MONEY Taxes

11 Smart Ways to Use Your Tax Refund

Tax refund check with post-it saying "$$$ for Me"
Eleanor Ivins—Getty Images

You could pay down debt, travel, tend to your health, or shrink your mortgage, among many other ideas.

Here we are, in the thick of tax season. That means many mailboxes and bank accounts are receiving tax refunds. A tax refund can feel like a windfall, even though it’s really a portion of your earnings from the past year that the IRS has held for you, in case you owed it in taxes. Still, it’s a small or large wad of money that you suddenly have in your possession. Here are some ideas for how you might best spend it.

First, though, a tip: If you’re eager to spend your refund, but haven’t yet received it, you can click over to the IRS’s “Where’s My Refund?” site to track its progress through the IRS system. Now on to the suggestions for things to do with your tax refund:

Pay down debt: Paying down debt is a top-notch idea for how to spend your tax refund — even more so if you’re carrying high-interest rate debt, such as credit card debt. If you owe $10,000 and are being charged 25% annually, that can cost $2,500 in interest alone each year. Pay down that debt, and it’s like earning 25% on every dollar with which you reduce your balance. Happily, according to a recent survey by the National Retail Federation, 39% of taxpayers plan to spend their refund paying off debt.

Establish or bulk up an emergency fund: If you don’t have an emergency fund, or if it’s not yet able to cover your living expenses for three to nine months, put your tax refund into such a fund. You’ll thank yourself if you unexpectedly experience a job loss or health setback, or even a broken transmission.

Open or fund an IRA: You can make your retirement more comfy by plumping up your tax-advantaged retirement accounts, such as traditional or Roth IRAs. Better yet, you can still make contributions for the 2014 tax year — up until April 15. The maximum for 2014 and 2015 is $5,500 for most folks, and $6,500 for those 50 or older.

Add money to a Health Savings Account: Folks with high-deductible health insurance plans can make tax-deductible contributions to HSAs and pay for qualifying medical expenses with tax-free money. Individuals can sock away up to $3,350 in 2015, while the limit is $6,650 for families, plus an extra $1,000 for those 55 or older. Another option is a Flexible Spending Account (FSA), which has a lower maximum contribution of $2,550. There are a bunch of rules for both, so read up before signing up.

Visit a financial professional: You can give yourself a big gift by spending your tax refund on some professional financial services. For example, you might consult an estate-planning expert to get your will drawn up, along with powers of attorney, a living will, and an advance medical directive. If a trust makes sense for you, setting one up can eat up a chunk of a tax refund, too. A financial planner can be another great investment. Even if one costs you $1,000-$2,000, they might save or make you far more than that as they optimize your investment allocations and ensure you’re on track for a solid retirement.

Make an extra mortgage payment or two: By paying off a little more of your mortgage principle, you’ll end up paying less interest in the long run. Do so regularly, and you can lop years off of your mortgage, too.

Save it: You might simply park that money in the bank or a brokerage account, aiming to accumulate a big sum for a major purchase, such as a house, new car, college tuition, or even starting a business. Sums you’ll need within a few or as many as 10 years should not be in stocks, though — favor CDs or money market accounts for short-term savings.

Invest it: Long-term money in a brokerage account can serve you well, growing and helping secure your retirement. If you simply stick with an inexpensive, broad-market index fund such as the SPDR S&P 500 ETF, Vanguard Total Stock Market ETF, or Vanguard Total World Stock ETF, you might average as much as 10% annually over many years. A $3,000 tax refund that grows at 10% for 20 years will grow to more than $20,000 — a rather useful sum.

Give it away: If you’re lucky enough to be in good shape financially, consider giving some or all of your tax refund away. You can collect a nice tax deduction for doing so, too. Even if you’re not yet in the best financial shape, it’s good to remember that millions of people are in poverty and in desperate need of help.

Invest in yourself: You might also invest in yourself, perhaps by advancing your career potential via some coursework or a new certification. You might even learn enough to change careers entirely, to one you like more, or that might pay you more. You can also invest in yourself health-wise, perhaps by joining a gym, signing up for yoga classes, or hiring a personal trainer. If you’ve been putting off necessary dental work, a tax refund can come in handy for that, too.

Create wonderful memories: Studies have shown that experiences make us happier than possessions, so if your financial life is in order, and you can truly afford to spend your tax refund on pleasure, buy a great experience — such as travel. You don’t have to spend a fortune, either. A visit to Washington, D.C., for example, will get you to a host of enormous, free museums focused on art, history, science, and more. For more money, perhaps finally visit Paris, go on an African safari, or take a cruise through the fjords of Norway. If travel isn’t of interest, maybe take some dance or archery lessons, or enjoy a weekend of wine-tasting at a nearby location.

Don’t end up, months from now, wondering where your tax refund money has gone. Make a plan, and make the most of those funds, as they can do a lot for you. Remember, too, that you may be able to split your refund across several of the options above.

