Questions for the Tax Lady: January 5th, 2011

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question: When is the earliest that I can file my tax return with the IRS?

I love that you want to get a jump on filing your taxes. In theory, you can file your taxes as soon as you receive all your W-2s, 1099s, or other tax-related documents. However, this filing season you might have to wait until mid-February to file. Congress waited until the very last minute to pass the “tax compromise” which means the IRS is still scrambling to update the tax forms and processing systems. So, who will have to wait?

1. Taxpayers who itemize deductions on Schedule A.
2. Taxpayers who claim the Higher Education Tuition and Fees Deduction.
3. Taxpayers claiming the Educator Expenses Deduction.

In addition to the delays, the IRS is urging anyone who falls into any of the three categories above to file electronically. With all the changes to the forms, filing electronically will ensure you file the updated versions of the forms and help you detect any mistakes before you file. No specific date has been given yet, but the IRS should announce it shortly.

So, if you claim the standard deduction and do not plan to claim the tuition and fees deduction, or the educator expenses deduction, you are free to file as soon as you receive all your tax information. Otherwise, you can spend the next month and a half getting organized so filing will be a snap!

Question: I am currently on a payment plan with the IRS, but my income has been reduced significantly over the past few months. Is it possible for me to renegotiate with the IRS to lower my monthly payment?

I commend you for getting out ahead of your financial issues, instead of waiting until you default on your installment agreement with the IRS.

Most IRS tax debt programs are based on your financial situation right now. So, when you income declines or you lose a job, you may be able to negotiate a lower payment. Your first step is to call the IRS (800-829-1040) as soon as you think you have a problem.

You will probably have to provide documentation for your decreased income, such as your W-2s or an updated profit and loss statement for your business. So, gather your documents and call the IRS. And good luck on getting a little relief in this still-shaky economy.

Taxpayers Filing Earlier and Banking Larger Refunds in 2009

The IRS recently published a new press release discussing the recent statistic of taxpayers who file earlier receiving bigger refunds. You can find part of the release below, but the full post can be read here.

Taxpayers are filing earlier and receiving larger refunds so far this year, according to early filing season statistics released today by the Internal Revenue Service.

As of Feb. 27, 2009, the IRS had received 56 million individual tax returns, a slight increase over the previous year. And, the average individual refund was $2,869, a 9 percent increase or $232 more than the same time last year.

The IRS notes that possible reasons for the larger refunds may include taxpayers benefiting from the recovery rebate credit and other tax breaks such as the first-time homebuyer credit and the additional standard deduction for real estate taxes. The average refund amount generally will decrease slightly as the filing season progresses.

More taxpayers choose to receive their refunds through direct deposit each year. As of Feb. 27, more than 84 percent of all refunds were issued through direct deposit, up from 81 percent for the same period last year.

While the IRS has issued almost 3 percent more refunds this year compared to the same time last year, the number of taxpayers who choose to receive their refunds quickly and safely through direct deposit is up almost 7 percent compared to the same time last year. On Feb. 27, the average direct deposit refund totaled $3,063.

The IRS cautioned that year-to-year analysis of total returns filed will be an anomaly this year because last year’s results include those returns filed for the economic stimulus payment. As the year progresses, the IRS expects to receive and process more individual income tax returns during 2009 than in 2007 but fewer than in 2008.