Posted on August 21, 2012May 31, 2016 by Jan Roberg

Is Your Tax Preparer a Phony?

Photo by Brandon Koger at Flickr.com

One of my biggest complaints is about fake tax preparers. They’re all over the place. They magically appear during tax season and then disappear on or before April 15th. When the IRS letters start showing up, they’re nowhere to be found and their victims wind up paying me (and people like me) lots of money to get them out of the jam they’re in.

For example: One year I had to assist five different people who received audit letters and all of them had had their returns prepared by the same woman. Besides the fact that all the tax returns were wrong—the thing they had in common was that all of them said they had been “self-prepared,” even though all five of the people who came to me stated that this woman had prepared their returns and that they each had paid her $200 for the service. I’ll never know how many bad returns that person did—but if five of them walked through my door, I‘m guessing that there were a whole lot more.

So how do you know you’ve got a lemon preparer? The best way to know is to see if he or she has something called a PTIN number. (PTIN stands for Preparer Tax Identification Number.) A real preparer signs her name on your tax return and puts her PTIN number on it. A fake preparer does not sign your return and your return will say “self-prepared.”

Most folks don’t know that professionals are required to have PTINs. Unless you were burned by a bad preparer in the past, it’s not something that would ever be on your radar. It’s on my radar because I have to tell people they’ve been burned on a regular basis. It’s never a fun conversation.

So how do you know if you’ve got a real tax professional instead of a fake? Well now there’s a directory and you can look your tax preparer up. All you have to do is go to: http://www.ptindirectory.com/

You can type in your preparer’s name and if they’ve got a PTIN, you can find them there. For example: my last name is Roberg and I work in Missouri. If you wanted to check my credentials, you’d go to the site and type those in and I’d be there.

Or say you don’t have a tax preparer and you’re looking for someone. You can go to the website and type in your zip code and it will give you a whole list of preparers in your area. For example, I work in the 63146 zip code area. If you type that in, well of course I’m on that list, but so are a whole bunch of other tax folks who work in my area as well.

Click on a name and it will give you the person’s credentials and business address. EA means enrolled agent (that’s what I am.) EAs are licensed by the Department of Treasury to represent clients before the IRS. CPAs are Certified Public Accountants and RTRPs are Registered Tax Return Preparers. RTRP is the new tax professional designation, it means the person has passed a test demonstrating competency is basic tax return preparation. Persons with PTINs but no credentials will just have their names listed.

Will hiring a professional with a PTIN prevent you from ever getting audited? No, I can’t promise that. But it does show that you’ve hired a professional who’s serious about obeying the law, and that’s something you want in your tax preparer.

Posted on August 17, 2012May 31, 2016 by Jan Roberg

My Dog Barks at IRS Agents

Jan's dog Lady! Ruff Ruff!

I know this sounds a little crazy, but my dog barks at IRS agents. Some people think that this is a good thing, but in my business—no. It really puts a damper on the whole “working from home” concept. I figure that I spend a pretty large percentage of my time talking on the phone with IRS agents; I can’t have my dog barking. It’s just unprofessional.

My husband says that I have a special “IRS voice” and the dog recognizes it as me talking to an enemy and reacts accordingly. For the record: I don’t consider IRS agents to be my enemy. Most of the time we’re trying to achieve the same goal: getting my client to pay his fair share of income tax. Where the IRS and I tend to disagree is in the amount of money that would be considered to be a “fair share of income tax,” but overall we’ve got the same goal.

Anyway, the dog barks when I talk to the IRS so she can’t be in the room when I make my phone calls. (Or I just call from my business office—no dogs there.)

But on days that I’m not doing IRS work, I like to work from home. My dog likes to nap in the corner of my home office while I’m on the computer. She’s usually pretty quiet and most of the time I can’t even tell she’s in the room; except for the other day. Nothing unusual, the phone rang and it was a person asking for advice about an audit letter she received. It was a pretty normal, friendly sort of call. I get that type of call all the time and I was just answering questions for a potential client.

