“Taxpayers should pay no more or no less than what’s owed,” IRS spokesperson Raphael Tulino said. “While most taxpayers prefer to get a refund, some tax planning done now could boost take-home pay or save money down the road.”
Generally, three out of four taxpayers get a refund and the average refund so far this year is about $2,900.
To bring the tax paid closer to what’s actually owed, taxpayers could consider withholding adjustments. Taxpayers should use IRS Publication 919, “How do I adjust my tax withholding?” or the withholding calculator at IRS.gov to assist with determining the proper withholding amount for their situation. Wage earners needing to adjust their withholding should complete and submit a new W-4 form to their employer. Self-employed taxpayers can use the 1040-ES form worksheet to calculate correct estimated tax payments.
Taxpayers can also investigate the making work pay tax credit. Many working taxpayers might be eligible for the making work pay tax credit again this year. Making work pay is worth up to $400 for single taxpayers and up to $800 for married filing joint taxpayers. As a result of this credit, most wage earners will benefit with larger paychecks in 2010 through changes made to federal income tax withholding tables used by employers. Some, however, might find the changes built into the withholding tables result in less tax being withheld than they prefer.
Summer months often mean weddings, summer jobs, day camps, job related moves and home sales. Here are some other summer ideas from the IRS:
• Marital status on Dec. 31 determines marriage for that year. Taxpayers should consider what filing status is best. Joint tax deductions can allow newlyweds the opportunity to itemize deductions thus lowering their bill.
• Working students who can be claimed as a dependent on another tax return might be exempt from federal tax withholding if certain other conditions are met. Students are urged to read IRS W-4 form carefully before submitting to their employer. Skipping unnecessary tax withholdings generally results in a bigger paycheck.
• Many working parents arrange for care of children younger than age 13 during the summer. A popular solution with favorable tax consequences is a day camp program. Unlike overnight camps, the cost of day camp can count as an expense towards the child and dependent care credit. Up to $3,000 of work-related expenses per qualifying person or $6,000 for two or more qualifying persons can be used to figure the amount of the credit. IRS publication 503 provides complete details.
• Moving expenses might be deductible if the move is job related and certain tests are met.
• For home sales, up to $500,000 of capital gains might be exempt from taxation and new homeowners should be aware that mortgage interest, points and real estate taxes might be deductible. Those in a foreclosure situation might also find favorable federal tax consequences because of the Mortgage Forgiveness Debt Relief Act of 2007.
For more federal tax information and to access IRS forms and publications, visit IRS.gov.
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