Your Personal Tax FAQs Answered

Here are a few of your personal tax FAQ's answered.

FAQ#1.: The net payable seems to be a lot. We/I wasn’t expecting such a large figure?

In most cases, if you plan early enough, you will not only save money you may even be eligible for a refund. The key is making sure that you have all of your relevant tax information compiled and ready to examine. If you do this, you will not be too overwhelmed or surprised at how much you may owe, because you will have planned ahead and anticipated for the outcome. One thing is for sure, those who plan ahead, almost always fair better than those who did not during tax time.

Another handy tip is, to be entitled to a refund a tax return must be filed within the first three years of the due date of the return or two years since you last paid your tax.

FAQ#2.: The amount due is too large to pay all at once. Can’t I pay it in smaller portions?

When the figure is finally computed, and you feel like it is too much to pay at once, persevere because paying the amount due will save you more money in the long run. If you pay it all, you are eligible for some deductions, exemptions and credits. You will also be entitled to the previously mentioned refunds. Remember that if you procrastinate, and do not pay your amount by the due date, you will have already accrued a sizable amount in fines and interest. This may inflate your tax bill to as much as 25% more than the original amount. That being said, it is possible to have an installment plan arranged with the IRS. Some benefits will be inapplicable and will cost you more money in the long run.

FAQ#3.: My home has lost value, yet I am paying such a large amount in property tax. Can my property tax amount be reduced?

In this economy, and its rock bottom property prices, you might not have to pay as much as you think. Get a new evaluation on your real estate. Then appeal for a reduction in your property tax. Why should you pay taxes for a $1,000,000 home that is now worth $200,000?

FAQ#4.: My mortgage has been written-off. What now?

If a primary residence has been foreclosed on, you would ordinarily have to pay tax on the debt that has been written-off (i.e. IRS considers that because you are no longer liable for that amount, it should be taxed as an income). Now you can get relief under the 2007 Mortgage Debt Relief Act, and reduce the total amount due substantially.

The 2007 Mortgage Debt Relief act is only applicable for primary residences. Speculators are ineligible. Also, this rule applies to debt cancellation of $2,000,000 for married couples and $1,000,000 each for married couples that are filing as separate entities.

FAQ#5.: I took the plunge and bought a new home recently. What are the any benefits?        

If you bought a home after April 2007, you might be sitting on a tax credit that was recently implemented. This credit is 10% of your purchase price and up to a maximum of $7500. It is basically an interest free loan that the IRS is giving so as to reignite the buyer’s market. If you bought your home in 2009, the benefit is up to $8500 which should help you reduce you bill in these tough times.

To be eligible for this tax credit, you must be a new home owner and your income must be less than $75000 a year for single tax payers or 150,000$ for joint applicants. The credit will be repaid after the second year e.g. If you claim the credit for 2009 you start repaying in 2011 over a period of 15 years.



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