But while I was on the phone, my dog woke up and started barking at the phone routine. It was so embarrassing. I couldn’t get her to shut up. I apologized to the caller and explained that she usually only barks at the IRS and I didn’t know what had gotten into her. The woman on the phone paused for a moment and said, “I do work for the IRS.”

So I learned a couple of lessons: First, IRS employees are not exempt from getting audited. And second, my dog is smarter than I thought.

Posted on August 14, 2012May 31, 2016 by Jan Roberg

Turbo Tax Users: You Need to do a Three Year Review

Photo by Images_of_Money on Flickr.com

I’ve said it before: I think Turbo Tax is a great product. I also like 1040.com, the do it yourself software you can get on my website. Good products, good results. But, they’re not perfect—none of them are. And neither are tax preparers, after all they are human and make mistakes as well.

It’s August, generally quiet time in the tax business—but no, not this week. The other day my phone rang nine times—people getting IRS letters. “Hello, I got an IRS letter, what do I do?” I suspect that the IRS must have done a mass mailing the other day for my phone to ring so much. (My phone is usually slow in August.)

Some calls are easy and I can guide someone over the phone, “Oh, just send them a copy of XYZ form, that’s all they want.” Usually though, people need to come in and have me take a look. What I’m often finding this summer—is that people are getting IRS letters saying folks owe money, but when I review their returns, they should be getting a refund instead. And while I think that’s great fun (because I’m a tax geek and that’s the kind of stuff I live for) most people don’t like getting IRS letters saying they owe thousands of dollars at all. (Although they’re usually happy when I show they’ve got a refund coming.)

But here’s the catch—these people wouldn’t know they had money coming back if the IRS didn’t send them the nasty letter in the first place! What about all the people who left money on the table but won’t get an IRS notice?

What I’m finding is that the people with money coming back did their own taxes with Turbo Tax. Not that the Turbo Tax program made a mistake but it is usually just a misunderstanding of what should or should not be listed or possibly a typo. That’s why I’m recommending a three year tax review.

Why three years? If you made a mistake on your tax return, you have three years from the date of filing to file an amendment to get your money back. This is achieved by filing a Form 1040X.

For example, let’s say back on your 2009 tax return, you typed in that you paid $1,000 in mortgage interest when really you paid $10,000. The two numbers look pretty similar but there’s $9,000 worth of deduction there that you just missed out on. If you’re in the 25% tax bracket, that’s a $2,250 refund that you’d be entitled to. Your 2009 tax return was due on April 15, 2010. So, three years from that date is April 15, 2013. If you wanted to get that money back from the IRS, you’d need to file an amended return by then.

You don’t need to do this every year, just bring in three years worth of returns once every three years. Most places charge a fee, but it’s generally much lower than the cost of preparing your returns. (I know one large tax company used to advertise that they’d do it for free.)

If your returns are fine—then you’ve got peace of mind. If you’ve been doing something wrong—well then you’ve learned something. If you get money back—well then you know you did the right thing. It’s a winning situation all the way around.

Posted on August 10, 2012May 31, 2016 by Jan Roberg

Summer Job Super Gift

Photo by Eric Leslie on Flickr.com

Do you have a child or grandchild that has a summer job this year? If you want to give a “gift of a lifetime” I’ve got a suggestion for you. Make a contribution into a ROTH IRA account for the child to match the amount of income he or she earns this summer.

Saving for the future; sounds boring doesn’t it? I know, it’s not an I-Phone or a new car—but if you were to make a $5,000 contribution to a 16-year-old’s ROTH IRA—and he made no other contributions for the rest of his life—by the time he reached age 65 (assuming it earns an average of 7% interest per year) he’d retire with $138,000 (The Kiplinger Tax Letter, July 20, 2012). Now that’s a pretty sweet present!

Of course, there are rules that have to be met. For one thing, you can’t contribute more than the child actually makes for the year. Also, you can’t contribute more than $5,000 to a child’s ROTH IRA.

