With tax season well underway, local tax preparers are fielding one common question, "How much will I get?"
But people aren't asking about tax refunds. Instead, they are curious about the federal Economic Stimulus Act, which is expected to offer 1.8 million Kentucky families a tax rebate.
"I'm getting a lot of questions about it," said Charles Phillips of Phillips Tax Service. "People need to understand that if you do nothing, you lose $300."
That's one thing some people are not aware of, according to Shirley Buckner of Wise, Buckner, Sprowles & Associates.
"They must file a return to get the check," she said.
The rebate is based on qualified income - wages, private business income, Social Security payments, Railroad Retirement benefits and veterans' disability/survivors' benefits received from the Department of Veterans Affairs. In addition to filing a return, to receive the rebate, you must have earned at least $3,000 in 2007 and have a valid Social Security number.
As a result of the rebate, which requires even those who aren't normally required to file a return to do so this year, Phillips is offering a quick, basic $10 tax return service.
"It's money the person can spend in the community that helps everybody," Phillips said of the rebate.
The amount tax filers will receive is based on their tax liability and Adjusted Gross Income on the 2007 return. The tax liability is listed on line 63 of the 1040, line 37 of the 1040A and line 10 of the 1040EZ.
Individual taxpayers could receive from $300 to $600, while married taxpayers filing jointly could receive $600 to $1,200.
Rebate checks are expected to be mailed in May from the U.S. Treasury Department. Stimulus payments will be direct deposited for taxpayers who select that option when filing their 2007 tax returns.
The IRS has set up a toll-free hotline to provide assistance to those with questions about the rebate. The number is (866) 234-2942.
Aside from the rebate, taxpayers will see few changes this year.
Those who make voluntary contributions to retirement plans may be able to take a tax credit, Phillips said. Credits range from $1,000 for those filing individually to $2,000 for those filing jointly.
You can claim the credit if your modified adjusted gross income is not more than:
- $52,000 if married filing jointly,
- $39,000 if filing status is head of household, or
- $26,000 if single, married filing separately, or a qualifying widow.
Mileage rates for operating an automobile for business, medical or moving purposes have changed this year, Phillips said.
The rate for business mileage is 48.5 cents per mile, up from 44.5. The rate for medical or moving mileage is 20 cents per mile, up from 18 cents.
While not a new deduction, this is the last year to take advantage of the residential energy credits, according to Michael Januski, a local certified public accountant.
This provision offers a tax credit for homeowners who make energy-efficient changes to their home. Eligible items include exterior windows and doors, insulation systems that reduce heat loss or gain and high-efficiency heating and cooling units. These items must be placed in service after Dec. 31, 2005, and before Jan. 1, 2008. The maximum credit is $500.
"Quite a few have taken advantage of it, but there are probably some people who have done this and aren't aware of the credit," Januski said.
One area people tend to make mistakes is donations, Phillips said.
"Almost everybody undercuts themselves there."
Phillips said donors need to keep track of the items they donate and get documentation from the organization they donate to.
"People give away a lot more of value than they think."
According to Januski, a hot topic this year is non-cash donations, such as the donation of items to organizations like Goodwill or Salvation Army.
"This is really an abused area and the IRS will be cracking down on this."
People who make non-cash donations need to value those items at fair-market value, not what they paid for the item, Januski said.
"You need to be realistic."
Old credits are back, Phillips said, including the lifetime learning credit, which has been a source of confusion for some.
"You still get it if you get student loans. They don't understand that. They miss out on a good deduction there."
Each year, taxpayers tend to forget about a few deductions. Local tax preparers all said real estate and vehicle and boat taxes are commonly overlooked.
Phillips said many people also don't realize they can deduct mortgage interest taxes paid on a second home and that campers and houseboats are allowed under such deductions.
Januski said some forget or aren't aware they can deduct out-of-pocket work expenses that an employer doesn't reimburse.
"It tends to be much larger than they expect."
As for what you can and can't deduct, Phillips has a simple rule.
"If in question, bring it with you."