Today, April 13th 2009, is the day in when working Americans have collectively earned enough income to pay their annual federal, state and local tax obligations. The calculation is performed each year by The Tax Foundation, which published its findings under its trademark name, Tax Freedom Day®.

The date is of little importance to the individual taxpayer, because local and state taxes affect when each of us has earned enough to cover our yearly taxes.  Still, it does show interesting trends for the country as a whole. This year’s date – roughly three and a half months into 2009– is the earliest date since 1967.

The current economic situation is largely the reason behind the early date.  Though income has been reduced this year, tax collections have been reduced even

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If you cannot pay the full amount you owe with your tax return (or on a notice the IRS sends to you), you can ask to make monthly installment payments using IRS Form 9465 - Installment Agreement Request. You will be charged interest (and possibly penalties) and a fee ($52-$105 depending on payment method) if your request is approved.

If you owe less than $10,000 in taxes, you are legally entitled to an installment agreement if you meet certain conditions, listed below.  Use IRS Form 9465 to request an installment agreement and attach it to your return.  Since interest and penalties will be assessed on the amount that is left unpaid, you should pay as much tax as you can when you mail in your tax return.  Use form 9465 to report the amount that you can pay each month.  Generally, you can have up to 60 months to pay, including interest and penalties.

Once the IRS receives your Form 9465, they will

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As we grind ever closer to the impending 2009 IRS Income Tax filing deadline on April 15th, more and more people have been asking about how to get an extension.  The good news is the process is extremely simple.  The bad news is that though an extension will get you more time to file, if you owe money you’ll still have to pay by April 15th.

How to Get an Extension

According to the IRS website, if you are not able to file your federal individual income tax return by the due date, you may be able to get an automatic 6-month extension of time to file. To do so, you must file

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This post is part of my Freaky Financial Fridays series, where I argue a case from an opposing view, generally in contradiction to my own philosophy or conventional financial advice.

Most financial planners and personal finance bloggers warn against having a large income tax return.  They argue that overpaying throughout the year is equivalent to giving the government an interest free loan.  While you might be better off keeping the money within your control, there are still some benefits to getting a large tax return, particularly during tough financial times.

Many People Don’t Save

If you were to have less withheld from each paycheck, you would get a smaller return at the end of the year.  If you were to save or invest the extra money you received in each paycheck, then a large refund could be a bad thing.  But many people don’t save.  More money in each paycheck would mean more to spend each week.  Configuring your withholding to get a large refund effectively forces you to save throughout the year.  Yes, you’re basically saving at zero percent interest and inflation makes your money less valuable when it is finally returned to you.  But isn’t it better to save something at 0% than nothing at a higher percent?  Of course it is.

Small Savings Returns

When online savings accounts were offering 5% interest, your interest free loan to the government seemed pretty bad.  But now rates are down around 2% and many brick and mortar banks are offering

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Though it may be as common as in previous years, there seems to be many more taxpayers discussing IRS Code 1301 this year.  After filing a return, and checking their status, they are told to call the IRS and mention reference number 1301 to the IRS Customer Service Representative.

The code basically means that your return was filed at least three weeks ago and processing has been delayed.  There are many reasons why processing might be delayed, but a particularly common one this year involves the new 2008 Recovery Rebate Credit.

An early sampling of 2008 returns showed a very large number of them had errors regarding this credit.  You are supposed to use the amount you received in last year’s stimulus check to calculate the proper number for the Recovery Rebate Credit.  Since most taxpayers got the proper amount last year, only a small percentage of people will actually qualify for the credit.  The problem is that many people are entering the wrong amount for the credit, instead entering the amount they received last year.  Though such errors are generally detected and automatically corrected by the IRS, since so many people are making the mistake longer delays are the likely result.

As of January 30th, the IRS reported that refund delays were running no longer than 1 week behind as a result of this issue.  So if your return is delayed and you are in the IRS reference number 1301 group, you’ll probably only have to wait about one extra week.  You can always call the IRS, just to be sure.