Obviously, this isn’t for everybody. You have to be at a certain stage of wealth to be gifting that kind of money to a kid’s IRA. And remember—that’s what it is; a gift. If you’re trying to avoid gift taxes—a contribution to a child’s IRA will count towards your $13,000 gift annual exclusion. You can’t give a child $13,000 and contribute to the ROTH IRA on top of that. You would have to reduce one or the other so that the total came to $13,000 or less or else a gift tax will be applied.

What about people who don’t have that kind of money to give away? You can make a smaller contribution. Maybe a thousand dollars instead; or maybe you make a deal with your child—you’ll match whatever they contribute to a ROTH IRA up to a certain dollar amount. (I recommend starting a ROTH IRA with at least $1000. Smaller sums are usually hit with more fees and wind up losing money instead of growing.)

Why put money into a kid’s ROTH IRA? So many reasons:
1. The money grows tax free
2. When it’s time to take the money out, it’s tax free
3. The money can be used for education, buying a home, or retirement
4. Giving your child a fighting chance for having a decent retirement nest egg

Why a ROTH and not a regular IRA? Regular IRAs are tax deductible when you make the contribution, but taxable when you take the money out. Most teenagers don’t need the tax deduction that comes with a regular IRA, so it really makes much more sense to invest in something that will be tax free at retirement. Note: the deductibility of the IRA goes to the owner of the IRA—so if you contribute to your child’s IRA—you don’t get the tax deduction, your child would.

I realize that this isn’t an option for everybody, but if you can afford putting money into a ROTH IRA for your child (or grandchild), it’s worth some serious consideration.

Posted on August 7, 2012May 31, 2016 by Jan Roberg

Olympic Tax Bill

Photo by SouthEastern Star ★ on Flickr.com

It seems that Congress is falling all over itself trying to make the prize money that our Olympic athletes win in London tax exempt. They’ve had a week to watch the games, think about it, and propose legislation. Pretty fast work for our political leaders. I guess Congress cares about your tax bill if you’re an amazingly great athlete—but they don’t care enough about the rest of us to finish the work for settling the tax code for our 2012 taxes. Yes, I’m talking about this year’s taxes!

Seriously, we’re hearing all of the candidates talk about what they want to do with our taxes for 2013—next year. But as of this date (August 2012) there are several tax issues that still haven’t been decided about your taxes for this year. Did you know that?

Here’s the big thing we don’t know yet:

AMT, the Alternative Minimum Tax. Right now, the exemptions for AMT have fallen to the old 2001 levels. If you were married filing jointly in 2011 and made less than $150,000, your AMT exemption would be $74,450. Using the 2001 rules, the exemption is $49,000. Now for most people, talk about Alternative Minimum Tax sounds like a bunch of mumbo jumbo—but to put things in plain English—if our people in Washington do not settle this issue, 20 million more Americans are going to get hit with the AMT tax this year. Most of those people have no idea this is coming. You could be one of those 20 million and not even know it. And I’m talking about 20 million people who will be added to the AMT rolls; people who already pay the alternative minimum tax will be paying even higher AMT taxes than in previous years. Thousands of dollars more!

Now, in fairness, the Senate does have a bill on the floor that would actually increase the exemption by $4,300. I expect it to pass (I hope), but not until much later this year, like in December. There’s something fundamentally wrong with not knowing what you should have to pay on your income taxes until after you’ve already earned your entire year’s salary.

Some other tax issues for this year that are still up for grabs include: deducting state and local sales taxes instead of state income taxes, the classroom teacher deduction of $250, allowing senior citizens to transfer IRS funds to charity tax free, the tuition and fees deduction for college expenses, and a whole host of business related tax incentives. How can you make a move if you don’t know if you don’t know if you’re allowed to do it or not?

Congressional inaction on current tax issues means that many people will have their refunds delayed next year. That’s not fair to you or to me.