TIME Reviews

This Is the Best Tax Filing Software You Can Buy

TurboTax makes filing taxes simpler and more comfortable than other options

This post was done in partnership with The Wirecutter, a list of the best technology to buy. Read the full article below at TheWirecutter.com.

the wirecutter logo

The best tax filing software should do a decent impression of a human accountant, teasing out deductions and keeping your forms organized. After spending more than 30 hours over two years filing fake tax returns for four fictitious households—with the help of a professional tax preparer to test the hard return numbers—we found TurboTax to be the most conversational, fast, and comfortable way to file your return through a browser.

On top of running the hard numbers, we also spent time noting the interfaces of 14 competitors, and the upsell annoyances and year-to-year convenience of our five finalists. Our main pick, TurboTax, wasn’t always the cheapest for complicated returns, but it can also be actually, entirely free for very simple returns. It made entering your financial data simpler and more comfortable than anything else we tested. If, however, you don’t need your taxes explained, so much as a place to punch in the numbers, we have a stripped-down and (likely) cheaper pick for you, too.

How we tested tax software

Our four “fake filers” lived in different states, worked salary and independent jobs, had kids or rental properties or home offices, and ranged from a single guy in an apartment to a married couple with capital gains. We had their life details in a spreadsheet; we noted how TurboTax, H&R Block, TaxACT, FreeTaxUSA, and eSmart Tax differed in asking about their situations, and how they totaled out.

All of these online suites offer some version of a maximum refund guarantee, and, indeed, most produced the same results given the same numbers. We searched to find online tax suites that were known entities, and we focused on web options because they’re more accessible to everyone. So we also considered how fast you could safely move through each form, and how intuitive the interface made going forward and back, or saving and coming back later. We also looked for a known and backed name, because you’re handing over very sensitive data. And we wanted the pricing to be clear, fair, and not involve endless upgrade pitches. Check out our full guide to learn more about our criteria for narrowing down the field and testing.

Our pick

TurboTax makes entering your tax data more simple and comfortable than anything else we tested. The account creation, login, and state-saving processes are smooth and sport lean, modern designs. The questions and categories are organized in a coherent flow, with live chat help available if you’re lost, even for free filers. TurboTax can automatically fill in salary and charitable donation amounts, and handles the new Affordable Care Act requirements ably. TurboTax makes taxes feel less like spreadsheet data entry and more like signing up for a new social app.

A good interface and smooth interview flow matter for more than just style points. While the amounts of each return turned out more or less the same with every tax suite we tested, TurboTax made it easier to avoid potential mistakes and head back to double-check figures and results.

TurboTax could be the cheapest or most costly online tax software for you, depending on your needs. If you make less than $100,000, and have absolutely no itemized deductions, non-salary income, or other complications (meaning attached “schedules”), your taxes could cost nothing under TurboTax’s Absolute Zero offer. Otherwise, state and federal filing under “Deluxe,” “Premier,” or “Home & Business” cost from $72-$117.

The runner-Up: FreeTaxUSA

If you don’t qualify for TurboTax’s Absolute Zero offer, but your taxes are still simple and consistent year to year, consider FreeTaxUSA. It’s a minimal, straightforward set of boxes and some help to get your numbers in and send them out.

FreeTaxUSA is faster than TurboTax, remarkably cheap (free federal, $13 for one state filing, $19 for a slight Deluxe upgrade), and it gets the job done for those who know exactly what they earned and what they owe. It doesn’t have the same smooth flow of TurboTax, and its text-focused screens can cause some motivational drag, but it does move quick and gives you a big-picture view of your income and deductions.

If you’re under 22, FreeTaxUSA is free to use entirely. And FreeTaxUSA’s pricing includes all the schedules and deductions an individual might need: rental or independent contractor income, home ownership and energy credit deductions, and more. As a final sweetener, you can see and download your returns in PDF form, as they would appear on a standard tax form. That’s helpful for getting tax advice from another human, if you’re not sure you’ve got everything right.

The other option: a human accountant

When our tax professional—Mark Francis, EA, of Lapidos, Leung & Francis, Inc. in San Francisco—ran our fake filers through each tax suite in 2014, he ended up with the same exact federal and state refund amounts for each. In 2015, when I ran a moderately complicated individual (home, rental property, investments) through each suite, I ended up with four different amounts. And none of the suites raised major red flags. If something has changed with your life or money in the past year, or you ever feel adrift while clicking through online tax forms, consider finding a local tax professional.

Is TurboTax actively allowing fraudulent tax returns?

The 2015 tax season has been heavy with news about TurboTax “fraud” or “hacks.” Most notably, respected security journalist Brian Krebs detailed the allegations of two former TurboTax officers that TurboTax’s parent company, Intuit, willfully ignores fraud concerns. The FBI and IRS may be investigating; TurboTax, for its part, denies the officers’ claims and has a detailed response on security concerns.

