Archive for the ‘Taxes’ Category

Planning for Tax Preparation

February 7, 2013


Written by: Jayne McBurney, Family and Consumer Sciences Extension Agent, Johnston County, North Carolina Cooperative Extension, North Carolina State University.

It’s that time again!
It is inevitable; we must file our tax returns. But it need not be a taxing experience! By getting organized ahead of time, filing taxes can be done efficiently and accurately. The first steps are easy: Who, What, When and How.

Who will be counted on your tax return as a dependent? Make sure that you have a social security number or tax identification number for each person that will be listed as a dependent. If you share custody of minor children, make sure there is complete agreement upon and understanding of who will claim these children. This conversation may need to take place each year even for established co-parents. It is particularly important for new co-parents and when there has been a recent change in status; such as, when a non-resident parent first begins making child support payments or for newly separated/divorced parents.

Employers will provide an earnings statement commonly referred to as a “W-2 form.” You will need to collect W-2s for each person, typically spouses on a joint income tax return. Employers are required to provide W-2s no later than January 31 each year. Find out if your employer will be mailing the W-2 or if you should look it up online. Collect all other earnings statements as well, 1099 forms show earned income from interest, investments and independent contractor work. If your spouse is retired, be sure to collect the 1099-R which reports retirement income paid to the retiree in your household.

The sooner you file, the sooner you know how much you owe, or the amount of your anticipated refund. It is best to start soon in preparing your taxes so you have time to be sure you have all the supporting documents, such as receipts for deductible expenses and to have to time to double-check calculations. Planning ahead significantly reduces stress.

Many taxpayers are eligible to file online. The IRS provides the fillable forms option for people who are comfortable filling out tax forms and schedules without software help. It provides “do-it-yourself” tax filers with an experience similar to filling out paper forms (except you can type numbers into spaces on the form and print out the form instead of writing everything out). Fillable forms can be printed out and submitted by mail, or they can be filed electronically. For tax filers with an income less than $57,000 (2012 figure), there is also an option to access free tax preparation software.

To use Free File Fillable Forms and submit your tax return electronically, you create an account and input and submit your information as directed. Here is an IRS FAQ with additional information:,,id=226829,00.html.
If you are not sure how to file your taxes or you do not have Internet access, you can go to your local State Employees Credit Union, and ask if they are providing Voluntary Income Tax Assistance (VITA) Program. You can receive your refund in about 10 days if you file your return online and opt for direct deposit.

Those are the EASY questions. The harder questions and answers are those that relate to deductions?
A tax deduction is subtracted from the amount of income that is taxed, your tax liability. After income is determined, tax filers must consider if they wish to take the Standard Deduction or itemize deductible items. Itemized deductions can include medical and dental expenses, taxes, charitable contributions, home mortgage interest, casualty losses, and miscellaneous; some of these deductions apply also as part of the Alternative Minimum Tax (AMT) calculation. So, some calculations might be in order to determine if it is better to take the Standard deduction or to itemize. For a married couple filing a joint return the standard deduction is $11,900 (2012 figure). Many of the computer-based tax filing programs will help you determine what is best for you, and they will do the math!

Once it is determined whether to itemize deductible expenses or to take the standard deduction, then tax credits can be figured. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes; and act as incentives to promote decisions that benefit families, the environment, and/or society. Tax credits include child and dependent care, educational credits, residential energy credits, and retirement savings contribution credit; these are non-refundable credits. Non-refundable credits can be used in amounts up to the total of your tax liability. Excess non-refundable credits either must be carried forward to another tax year or be lost; they cannot result in an income tax refund.

When refundable tax credits exceed your tax liability the credit results in an income tax refund. Refundable tax credits include Earned Income Credit, which is probably the least used credit available. Couples earning less than $49,000 should review their eligibility for this credit that is based on the number of children in your home. You must have earned income to be eligible for this credit!

What do I do with my Tax Refund?

First, avoid the urge to get a cash advance on your refund! The amount of money charged to receive an early refund far exceeds the benefit! Complete and correct returns filed online are often directly deposited into bank accounts within ten days.

When you receive your refund, payoff debt that you have, avoid the temptation to buy something new. A credit card debt of $3000 at 12% interest will take more than 17 months to pay off when making payments of $200 each month. By putting just $500 of a tax refund towards that debt, the remaining $2500 could be paid off in just 14 months. This is the easiest way to pay down these type of debts. If you have a bit more self-control, keep your refund in a bank account and earn interest on it. Then, each month add just $50 to the monthly payment, increasing it to $250; in just 13 months the debt will be paid off.

