy before the distribution date, you’ll simply get some of your own money back as a distribution—and you’ll owe tax on that return of your own capital. If you’re selling a fund for a long-term gain in December, do so before its ex-dividend date, the day on which the capital-gains distribution is deducted from the fund’s net-asset value per share. If you wait, some of the distribution you receive may be a short-term capital gain, taxed at higher rates. By selling before, most or all of your profit will be a favorably taxed long-term capital gain.—Donald Jay Korn

Last chance to get around the ‘kiddie tax’

Tax changes that take effect next year will close a major loophole used by many families to cut taxes while saving money to pay for a child’s education. Age limits on the “kiddie tax,” which taxes children’s unearned income above $1,700 at their parents’ rate, have been extended up to age 24 for certain adult children. It includes full-time students whose unearned income does not provide more than half of their support. Last year, Congress raised the limit from age 14 to 18.

This latest change means there’s little tax incentive now to keep funds in a child’s name. So if you have college-age children or grandchildren who have assets with untaxed appreciation in custodial accounts in their name, you have one last chance to take advantage of the old rules. Suggest to your child that he or she sell the assets and use that money for education or another major expense before the end of the year. For 2007 only, any unearned income over $850 that a dependent child between 18 and 24 has will be taxed at their tax rate, which is likely to be lower than that of their parents. For more on strategies for college savings in the wake of these rule changes, see “Kiddie tax age limits are raised to 24.” —Tobie Stanger

Beware of bogus e-mail from government agencies

The Internal Revenue Service is warning about yet another bogus e-mail that looks like it was sent by the agency. The scam offers recipients $80 for participating in an online survey. Along with customer-satisfaction questions, the survey asks participants for their name, phone number, and credit-card data. The information will probably be used to call the participant later in an attempt to get other financial details, which could enable the scammers to withdraw funds from bank accounts, run up charges on credit cards, or take out loans in the victim’s name. The IRS says it never sends unsolicited e-mail.

Earlier this year, the IRS and the Federal Trade Commission issued warnings about e-mail that appears to come from either agency but is actually an attempt to install malicious software on computers. The fake IRS e-mail includes a link or attachment that you are instructed to open or click on for more information. Doing so can infect your computer with a virus that allows the spammer to take over your machine remotely. Click here for more information from the IRS on email scams.

The FTC warning concerned a bogus e-mail supposedly sent by the Federal Trade Commission but actually sent by third parties hoping to install spyware on computers. The spam poses as an acknowledgment of a complaint filed by the recipient, and includes an attachment. Consumers who open the attachment to this e-mail unleash malicious spyware onto their computer.

For more on potential threats from e-mail and Web browsing, see Net threats
Why going online remains risky —Anthony Giorgianni

Some storm victims have 'til June to file federal taxes

Just when you thought tax season was over comes word that the filing season has been extended for some folks in New Hampshire, New Jersey and New York affected by the April 16 Northeast flood. Check this link on IRS Web site for details.

Tax deadlines change for Northeasterners, TurboTax users

High drama isn't how most people would describe life within the IRS, but when I think of this week's events, that's the image I get. Imagine frenzied hallway conferences and hastily-scheduled meetings to react to breaking news, followed by a raft of ad hoc filing date extensions.

On Monday, the massive Northeast storm forced the agency to extend the federal tax-filing deadline for two days for affected taxpayers and professionals. Tuesday evening, the horrible killings at Virginia Tech resulted in a 6-month extension for those directly and indirectly involved. Last night, several hundred thousand taxpayers and professionals using TurboTax and other Intuit products got stuck in a server traffic jam that forced the IRS today to extend their deadline to tomorrow at midnight (click here for Intuit's instructions on re-filing). Shortly after that, the IRS decided to extend the Nor'easter deadline further, to midnight on April 26.

I commend the IRS staff for their responsiveness. Now, all of you caught in tax limbo, finish up and get some rest!

                                                                                 *    *    *

An Intuit spokesperson gave me a plausible explanation today for why the company's servers were  caught off-guard. Many of the affected returns were filed by professionals, who apparently are doing far more electronic filing than last tax season. While Intuit tracks software sales over the course of the tax season, it doesn't know how many separate returns will be generated by one piece of professional software. In addition, a lot more people used the online versions of TurboTax, which don't require you to pay until you're ready to file. So those sales numbers weren't known until last night.