But back to the Olympic athletes: I’m an Olympics junkie. I love watching the games and I admire our athlete’s accomplishments. And when NBC does its little heart tugging stories on our athletes’ struggles, I understand wanting to give them all a break. But how much of a tax break do we really need to give folks like Serena Williams, Michael Phelps, and LeBron James? They’re already making millions of dollars a year. Here’s the thing—if Congress were to pass the new AMT exemption—it would essentially make Serena’s gold medal prize money tax free, while at the same time helping millions of other Americans who could probably use the tax break a little more than Serena does.

I get it, the Olympics is news and talking about them gets our politicians some media exposure. (Guilty as charged, I’m blogging with an Olympic theme myself.) But there are some very real tax issues this year for the rest of us that Congress hasn’t addressed yet – and we deserve to have our leaders settle the issues sooner, rather than later.

PS: As far as the medal earnings for the athletes that are not already millionaires is concerned—any decent accountant will be able substantially reduce the tax on Olympic winnings, and in many cases reduce it down to zero. From a serious tax standpoint, it shouldn’t even be an issue.

Posted on August 3, 2012January 14, 2017 by Jan Roberg

Let the IRS Help You Pay for Your Vacation

If you have trouble saving money, then withholding extra in your taxes might be the way to put money away for a vacation. (Or whatever else you want to save for!)

Okay I can hear you now, “How can you get the IRS to pay for your vacation?” That’s not what the title said; it says “help pay” for your vacation. If I had a way for the IRS folks to pay for my vacation, I’d be blogging this from London instead of my living room. (Olympics are on, I’m an Olympics junkie. I’m working in front of the TV set today.)

But how can the IRS help you pay for your vacation? By helping you save for it!

Face it; some people are great at putting money away and saving up for whatever they need. This blog post isn’t for them. This is for the folks that have trouble saving up for the things they want—like a vacation. If you’re not a good saver, then this plan might work for you.

First, you need to figure out how much money you need for your trip. I was looking at a little trip to Disney World, with my husband, Mark. I think we can do it for $3,000. Mark gets paid twice a month—so over the course of the year, he’ll get 24 paychecks.

(Yes, I’m using his paycheck for this example. I’m self employed. If I’m thinking about buying something with my own money I use “How many tax returns to I have to prepare to go to Disney World?” But I don’t have withholding—I have to pay estimated taxes so this program will not work for me.)

So to save up $3,000 first we’ll have to figure out how much of a refund we’ve got coming (or how much we’ll owe) if we don’t make any adjustments. So how do you figure that out? You use the IRS withholding calculator. Here’s a link: http://www.irs.gov/individuals/page/0,,id=14806,00.html

You’ll want to have a copy of your latest pay stub and your last tax return with you when you do it. Just go to the site, answer the questions, and it will tell you what your expected refund (or what you’ll owe) will be.

I did this back in February and it looks like we can expect a refund of just about $1,000 next year. We will need to save another $2,000 for our Disney vacation. Since we did this in February, that gave us 10 months to save up. Let’s do the math:

10 months times 2 paychecks per month = 20 paychecks

$2,000 divided by 20 paychecks = $100 per paycheck

So for us to have adequate savings for Disney World, Mark would need to withhold an additional $100 per paycheck to give us a $3,000 income tax refund.

If you want to change your withholding, you’ll need to go to your human resources department and complete a new W4 form. If you know exactly how much extra money you want to save, just put that dollar amount on line 6 of your W4: http://www.irs.gov/pub/irs-pdf/fw4.pdf

If you’re just interested in getting a bigger refund, but don’t know who much extra you want to save, you can change the number of allowances you’re claiming on line 5. For example, if you’re currently claiming 3 exemptions and your refund is very small, change your withholding to 2 exemptions and your refund will be larger (assuming that everything else on your tax return stays the same.)

Realize that if you do this, you will have less money to spend from every paycheck. What you’re doing is making a trade off. Money later versus money now.