If you have no debt, invest in your future. Why not open a Roth IRA account? If you start an account with a modest $400, then add a bit each month; you could have a nest egg at retirement. For example, if a 29 year old starts an IRA with just $400, earning 8% interest, then adds $50 each month, by age 65 there will be $127,629 to enjoy. Increase that monthly amount to $100 and you will have $248, 872!

With a little planning, you are sure to find a good use for your tax refund, rather than just buying something new. Why not invest in your future financial security by paying down debt and investing in your retirement.

National Financial Management Core Competencies in this blog: Earning, Saving.

How to cite this article:
McBurney, J. (2013, February). Planning for tax preparation. Available at:

Bird, C. (2009). Smart money tips: Getting the most from your tax refund (FCS-528-01). Available at:

Bird, C. (2009). Smart money tips: Smart uses for your tax refund (FCS-528-02). Available at:

Bankrate Monitor (2013, month).

Internal Revenue Service (2012, December). EITC Income limits, maximum credit amounts and tax law updates. Available at:,-Maximum-Credit–Amounts-and-Tax-Law-Updates

Internal Revenue Service (2012, January). Top 10 Helpful Features on the IRS Website. Available at:


IRS introduces a new tool to find nearest VITA location

February 17, 2012

By Molly C. Herndon

The IRS has introduced a new tool for taxpayers to use to find locations for help with filing their returns through the Volunteer Income Tax Assistance, or VITA, program. VITA locations typically offer free assistance with tax preparation for individuals with an income of $50,000 or less.
Click here to find the VITA tax preparation site nearest to you.

VITA was created in 1969, and in 2011, volunteers prepared more than 3 million tax returns through the VITA program and the sister program, Tax Counseling for the Elderly.

Another good program to be aware of is the Tax Counseling for the Elderly (TCE) program. This program provides priority tax preparation services for all taxpayers over age 60. Click here to find TCE locations.

In addition, the Internal Revenue Service just announced the North Carolina organizations funded to offer tax payer preparation assistance for low-income tax payers.
The organizations are:

  • Community Reinvestment Association of North Carolina – Durham $37,500
  • Legal Services of Southern Piedmont, Inc. – Charlotte $92,000
  • North Carolina Central University School of Law – Durham $75,000

Making the Most of Your Tax Refund

February 15, 2012

By Leigh Guth, Extension Agent, Lincoln County 

Palms get itchy this time of year with folks anticipating their tax refund. All too quickly the refund is here and gone again, spent as quickly as it came. It is important to remember, especially this time of year, that a tax refund is not “free money” – rather it is the return of earned income. Agents, this year, help others develop a plan for saving the bulk of their refund. For example, by taking a small amount – perhaps 20% – to use that for a fun purchase or a vacation. But, by saving the remaining 80% of the refund, taxpayers can begin improve their family’s financial situation. Here are some considerations to share with your clients:

Look at your financial health and consider the year ahead.

What debts are you paying off?  Do you have a high interest credit card or loan?  Check out to see how much money you would save in interest by paying a lump sum toward your debt. Power Pay will show you which loan you should target and how much quicker you will pay off your debt by using your refund as a debt payment.

What crisis could come along?

Do you have six months’ worth of living expenses saved for an emergency?  What if you were to lose your job?  What if you need to repair your car, replace your washing machine, or have a major medical expense? Could you pay for those things without resorting to your credit card?  A tax refund is a great way to start an emergency fund that would help handle any of these events.

What big events are planned this year?

Is there a wedding, summer trip or a graduation in the future?  Use your tax refund to open a savings account for this purpose. With a lump sum to start you on your way, adding a small monthly amount can make saving for a special occasion a cinch.

Are you saving for your retirement or your child’s education?

This tax refund could make a great impact toward any savings goal and can have a positive effect on your taxes for next year.

As discussed in a recent post , by using direct deposit for your tax refund, you are already taking a step toward success!  Directly deposited refunds arrive faster than a mailed check. By using an IRS Form 8888, you can assign your refund to up to three different bank accounts.  So, you could send 20% of your tax refund amount to a checking account reserved for discretionary purchases, then, send the remaining amount to a retirement account or savings account. You can also use this form to purchase up to $5,000 of U.S. savings bonds to add to your retirement or education savings. Now, you are already on your way to improving your financial health in 2012!

