WBIR ran a great story this week on ways that you can save on your tax return.
When you see someone dressed like the Statue of Liberty and waving to traffic from the sidewalk in Knoxville, you know tax season is upon us. The Internal Revenue Service says the things many people don't know could cost taxpayers thousands of dollars when they file their taxes.
The following five tips could put more money in your pocket this tax season.
1. Sales Tax Deduction
A new study indicates Tennesseans pay more overall state and local sales tax than anywhere else in the country. You can get every bit of sales tax you spent deducted with an itemized federal tax return.
"A lot of times when I mention this deduction to folks, they're surprised it even exists," said IRS spokesperson Dan Boone. "The sales tax deduction is especially important for Tennesseans because most of us don't pay state income tax."
Chances are you did not keep a receipt for every single purchase you made in 2011. Boone said that is not necessary to determine how much you should deduct for money spent on sales tax. The IRS website has a Sales Tax Deduction Calculator with tables that estimate how much you spent.
"The easy way is to use the IRS tables. They give you an amount that is based on the state sales tax rate, your income, and the number of exemptions that you take," said Boone. "On top of the amount in the table for state taxes, be sure to add on the amount you pay in local taxes. In Knoxville that is another 2.25 percent."
Sales tax deductions really add up if you bought big ticket items such as vehicles. The amount of sales tax you paid should be added to the aforementioned figures provided by the IRS tables.
"So you put that sales tax for big ticket items on top of the other money you're getting back. That can be the amount you paid for cars, trucks, boats, airplanes, motorcycles, and even what you paid on materials to substantially improve your home," said Boone.
If you paid $25,000 for a car in 2011, the 7 percent sales tax on vehicles in Knox County means you're due back $1,750.
2. Earned Income Tax Credit (EITC)
The second tip is primarily for people who worked at least some of last year but did not make a whole lot of money. If your household earned less than $50,000, be sure to see if you qualify for the Earned Income Tax Credit (EITC).
"In 2011, about 35,000 tax filers in Knox County claimed more than $74 million in EITC and the average payment was $2,117," said Boone. "But only 80 percent of the people eligible for the EITC actually claim the credit. That still leaves thousands of people who could be getting this benefit who did not claim it."
EITC credits can reach more than $5,700 for families with children, but single taxpayers and families without children can also qualify.
3. Free Software
Brand name federal tax software can generally cost you around $30. Depending on which application you purchase, it may or may not include free E-File.
Go to the IRS website and see if you qualify for free brand name software from companies like TurboTax, H&R Block, and Tax Slayer. Almost any household that earned less than $57,000 qualifies.
"In Tennessee, nearly 2 million tax filers are eligible to use the free tax software offered through the IRS Free File program. How many use it last year? About 29,000. Talk about a benefit that is underused," said Boone.
4. Free In-Person Tax Preparation
If you don't feel comfortable doing your taxes yourself, the IRS trains volunteers who will do your taxes for free.
"They come in and they work with people to do their taxes and it is incredible. These volunteers take their job seriously and they're great at it."
"Most Tennesseans qualify for free tax help, if they want it," said Boone. "Taxpayers whose 2011 household income was $50,000 or less, who are age 60 or over, or who have a disability are generally eligible for free tax preparation and e-filing at help sites staffed by volunteers who are IRS-trained and certified. These sites are typically located in places like libraries, community centers, and churches."
Call 2-1-1 to reach the United Way and schedule an appointment with volunteers at the location nearest you.
The L.T. Ross Building on Western Avenue in Knoxville also keeps volunteers staffed and ready to provide income tax assistance. You must have a photo ID, social security card for all people being claimed, all W-2 forms, and last year's tax return if available. Hours are Mondays and Wednesdays from 4-7 p.m.; Tuesdays and Thursdays from 10 a.m. - 3 p.m. In February the volunteers also work Saturdays from 9 a.m. - 1 p.m.
"We have people come here who have not done their taxes in years. They miss a year and they are afraid to do it the next year because they are afraid to be in trouble with the IRS. In a lot of cases the IRS actually owed them money. We've had cases where someone left with $10,000 because they were due the EITC for several years."
5. Go Green
If you made your home green with energy efficient products, that could mean more green in your wallet.
"If you added insulation, new windows, doors, hot water tank, or a heating and air system that is energy efficient, you probably can get a credit of up to $500," said Boone.