I’m going to be perfectly honest with you—most tax professionals would never, NEVER, recommend saving money by letting the IRS hold it for you. Two reasons: the first argument is that you can save the money yourself and earn interest on it in a savings account. My answer to that is—the interest rate on my savings account right now is .2491%. If I had the whole $3,000 in the bank for the whole year, I would earn $7.47. I think actually being able to save $3,000 is worth that price. This isn’t such a good argument these days.

The second issue is a little more serious: If the IRS is holding your money—you cannot access it until you file your tax return next year. If you have a financial emergency, there’s no way for you to get your hands on that cash. It’s important that you understand that. The whole point in having the IRS hold your money is so that you can’t spend it, it’s a good idea to have a little savings cushion—but this is a strategy for people who aren’t good at saving, so there’s a bit of a catch 22.

Like I said, this strategy isn’t for everyone—but there are lots of people who use it and they use it successfully if saving money is a problem for you.

Posted on July 31, 2012May 31, 2016 by Jan Roberg

Do I Still Have to Pay Taxes After I’m 65?

Photo by Dietmar Temps at Flickr.com

I need to make this very clear—there is no law that says persons over the age of 65 do not have to pay taxes.

But obviously there’s some false information out there because I keep hearing people say they don’t pay taxes because they’re over 65. What’s worse is that I’m doing back tax returns for senior citizens who are in trouble because they believed that garbage.

Granted, things do change when you retire, but if you’re earning income, Uncle Sam wants you to pay taxes on it.

Now some people don’t make enough money to be required to file a tax return. Many of those people are senior citizens. I think that’s where the rumor about not having to pay started—some people don’t have to file because their income is so low they don‘t owe anything. But if you’re newly retired, you still need to prepare your tax return to make sure.

Here are some things that seniors get into trouble for:

Social Security income: most people think that social security isn’t taxable. For many people it’s not, but if you have other income, that could kick you into a category where your social security is taxable. If you’re preparing your own tax return, you need to include the social security income on your tax return. The computer program will calculate if any part of it is taxed—but if you leave it off, the program can’t help you.

Pension income: once again, many people think that their pensions aren’t taxable. Many pensions have a portion that isn’t taxable, but a completely nontaxable pension is extremely rare. Your pension must be reported.

Odd job—self employment income: Often seniors retire from their main job, and they’ll take on a small part-time job someplace just to get out of the house or to help out a friend who owns a business. They’ll receive a form 1099MISC for the pay. Under normal circumstances, the income would be small enough that they wouldn’t have to file, but if you have over $400 of self employment income—you’re required to file a return and pay self employment tax.

Stock transactions: Seniors tend to draw from their investments when they retire. As you draw funds from your mutual fund—you’re selling the shares. Let’s say you draw $10,000 out of your mutual fund—the IRS will receive information that says you made $10,000 from selling those stocks. As far as the IRS is concerned—you need to be taxed on that $10,000, plus that will probably kick you into having your social security be taxed as well. But the truth is, you didn’t make $10,000 on that stock transaction—you may have even lost money—that’s why it’s so important to file your return so the IRS knows you don’t owe as much as they think you do.

The biggest problem with not-filing your tax return is that it takes the IRS a few years to catch the problem. So by the time you get your IRS letter, they’ve already attached a “failure to file” penalty of 25%, and “failure to pay” penalty of up to 25%, and they’ve added interest on top of that.

So make sure you file your tax returns after you retire. I recommend filing every year, even if you don’t owe and even if you’re not required to file. It protects you from the failure to file penalty in the event the IRS “finds” something later.

Bottom line—you’re never too old to pay taxes.

Posted on July 27, 2012May 31, 2016 by Jan Roberg

Can I Write Off My Child Support Payments on my Taxes?

Drawing/Photo by o5com on Flickr.com

Quick answer: No.