Most people who contaced the company's customer service last night weren't blaming Intuit, but wanted to make sure they wouldn't be penalized by the IRS for filing late, the spokesperson asserted. Still, I think the company is going to have to assure its customers that the glitch won't happen again, or risk losing them to worthy competitors like H&R Block's TaxCut. My guess is we won't know until next November, when Intuit promotional material reappears, how the company will handle that problem. Look for the word "reliable" to figure heavily in those ads.

Another tax extension, following a very sad event

The IRS does have a heart after all. Officials there made a wise decision today when they granted six-month federal tax payment and filing extensions to the victims, families, first responders, faculty and students at Virginia Tech.

The agency's press release, issued late today, said affected taxpayers have until October 15, 2007 to file and make payments associated with their 2006 individual tax returns. Qualifying taxpayers won't be subject to filing or payment penalties if they make this new deadline. To qualify, though, they'll need to call the IRS at 1-866-562-5227 and identify themselve before they file or make a payment.

To all of you directly or indirectly affected by this horrific event, I am deeply saddened and sorry. 

Details on the storm-related filing extension

The IRS has finally announced the details regarding its ad hoc, 2-day tax filing extension for folks affected by yesterday's Nor'easter.

The FAQ's in the above link don't mention anything about extra time to establish and fund an IRA for tax-year 2006. But an IRS spokesman gave me the following information late on Tuesday: There is no deadline extension for funding a 2006 traditional or Roth IRA, or a health savings account. So you still need to do that by midnight tonight.

Storm victims get two more days to file!

Individuals affected by the huge storm that battered the Northeast yesterday will get an additional 48 hours--until midnight on April 19--in which to file their federal tax forms, the IRS announced late yesterday.

The agency noted that power outages and public transportation problems made it difficult or impossible for some taxpayers and tax professionals to meet the deadline.

"Because this unusually forceful storm hit within 24 hours of the filing deadline, we are giving affected taxpayers 48 additional hours," IRS Commissioner Mark W. Everson said in a press release.

An IRS press officer told me this morning said taxpayers would not have to detail why they were affected--for example, a wet basement or impassable roads. They merely need to mark their paper tax returns with the words "April 16 Storm." Taxpayers who e-file their returns can use their software’s "disaster" feature, if available.

The offical said the agency had not yet determined whether the extension affects other deadlines, such as the establishment of IRA accounts at brokerage houses. Check back with this blog later today for details.

The last word: Advice, IRAs, and extensions

If you're still in tax purgatory today, I have one thing to say to you: Don't panic.

There's lots of help still available, especially online. You can still use tax-prep software, check helpful Web sites, and look over forums with questions akin to yours. Check out our article, "Last-minute tax help on the cheap" for some ideas.

You also have two days left to do the one thing that still may save you money on your 2006 taxes: Contributing to an IRA. Home business owners, don't forget that you can set up a SEP IRA even if you participate in a 401(k) or 403(b) at work. Today I checked a handful of investment company Web sites, including eTrade, Fidelity, Schwab, and Vanguard. All let you set up and fund your IRA online.

Use that extension if you need to, but pay on time. The IRS grants six-month extensions automatically to anyone who files by tomorrow night, using Form 4868. Keep in mind that you'll still have to provide an estimate of what you owe, and pay that amount by tomorrow. If you don't, you're liable for penalties (ew!) and interest (yuck!) on the unpaid balance.

And if you're hyperventilating when you consider that mountain of money you owe, chill. The IRS gives lots of options for paying over time. Read our article, "What if you can't pay your income taxes?" for some perspective and advice. It's always better to face the music now rather than in a couple of months, when the penalties, interest and IRS wrath have built to a nasty crescendo.

Speaking of music, check out my earlier blog featuring background music for preparing your taxes. May those tunes put you in a better mood at check-writing time.

Warning on Free File

With just a couple days to file your tax return, the last thing you need to worry about is being scammed.

The IRS recently reported the existence of tax-preparation Web sites that are inaccurately saying they're part of the agency's Free File Alliance. Allegedly, the Web sites have accepted tax information from taxpayers, changed the taxpayers’ bank account numbers to their own and then filed the return through a legitimate Free File partner. The IRS says it's assisting the Treasury Inspector General for Tax Administration's probe into the allegations.

So, be sure you're using the real McCoy. To prepare and file your federal taxes through a legitimate participant in Free File, go to the IRS home page and click on Free File. Only the 19 companies located on the Free File page are authorized members of the Free File Alliance. You can use any one on that list,