A crazy, ever-changing tax code means that tax filers cannot find one-size-fits-all answers to their tax returns.
So it pays to research new twists, or even unexpected forms that arrive in the mail.
The Internal Revenue Service announced March 20 it would not charge a late-payment penalty for taxpayers who file for an extension for their 1040 return and their tax return includes any of 31 forms that faced delays during the slow-starting tax season. You’d still pay interest on what’s owed, if you owe money.
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Delays hit those filing returns that included education credits. Some taxpayers filing for the energy-efficient home credit and the qualified plug-in electric drive motor vehicle credit weren’t even able to e-file until March.
To get the penalty-free break, an estimated amount of taxes owed must be paid by the original date of the return. A good-faith effort must be made to properly estimate the tax liability.
Typically, a late-payment penalty is 0.5 percent per month and would be charged on tax payments made after the regular filing deadline. But remember the new break only applies to any forms delayed because of the January enactment of the American Taxpayer Relief Act. Check out IRS.gov.
Much confusion hit earlier this season on education credits, with taxpayers complaining loudly about problems and delays involving tax returns filed during a specific time in February.
In recent weeks, the IRS said it has worked diligently to process returns affected by a problem with a limited number of software products involving some taxpayers filing Form 8863, Education Credits. The IRS previously estimated it could take four weeks to six weeks from March 12 to issue refunds to taxpayers hit by the problem.
But the IRS said in March that the work is being completed more quickly than anticipated, more often in two to four weeks. Many taxpayers in this group have received their refunds, and more are on their way. The IRS said it expects to issue nearly all of these refunds in early to mid-April.
If you’re filing now, make sure to carefully review Form 8863 for the American Opportunity and Lifetime Learning credits. Even though the software troubles appear over, tax preparers say people can still make mistakes with Form 8863.
One new part of the form is Part III — where you’re required to supply some specific personal information. Do not skip that section.
Question: “Was the student convicted before the end of 2012 of a felony for possession or distribution of a controlled substance?” Stop if you answer yes — you’d not qualify for the American Opportunity Credit but you might for the Lifetime Learning Credit.
Question: Did the student complete the first four years of postsecondary education before 2012? Stop if you answer yes — you’d again not qualify for the American Opportunity Credit but you might for the Lifetime Learning Credit.
Jeffrey Pretsfelder, senior tax analyst at Thomson Reuters, notes that some taxpayers have been tripped up this season when they have not answered those questions. If you don’t answer, experts said, the IRS will delay processing the return.
Leslie Welbourn, individual tax manager for Doeren Mayhew, said taxpayers must study past-year returns, too, and keep track of when they claimed the American Opportunity Credit.
“The American Opportunity Credit can only be claimed for the same student for four tax years,” Welbourn said. The fifth-year senior is not going to qualify for the American Opportunity Credit but might for the Lifetime Learning Credit, which is less generous.
The American Opportunity Credit can be worth up to $2,500. The credit is 100 percent for the first $2,000 and 25 percent for the next $2,000 of tuition, required student-activity fees, as well as books, supplies and equipment required for courses. For the American Opportunity Credit, the books do not have to be bought from the college to qualify for the credit. Other rules apply, too.
The American Opportunity Credit is phased out based on a modified adjusted gross income of $160,000 to $180,000 if married, filing jointly or $80,000 to $90,000 if single, head of household or qualifying widow or widower.
Another option: The above-the-line deduction for qualified higher-education tuition and related fees was retroactively put in place for 2012, too, and will be extended through the end of 2013. Depending on income, a taxpayer could deduct up to $2,000 or $4,000 of qualifying tuition and expenses.
You can’t claim the deduction for expenses of a dependent, if an American Opportunity Credit or Lifetime Learning Credit is claimed for that person. If you qualify for both, you must choose between the two.
Welbourn also noted that you want to review Form 1098-T but it’s important to understand that often that form might only indicate the amount of tuition and fees billed for the tax year. The tuition credit is based on the amounts paid in the tax year.
What if a lender forgave your debt and you’re now looking at a 1099-C?
Lenders send out a 1099-C — the form for Cancellation of Debt — when a car loan, credit-card bill or other debt of $600 or more is forgiven or canceled. Think of this form as an ugly leftover from the Great Recession and housing collapse.
You should ideally get the form in January for the previous year, but credit experts note financial firms can send out a 1099-C for an old debt too that they might now say is uncollectable.
The American Taxpayer Relief Act extended the mortgage debt-forgiveness provision through 2013.
Ways to save
Still fretting about doing your taxes by April 15? Here are five tips that could save you money:
• If using snail mail, do not just automatically mail a return to the same address you used last year. The IRS has changed the filing location for several areas. See IRS.gov.
• Did you file a tax return for 2009? The IRS notes that more than $917 million in refund money awaits about 984,400 taxpayers who did not file a federal income tax return for 2009. But the 2009 return must be filed no later than April 15. About half of the potential refunds for 2009 are expected to be worth more than $500.
• Save hundreds of dollars on a tax-preparation bill by going through your own checkbook, credit-card statements and receipts. If you organize your own documents, you can save big money on hourly billing.
• Think about any new deductions in your life. Did you have a baby last year? Did you take out a mortgage to buy a home? Did you make a larger-than-usual contribution to a fundraising effort?