How Can Uncle Sam Help You?

>> Sumi Das: The April 15th tax deadline is looming and you might assume that at this late date there's not much you can do to help maximize your refund. Editor at Large for Moneywatch.com, Jill Schlesinger has some advice for even the worst procrastinators. Thanks for joining us.

>> Jill Schlesinger: Thanks for having me.

>> Sumi Das: So there isn't much time left before tax returns are due, but you say there are still smart ways to file and that this can make a significant difference. You're not just talking about minor deductions here.

>> Jill Schlesinger: We're talking about thousands of dollars potentially. The first one that I love is the IRA contribution because it's a dual purpose: you're saving for retirement and you're getting Uncle Sam's help. You're going to save some money on your taxes. A lot of people don't even realize it. They say, "Oh I've made my contribution to my 401K plan." You still may be eligible to make an IRA contribution that is deductible. You should definitely check the rules but that's a great bang for your buck.

>> Sumi Das: And you need cash for that though.

>> Jill Schlesinger: Yeah, that's the problem. If you're short on cash, you're not going to be able to do it. But if you are short on cash, there is something really interesting in the tax code which is called a credit which is really money back to you. And there are all sorts of credits available. In fact, there's a new credit available to lower income people who make retirement contributions. And then there are some of the older credits that still exist like if you have a child you can deduct a thousand dollars if you're married. And there's a whole bunch of different credits. You should go onto the IRS website which this is counterintuitive, IRS.gov is actually helpful.

>> Sumi Das: It's not confusing?

>> Jill Schlesinger: It's not. It's a great website and you just type in "credits" and you see which ones that you may qualify for.

>> Sumi Das: Two thousand eight was a rough year for anyone who had money invested in the market. Is there any tax relief for people who took a hit when stocks tumbled?

>> Jill Schlesinger: Well, there is but with a couple of caveats. First of all if you lost money in your retirement account, tough luck. Uncle Sam doesn't care. That's already has a little tax preference. So we're going to exclude all of your retirement accounts. But if you have a taxable account - it could be a mutual fund, could be a brokerage account - and that account if you actually sold an asset at a loss in 2008 you are going to be able to claim that loss on your tax returns. Here's how it works. If you have a gain, you can use the loss to wash the gain. Okay, most people didn't have gains last year so let's skip forward. If you have a loss without any gains, you can use 3 thousand dollars of capital losses against your ordinary income. And you can keep using it up year after year, until the loss is gone.

>> Sumi Das: As stocks were plummeting, unemployment rates were rising to a 15 year high in 2008: 2 point 6 million people lost their jobs. Is there any tax break for somebody who was a victim of a layoff?

>> Jill Schlesinger: Well, let's start with sort of the bad news first. If you got a severance, if you got unemployment, those are all taxable. And I'm worried that some people may not have realized that and spent all of that money just to live, so you may have a nasty surprise come tax filing time. If that is the case by the way, and you don't have the money to pay, don't just blow it off. You file and you contact the IRS and say "I need a payment plan. I need help." On the other side of this, there is some relief because the government is going to help you out in finding a new job. There are deductions available for job preparation, resume preparation, going out on interviews; those are all deductible items if you qualify. And if you happen to be able to relocate and you take a job and you relocate, some of your moving costs are going to be deductible so that's good news on the other side.

>> Sumi Das: Now if you do make payments as you suggested, is there a penalty for that?

>> Jill Schlesinger: Well there's not a penalty per se, but the Uncle Sam charges a pretty hefty interest rate. So it will cost more but again for people who are on the edge, it's very important that you contact the IRS. You can't have this blight on your record. Not paying taxes is pretty much the worst thing you can possibly do in terms of your credit.

>> Sumi Das: Any other final tips you have for folks out there?

>> Jill Schlesinger: If your back is up against the wall, and you really are not going to make it, you file for an extension. That will give you 6 more months. It will give you till October, but if you think you owe any money to the government, you must make a payment or else you will be penalized heavily. So the deal here is you go, you file; you send them a check with your extension. "Hey I need 6 months more. Here's what I think I owe," and then get going and don't wait till October to do this all over again.

>> Sumi Das: Looking ahead to next year?

>> Jill Schlesinger: Get that file ready. Get that shoebox ready. Right now write 2009 taxes, collect your receipts during the year, don't worry about this process being so onerous. You can make it easy. Just do it a little bit at a time. By the end of February you revisit your box or your file. You start to organize it then with all your documents. Boom: you're filed in March and you're ready to go.

>> Sumi Das: I have no doubt everyone who's watching has resolved to be on top of it for next year.

>> Jill Schlesinger: Absolutely.

>> Sumi Das: Jill thanks so much.

>> Jill Schlesinger: Thank you.

>> Sumi Das: For more information, head to Moneywatch.com. I'm Sumi Das. Thanks for watching.

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