Agents, the National Financial Management Core Competencies addressed in this blog are:

  • Saving: relationships with financial institutions, plan for retirement, child’s education, and other needs, plan for long-term goals
  • Borrowing: plan and meet your payment obligations
  • Protect: build up an emergency fund

As you can see, sharing the information in this blog with your clients will help them build competencies in three of the national competency areas: (1) Saving, (2) Borrowing, and (3) Protect.

What are some of the ways you can share this information with your clients?


Bird, Carolyn L. Getting the Most from Your Tax Refund (FCS-528-01). Raleigh: North Carolina Cooperative Extension Service, NC State University.

Smart Uses for Your Tax Refund. North Dakota State University, Extension Service. December 2010. 

10 Tips to Make Filing Easier

February 13, 2012

By Molly C. Herndon

It’s that time of year once again – tax-filing time. Last week’s post discussed strategies for getting a smarter refund, and this week we’re offering tips to make the filing process easier. The North Carolina Department of Revenue has shared 10 tips that should making filing in NC easier this year. Extension Agents, please share this helpful list. 

Ten tips for filing taxes in North Carolina

Tax season is here and making it easy for taxpayers to understand and file their taxes is a top priority for the North Carolina Department of Revenue. Providing the correct information and remembering a few simple tips will help ensure you have an error-free tax return that can be processed quickly and correctly.

1. Extended filing date– Individual income taxpayers will have until April 17, 2012, to file returns, extensions and payments normally due on April 15. The extension is to accommodate Emancipation Day, a legal holiday in the District of Columbia. Get more details on the extension.

2. Gather all your income and tax documents before you file– Filing before you receive all W-2s and 1099s often leads to errors that require you to file amended returns once you have the correct information. Employers are required to mail W-2s and other documents by Jan.31.


3. File electronically and request direct deposit for refunds-This is the most convenient, accurate and the fastest way to file your taxes. Electronic filing will identify common math errors and direct deposit to your bank account means you get your money sooner. Some taxpayers may qualify for free or low-cost electronic filing. Find out how to E-file and if you qualify for low-cost filing.  Some taxpayers with low-to moderate- incomes may qualify for free tax preparation through the Volunteer Tax Assistance Program. To locate the nearest VITA site, call 1-800-906-9887 or visit the IRS website.

4. File electronic federal and state returns at the same time-Failure to file both returns at the same time could require taxpayers to amend North Carolina returns if the IRS detects any errors with their federal return.

5. Check your address-Every year, thousands of refund checks are returned to the Department of Revenue because of incorrect addresses, and the law forbids the forwarding of those checks. Carefully check the mailing address you provide on your return.

6. Do not file photocopies of tax forms-Use pre-printed or downloaded forms from the department’s website. Photocopies may not scan correctly and could cause delays in processing your return. Taxpayers can request forms onlinedownload forms from the NCDOR website, or call 1-877-252-3052.

7. Make checks payable to the N.C. Department of Revenue if you owe state taxes-Some taxpayers mistakenly send checks made out to the Internal Revenue Service for their state taxes. Payments may also be made on-line through our secure website. Just visit and click on Electronic Services for Individuals.

8. File on time regardless of ability to pay-Make sure you file on-time to avoid the automatic failure-to-file penalty of five percent per month, up to a maximum of 25% of what you owe in state taxes. You are better off filing your taxes by the April 17 deadline and contacting the department at 1-877-252-3052 to arrange a payment plan if you cannot pay all at once.

9. Check to see if you qualify for common credits, deductions or exemptions-You could qualify for popular credits such as the Earned Income Tax Credit both federally and with the state.  Some severance pay may also be exempt if you were laid off from your job.

10. Find and use a reputable tax preparer– Taxpayers get billed for millions of dollars in state taxes each year as a result of deliberate errors made on their returns by fraudulent tax preparers.  Be wary of preparers who: claim they can obtain larger refunds than others, ask you to sign a blank tax return, base their fees on a percentage of a taxpayer’s refund and who are reluctant to offer references.  If you see information on your return that is wrong or confusing, you should question the preparer and if not satisfied with their response, called the NC Department of Revenue at 1-800-232-4939.

