Tax Credits and Other Money-Saving Tips: How to Keep More Money This Tax Season

Okay, so the reaction of most people to words like "IRS" and "federal income tax return" is less than ecstatic. But there are some little-known benefits out there that can make tax season a bit less painful. So read on and keep more of that hard-earned cash!

The Telephone Tax Credit allows individuals to receive a one-time refund of $30 to $60, on your 2006 federal income tax return. This tax credit is generally available to anyone who paid tax on long-distance or bundled services between February 28, 2003, and August 1, 2006. If you choose the standard refund amount, there is no need to dig up past phone bills. The amount you receive depends on the number of exemptions claimed on your tax returns (for 1 exemption the refund is $30, for 2 it is $40, for 3 it is $50, and for 4 or more it is $60).

For the more ambitious tax-payers among us, there is also a more precise refund, which depends on the actual amount of tax you paid, according to phone records from the past 41 months, and you may qualify for a greater refund.

Why is this tax being refunded? Several federal courts have held that long-distance tax does not apply to service as it is billed today. You are being refunded that extra tax you've paid over the last few years.

Bottom line: if you have recently had long-distance phone services, claim the refund! And it's easy- you only need to fill out one line on your tax return to claim the credit! For more information visit the IRS website, and search "Telephone Tax Credit."

The EITC (Earned Income Tax Credit) is for a more specific group of people. Low-income working individuals earning less than $38,348 in 2006 may be eligible for this refundable federal income tax credit from several hundred dollars to more than four thousand dollars, with qualifying children. The qualifications for this tax credit are more involved. In general, the EITC will NOT affect other benefits you are receiving, such as food stamps or Medicaid. For general information on the EITC, and to see if you qualify, use a search engine to find "IRS EITC."

Get your taxes prepared for free. Okay, there are a few options here. Tax preparation services can be pretty pricey, and for those of us not rolling in dough, this is a problem we inevitably face year after year: do I pay to have my taxes done, OR do I attempt to prepare them on my own, risking mistakes and hours of frustration? The first option is to take a class. I know what you're thinking, WHO in their right mind wants to sit through a tax preparation class?

Well, I did, and I can tell you it was definitely worth it. Most cities offer the classes for free, hoping to gain a few volunteer preparers, come tax season. They are relatively painless and will generally take up only10-40 hours of your time, depending on how advanced you want to get. You will then not only to be able to prepare your own taxes every year, but can even charge others for your help. There is also a way get certified to prepare taxes via internet at your own pace and on your own schedule. Visit the IRS site, and search for "Link and Learn."

Another option is to stop by a free tax preparation site. These VITA sites (Volunteer Income Tax Assistance) are set-up every year throughout the country, mainly to help low-income people file their taxes, and avoid paying the aforementioned fees to professional preparers. These sites are NOT to be taken advantage of by affluent tax-payers, and only if you are truly considered low-income should you take up the valued time of the volunteers at the sites. To find one near you, call 1-800-829-1040.

Sources:
"Free Tax Return Preparation For You by Volunteers." Internal Revenue Service. URL: (http://www.irs.gov/individuals/article/0,,id=107626,00.html)

"It's easier than ever to find out if you qualify for EITC." Internal Revenue Service. URL: (http://www.irs.gov/individuals/article/0,,id=96406,00.html)

"Telephone Excise Tax Refund." Internal Revenue Service. URL: (http://www.irs.gov/newsroom/article/0,,id=164032,00.html)