With April 17 less than three weeks away, taxpayers may want to explore options for paying what's owed the government without using a check; there are now three convenient and secure ways to do just that. Here is an explanation by the Pennsylvania Institute of Certified Public Accountants on how you can take advantage of these alternatives.
Electronic-funds withdrawal can be used by taxpayers who file electronically, either on their own or through a paid tax preparer. When you choose this withdrawal option, you are authorizing the U.S. Treasury Department to transfer the specified payment amount from your bank account to the Treasury's account.
The IRS does not charge a fee for electronic-fund withdrawals, but your bank may.
You will need to provide your account number, type of account (savings or checking), and your financial institution's routing transit number. This number can be found along the bottom of your check.
You may select the payment date on which you would like the funds to be withdrawn from your account. This means you can file your return early, but keep the money in your account until the payment due date. The transaction will show up on your bank statement as "United States Treasury Tax Payment."
Or you can pay your taxes by credit card if you file electronically or on paper. Credit-card payments can be made by using Visa, American Express, Discover or MasterCard.
These credit-card payment service providers charge a service or "convenience" fee based on the amount of the payment, and will inform you of the amount before you authorize the payment. This fee, which may vary by service provider, is a nondeductible personal expense.
When paying by phone using your credit card, a recorded script prompts you through the required steps. When paying via the Internet or tax-preparation programs, the software guides you through the process. A confirmation number is provided at the end of the phone or Internet transaction.
The convenience fee is listed separately on the statement, generally as a "Tax Payment Convenience Fee."
Keep in mind that if you charge your tax payment, but don't pay off your credit-card balance in full, you'll end up paying interest.
The Electronic Federal Tax Payment System is a free service offered by the U.S. Department of the Treasury. It allows you to make tax payments through the Internet or by phone. You can use it to pay taxes associated with more than 20 tax forms, including amended returns and estimated tax payments.
This option is especially convenient for taxpayers who make more than one tax payment per year. You can enroll for this service at: www.EFTPS.gov or by calling the EFTPS at 1-800-555-4477.
To make a payment via EFTPS, contact the service and request funds to be moved from your account to the Treasury's account. This must be done by 8 p.m. at least one day in advance of the payment due date.
The funds are not moved from your account until the date you indicate. You receive an immediate acknowledgement of payment, and your bank statement confirms the payment was made.
· · ·
Even before you file, there are other things to be aware of. While taxpayers are generally familiar with common deductions — mortgage interest, medical expenses and so on — they often fail to claim others.
Here is a rundown of tax-deductible expenses to keep in mind as you prepare your 2006 federal tax return.
· Interest paid on student loans is deductible as an adjustment to gross income — up to $2,500 per year for as many years as it takes to repay the loan. This deduction is subject to a phaseout, depending on your adjusted gross income.
· Health-insurance premiums you pay to cover yourself and your family are 100 percent deductible as an adjustment to gross income.
· If you incurred a penalty as the result of an early withdrawal from a certificate of deposit or other type of time deposit savings account, the amount of the penalty is deductible as an adjustment to gross income.
· In computing your adjusted gross income, you can deduct up to one half of self-employment taxes paid during 2006.
· The IRS permits you to deduct interest payments on up to $100,000 of home-equity-loan debt.
· Reservists who serve more than 100 miles from home and stay overnight are eligible to deduct non-reimbursed travel expenses.
There are a number of deductible expenses that fall into the category of miscellaneous itemized deductions. These expenses are deductible to the extent that their total exceeds 2 percent of your adjusted gross income. Some of the most common are:
· Unreimbursed employee business expenses;
· Job-search expenses;
· Investment expenses;
· Tax-preparation fees.