For a longer answer, you may want to know why. Here’s the reasoning: if you are married and living with your family and raising your children—there’s no deduction for paying for their school clothes or feeding them. That’s pretty much what your child support payments are—feeding the kids and paying for clothes. So whether you live with your kids, or live apart, the money that’s used for those day to day necessities is not a tax deductible expense. You don’t get a deduction for paying it and your ex doesn’t claim it as taxable income.

What about alimony? Alimony is different—you get to deduct alimony on your tax return if you pay it, and your ex has to claim the alimony as income. Alimony counts as income so your ex will have to pay taxes on it. Alimony does not count as earned income for the earned income tax credit, but as one of my clients explained to me, “Oh, honey—trust me I EARNED it!”

You might be thinking that paying alimony is better than paying child support—but there’s a catch to that thinking. If the “alimony” ends when the kids turn 18— the IRS will call it child support anyway so you lose all the tax advantages. Alimony basically goes for the life of your ex or until a re-marriage occurs. So while alimony has some tax advantages—child support at least has an end date. (There are some cases where alimony is only paid for a limited time, but it has to be very separate and distinct from any type of child support to be valid for tax purposes.)

Some people pay both alimony and child support. In a case like that you can deduct the alimony portion of your payment on your tax return. Now it’s important to know—if you fall behind on your payments—the IRS assumes that you pay the child support first. For example: Let say you pay $300 a month in child support and $200 a month in alimony. For the year you pay $6000 all together: $3,600 in child support and $2,400 in alimony. You’ll take a $2,400 deduction for the alimony on your tax return.

Now, what happens if you lost your job and didn’t make any payments in November and December of the tax year? You would have paid $5,000 total, right? ($500 times 10 months) And $2,000 of that was for alimony. But according to the IRS—you pay the child support first. So of the $5,000 that you did pay, $3,600 went towards the child support and you only get to deduct $1,400 (the amount that’s left) for the alimony. So make sure that you’re all paid up before the end of the year if you want to deduct all of the alimony on your tax return.

If your hungry for more, try http://www.mentalfloss.com/blogs/archives/135170 to put icing on the cake.

Posted on July 24, 2012May 31, 2016 by Jan Roberg

Can I Write Off My New iPad as a Business Expense? (A lesson in listed property)

Photo by John.Karakatsanis on Flickr.com

Recently someone asked me if he could write off his iPad as a business expense. Now for that guy—the answer was a resounding, “Yes!” But I knew all of the circumstances and I knew he had an audit proof reason for the iPad. For most people though—deducting the iPad purchase is a resounding, “Maybe.”

Here’s why—

First, you need to consider if the purchase of your iPad would be an “ordinary and necessary” expense for your business? Now in the case of my iPad guy, he’s a computer programmer and he had been hired to develop some apps specifically for the iPad. Although he felt confident that he could develop the apps without an iPad, he thought it might be useful to own one. (Okay, duh! I think he just wanted me to okay his iPad purchase to his wife.)

But you don’t need to be a programmer to justify the expense; there are plenty of really good uses of an iPad for your business. I could just set up a video camera and let my husband do a 20 minute infomercial about why every business person in America needs an iPad. He actually bought his for fun and found that it’s great for his business; he uses it all the time. I think many businesses would pass the “ordinary and necessary” requirements for the write off of a tool like that.

Second, you need to consider how much you’d use it for business. This is really important because the iPad counts as “listed property.” Listed property is the fun stuff. Cameras, computers, and stereo equipment—basically the fun stuff that you can get at Best Buy. Cars are also considered to be listed property.

So here’s the deal—if you buy business equipment that is not listed property—like a file cabinet, and then you quit using it—the IRS doesn’t really care too much about that. But if you buy some fancy video equipment “for business” and then don’t use if for business—well the IRS has some ideas about that and those ideas will all cost you some money! Basically, anytime your business use of listed property falls below 50%—then you’re going to have to “recapture” (that means pay tax) on the deduction that you took earlier on your next tax return. Yuck!

