Confused about your taxes? Not sure whether to count that stimulus check as 2008 income? To help answer your tax-related questions, I spoke with John Hewitt, chief executive of Liberty Tax Service. Excerpts:
What should people know before filing their taxes this year?
First, the IRS is finding that 15 percent of taxpayers who received their stimulus payment are putting it on their tax return incorrectly. That would slowdown any tax refund. Make sure that you don't make a mistake on that.
What kind of mistakes are people making?
Mostly they're saying they didn't receive it when they did receive it. Some people may think the IRS will double pay them. [Note: The stimulus check is not taxable income, so you will not pay any taxes on that money.]
What else is different this year?
A small number of people will be affected by the new debt forgiveness program for people who had houses that were foreclosed. In prior years, debt that was forgiven was taxable income. That change will affect hundreds of thousands of people.
The biggest thing people will miss -- and several million people will qualify for this -- is deducting their property taxes when they don't itemize. You can either itemize or take the standard deduction [and still deduct property taxes]. Before, you could only take the property deduction if you itemized. So many people who haven't been itemizing will miss out on that. You can add the property taxes to your standard deduction for the first time ever.
How common is it for people to make mistakes that end up costing them money?
It's so common -- usually, for over 50 percent of people, we find we can save them money. The difficulty with doing your own taxes is that [the tax code] changes every year. Most errors are errors of omission.
What do people omit?
In a recession, more people take classes and look for jobs. Both of those expenses are deductible. There are tax credits for tuition or fees. That will impact more people this year.
A few high-profile people, such as Senator Tom Daschle, have been in the news for making tax mistakes recently. How can people avoid getting into that kind of trouble?
The only reason mistakes like that aren't more common is because those expenses aren't common. Only five to ten percent of the public has a nanny, but those who do are more than 50 percent likely to mess it up without professional help.
For more on taxes, read Wealthy Brace for Obama Taxes and How to Avoid Getting Audited by the IRS.
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