You may be eligible for a few money making tax credits this tax year. A tax credit is a dollar-for-dollar reduction of taxes owed. It is even possible that you may receive a tax refund instead of owing taxes because some tax credit are refundable.

Here are four tax credits you should consider before filing your Federal Income Tax Return this year:

1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

There are other money making tax credits available this tax year.  So before filing your income tax, check for credits you may be eligible for.

You can get more information about tax credits by visiting the IRS website or by calling 800-TAX-FORM (800-829-3676).

source: irs.gov

One of the most common income tax questions is what will happen if I fail to file a federal income tax return.

First of all federal income taxes are based on the amount of tax due. So if you don’t owe any taxes, no penalties are due.

However, there is a civil penalty for failure to file a timely return. According to one income tax attorney, the civil penalty is generally between 5.0% and 25% of the amount of tax required to be shown on the federal tax return per month. In addition, there is an additional civil penalty for failure to pay the tax actually shown on the federal tax return. This is between .05% and 25% of the tax amount due each month. Income tax lawyers state the two penalties are computed together in a complex algorithm that makes estimating the actual penalties a challenge.

According to some estimates approximately three percent of taxpayers avoid the process of income tax preparation and do not file an income tax return at all.

In cases where a taxpayer does not have enough money to pay the entire tax bill, the Internal Revenue Service can work out a payment plan. Tax experts recommend that people in this position should at least consult with an income tax attorney to explore their legal options regarding the overdue tax debt.

There is no statute of limitations on civil actions by the IRS for years for which no return has been filed.

For each year a taxpayer willfully fails to timely file an income tax return, the taxpayer can be sentenced to one year in prison.

Taxpayers who have not filed income tax returns are recommended to meet with their accountant or an income tax attorney.

source: wikipedia.com

April 15, the federal income tax filing deadline, is coming upon us fast. And this year, the economic conditions may pose serious problems for those who owe federal income taxes but don’t have the money. If you end of up owing federal income tax and can’t afford to pay the tax, here is some essential information you need to know about the IRS collection process and payment alternatives:

1. What is the collection process?
If you do not pay the taxes you owe in full when you file your income tax return, or if the IRS examines your tax return and makes an assessment based upon an examination, you will receive a bill from the IRS. This bill begins the collection process. The IRS may take action to collect the money if you do not pay on time or do not make arrangements with the IRS to pay over time.

The first bill you receive will request payment in full. If the IRS has changed the amount you owe, the bill will explain the change.

It is in your best interest to pay the tax as soon as possible because the IRS will continue to charge you penalty and interest. If you cannot pay the full amount of taxes you owe by the deadline, you should still file your return by the deadline and pay as much as you can to reduce penalties and interest.

2. How can I pay my taxes?The Internal Revenue Service will accept check or money order made out to the Department of Treasury – write your Social Security number or ITIN, the tax form, and tax period on the check.
Electronic Federal Tax Payment System (EFTPS) – EFTPS is a free tax payment system. You can transfer money from your bank account to pay your taxes by phone or online. For details, visit www.eftps.gov or call 1-800-316-6541.
Credit Card – these companies charge finance fees. To pay by credit card, here a contact number of one of the service providers: Link2Gov Corporation: 1-888-PAY-1040 (1-888-729-1040).

3. What if I cannot pay in full?
If you cannot pay your federal income tax in full, call the IRS at the phone number listed on your bill. Depending on your specific circumstances, you may qualify for an extension or an installment agreement.

Extension of Time to Pay – You can request an extension from 30 – 120 days depending on your specific situation.
Installment Agreement or Partial Pay Installment Agreement – Depending on the amount you owe , and your specific circumstances, you may apply for an installment payment plan or a partial pay installment agreement by applying online at www.irs.gov.

Be aware that for most taxpayers, the IRS generally charges a fee for setting up an installment agreement and interest and penalties continue to accrue during this time.

4. What if I cannot pay at all?
Call the IRS at the phone number on your bill. Because you will need to give the IRS complete financial information if you feel you cannot pay, before you call, make a list of your monthly expenses and monthly income, and be prepared to discuss those with the IRS. Be sure to consider your medical costs and transportation costs (e.g., gas, repairs, insurance, bus fares), as well as housing costs. For expenses that are not recurring on a monthly basis (like auto repairs), consider your total yearly costs and divide that amount by 12 to come up with an average monthly amount. If the IRS agrees that you do not have the ability to pay, it may temporarily suspend collection action. However, the amount you owe will continue to increase through additional penalty and interest charges.

5. What if I do not pay voluntarily?
If you do not pay your tax bill or contact the IRS to make arrangements to pay, the IRS will take action to collect, such as:

• Filing a Notice of Federal Tax Lien (NFTL) – The lien is a claim against your property. The lien will appear on your credit report and it may harm your credit rating. The IRS will release the lien once the taxes, penalty, interest, and recording fees are paid in full.
• Serving a Notice of Levy or seizing assets – The IRS can collect the amount you owe from your wages, bank accounts, Social Security benefits, retirement, or other sources of income. If the tax still isn’t paid and you haven’t made arrangements to pay, the IRS may seize your car, real estate, or other property. Prior to taking such action, you have the opportunity to request a hearing to resolve your tax payment issues.
• The IRS will also apply any future federal tax refunds that you are due to the debt. They may also take any state income tax refunds you are due.

6. What if I disagree with the IRS’ Collection Actions?
Depending on where you are in the collection process, you may be able to appeal the IRS collection actions through the Collection Due Process (CDP) or Collection Appeals Programs (CAP). For more information, see Publication 1660, Collection Appeal Rights. All Publications are available by calling 1-800-829-3676, or at www.irs.gov.

7. Will the IRS settle for less than full payment?
The IRS has the authority to settle, or compromise, federal tax liabilities by accepting less than full payment under certain circumstances. An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that resolves the taxpayer’s tax liability. For most taxpayers, there is a fee for submitting a request for an OIC, and the IRS will generally not accept an OIC if you can fully pay the tax liability. For more information about OICs, see Publication 594, What You Should Know About The IRS Collection Process.

8. Where can I find more information about paying my taxes?
See IRS Publication 17, Your Federal Income Tax, for more information.

9. Whom should I contact if I need assistance?
If you have additional questions or concerns, contact the IRS at the phone numbers listed on your bill. If you do not have a bill, you can call IRS customer service at:

• 1-800-829-1040, or
• Visit the IRS website at www.irs.gov
• Taxpayer Assistance Center. Use this link to locate the closest IRS Taxpayer Assistance Center or visit www.irs.gov for a listing.
• You may also qualify for assistance from a Low Income Taxpayer Clinic (LITC). Information about LITCs can be found later in this toolkit.

source: www.irs.gov