By Leo Guen
My Uncle Albert was a big Red Sox fan. When not watching Red Sox games, he professionally did estate tax examinations for the Internal Revenue Service.
Like baseball, minimizing taxes is one of America’s favorite pastimes, but it is less fun. Everyone is relieved to complete the filing of income tax returns before April 15.
Filing tax returns is complicated, because the tax code has been patched together over many years, so there is no clear logic.
Here are seven helpful tips:
1. If you can use a computer, TurboTax is an effective way to calculate and file your tax return. There is no version in Chinese. You pay more for versions providing more capability. There are separate costs for software and e-filing.
a. A basic $40 version includes software to calculate your individual Federal tax return and one federal e-file (no printing or mailing to the IRS).
b. A $50 version adds a family-friendly four more federal e-files and software for any one state of your choice.
c. An $80 version adds software for small business.
d. Each additional state software costs $40, plus there is an optional $20 to e-file each state tax return. I print and mail my state returns.
2. Or, you can pay a tax preparer to do your taxes. Using a tax preparer significantly reduces the probability that the IRS will audit your federal tax return.
3. If you can’t afford a tax preparer, community organizations can help.
4. For 2013, if you were single and under 65 and earned less than $10,000, you are not required to file an income tax return. The earnings threshold is higher for widows ($16,100), married couples ($20,000), and head of household ($12,850). The thresholds are higher if you are 65 or older.
5. However, even if not required, it is usually worthwhile filing a tax return:
a. To recover federal, state and local taxes withheld or overpayments from estimated tax payments or prior year tax payments.
b. To potentially receive an “Earned Income Tax Credit” (EITC) —depending on your income and number of children.
c. To potentially receive an “Additional Child Tax Credit.”
d. To potentially receive an “American Opportunity Credit” — up to $2,500 per student for up to four years of post-secondary education, depending on your income.
e. To potentially receive a “Health Coverage Tax Credit” that expires in 2013.
f. To provide documentation of your income if you or your children are applying for financial aid for education.
6. If you are an employee, your employer pays half of the Social Security (FICA) taxes and the other half is withheld from your pay, and you see this on your annual W-2. Some employers unfairly take advantage of immigrants and give the worker a 1099 form that says the worker is self-employed, and that the worker is responsible for paying all the FICA taxes. If this happens, seek assistance at the Multi-Service Center.
7. The easiest way to save money is to file your taxes on time. If you can’t, simply file for an extension.
This post is also available in: Chinese