Tax Advice

Feb. 3, 2009

Transcript:

Ted Simons:
Hello, and welcome to "Horizon," I'm Ted Simons. Last year 58% of taxpayers who were eligible filed their taxes electronically. In Arizona, about 64% of taxpayers are expected to e-file their returns this tax season. There are some changes in e-filing and there are new tax laws on both the state and federal levels, including one that could benefit homeowners who have already paid off their mortgages. Recently, Bill Brunson of the Phoenix office of the Internal Revenue Service and Dan Zemke of the Arizona Department of Revenue sat down to talk about those changes.

Ted Simons:
All right, Bill, changes in federal tax laws that we really need to know about.

Bill Brunson:
There is an additional standard deduction for individuals who have paid off their house. If you are an individual who can't itemize, and are paying local and state property taxes, then you're eligible for an additional standard deduction of a thousand dollars for a married couple filing jointly, or an additional five hundred dollars for other filing statuses. There is a recovery rebate credit. Last year it was the economic stimulus payment. Now it's changed to the recovery rebate credit. Let's say you didn't claim that economic stimulus payment. You still have an opportunity to file your 2008 return and claim that credit on the 2008 return you're filing this year. If there's been a change in your lifestyle, such as in 2007 you were being claimed as a dependent and now you're not, you may be eligible for this type of money. If you adopted a child or had a child during the year, that could cause an increase. There's a worksheet to go through to determine if they have additional monies coming to them. That is online as well as in the paper form, to see if you do have additional monies in this area.

Ted Simons:
Real quickly, back to the housing change. It's the primary home only, not a second home, not a vacation home?

Bill Brunson:
We're talking about a credit on real property taxes paid. To the best of my knowledge, it's going to be on any sort of real property taxes that you're paying, so that may include that. But I'm not certain. That's why we have a phone line established for folks to call about stuff that I don't know and that you're going to ask. And that's 1-800-829-1040. Or they can log on to our website and probably they can find the answer there, too.

Ted Simons:
We do have that website and we'll get it up there as soon as we can. Dan, as far as Arizona tax laws, any big changes?

Dan Zemke:
There really were no big changes this year. The standard deduction was increased slightly for inflation. You'll notice the green party is now there as someone you can make a political contribution to, and you can take a deduction for contributions to a 529 college savings plan, up to $750 as a single individual, $1500 as a married couple filing jointly, and it doesn't matter, it isn't limited to the Arizona 529 plans, it can be from any state.

Ted Simons:
Okay. Good. As far as e-filing, we talked about changes to e-filing. First of all, let's talk about e-filing in general, and what kind of changes we saw.

Bill Brunson:
Electronic filed tax returns are fast, accurate and secure. They're fast in the sense that, 48 hours after you've transmitted that item to the IRS, we can let you know we've received it and are processing it. They're accurate in the sense that the software does the math for you. There's almost no error associated with an electronically filed tax return. And it's secure in the sense that if you have a refund coming, those monies can be directly deposited in your savings or checking account in as little as 10 days, and that check can't get lost or stolen in the mail. Also, by electronically filing you're saving the federal government money. It's about a 35-cent cost for the government to process an electronically filed tax return. If you submit it on paper, it's about $2.87. So you're saving the federal government money, which in turn saves your tax dollars. And it's a much more accurate and secure means.

Ted Simons:
Dan, are more Arizonans e-filing? Are more figuring it out here?

Dan Zemke:
Yes, they are. Each year the number increases. In fact, last year it went from roughly 45% of the people to 55%, and we expect more this year.

Ted Simons:
How does that compare nationwide?

Dan Zemke:
We run slightly behind the IRS, largely because they were involved in it before we were, and they get a lot more publicity on it than we do.

Ted Simons:
What is Free File?

Bill Brunson:
Free File allows a taxpayer to go to IRS.gov, click on a Free File icon and choose now between two ways. They can go through assisted Free File, which offers 20 different software providers. The key here is that your adjusted gross income must be $58,000 or less in order to use that particular item. Now we've come out with a new item. It's called fillable forms. That allows anybody, without any sort of constriction on income amounts, to fill out forms and then they automatically will calculate. And then you can transmit and get a copy of that item back. It's the same as if you were to use the assisted Free File. It's an electronically filed return, so you now have two options when you click on the Free File icon on IRS.gov. The key with the unassisted forms is that we're looking at individuals that most likely have filed a return in the past themselves, and don't need that by the hand assistance, if you were to go to the assisted Free File.

Ted Simons:
Are those programs that help online: are those free?

Bill Brunson:
Yes, they are. There is an agreement with a consortium of tax software companies that they don't charge for their services that they are providing. The key is that you have to go to IRS.gov and click on that Free File icon. If you go to one of those software providers outside of IRS.gov, then it's whatever they are willing to charge and you're willing to pay.

Ted Simons:
All right. As far as scams making the rounds, I know there was an e-mail scam out there of late regarding, you know, we're the IRS, contact us. It doesn't sound right.

