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Tips to Get Started on 2003 Tax Returns
Some Tips to Get Started on Filing 2003 Tax Returns
The Associated Press
WASHINGTON Jan. 15 — Swamped in tax paperwork with nowhere to turn? Here are some tips to get started and to find help when you need it:
Organize. Collect tax information sent by your employer and your financial institutions. Keep all tax-related receipts in one place and collect documentation for deductions. Have last year's return on hand. Pick up the appropriate forms from a post office or download them from the IRS Web site. Developing a system to keep tax information organized all year makes it easier to get started.
Don't procrastinate. Overcome the urge to wait until April 14 to finally finish and mail your tax return. You're more likely to make a mistake or overlook possible tax savings if you're rushing to meet the April 15 deadline.
New complications? Start your taxes early if you've experienced a major life change that might affect your taxes, like a move, marriage, birth or divorce. If you've changed your name, make sure the Social Security Administration knows so that your Social Security number matches your new name.
Check your math. Review your return to make sure it's complete and accurate. Double-check Social Security numbers and figures copied from tax worksheets and schedules. Make sure you've added and subtracted correctly and signed the return.
Consider electronic services. Make taxes more efficient by filing your return electronically. The IRS will immediately catch math errors and other simple mistakes in e-filed returns, sending them back to be quickly fixed. Even if you don't file electronically, speed a refund by arranging to have it deposited directly into your bank account. Or, file your return early and delay a payment to the IRS until April 15 by arranging an automatic bank withdrawal.
Visit the IRS online at . The IRS Web site holds a wealth of information about tax laws and filing requirements. A new feature called 1040 Central helps taxpayers navigate the site and find the information, instructions and forms they need.
Get IRS Publication 17. The publication, called "Your Federal Income Tax," is the single best source for help with common questions. It outlines important tax law changes for the year and walks through each part of the tax return. Download it from the IRS Web site or order it by calling the IRS at 1 (800) 829-3676 (1-800-TAX-FORM).
Call the IRS. The IRS offers recorded messages on about 150 popular tax topics through its TeleTax service at 1 (800) 829-4477. Individuals can get more personalized help by calling the IRS at 1 (800) 829-1040 from 7 a.m. to 10 p.m. on weekdays and 10 a.m. to 3 p.m. on Saturdays (all times local, except Hawaii and Alaska).
Visit the IRS in person. Take advantage of help offered at IRS offices nationwide by appointment or on a walk-in basis. Check the IRS Web site or call the IRS at 1 (800) 829-1040 for local office locations and hours.
Ask a volunteer. Check your local area to see if qualified volunteers are offering help during tax season. Check your local newspaper or call the IRS individual help line at 1 (800) 829-1040 to find locations for Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites. AARP, for example, offers the AARP Tax-Aide Program from Feb. 1 to April 15 each year.
Ask for more time. If all else fails, ask the IRS for an automatic four-month extension to file your return by filling out Form 4868. Taxpayers can also request an extension over the phone by calling 1 (888) 796-1074 or through IRS e-file.
Important: The extension applies only to the return, not to taxes owed. You will owe interest on any amount not paid by April 15, plus a late payment penalty if you haven't paid at least 90 percent of taxes due by the deadline.
Many Will See Smaller Tax Bills This Year
Many Will See a Bigger Refund or Smaller Tax Bill When They Figure Their 2003 Returns This Year
The Associated Press
WASHINGTON Jan. 15 — Tax rates dropped last January, but most taxpayers have received only half of the cuts coming to them. That means many of them can expect a bigger refund or a smaller tax bill when they figure their 2003 returns this year.
The Internal Revenue Service, banks and brokers have just started mailing out packages of tax instructions and year-end financial statements. IRS officials say electronic filing, when combined with the direct deposit of a refund into a taxpayer's bank account, speeds refunds to taxpayers in as few as 10 days. The average time is about 14 days. Taxpayers filing the traditional way can wait up to six weeks for a refund.
The tax law enacted last May dropped tax rates across the board and removed some of the "marriage penalty" built into the structure of marginal tax rates, which can cause married couples to pay more tax than they would as two singles.
Nearly everyone benefited from an expansion of the lowest, 10 percent bracket to $7,000 for single people and $14,000 for married couples. The law also expanded the 15 percent bracket for married couples to twice that of singles. Married couples now pay the same amount of tax on income within the bottom two rates as two singles.
The law also lowered the higher marginal rates ahead of schedule and made the change effective Jan. 1, 2003. The higher rates are now 25 percent, 28 percent, 33 percent and 35 percent.
All of these changes were reflected in taxpayers' paychecks beginning in July, when employers were instructed to change their withholding tables to reflect the new rates. Because the change started midyear, most taxpayers paid too much tax during the first half of 2003 and can expect to recoup that money through a bigger refund or a smaller tax bill.
Tax advisers at Petz Enterprises Inc., which runs the online tax preparation service TaxBrain, said they expect 10 million households run by married couples whose incomes range from $47,000 to $65,000 to be among the biggest winners. The combination of new tax rates and tax cuts targeted at married couples will move many of those households from the 27 percent bracket down to the 15 percent bracket.
"Because the tax law changes took effect midyear, many of these households will find they have been overwithheld, and tax refunds will be much higher than expected," said Eric Hayes, a senior tax analyst at TaxBrain.
IRS officials say tax refunds have been steadily rising, on average, for about 20 years. This year's jump may be higher due to lower tax rates, an increased child tax credit and other tax cuts.
Families that got an advance child tax credit payment last summer will need to reduce the credit they claim on their return by an equal amount. A family with one child who qualified for the entire $1,000 child tax credit probably received $400 last summer and can claim the remaining $600 when filing a 2003 tax return.
Married couples this year can claim a $9,500 standard deduction. Couples whose itemized deductions total less than that might be better off not itemizing them.
Investors may be able to take advantage of lower rates on dividends and capital gains but will spend more time on tax paperwork. Because the new capital gains rates took effect May 6, multiple rates apply, depending on when an asset was sold. Some dividends previously taxed at an investor's normal income tax rate also qualify for the same lower capital gains rates. The lower dividend rates, however, are for the entire year.
Taxpayers who routinely get large refunds may want to consider adjusting the amount withheld from their paychecks, converting the end-of-year refund into more take-home pay all year long. Taxpayers can request a W-4 form from their employers to make that change.
Taxpayers who might have changed their withholding in the middle of 2003 to adjust for the changed tax rates may have to readjust that withholding to avoid owing taxes at the end of 2004. "Those people should consider filing a new W-4 in January to have their withholding increased and put on track," said Bob Scharin, a senior tax analyst at RIA, a New York tax information provider.
Employees who experienced a major change that might affect their taxes those who got married or divorced, bought a home or had a child also might want to consider adjusting the amount automatically withheld from their paychecks.
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