These are (as of early March 2015) unproven allegations and, in some cases, misrepresentations of TurboTax’s part in the problem. TurboTax, with 29 million customers in 2014, is by far the largest target for fraudulent filers, armed with sensitive data obtained through other breaches. In other words, avoiding the use of TurboTax to file your return this season will not protect you from potential fraud, especially if your data is already out there (or you’ve clicked a bad email phishing link). The IRS’s unwieldy and insecure refund processes play a significant role, too.

Does this affect our recommendation of TurboTax? For those who want to file online, no—we still see TurboTax as the best tool for putting your return together and filing it online. And, as noted by Ars Technica, the other major tax suites are no better as securing your account; none of the major four we tested even verified your email address before allowing you to carry on toward filing. Choosing to avoid TurboTax over security concerns will not make you more or less of a potential fraud target.

In closing

If you’ve got all your forms and figures and want to file yourself, TurboTax is the best conversation you can have with an online server about your financial life. For those with more experience, or remarkably simple taxes, FreeTaxUSA is the fastest way to get to done. But leave yourself enough time this year for a back-up option: a human.

This guide may have been updated. To see the current recommendation, please go to The Wirecutter.com.

MONEY Taxes

Can’t Pay Your Taxes? Here’s What to Do

You have repayment options.

No one likes unexpected bills — especially big unexpected bills. This time of year, one of these nasty shocks can come in the form of owed income taxes. Common candidates for a hefty income tax bill include the self-employed, especially if you earned a decent income in 2014 but didn’t make sufficient quarterly payments.

If it looks like it’s going to be difficult to pay all that you owe by April 15, here are your options, along with some key facts you need to know. (See also: Don’t Have Enough to Pay Your Taxes?)

Understanding the Rules

There are two distinct aspects involved in paying taxes: filing your return and paying it. Not filing your return on time and not paying what you owe come with different ramifications. It may surprise you to know that if you don’t file your return on time, even if you can’t pay all that you owe by April 15, you’ll face the biggest penalty.

Failing to file on time and not paying all that you owe by the due date will cost you a monthly penalty of 5% of your tax bill plus interest. However, if you do file on time, or request a filing extension by midnight on April 15, the penalty drops to half of 1% plus interest. So, at the very least, file your return or request an extension by April 15.

Paying as much as you can by the filing deadline will lower your costs as well, since the late payment penalty is based on a percentage of what you haven’t paid.

Next, you’ll have to come to an agreement on how to pay the rest of what you owe. Don’t let this slide. Uncle Sam may look friendly, but he has some collection tactics available to him that most other creditors don’t. This could be garnishing your wages, taking money from your bank accounts, or slapping a lien on your property.

Don’t let things get to that point. Instead, explore the following options.

Short-Term Extension

If you think you can pay all of what you owe within 120 days of April 15, apply for an online payment agreement. You can also call the IRS at 1-800-829-1040 for more information. There is no up-front fee for a short-term payment extension. However, a late-pay penalty (half of 1% of the balance owed per month) and interest will be charged. Still, that should amount to less than what you’d be charged with a longer-term payment agreement.

Long-Term Extension

If you can’t pay what you owe within 120 days, you may be eligible to pay your tax bill in monthly installments over the course of up to 72 months. There is a fee of $120 to establish an installment agreement, or $52 if you agree to have your payments automatically deducted from your bank account. While you’ll still have to pay interest, if you filed your return on time, the monthly late-pay penalty will be half of 1% of what you owe.

If you owe the IRS $50,000 or less (including penalties and interest), you should be able to set up the online payment agreement. If you owe more than $50,000, you’ll need to complete Form 9465 and supply the IRS with a Collection Information Statement (Form 433-F).

Temporary Delay

If your circumstances are such that you can’t pay any of what you owe, and you’re not sure when you’ll be able to, the IRS may temporarily delay collection until your financial condition improves. However, your debt will grow because penalties and interest will accrue until you come up with the full amount. During the temporary delay, the IRS will continue to review your ability to pay. The government may also place a lien on real estate or other property you own. Contact the IRS at 1-800-829-1040 for more information about requesting a temporary delay.

Offer in Compromise

If you can’t afford an installment agreement, you could offer to settle your tax debt in one lump sum totaling less than what you owe. Whether you’ll qualify depends, in part, on your income, expenses, assets, and the IRS’ assessment of your ability to pay. However, be forewarned: Relatively few offers in compromise are accepted. There is also a non-refundable $186 application fee, and most applicants have to make an up-front, non-refundable partial payment when they apply. So, make sure you feel confident about meeting the requirements. You’ll need to demonstrate that situation is such that you will never be able to pay back everything you owe. Details are in the IRS’ Offer in Compromise booklet.