Bill Brunson:
People should always be hesitant when they receive unsolicited e-mail. Especially if they are going to, say, ask for something that the IRS already has, like your social security number. If you receive an unsolicited email asking you for specific information about your personal finances and your identity, don't click on that link. Don't click on that attachment. Don't respond to it. You can send that item to [email protected]. This will allow our system to shut down that website and hopefully catch these tax crooks. But the key here, folks, is that it is unsolicited e-mail that you're receiving from an unknown third party. Don't fall for it.

Ted Simons:
Okay. As far as payment, now, you can pay by credit card, correct?

Dan Zemke:
That's correct. You can pay by credit card. By electronic check. Basically you go to the website and go to the payment area, determine how much you want to pay, and when you want to pay it, as long as you choose a date before April 15th. And the money will be taken from your account at that particular time. You don't have to send in a check. So it's much easier for you, and easier for the state, as well, because we don't have to process that check by hand.

Ted Simons:
State and federal, start with state: what happens if I can't pay?

Dan Zemke:
If you can't pay, please file on time. That way you eliminate any possibility of a late filing penalty. And contact us after you've filed that return and say, I know I owe this much, I just can't pay it right now. What kind of arrangements can I make? We will make payment arrangements so that you can get that liability taken care of.

Ted Simons:
Does it make sense to just pay as much as you can, and then contact? Or do you contact before you pay as much as you can?

Bill Brunson:
You need to file the tax return to establish the amount of the liability. So that's why Dan and the IRS would suggest to the taxpayer that, when you file the return, pay what you can of that liability that you think that you owe, then contact either the Arizona Department of Revenue or the Internal Revenue Service to determine the exact amount, and then we can work out a payment arrangement with you. We do this all the time.

Ted Simons:
Lots of folks have lost their homes through foreclosure. What do they need to know?

Bill Brunson:
Well, there will be a particular form they will have to attach to their return this year. It deals with indebtedness that is forgiven. There will probably also be an information return, a 1099-C issued by that mortgage lender to that particular individual who lost their home due to foreclosure or some sort of short sale. In the past, any monies that had been forgiven that you didn't have to pay, you had to include that amount into your taxable income. That's not the case anymore. If we're talking about a foreclosure after January 1st, 2007, and it was on a principal residence, not on a secondary house, and if the mortgage was $2 million or less. So if you have a situation like that, which I think would meet most criteria here in the Phoenix metropolitan area, then you have to describe it, show it to the IRS with a particular new form. But it's not going to cause you any additional taxes.

Ted Simons:
Someone lost their job in 2008; again, what do they need to know?

Bill Brunson:
If you receive unemployment compensation, that is taxable and includable on the return in the year that you receive it. You should alsoreceive an information return from the payor, a 1099-G, giving you that amount. It's the same thing with severance pay, it's the same thing with vacation pay, sick pay. Those amounts are fully taxable and includable on your return.

Ted Simons:
Okay, but, things like public assistance, things like food stamps: those are not, correct?

Bill Brunson:
That's correct, Ted, they are not taxable.

Ted Simons:
Okay. Expenses for a job search? A lot of folks are looking for jobs.

Bill Brunson:
Generally speaking, that could be an itemization, but what you're looking at is a threshold of 2% above your adjusted gross income before those costs give you a tax benefit. On the federal side of the house, you have to exceed 7.5% of your adjusted gross income for medical expenses. Now, that's different from what is on the state side, right, Dan?

Dan Zemke:
Correct, the state allows 100% on all out-of-pocket medical expenses. A number of people will itemize on the state return that don't itemize on the federal return. If you take standard on the federal return, you can still itemize state. If you've got medical expenses, it's a good idea to at least look at it.

Ted Simons:
Last question, from both of you: what do people look for in a tax advisor? What should you look for? What should you look out for?

Bill Brunson:
That's an excellent question, because this is the time of year that people are going to go to a paid preparer for that sort of assistance. Choose wisely. Choose like you're choosing a physician for your family. Look for somebody that's been in the business for a long time. Look for somebody that's going to be there after the filing season. Look for somebody that's gone back to the schoolhouse to learn about the new tax laws, that can explain those items to you as they relate to your specific facts and circumstances. A paid preparer, by law on the federal side, is required to sign that return and should do so willingly. They should also provide you with a copy of the return. You, the taxpayer, never want to sign a blank return, nor do you want to sign one in pencil. You want to look out for the bad tax preparer. These are the guys who say, I can get you the biggest refund in town. Or, let me base my fee on the amount of the refund I can get back for you. Those are red flags. The bottom line here is that you are responsible as the individual who signs that return. Review it before you sign it. If you have any questions, ask them. Then you shouldn't have a problem.

Ted Simons:
Seems to make sense.

Dan Zemke:
Just remember, you are responsible for your tax return. Not the person -- the person who prepared it.

Ted Simons:
Thank you both, good information, thanks for joining us.

Bill Brunson:
Thank you.

Dan Zemke:
Thank you.