Are You Leaving Refund Dollars on the Table?
Before you sign that tax return, test your knowledge of deductions, credits and just whom you can trust at the IRS
(MONEY Magazine) – 1) The IRS offers taxpayers lots of ways to turn lemons into lemonade. Which of these are NOT allowable deductions?
[A] Job-search expenses [B] Funeral expenses [C] The cost of a taxi you take to the hospital [D] Laser eye surgery [E] Cosmetic surgery
ANSWER: B and E. You'd be surprised by some of the deductions you can legitimately claim--and some that you can't. Talk to your accountant about commonly overlooked deductions or peruse the IRS website. Just be aware: Every overlooked deduction has an assortment of rules and restrictions.
2) Which of these are you allowed to deduct? Money spent on...
[A] ...lobbying Congress [B] ...Canadian charities [C] ...raffle tickets [D] ...sanctioned whaling activities by whaling captains [E] ...Communist groups
ANSWER: B and D. You can deduct charitable contributions to churches and most nonprofit charities, hospitals and educational groups (even some in Canada and Mexico!). You can't deduct money sent to "nonqualified organizations," such as the local chamber of commerce or the Revolutionary Workers League of Greater Poughkeepsie. (When in doubt, call the IRS at 877-829-5500 or see Publication 78 at irs.gov.) If you get something tangible for your donation--like a tote bag or tickets to a ball--you can deduct the amount above the market price of the benefit. For the most part, you can't deduct contributions to individuals. Unless you're a whaling captain. Don't ask me why, but it's true.
3) What's the deadline for income tax returns this year?
[A] April 1 [C] April 17 [B] April 15 [D] The 12th of never
ANSWER: C. April 17. The 15th falls on a Saturday this year, so you get two extra days. Don't forget to thank the IRS for wrecking your weekend.
4) If you buy a Toyota Prius this year, you'll not only impress Ed Begley Jr. but get a credit on your 2006 taxes. How big is it?
[A] $650 [B] $1,600 [C] $3,100 [D] $8,700
ANSWER: C. The new energy bill gives hybrid owners tax credits ranging from $400 to $3,400, depending on which model is purchased and how energy-efficient it is. A Prius will likely score you a big credit, while a Honda Accord Hybrid may only get you $650. Don't worry: If you bought last year, you still get a break--a $2,000 deduction.
5 )The Web makes it easy to track down tax info and forms (thanks, IRS.gov) but is also a gold mine for scammers. Only one of these is legit. Which is it?
[A] email@example.com [B] deptreas.org/irs [C] consumer.gov/idtheft [D] KGKOLUMBCABSCB@fakeemailaddress.com
ANSWER: C. The possibly fictional Mr. KGKOLUMBCABSCB was flogging Viagra in the spam e-mail he sent to me. Far more scary: A and B. Both have been used for identity theft scams in which official-looking e-mails direct taxpayers to official-looking websites that ask for personal information. The IRS does not contact taxpayers by e-mail. To learn more about ID theft, search for "scams" at irs.gov or go to the Federal Trade Commission's ID theft site at, yep, consumer.gov/idtheft.
6) Each year the national taxpayer advocate, head of an independent body within the IRS, lists the 20 biggest problems faced by taxpayers in dealings with the IRS. Which made this year's list?
[A] Elimination of TeleFile, which let taxpayers file by phone [B] A cut in the percentage of taxpayer calls the IRS answered [C] Refunds being "frozen" [D] All of the above
ANSWER: D. Taxpayer advocate Nina E. Olson says the biggest problem this year was the eroding quality of the IRS' "taxpayer service"--from its elimination of TeleFile to its not answering its own phones. Unfair refund "freezes" came in at No. 2. Olson says two-thirds of taxpayers who sought help from the Taxpayer Advocate Service ended up with the full refund they'd claimed.
Visit... irs.gov for tax forms, tools and news straight from the horse's mo--, er, Web page. Add /formspubs for forms; /individuals for useful links, including one for filing for an extension and one that leads to a handy withholding calculator; and /faqs for answers to common questions. If you don't mind commercial come-ons, see hrblock.com/taxes/tools or finance.yahoo.com/taxes/calculators for tax tools. CNNMoney.com offers tax-saving strategies (go to cnnmoney.com/taxes).