Consider Inside Assistance

If you are having a difficult time resolving an IRS tax dispute, contact the IRS Taxpayer Advocate Service. This is an independent organization within the IRS designed to provide free help to people whose tax issues are causing financial difficulty. Here’s how to contact the Taxpayer Advocate Service office nearest you.

Avoid Outside “Assistance”

You may be tempted to turn to a private company for help in settling your tax debt for less than you owe through an offer in compromise, but beware. Such companies often charge steep up-front fees, and there are some unscrupulous players in this field.

Take Action

If you have a big tax bill you can’t pay, you may be tempted to just ignore it. But that will make the problem worse as interest and penalties pile up. As just described, there are several options for paying what you owe over time.

For more guidance on what to do if you can’t pay your tax bill, read, The “What-Ifs for Struggling Taxpayers” on the IRS web site.

Whether you owe money this year or are due for a refund, right now might also be a good time to think ahead and start planning for next year’s tax season.

 

Read more articles from Wise Bread:

Can You Settle Your Old IRS Debts?
6 Great Places to Get Free Tax Advice
20 amazing, outrageous and just plain weird tax deductions

MONEY Scams

IRS Agent or Scammer? 5 Signs You’re Being Conned

fishing hooks being dropped into fishbowl with goldfish
Adam Gault—Getty Images

A nasty con is on the rise involving fake IRS agents who call up potential victims and demand payment for back taxes.

Scammers who pretend to be IRS agents and harass unsuspecting citizens into paying debts they don’t owe have been quite busy over the last two years. According to the Associated Press, some version of this scam has resulted in victims being conned out of $15.5 million since 2013.

Only a small percentage of people who are targeted actually fall for the ruse, which in the past has involved criminals claiming to be federal agents named, rather uncreatively, Steve Martin or Jack Dawson—the actor-comedian and Leonardo DiCaprio character in Titanic, respectively. Roughly 3,000 have given money over to the con artists, out of more than 366,000 that have been contacted via phone over the past two years. But some of those who are victimized have been bilked out of big money—to the tune of more than $500,000 in one instance.

In order to avoid being victimized yourself, bear in mind a few key points:

Don’t trust caller ID. As the FTC noted last summer, scammers have ways of “spoofing” caller ID to make it look as if the call is originating from a government agency.

The IRS doesn’t call people up out of the blue. The IRS almost always contacts people about unpaid taxes first by mail, not by phone. So if someone claims to be a government agent and says that you owe money, or perhaps that you’re eligible for a refund or some prize, look up the agency’s official number and dial it up to check if what you’re hearing is legitimate. Most likely, it isn’t.

Don’t give out or confirm info over the phone. Fake agents may have some of your personal info—even the last four digits of your social security number. Don’t help out the imposter by confirming this info or giving out any other information over the phone.

IRS agents won’t ask for a specific form of payment. Scammers usually want payments made via prepaid debit cards or wire transfers because they’re difficult to trace. A genuine IRS agent never asks for immediate payment over the phone, never requests payment information over the phone, and never specifies a certain form of payment for unpaid taxes.

The IRS won’t threaten you with arrest or deportation. Or losing your driver’s license, your job, or your business. Scammers have made all of these threats and more in order to get victims to pay up swiftly. But again, if you truly owe the IRS money, you will first be notified by mail, not with a phone call. And certainly not with a harassing phone call.

As Timothy Camus, a Treasury deputy inspector general for tax administration, explained to the AP, “If someone calls unexpectedly claiming to be from the IRS with aggressive threats if you do not pay immediately, it is a scam artist calling.”

If you do get a call that you suspect to be a scam, hang up the phone right away, and then report the incident at the taxpayer administration hotline (800-366-4484). File a complaint with the FTC as well.

TIME Social Security

Flawed Social Security Data Says 6.5 Million in U.S. Reach Age 112

Social Security I.D. Cards
Duckycards—Getty Images Social Security Cards

In reality, there are only 42 people that old worldwide

(WASHINGTON D.C.) — Americans are getting older, but not this old: Social Security records show that 6.5 million people in the U.S. have reached the ripe old age of 112.

In reality, only few could possibly be alive. As of last fall, there were only 42 people known to be that old in the entire world.

But Social Security does not have death records for millions of these people, with the oldest born in 1869, according to a report by the agency’s inspector general.

Only 13 of the people are still getting Social Security benefits, the report said. But for others, their Social Security numbers are still active, so a number could be used to report wages, open bank accounts, obtain credit cards or claim fraudulent tax refunds.

“That is a real problem,” said Sen. Ron Johnson, R-Wis. “When you have a fake Social Security number, that’s what allows you to fraudulently do all kinds things, claim things like the earned income tax credit or other tax benefits.”

Johnson is chairman of the Senate Committee on Homeland Security and Governmental Affairs, which plans a hearing Monday on problems with death records maintained by the Social Security Administration.

