Well, it's tax return time again, and for many people, that will mean getting back some of the money overpaid to the government in 2012.
For some, including those who qualify for the Earned Income Tax Credit, that could mean a big check.
Here are some tips to make sure you get the refund you're entitled to, or at least minimize the amount you legally owe.
It's not always E-Z. If your finances are uncomplicated and you have no dependents, maybe you've been using the simplified 1040-EZ federal form. It is easier to complete, but you need to know there are some tax credits and deductions that can't be claimed on the EZ form, including the “savers” credit for retirement contributions, and deductions and credits allowed for higher eduction costs.
Get some help. Having a tax preparer complete your return is probably worth the money if you're not confident you know all the rules. Many people with low to moderate incomes can get free in-person tax preparation help. To find locations near you, call 800-906-9887 for the Volunteer Income Tax Assistance program, generally for those earning $51,000 or less, or 888-227-7669 for the Tax Counseling for the Elderly program.
If prepare your own tax returns: use tax-prep software that will check your math and walk you through the process. About 70 percent of taxpayers are eligible for Free File from the IRS, where you can file online using name-brand software at no cost.
Tax deductions reduce your taxable income. Tax credits reduce your tax bill. Most people qualify for some combination of the two.
For people with adjusted gross incomes of up to $28,750 for singles and $57,500 for married couples filing jointly, the“savers”
tax credit is valuable but often overlooked. It's a credit equal to a percentage of the money contributed to a retirement account. For example, a couple with taxable income of $57,000 that contributed $2,000 to retirement accounts would get a $200 tax credit. Someone with a low income who manages to set money aside for retirement could get a 50 percent tax credit.
Working people with low to moderate incomes may qualify for the Earned Income Tax Credit, but many don't claim it. It's a big deal, because it's a “refundable” tax credit, which means if the check exceeds what you owe in tax, you can get a check for the difference. The tax preparers with the VITA program (mentioned earlier) are adept at helping people who qualify for the EITC.
The “fiscal cliff” deal reached in Washington on Jan. 1 revived a number of tax credits and deductions for 2012 that had expired. For example, private mortgage insurance premiums became deductible once again for those who itemize, and the tax deduction for teachers who spend their own money on classroom supplies up to $250 also came back to life (you don't have to itemize to get that one). The tax deal also brought back the option of deducting sales tax instead of income tax, revived an expired tax deduction for tuition and related expenses and another for home energy efficiency work.
Parents, don't forget about the Child and Dependent Care tax credit, which is claimed on both federal and South Carolina tax returns. It's meant to help offset the expense of paying people to care for your dependents, children under age 13 or disabled adults who live with you, so that you can work.
Day camp counts if your kids were there so that you could work. The combined state and federal credits are worth a minimum of 27 percent of your expenses.
Even some accountants and tax-software programs can miss valuable credits and deductions that are specific to South Carolina.
Lowcountry residents should be sure to check if they qualify for South Carolina's tax break for people with high homeowner's insurance costs. The“excess insurance premium credit”
is a dollar-for-dollar tax credit worth up to $1,250 for costs of insuring a taxpayers' legal residence that exceeded 5 percent of their federal adjusted gross income. The credit is claimed on S.C. Form TC44 and subtracted from the South Carolina tax bill, with any unused amount of the credit carried forward for up to five years.
If you bought a hybrid vehicle, you may be eligible for a South Carolina tax credit that few people, including car dealers, seem to know about. For someone who bought a Ford Fusion hybrid, for example, that credit's worth $680. For a Prius buyer, it's worth $630.
If you're an S.C. resident paying college tuition for a dependent who did not get a South Carolina LIFE Scholarship or Palmetto Fellowship, or if you're a student from South Carolina paying your own tuition, you may be eligible for an $850 state tax credit. It's not just for state schools.
When all the tax preparation is done and you've got your taxes figured out, remember that if you're getting a refund, in most cases that's because you paid too much. If you had too much money withheld from your pay for taxes last year, you can adjust your withholding amounts and make your paychecks a little larger.
Instead of listing lots of different websites that provide more information about some of these tax tips, I put web links in the online version of this column. You can find it on postandcourier.com.
Reach David Slade at 937-5552 or Twitter @DSladeNews.