Let’s take that iPad for example. A new iPad costs $500. You buy it this year and you take the Section 179 deduction for it and write off the whole $500 as a business expense for your sole proprietorship. (A Section 179 deduction is what you call it when you buy a piece of equipment and expense the whole thing instead of depreciating it. Depreciation is where you buy something expensive and write off the expense over a couple of years—it depends upon the equipment to determine how long the write off is for.)

That’s all fine and dandy if you use the iPad 100% for business and you keep using it for business. But let’s say you buy it, write it off, and then next year you give it to your daughter for school. Now it’s not a business tool anymore. If you do that—the IRS will make you “recapture” the unused depreciation. So next year, you’d have $400 of extra income to pay tax on. (Because they’d let you keep the $100 expense deduction for the year you used the iPad for business.)

Now I realize that I’m oversimplifying things—but that’s the basic gist of it. It’s okay to buy cool stuff for your business. It’s okay to write it off. But if you’re not going to be using it for the full term of its use (most things are 5 years) then you might want to think twice before writing off the whole thing.

Posted on July 20, 2012May 31, 2016 by Jan Roberg

Multi-State Tax Returns: Living in Illinois/Working in the City of Saint Louis

Photo by rustybrick on Flickr.com

I’ve written before about working on multi-state tax returns, see: http://robergtaxsolutions.com/2011/03/multi-state-tax-returns/

But this is specifically about Illinois and Missouri. Even more specific than that—living in the state of Illinois and working in the City of St. Louis, Missouri.

Who would have thought this would be a big deal? But for some people it might be. You see, if you live in Illinois and work in Missouri, you get a credit for the income tax you pay to the state of Missouri to offset your Illinois income tax. It used to be that the Illinois state income tax was only 3% while Missouri’s income tax was 6%. The Missouri state tax pretty much covered all of most people’s Illinois income tax so you usually didn’t have a balance due on your Illinois tax return.

But now, the Illinois state income tax is 5%—and though 5% is less than 6%, Missouri allows more deductions than Illinois does so now the Missouri tax is often lower than Illinois tax. And that’s where the City of St. Louis income tax comes in. Most people call it the City of St. Louis earnings tax.

You see—Illinois allows you to use the City of St. Louis, Missouri income tax as a credit against your Illinois state income tax—and for some people, that really helps their Illinois tax bill.

Here’s the tricky part—even though you’re allowed to do it—it’s not automatic when you prepare your tax return. You’re going to have to go in and manually claim it. For example: in my tax software, the program will automatically compute the credit for the Missouri state income tax, but it leaves the City of St. Louis out. Same with Turbo Tax. If I want to claim the credit for the St. Louis City tax, I have to go to the Credit to taxes paid to another state form and override the credit. (I take the Missouri tax credit and I add the City taxes paid and put that number in the override box.)

If you’re working in Turbo Tax, when you’re on the credit for taxes paid to another state input page—you have lines for the different states. Your Missouri tax credit should already be there, and then you just add the St. Louis City Tax on the next line. It’s not difficult to do; you just have to know to do it.

Here’s a warning: I spoke with a representative at the Illinois Department of Revenue and he told me that while it’s perfectly legal to claim a credit for taxes paid to the City of St. Louis, that you shouldn’t be surprised if you receive a letter from the Illinois Department of Revenue questioning that claim. Don’t be frightened by this. What happens is that the computers check against your state income tax and when the numbers don’t match it kicks out a letter to the tax payer. If this happens to you, you just respond that you claimed the St Louis City tax as well. You probably will need to include a copy of your W2 showing the city tax paid. He said that it happens a lot with people who work in Paducah, Kentucky which also has a city tax.

Now if your Missouri income tax credit already covers all of your Illinois tax, you don’t even need to bother with the St Louis city tax—your tax credit is only good up to the amount of tax liability you have to Illinois.

But if you’ve done your Illinois return and you’ve got a balance due—that City of St Louis tax can come in mighty handy.