The agency said it is working to improve the accuracy of its death records. But it would be costly and time-consuming to update 6.5 million files that were generated decades ago, when the agency used paper records, said Sean Brune, a senior adviser to the agency’s deputy commissioner for budget, finance, quality and management.

“The records in this review are extremely old, decades-old, and unreliable,” Brune said.

The internal watchdog’s report does not document any fraudulent or improper payments to people using these Social Security numbers. But it raises red flags that it could be happening.

For example, nearly 67,000 of the Social Security numbers were used to report more than $3 billion in wages, tips and self-employment income from 2006 to 2011, according to the report. One Social Security number was used 613 different times. An additional 194 numbers were used at least 50 times each.

People in the country illegally often use fake or stolen Social Security numbers to get jobs and report wages, as do other people who do not want to be found by the government. Thieves use stolen Social Security numbers to claim fraudulent tax refunds.

The IRS estimated it paid out $5.8 billion in fraudulent tax refunds in 2013 because of identity theft. The head of the Justice Department’s tax division described how it’s done at a recent congressional hearing.

“The plan is frighteningly simple — steal Social Security numbers, file tax returns showing a false refund claim, and then have the refunds electronically deposited or sent to an address where the offender can access the refund checks,” said acting Assistant Attorney General Caroline Ciraolo.

In some cases, she said, false tax returns are filed using Social Security numbers of deceased taxpayers or others who are not required to file.

The Social Security Administration generates a list of dead people to help public agencies and private companies know when Social Security numbers are no longer valid for use. The list is called the Death Master File, which includes the name, Social Security number, date of birth and date of death for people who have died.

The list is widely used by employers, financial firms, credit reporting agencies and security firms. Federal agencies and state and local governments rely on it to police benefit payments.

But none of the 6.5 million people cited by the inspector general’s report was on the list. The audit analyzed records as of 2013, looking for people with birth dates before 1901.

President Franklin D. Roosevelt signed the Social Security Act in 1935, and the first old-age monthly benefit check was paid in 1940.

Many of the people cited in the inspector general’s report never received benefits, though they were assigned Social Security numbers so spouses and children could receive them, presumably after they died.

The agency says it has corrected death information in more than 200,000 records. But fixing the entire list would be costly and time-consuming because Social Security needs proof that a person is dead to add them to the death list, said Brune, the agency official.

Brune noted that the inspector general’s report did not verify that any of the 6.5 million people are actually dead. Instead, the report assumed they are dead because of their advanced age.

“We can’t post information to our records based on presumption,” Brune said. “We post information to our records based on evidence, and in this case it would be evidence of a death certificate.”

“Some of those records may not even exist,” Brune added.

Nearly all the Social Security numbers are from paper records generated before the agency started using electronic records in 1972, Brune said. Many of the records contain errors, with multiple birthdates and bits of information about different family members.

“We did transcribe paper records into the electronic system and over time that information’s been purified,” Brune said.

“But our focus right now is to make sure our data is as accurate and complete as it can be for our current program purpose,” said Brune. “Right now, we’re focused on making sure we’re paying beneficiaries properly, and that’s how we’re investing our resources at this time.”

MONEY Odd Spending

For $250K You Can Buy Citizenship in an Island Paradise—and a 0% Tax Rate

Frigate Bay, southeast of Basseterre, St. Kitts, Leeward Islands, West Indies
Robert Harding World Imagery—Alamy Frigate Bay on St. Kitts, where citizenship is for sale.

But you won't necessarily be off the hook for taxes owed to Uncle Sam.

From beachy Antigua and Barbuda to snowy Bulgaria, a handful of nations around the world are selling passports to anyone who can pay, according to a new Bloomberg Business report. Often, there is little to no requirement that you ever actually step foot in the country.

It’s your money that has to travel. The phenomenon, euphemistically dubbed “citizenship by investment,” gives anyone able to pony up enough cash a range of benefits, including official passports and visa-free access to dozens of countries, as well as some ethically dubious ones like “limited disclosure of financial information” and preferential tax rates.

A citizenship in St. Kitts, for example, costs $250,000 and buys you visa-free travel to countries like Mozambique and Venezuela, which require travel visas for American citizens. Moreover, income and capital gains taxes on the island are a big fat 0%, making it an attractive outpost for those looking to avoid U.S. taxes.

“This is a fantastic property to have a home, to have an address when the taxman comes asking why I claim that I’m a resident of St. Kitts and Nevis,” Thomas Liepman, director of the Christophe Harbour resort in St. Kitts, told conference attendees to whom he was pitching time-share condos, according to a Bloomberg reporter who was also in the audience. (It turns out prospective St. Kitts citizens can skip the $250,000 fee by investing $400,000 in real estate.)

Of course, pretending to live where you don’t for tax purposes is neither ethical nor legal, even if all those New Yorkers with Florida license plates have been doing it for years.