Please help others in a similar situation by using the bookmark button to share this post on Digg, StumpleUpon, Reddit, Buzz, etc.  When your tax return arrives, come back to leave a comment (below) detailing your actual delay.

There are all sorts of tips and strategies out there for owing less in taxes, from legitimate (i.e. IRS approved) deductions to more questionable techniques.  As a corollary to owing less in taxes comes the more practical technique of paying less in taxes.  This information is particularly useful for anyone who regularly receives a huge refund each year.

If a big fat refund check sounds like a good thing, remember that the government isn’t giving you free money, they are simply returning the money you paid them in excess of what you owed.   To prevent that from happening again, turn to Form W4, which you file with your employer.  Your W4 tells your employer how to determine the amount of taxes to withhold from each paycheck.

The first item on your W4 is whether you are single or married.  Those sound fairly simple, but a third option, Married, but Withhold at the Higher Single Rate could be throwing your withholding off.  This option is for married people who want to have taxes withheld as if they were single, which is at a higher rate.  You might choose to do this if you normally owe a lot of taxes at the end of the year, but if you are married and getting a large refund, then the Married box is probably the better choice.

Next up comes

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Below are the US 2008 federal tax rates for informational purposes.  To compute your actual income tax, follow the 2008 instructions that accompany Form 1040.

Here are the 2008 IRS tax rates:

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Another Crack at the Original Economic Stimulus Checks

In discussing the current stimulus package making its way through the government, The Digerati Life questioned why stimulus checks weren’t expected to be part of this plan as they were during the last stimulus bill.  The answer given, that the previous stimulus checks were ineffective at stimulating the American economy, was certainly disconcerting.  Even so, the discussion did remind me to tell all of you about a tax law that could allow many people to get another crack at the original stimulus.

Eligibility for those checks was based on your 2007 tax return when they were issued, but the law actually sets eligibility based on either your 2007 or 2008 tax return.  Obviously no one knew what their 2008 return would be back when the checks were issued, but now that 2009 is here, our 2008 returns will soon be known.  This information could be key to anyone who either didn’t qualify for a stimulus check or only received a partial payment.  Here’s my original information on economic stimulus phase-out amounts and eligibility requirements.

With the current economic downturn, many people have lost their jobs or otherwise seen their income reduced in 2008.  If your stimulus check was non-existent or less than the maximum, you might be eligible for the Recovery Rebate Credit on your 2008 return.  Families with children born in 2008 may also be eligible, since they’ll have another dependent on their 2008 return (worth $300 as part of the stimulus program) that was not included on their 2007 return.  Families who adopted in 2008 are in the same situation.  Tax credits are much more valuable that tax deductions since every dollar of credit means an extra dollar in your return check whereas only a portion of each deducted dollar makes its way back to you.

So if your 2008 income was less than in 2007, you had a child in 2008, or other event that significantly affects your tax situation be sure to ask your tax preparer about the Recovery Rebate Credit or keep a close eye out for that section within your tax return software.  Any additional credit due will be added to your tax return rather than come in the form of a separate stimulus check, but the form of payment is much less important then the fact that you get everything that you are due.

Just a reminder to everyone who pays estimated taxes: the final payment for 2008 must be postmarked by Thursday, January 15th.  You can skip this payment if your 2008 tax return is filed by February 2, 2009, and you pay the entire balance due with your return.  For more information on estimated taxes, see 2008 IRS Estimated Taxes: Why, When, and How to Pay.

2008 will certainly be a memorable year for the stock market.  Aside from the scandals and bailouts, bankruptcies and failures, average return is on pace to be one of the lowest in history.  This last fact means that many portfolios have declined significantly in value.  As a result, many people have unrealized losses sitting on the books.  Selling some positions to realize a loss could have favorable tax consequences while maintaining most of the upside potential for future gains.

In general, capital losses up to $3000 can be used to offset income each year.  Losses greater than $3000 can be carried over to future years.    Selling enough stock to book a $3000 loss will maximize the amount of income that can be offset this year.  The wash sale rule precludes this loss from applying if the same (of substantially similar) security is bought within 30 days to replace the one you sold.  To maintain upside potential you can either

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