Get out your shovel and prepare to dig through your finances. It's tax season and if you're like most Americans, you're probably knee deep in worksheets and acronyms by now. Along with your income and investment calculations there are a few things you should know about your credit and debt before you file:
- Gone But Not Forgotten: If you have had a debt cancelled this year, you will probably have to record the forgiven amount as income on your taxes. The pardoning lender should send you Form 1099-C, to help you calculate the income amount. They will also send a copy to the IRS, so be careful to include this amount in your filing. While most of your cancelled debts are included, there are a few exceptions. Debts that are discharged in a bankruptcy are not taxable. The same goes for a cancelled student loan from a government agency. If you borrowed from a family member or friend, and your debt is forgiven as a gift, it's also not taxable to you. Check your credit report online today to see if your cancelled debt is tax-exempt.
- Home Sweet Home: Mortgage borrowers can take advantage of several tax breaks on behalf of Uncle Sam. The largest tax break is on the mortgage interest that makes up most of your monthly payments. Interest on home equity and cash-out refinancing loans is also deductible. Plus, new homeowners can deduct the points they paid at the loan signing. You can only deduct these points during the same year as your home purchase.
- Filing Follies: It used to take nothing more than a sharp pencil and a couple stamps to send away your tax filing. Modern tax payers now have the option to file with an accountant, tax preparer or online electronically. Although rapid returns (aka: return anticipation loans) are all the rage these days, they don't necessarily deliver what they promise. If you file with a tax preparer to get the instant return, you may end up paying about $40 for the filing fee, up to $100 for the refund loan and another fee for preparing your documents just to get your refund a few days earlier. Taxpayers who file on their own electronically already receive their refund within 10 days. If you qualify for free electronic tax filing (check the requirements at www.irs.gov) it makes even more sense to do-it-yourself this April.
- Tax Scams: Tax time can be lucrative for identity thieves. Be careful with your financial information while you are preparing your taxes. Investing in a paper shredder can help you prevent dumpster-diving crooks from getting a peek at your private documents. Also, don't give your financial information to someone claiming to be from the IRS until you have checked out their authenticity. Check your credit report online today for signs of fraudulent activity.
- Cash Your Check: Expecting a big tax refund? Before you pick out a new wide-screen TV, consider putting the tax rebate towards reducing your debt. Bringing your debt down to a healthy level can save you thousands in interest and can help boost your credit score. Give your debt a check-up with a quick online Debt and Income Analysis at TrueCredit.com before you decide to spend. I think you'll see the benefits of healthy credit will last longer than a swank new entertainment center.
Get your credit report and score now at TrueCredit.com.