The foreign earned income exclusion does let you reduce your taxable income by up to $100,800 made overseas, allowing for some legal tax savings. But, says White Plains, N.Y., CPA Paul Herman, “the IRS is very clear that no matter where in the world you earn income, it’s subject to U.S. taxes—assuming you want to stay an American citizen.”

MONEY Taxes

How to Avoid Audit Red Flags When You Change Up Your Taxes

red flag
iStock

A break from how you normally file your taxes can lead to costly mistakes—and attract the attention of the IRS.

Taxes are one of the few constants in life, but what happens when you change the way you do your return?

People move or get divorced, tax preparers pass away. There is always the lure of do-it-yourself—the number of people using tax software to file, like Intuit’s TurboTax, increases by 6% annually, according to the Internal Revenue Service. And then there is the reverse exodus of people who have decided their financial lives are too complicated, and they need to hire a professional.

With so many changes, consistency takes a beating. If you are on the wrong end of it, you could end up drawing the dreaded attention of the IRS.

Here are the items that can trip up taxpayers when they switch the way they do their taxes:

1. Mileage logs

When John Dundon took over his father’s tax business after he passed away last July, the biggest surprise for the Denver, Colorado-based tax preparer was that road-warrior clients were not keeping mileage logs.

“Boundaries erode all the time between practitioner and taxpayer,” Dundon says. Laziness seeps in disguised as trust, and years later, there are simply no logs.

Dundon tells his father’s crossover clients they need a renewed zeal for paperwork—get a GPS device or a smart phone app for next year. For 2014 taxes, he is asking clients meticulously through calendars and maps to sort it out.

2. Rental property depreciation

Depreciation is a deduction you can take on certain assets, like rental property. The tax impact can be pretty significant, especially if you are trying to off-set income like rent.

The dollar amount is determined by a formula you follow year-after-year, called a depreciation schedule, which could run almost the full course of a 30-year mortgage.

“You definitely need that schedule. You can try to guess at it, and you’d probably be okay, but you wouldn’t be doing it 100% right,” says tax preparer Anil Melwani, who runs his own firm, 212 Tax & Accounting Services, in New York.

If it was not done at all previously or done wrong? You’ll need to file an amended return to correct it, Melwani says.

3. Carryforward losses

The IRS allows taxpayers to take $3,000 in losses a year on investments, and to carry forward those losses indefinitely until the amount is all used up. But use it or lose it—meaning, if you miss a year because you forget, you can’t pick it up in the following years as if nothing happened.

Harvey Bezozi, who has his own firm in Boca Raton, Florida, has a new client this year who will likely have to file amended returns because she skipped over this with her last preparer.

4. Home office

Taking the home office deduction? Stay consistent with the square footage of your home office. The best way to do that is to get out your tape measure and only include space that you use exclusively for work.

If there’s a pingpong table in the middle of the basement study you’re trying to claim, that’s a no-go, says Dundon.

5. Life changes

There is a lot that a new tax preparer—or a tax software autobot—can learn about you by just looking at your past returns, but their questionnaires will not catch everything. If you have a baby, buy a house, get divorced, have income in a foreign country or have job-hunting related expenses, you’ve got to speak up.

But things can get missed when people do not know enough to know what they are missing. That’s what drove a DIY-type like Ben Jaffe into the hands of a paid tax preparer this year.

Jaffe, a 29-year-old who works in PR in New York, bought a house in 2014 while his wife had a baby. He made the switch away from tax software because, he says, “I wanted an expert opinion to verify that I was doing everything right.”

One hour and $500 later, he’s feeling confident: “It saved me a lot of time and stress.”

MONEY ID Theft

How To Get Your Money Back If Your Tax Refund Is Stolen

Tax Refund check
B Christopher—Alamy

To protect your identity—and get the refund you're due as quickly as possible—follow this guide.

Did a thief beat you to filing your own taxes this year?

You’re not alone. More and more Americans are finding that someone has taken over their identity to file a fraudulent tax return in their name and collect the refund check.

In the first half of 2013, 1.6 million taxpayers were hit by tax identity theft, compared to just 271,000 in all of 2010, the Treasury Inspector General for Tax Administration reported. And the IRS paid out $5.8 billion in stolen tax refunds in 2013, according to a study by the General Accountability Office (GAO).

The increased use of electronic filing means that fraudsters are able to file a greater number of returns more quickly and with little or no documentation. This year, the number of suspicious electronic returns has been so great in some states that in February TurboTax, one of the largest tax prep software providers, temporarily suspended processing all state tax returns until it could block users from filing unlinked state returns, which are returns filed without a federal return.

Unfortunately, the number of false returns may not be coming down any time soon. A GAO report just named the IRS’s ability to address tax refund fraud and identity theft as one of the government’s top weaknesses.

