FiLife

Are high gas prices, new spring fashions, and summer wedding commitments draining your bank accounts? Well, help may be on the way in the form of an IRS rebate check.

You’re eligible to receive funds if you have a valid Social Security number, can’t be claimed as a dependent on someone else’s tax form, and have a tax liability or income of at least $3,000 (you’re also required to file a tax return, which was due earlier this month). The benefits begin to phase out for individuals with adjusted gross incomes over $75,000 and married couples who file a joint return with adjusted gross incomes over $150,000.

Visit the IRS’ rebate calculator to see how much you’ll get, if anything, from the U.S. government this year. Then, check out the payment schedule to find out when the check will arrive. The government will deposit the check right into your bank account if you signed up for direct deposit when you filed your taxes. Otherwise, you’ll be mailed a paper check.

Wondering what you should do with the newfound funds? Well, paying off debt is always a good idea. So is saving and investing. Wall Street Journal columnist, Terri Cullen, recently quipped that her family members probably won’t follow her advice but she still offered a few suggestions on how to use the rebate wisely.

– Kristen Sullivan

Illustration Credit

A hybrid car will most certainly cut your gas bill — and if you bought one last year, it could also shave down your tax bill.

New hybrid owners shouldn’t forget about the so-called alternative motor vehicle credit when filing your tax returns (you’ve only got a week left!). If you bought a new hybrid in ‘07, you may qualify for a tax credit worth as much as $3,000, according to the IRS, depending on what make and model of hybrid you purchased – and when you bought it.

Tax credits shouldn’t be confused with tax deductions. Credits are more valuable because they cut your actual tax bill, dollar for dollar, while deductions reduce your taxable income.

For the list of credit-eligible hybrids in 2007, click here. In order to qualify, you need to be the original purchaser of a new hybrid; used cars don’t apply. And if you’re leasing, you’re also out of luck. The credit is only available to the leasing company, the IRS says.

These credits won’t last forever. Once a new manufacturer sells 60,000 hybrids, the government begins phasing out the tax break. Take the Toyota Prius. If you purchased one between April and September of last year, you’re eligible for a $787.50 credit (down from $3,150 for 2006 buyers), while it disappears completely for people that bought after Oct. 1. The full credit for qualifying Honda hybrids is available for all 2007 purchases, but it’s being reduced this year.

If you’re in the market for a green set of wheels, check out this chart to see what’s tax-credit worthy in ‘08.

–Tara Siegel Bernard

Photo credit

A few weeks ago we promised to review all of the free federal tax software that the Internal Revenue Service and 19 tax companies provide taxpayers who make $54,000 or less a year. True to our word, three FiLifers who qualified for the Free File service gathered together their tax forms, rolled up their sleeves and got down to some serious tax fun.

Some of the software made tax preparation deliciously simple, while other programs made our heads hurt and our necks tight. Check out the chart after the break to see our ratings.

All told, the Free File Alliance delivers on its promise to taxpayers who make $54,000 or less. Though it turns out that each participating tax company has slightly different eligibility requirements (don’t ask why, it’s complicated), it seems that everyone, whether English or Spanish-speaking, qualifies for one of the tax-prep programs that we liked best.

OK – so Free File is worth your time. Now here’s some advice on how best to use it.

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A few years ago the Internal Revenue Service struck a deal with the Free File Alliance, a group of tax software companies. The Alliance, which includes Intuit (maker of Turbo Tax), H&R Block and EZTax Return, agreed to provide free federal income-tax preparation software to the majority of American households.

If your household had $54,000 or less of income in 2007 (the number changes each year), then you can prepare and file your taxes online for free using tools that Alliance members provide. The only place you can this access the software is on the IRS website (here).

The Back-story 
Why would these companies offer the software free to people who might otherwise pay for it? Well, the IRS has publicly ruminated about the possibility of creating its own electronic tax-preparation software. Alliance members probably hope that offering their own freebies will keep the government from meddling in the billion-dollar industry.

This may well be enough to keep the IRS at bay. After all, if more Americans file their taxes electronically, the IRS will save boatloads of money in processing costs. (more…)

Last week I mused about the joys of the TurboTax free question. Some readers pointed out that the fun-loving folks at the Internal Revenue Service had also set up a free, year-round tax hotline. In fact, there are numerous hotlines.

Eager to spill my fiscal guts to another complete stranger, I decided to give the IRS line a test drive and see how it fared.

Let’s put it this way – if you’re into being scolded, hold music and wasting your time, then the IRS hotline is for you. (more…)

There are hotlines for getting help with crossword puzzles, hooligan neighbors and even your love life. But what I really want is a tax hotline. A free one. Someone who will chat with me about what forms I need, which ones I don’t and how to fill them in. For free.

As it turns out, this financial fairy tale can be a reality for anyone until January 31.

The folks at TurboTax have started FreeTaxQuestion.com. They claim that when you submit your question there, a real person will call you and answer your question within 24-48 hours.

That sounds as believable as all that toads-into-princes garbage, but I thought I’d send ‘em some questions to see what would happen.

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One of my sisters checks her investments and cleans her financial house in December. The other one prefers to sip hot toddies and leave organization and thank-you notes for the new year. Funny thing is that both approaches could prove costly during tax season. Make sure to avoid these common tax mistakes whether you’re relaxing or making Excel spreadsheets over the next few days:

Busy-Bee Errors:

1) Buying mutual funds that pay dividends at year end Many funds distribute dividends to investors in December. Think you should buy in right before the payout? Not so fast.

Usually the share price of the fund drops by the same amount of the payout, so investors are not truly collecting anything here. They are paying taxes though; the IRS treats these dividends as taxable gains. If you want to buy a new fund before December 31st then call the fund company and make sure the fund isn’t about to pay a big dividend. (more…)

For years, my cash reserves sat in the Vanguard Prime Money Market Fund, a venerable go-to fund, consistently offering top returns with minimal fees. I always thought that nothing could beat it. Then I moved to New York, a high-tax state, and got married. Now, as my wife and I are reevaluating our finances after the birth of our daughter, we realize we can do better. In certain money-market accounts, we actually make more by earning less. How?

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