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Last Minute Tax Advice

Tomorrow is Tax Day and I was on Today this morning with my last minute tips for those of you who haven’t finished filing. Check out the video below, and a written recap is after the jump.

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E-file for Free. In years past, there was an income cutoff for free e-filing. No more. Now anyone can file their tax returns online for free at IRS.gov. If your adjusted gross income was less than $56,000 you are also eligible for free software (from leading companies like Turbo Tax and H&R Block’s Tax Cut) at the site, which will be helpful if you haven’t even started yet. Filing electronically has other benefits as well: It speeds your refund (You’ll have the money in 2 weeks as long as you elect direct deposit, if you filed by snail mail it would take 6 to 8), and it helps you eliminate errors in math as well as flagging other errors you might not have realized that you made.

Know how the stimulus affects you. If you haven’t filled out your return yet, you’re going to want to know how much your 2008 stimulus rebate check was for. Also, if you are planning to take the 2009 home buyer credit (which can be taken on this year’s return OR next) or you are claiming the new car deduction, make sure you have the relevant paperwork handy and read the rules. The $400/$800 making work pay tax cut will be paid via your payroll and not your tax return. You should have started to see that extra $14 or so a week already.

Make a last-minute retirement deduction (and one for next year.) If you haven’t made a tax-deductible retirement plan contribution for this year – and you have some free cash – you can contribute up to $5,000 for individuals up to age 50 or $6,000 for individuals age 50 and older into a traditional or Roth IRA. And, if you’re getting a refund, one way to make the most of it is to have it deposited in your IRA. (The IRS will deposit money in up to three accounts.)

Get a last-minute deduction through an IRA contribution. If you are eligible to make tax-deductible IRA contributions — eligibility depends on your income and whether or not you participate in a pension, 401(k) or similar plans — it’s not too late to have your contribution count for the 2008 tax year: Just contribute before April 15 and specify to your bank or whatever firm holds your IRA that you’d like it be considered a 2008 contribution.

Request an Extension. If you can’t meet the deadline to file your tax return you can get an automatic six-month extension of time to file from the IRS by filing Form 4868. Note: The form must be in by April 15. It can be submitted electronically through e-file. But it is an extension to FILE, it is not an extension to PAY. If you owe money to the IRS, you must make a payment when you file your extension request. You can do this electronically (the IRS will electronically zap the money from your bank account) or you can send a check, but it must be mailed by April 15 and needs to be made out to the US Department of the Treasury.

Apply for an Installment Agreement. So, what if you can’t pay? As long as you owe $25,000 or less you can apply for a payment plan electronically, using the Online Payment Agreement application or form 9465 (you can get all the forms online at IRS.gov, the IRS’s surprisingly easy to use website. You can also still get many forms at local post offices and libraries.) The IRS will usually agree to this as long as you can get out of debt within 5 years. But note: You’ll pay for it. The IRS charges $105 for setting up the agreement or $52 if the payments are deducted directly from the taxpayer’s bank account ($43 for qualified lower-income taxpayers). You’ll pay interest at a little over 6% plus ¼ of 1 percent interest in a penalty every month. You may be able to do better by using your home equity line of credit or a very, very low interest rate credit card (watch out for fees there too). But NOTE these penalties are low compared with the penalties you will face if you don’t FILE. You must file.

Watch Phishing Scams. When people are scrambling to do anything last minute – like finish their taxes – they are more vulnerable to scams. Watch out. The IRS says that there are numerous scams in which people receive unsolicited e-mails, phone calls or faxes that claim to come from the IRS or include an IRS logo or send recipients to a phony IRS Web site, and which request personal and financial information that may be used to commit identity theft. Typically, identity thieves use someone’s personal data to empty the victim’s financial accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name, file fraudulent tax returns or even commit crimes. Know this: The IRS is not going to email you or call you and request personal information. And if you get one of these emails DO NOT open the attachments. Instead forward it to phishing@irs.gov.

And – as always – if you are not going to efile, send your return certified mail return receipt. It never hurts to have a paper trail.

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