If you’ve received a notice from the IRS stating that more than one return has been filed in your name, or if you believe your identity has been used fraudulently, here’s what to do:

1. Report the Fraud Quickly

Call the IRS Identity Protection Specialized Unit at 800-908-4490 right away so that they can begin the process of verifying your information. You’ll also need to fill out an identity theft affidavit, or Form 14039, so that the IRS can place an alert on your account. If your state tax return was filed falsely as well, contact your state revenue agency (for your state’s hotline, check out this list).

Also report the theft to the police. While law enforcement is unlikely to investigate, many government agencies and credit bureaus require an official theft report to help you solve the fall-out.

2. Gather Your Proof

“When you call the IRS about the ID theft, have old copies of your tax returns from the past two or three years out. It will move your case faster,” says Valrie Chambers, a CPA and Stetson University accounting professor.

By providing additional information that the IRS can check against, you strengthen your case that your return is the legitimate one. For example, an ID thief is unlikely to know that you got divorced two years ago and stopped filing jointly, but this fact can easily be checked by the IRS, giving your filed return more credibility.

While you’re searching for those forms, also pull out your driver’s license, birth certificate, passport, two recent utility bills, and, if you’re married, your marriage certificate. You’ll need to mail in copies of all these documents as well as your police report in order for the IRS to verify your tax return and rule the other one fraudulent, says CPA Art Auerbach, who has worked with tax refund theft victims.

3. Pick Up More Protection

Once you report the fraud and fill out the affidavit, the IRS should issue you a personal identification number to provide another layer of security. You’ll need to submit this PIN along with your Social Security number when you file any tax form going forward so that the IRS knows to carefully check over your account. As an identity theft victim, you’ll get a new PIN every year.

If you live in the tax fraud hotbeds of Florida, Georgia, and D.C., you can apply for a PIN without having been an ID theft victim, thanks to a new IRS initiative. To get the six-digit number, you need to register and verify your identity online. You can sign up on the IRS website.

4. Alert the Credit Bureaus

“If a thief had enough information about you to file a false tax return, he could have also opened new credit card accounts or taken out a loan in your name,” says CPA Troy Lewis, chairman of the American Institute of CPAs’ tax executive committee.

Set up free fraud alerts with the three major credit reporting bureaus, Equifax, Experian, and TransUnion. These alerts, which last 90 days but can be renewed, warn potential creditors or lenders that you are an identity theft victim and that they must verify your identity before issuing credit.

You can go a step further by placing a credit freeze on your files, which instructs the credit agencies to prevent new creditors from viewing your credit score and report. With a police report, it’s free; without one, it can cost as much $10, depending on your state.

A freeze will keep you from accessing instant credit too. If you need to apply for a loan, you will need to give the agency permission to thaw your data, and in some cases you’ll pay a fee to lift the freeze, which can take a few days.

5. Check Your Credit Report

You are entitled to a free copy of your credit report from each of the three agencies. Check them carefully for unauthorized activity. Look at your history as well as recent activity. Just because you were first alerted to the problem through a false tax return does not mean that’s where the ID theft started.

If you see errors in your report, such as wrong personal information, accounts you didn’t open or debts you didn’t incur, dispute those errors with each credit agency and the fraud department of the businesses reporting that inaccurate information.

6. Change Your Passwords

In the past, most thieves collected data about a taxpayer and then created an account at a tax preparation software site to file a false return. But Intuit, the parent company of TurboTax, says that in the past 18 months it’s seen fraudsters shift to taking over people’s existing accounts.

Thieves know that people use the same password at multiple websites. When usernames and passwords are compromised in a data breach, a thief could use them to test for a TurboTax account and file in your name.

If you have an online account at a site like TurboTax, make this password unique from any other passwords you use online. Follow this guide to make it as secure as possible. If you use your tax prep password at your bank or any other site with personal information, change that password too.

7. Be Patient

The IRS says a typical case of ID theft can take 180 days to resolve. And even after you’ve cleared up this year’s tax mess, tax and credit fraud can be a recurring problem.

When a thief beats you to filing, the IRS will flag your legit return and process it manually, scrutinizing every detail to figure out which return is authentic. This means your refund could be delayed for months.

The IRS will always pay you your refund, regardless of whether it already paid it out to a fraudster. If your tax fraud case hasn’t been resolved and you’re experiencing financial difficulties because of the holdup with your refund, contact the taxpayer advocate service at 877-777-4778.

MONEY Student Loans

Help! The Government Seized My Tax Refund to Pay My Student Loan Debt

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Getty Image

If you are in default on your federal student loans, the government can take your tax refund. Here's what you can do about it.

