Tax Tips

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Tips for 2012: Keep Your Tax Refund. Don't Give It Away!

In Spanish

Lots of money flows at tax time. And everyone wants a piece of it. Be smart and keep all of your refund. Here are our simple tips for holding onto your hard-earned money.

CONTENTS

1. Tip #1: Say "No" to money advances: rapid refunds, "Money Now" loans, and other "fast money" products.
2. Tip #2: Use free tax filing help in your area.
3. Tip #3: Or file for free online.
4. Tip # 4: Claim all of the tax credits you qualify for.
5. Tip #5: Say "No" to tax scammers.

Tip #1: Say "No" to money advances: rapid refunds, "Money Now" loans, and other "fast money" products.

Many commercial tax preparers love to sell "rapid refunds." Don't bite!

These offers are really high-interest short-term loans with outrageously high interest rates - ranging from 50% to over 500% APR. Worse yet, with electronic filing, these offers don't deliver your refund that much faster. Typically, they will speed up your refund by only a week or two, depending on your situation.

Some tax preparers are switching to "prepaid" lines of credit. Again, be careful! Waiting a few days for your tax return can be a much better deal.

If you fall for these schemes, you are giving away a chunk of your refund to a money lender. Keep all of your hard-earned money and tax credits for yourself and your family. You deserve it! Say "No" to all forms of up-front tax refund and loan offers.

According to the Center for Responsible Lending, a study found that lenders stripped about $738 million in loan fees from 8.4 million taxpayers in 2008. If you don't want to be a part of this statistic, just say "No!"

Learn more about "rapid refund" loans by watching this Center for Responsible Lending video.

Tip #2: Get free tax filing help in your area.

Qualified volunteers offer free tax filing help to low-income Mainers.
Check out these free tax help programs:

• AARP Tax-Aide
  To find the site nearest you, use AARP's online search tool or call 1-888-687-2277
   
• VITA (Volunteer Income Tax Assistance) IRS-Sponsored Program
  Go to list of help sites on the IRS website or call the IRS at 1-800-906-9887 

VITA and AARP Tax-Aide services have better error rates (make fewer mistakes) than many commercial tax preparers. Many sites offer free e-filing, some offer home visits, if needed, and some - especially in Portland and Southern Maine - offer help in languages other than English.

Another way to find free help sites is though the Maine CA$H Coaltion. They offer both free tax assistance and help with building assets from the credits you've claimed.  Go here to find a Coalition in your county. (If your county is not covered, use the AARP and VITA site links above.)

Another way to find a free tax filing center near you is to call 211, or use the 211 Maine website to search for free tax sites here.

In addition, the IRS provides Taxpayer Assistance Centers at a few locations. There are five in Maine: Augusta, Bangor, Lewiston, Presque Isle, and South Portland.

Tip #3: Or file for free online.

If you don't itemize your deductions, try free I-CAN!™ online filing. In 2008 taxpayers nationwide claimed over $102,000,000 in federal tax refunds using this free I-CAN program! It's simple and it's free. Try it! (Offered in English, Spanish and Vietnamese)

Commercial tax preparers who are offering Free File through the IRS have agreed not to sell "rapid refund" loans. However, they may still charge you to file your state tax return. So use Maine's free I-file, to file your state return.

Or visit the IRS site for links to other free online filing options. Each provider sets its own eligibility rules for its free filing program, so it's worth exploring several sites to see if you qualify. (If you use one of these sites, be careful about pop-up ads and add-on fees. Remember: Just say "No!")

The State of Maine has a direct on-line "I-file" program for state income tax returns.

Attention Non-resident Aliens: Check out the Tax Asssistance pages posted by the International Office of the University of Texas at Austin.

According to the site, this Guide will help you to:

• Determine if you are required to file a tax return;
• Determine which form or forms you should file;
• Understand the filing instructions; and
• Prepare and submit your own federal tax forms.

Tip # 4: Claim all of the tax credits you qualify for.

These five credits can be especially valuable to low-income taxpayers:

• Earned Income Credit (EIC)
  The Earned Income Credit (EIC) for low-income taxpayers keeps growing. For tax year 2011, the maximum credit for a household with three or more children is $5,751. That can be money in your pocket! The IRS has reported that several million households are leaving billions unclaimed. So don't forget to claim this credit if you are eligible. Read more.

  Get an estimate of the amount you could get from the Earned Income Credit now! It's easy.

  Learn more about the Earned Income Tax Credit by watching this Legal Aid of Nebraska video.
   

• Child Tax Credit
  This is a partially refundable credit worth up to $1,000 for each child up to age 17. You must earn at least $3,000 in taxable income to be eligible. Read more
   
• Child and Dependent Care Tax Credit
  This credit is offered by both the state and federal governments. It is worth only a portion of your total child care costs, and there are caps. But the state credit is "refundable," meaning that you can claim it (up to $500) even if you pay little or no tax.
  More on Federal Child and Dependent Care Credit
  More on Maine Dependent Care Tax Credit

  Watch a video with more information about the Child and Dependent Care Tax Credit, .
   

• Educational Tax Credits (the American Opportunity Tax Credit)
  This educational credit can be worth as much as $2,500 for students who are in their first four years of college. The credit is for your tuition, educational materials, and some computer or internet expenses. See the IRS website for more information about what expenses qualify. You must meet certain income requirements. However, you may be eligible for a partial refund of up to $1,000 even if you do not owe taxes. Immigrants who are residents may also claim this credit. For more information, see the IRS website.
   
• Making Work Pay Tax Credit
  Many workers got this credit in small amounts in their regular paychecks during 2010. Read more.

Tip # 5: Say "No" to tax scammers.

Did you receive an e-mail from the IRS asking for your personal information? Watch out! That letter is a scam. Learn more about how to spot a scam and how to protect yourself by watching this video from the IRS:

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If you want to help spread the word about tax credits for low-income people and free tax help, or just want to know more about these topics, go to the Center for Budget and Policy Priorities page: National Tax Credit Outreach Campaign

Get their 2012 EIC English outreach flier (with Maine help contacts) here.

More Resources from the IRS

1040 Central
IRS page for individuals, designed "to make the agency’s Web site an even easier-to-use source of information."

Free Tax Help Available
This IRS press release outlines free tax help programs offered by the IRS and others.

Choosing a Tax Return Preparer
IRS Tips for finding a reputable tax preparer, and avoiding the bad ones.

December 2011