Questions, need more information? If you have any questions or need more assistance, please call our Taxpayer Assistance Center at 1-877-252-3052.

Get a Smarter Tax Refund

February 10, 2012

By Joan Reid, Extension Agent, Family & Consumer Sciences, Granville County

“It’s not how much you earn that counts, but how much you keep.”

Extension Agents, it goes without saying that most of us hate filing our income tax returns, but we love getting money back from the government. While you don’t want to owe income tax, too big of a refund doesn’t work to your best advantage, either. So, how can you prepare your clients to best put their tax return to work for them? This post focuses on strategies you can share with clients that will help put their tax returns to work.

Make Your Refund Work for You

The much anticipated tax refund is not a windfall, but a return of earned income, which the government has been using all year. While many families regard this refund as forced savings, it may serve you better if you were to have access to that money throughout the year. Consider reviewing your annual withholding amount. If you decide to change your with­holding rate, submit a new Form W-4 Employee’s Withholding Allowance Certificate to your em­ployer. Be sure to discuss changing the withholding rate with your spouse if you are married. Coordinate your withholding rates so you do not accidentally under-pay your taxes, which would cause your household to owe money the following year.

To make your money work for you, develop a planfor that extra money that will be in each of your paychecks. If you don’t have a savings account, open one and move a set amount into it each month. Or have automatic transfers set up from your checking account into your savings account. This is a good way to develop an emergency fund if you don’t have one.

You can get started on saving with this year’s refund. When you prepare your tax return, simply use IRS Form 8888  to divide your refund into two or more accounts or financial institutions and/or to purchase U.S. Series I Savings Bonds.

Avoid Refund Anticipation Loans

Refund Anticipation Loans (RAL) provide early access to part of the refund amount you are expecting. The com­pany offering the RAL will charge a fee for lending you part of your tax refund until the actual refund is received. You can keep more money in your pocket by avoiding rapid refund offers and choosing to electronically file (e-file) your taxes. A tax refund can be received in 10 days or less with electronic filing. This is true whether you e-file through a Volunteer Income Tax Assistance, or VITA site, a paid tax preparer, or on your own through the IRS Web site.

Many folks sign up for a RAL because they either are desperate for the cash or don’t want to delay a desired purchase. You can prepare yourself to not be in that position next year by decreasing your withholding, as discussed above, and saving that amount. Then, you can keep your whole refund and earn at least a bit of interest throughout the year. If you have enough in emergency savings, you may want to put some of those savings into an IRA or other retirement account.

H&R Block Emerald Prepaid MasterCard® 

When you have your taxes completed at a participating H&R Block tax office, you can choose to have your tax refund or refund anticipation check funds proceeds loaded onto the H&R Block Emerald Card. 

The card can be used for everyday purchases, such as bill payments and ATM withdrawals, anywhere debit MasterCard cards are accepted. You can also add money to your card any time through payroll direct deposit or at participating retail reloading locations through the Green Dot®, MoneyGram® and Western Union® networks.

Emerald Card Fees

Although there is no fee to set up the card, there are some usage fees of which to be aware. ATMs in the Allpoint network are surcharge-free. If you use a non-Allpoint ATM for any transaction, including a balance inquiry, the ATM operator may charge you a fee even if you do not complete a withdrawal, this is in addition to the fees listed below:

  • $ 2.50 –  ATM Cash Withdrawal Fee (each/per occurrence)
  • $ 1.00 –  ATM Balance Inquiry/ATM Denial Fee (each/per occurrence)
  • $25.00 – Over the Counter Withdrawal Fee (each/per occurrence)
  • $2.50/month – Monthly Inactivity Fee

Visit the website for a complete listing of fees

Volunteer Income Tax Assistance (VITA)

The VITA program offers free income tax preparation for individuals and families with incomes up to about $42,000. Look in your community to find a free VITA tax preparation site or call 1-800-829-1040.

What tax refund advice do you typically share with interested clients?


Bird, Carolyn L. Getting the Most from Your Tax Refund (FCS-528-01). Raleigh: North Carolina Cooperative Extension Service, NC State University.

Bird, Carolyn L. Smart Uses for Your Tax Refund (FCS-528-02). Raleigh: North Carolina Cooperative Extension Service, NC State University. 

H&R Block Emerald Prepaid MasterCard.