Many people have already filed their taxes this year — particularly those owed refunds. Because of rising taxpayer identity theft, it’s a smart idea for anyone to file quickly. However, some taxpayers are discovering the refund they thought was coming has instead has been taken to pay their student loan debt. Here’s a sample of questions recently sent to Credit.com:

  • From Amber: Is there anything i can do to stop my whole federal refund from going to my student loans? … I’ve just set up a payment plan, but I really need my refund this year.
  • From Peggy: I was looking forward to my tax refund as it will help with bills and much needed things for the baby. It was accepted and … now after digging around I found out they are sending it to the U.S. Dept. of Ed. for my student loans which I thought were in deferment. Now this is causing me and my kids a hardship but they refuse to send me the refund… What can I do to get my refund owed to me?
  • From Luis: I heard that if your student loan is in default and they are intercepting your taxes, It goes towards interest of the loan. Getting your loan out of default you can then get the intercepted (money) back. Is this true? Is there some info on this?

First, some background: If you are in default on your federal student loans (which by definition means you are behind by 270 days or more), the Department of Education can take your tax refund using the Treasury Offset Program. This program authorizes federal payments such as tax refunds or Social Security income to be intercepted in whole or in part to pay debts owed to other federal agencies. There are some limited consumer protections, but debtors aren’t always aware of them.

What Can You Do if Your Refund Was Seized?

We spoke with Jay Fleischman, a student loan and bankruptcy attorney, about what people can do. First, he said that by federal law, people who have student loans in default get a notice in advance warning that they are at risk of having any potential tax refund seized for student loan repayment. That notice contains instructions for a review of your loan information and how to avoid the offset.

If your refund is taken, you can still request a hearing. If it was taken in error, the money will be refunded. However, be aware that an error does not generally include not getting a notice; it typically would require that you be able to prove your student loan was not in default. (There is a case where you will likely get a refund; more about that in a moment.)

Fleischman said it’s a good idea to adjust your withholdings whether you’re subject to a tax refund offset of not. A large tax refund means you overpaid your taxes during the year, he notes. If you are in default on your federal student loans you probably need that money. But at this point, there is nothing you can do to change the overwithholding from last year. Still, revisiting how much you’re having withheld for taxes is a smart move for anyone who got a large refund.

The bigger problem is how you are going to deal with the default on your student loans from now on. You’ll want to get out of default and stay that way. Fortunately, there are many payment options; you should be able to make one work for you. In some cases, income-based repayment payments can be set as low as $0. And “if your circumstances are dire and expected to remain so,” bankruptcy and the discharge of student loans might be options, Fleischman said.

The one case in which you are likely to be able to recover the money is if you filed jointly with a spouse, and it was his or her student loan that was in default. “You may be able to make an injured spouse claim,” said Fleischman.

For most, what is done is done. The best thing you can do is to look ahead. And if you haven’t filed your tax return and expect a large refund, you may want to see what options you have to get out of default first. Being in default on a student loan can not only squeeze your budget, it can hurt your credit and cost you thousands of dollars in higher debt costs over a lifetime. You can get two of your credit scores for free, updated every month, on Credit.com to track your standing.

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This article originally appeared on Credit.com.

MONEY Ask the Expert

When It Comes to Muni Funds, Does Location Matter?

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Robert A. Di Ieso, Jr.

Q: I live in New York state and currently invest in a high-yield municipal bond fund. Should I switch to a tax-exempt New York muni fund? — Connie

A: There are lots of considerations when weighing the pros and cons of a high-yield bond fund that invests nationally versus a state-specific municipal bond fund.

The three big ones: “You want to think about taxes, volatility and credit quality,” says Stephen DeCesare, a certified financial planner and president of DeCesare Retirement Specialists in Marlton, NJ.

Let’s start with taxes, since that is the primary perk of investing in municipal bonds, which are issued by local and state government entities to cover general expenses or fund specific projects. Most, but not all, municipal bonds are exempt from federal income taxes, which is a selling point in and of itself.

If you’re in the 28% tax bracket, for example, a 3% yield on a tax-exempt muni is the equivalent of a 4.17% taxable bond. You can run your own numbers using this simple Vanguard calculator.

There are, of course, caveats, such as if you owe the alternative minimum tax. Also, gains on principal are subject to capital gains tax. Likewise, it generally doesn’t make sense to own tax-exempt municipal bonds in a tax-deferred retirement account.

That said, because you live in a state with high-income taxes – New York’s top rate is 8.8% — narrowing your focus to New York can further sweeten the tax side of the deal.

If you lived in a state with low income taxes, however, you might be better off in a national tax-exempt municipal bond fund. Managers of those funds typically have more leeway to find opportunities without necessarily ramping up risk.

It’s always important to weigh the breadth and health of your state’s muni market against any tax break. New York has a relatively robust municipal bond market, says DeCesare, which is another reason why a state-specific muni bond fund could make sense in your case.

Once you’ve looked at all the variables, the decision will ultimately hinge on your risk tolerance and income needs. Remember that high-yield municipal bond funds invest the majority of their assets in bonds that are rated below-investment grade or aren’t rated. These funds can put up higher total returns – even after taxes – but with that comes more credit risk and in turn more volatility.

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