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Tax Tips 2011

March 10, 2011

Don't let the tax man get you down this year

‘Tis that time of year. For some of us, tax time is kind of exciting as we anticipate getting a refund. For others it can create some stress. One thing is for sure: I do not envy CPAs right now.

            The magnitude of our tax system is incredible. The IRS has more than seven million words for law and regulation, which is more than even the Bible. Every year the IRS mails eight billion — that is billion with a b — pages in instructions and forms. It employs, on average, more than 110,000 people, but it only costs taxpayers 39 cents for every $100 collected.

            I am not an expert on tax law, but there are a few tax tips I can give you to help you out. First, stay away from refund anticipation loans. With these loans, people take out a short-term loan from their tax preparer that they later pay off with their refund.

It sounds like a good idea as people can get their tax refund quicker. However, the problem lies with fees and interest on this short-term loan. Many consumers pay rates that would equal 40 to 100 percent annual interest to receive these loans. Laws in the past few years have really cut down on this process, and many tax preparers who offered this in the past no longer do.  If you file your taxes online, most refunds are processed and directly deposited within 10 days for no fee.

            Second, see if you can get your taxes done for free. According to the website http://www.freefile.irs.gov if you have an adjusted gross income of $58,000 or less in 2010 you may be eligible for this free program. There are approximately 20 companies that offer free tax preparation software that coincides with this program. With some of the simpler returns and the correct paperwork, you can save yourself some money by doing it yourself.

            If you still want to visit with someone in person about your taxes, there may be other programs available for you. In Colorado, many community colleges, including Northeastern Junior College, offer the Tax Help Colorado program. In this program, college students take a class in the fall that certifies them through the IRS to help individuals fill out their taxes. To qualify for the program, your adjusted gross income needs to be less than $49,000.

            You still have time to take advantage of this program. In Sterling, students will be offering free tax preparation services by appointment only on Thursdays, 5 p.m. to 8 p.m., through April 7. Those wishing to access this service on a Thursday evening must make an appointment by calling 521-6637 between noon and 5 p.m. Monday through Friday. You will be given a specific time to show up on campus to have your taxes done.

            Free tax preparation is not for everyone — many individuals need professional help. If you own a business, have unique deductions or have complex investments, you want to hire a good accounting firm. If you have a side business along with the W-2s you receive from your employer, you probably want to hire a good accountant to help you as well. You do not want to be on the wrong side of the IRS for not paying taxes. They can make your life miserable.

            My third tax tip is to be wise with your refund. First, if you are getting a large refund, you may want to adjust your withholding every month from your paycheck. A refund is basically you loaning the government money all year at 0 percent interest. If you receive a $1,200 refund, you could change your withholding to receive an extra $100 a month. Tax return time will not be as fun for you in the future, but your budget will have a little more room on a month-to-month basis with the extra money that should always have been yours.

            Also, if you get a big refund, remember that it is not a bonus; it is your money that you earned all year. Think about your values and long-term goals when you receive this refund. When a big refund comes back, it is easy to say it is found money that we can spend on stuff. My advice is to instead use this refund to kick start some of your long-term goals or help accelerate your debt repayment plans. It is not nearly as fun in the short term, but it can make a big difference down the road.

            Taxes are not fun. Taxes are not simple. The key is to remember that help is out there. If you have the right adjusted gross income, there is free help for you. If you make a little more, there are plenty of professional accountants to assist you.

As you get to this time of year, do not let the complexity of taxes take you away from your long-term plans. Remember what it will be like as you achieve your long-term goals and it will help keep tax time in perspective.

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