The Tax Foundation released a state by state breakdown of the percents of tax filers that owe no Federal Income Tax.  You can read their report here.  In North Carolina, 38% of all income tax filers owed no Federal Income Tax.  In South Carolina, 40% of all income tax filers owed no Federal Income Tax.

You may recall that the estimate from the Tax Policy Center of American households that owe no Federal Income Tax is at 47%.  This can not really be compared to the 36% of American tax filers that owe no Federal Income tax that included in this report.  The big different is the millions of American households that are not required to file tax returns. 

Nationally, the totals ranged from 21% of Alaskan households to 45% of Mississippi households who owed no Federal income tax.

(Hat Tip:  to Peter Pappas of the Tax Lawyer’s Blog)

Many who have never filed an extension are cautious if they have to file one.  They are afraid that “bad things” may happen.  Tax extensions are nothing to be afraid of and may in fact be a good move.  First, extensions for tax returns are needed when there is not enough time or information to file an accurate return by the first due date of the return (for individuals this is April 15, but for corporations, this is March 15).  If there is money due, the due date cannot be changed.  Late payment penalties and interest still begin on the original due date, even though the IRS may not know what the calculation is until the final returns are filed.  You should mail in the estimated balance due with the extension to minimize or eliminate this penalty.

In many cases, it may be necessary to file an extension if you receive K-1′s for partnership or other business interests because that information is not available yet.  If there are questions about the accuracy of information, don’t be afraid of extensions.  It is better to wait and file with real information than to “guesstimate” the information.

There is also one other reason you may want to consider routinely filing an extension each year.  There have been several studies that indicate that you could be reducing audit risk by filing your returns later.  Amir D. Aczel, PhD, a professor of statistics, was once audited and it took him two years to get a no change conclusion.  He was not thrilled with the time this took and the IRS process so he decided to dig in and write a book about the process.  He surveyed several accountants on timing and research about audit risk.  He showed statistically in his book, “How to Beat the IRS at its Own Game,” that filing later reduces audit risk and the changes of being selected.

When asked about how to avoid an audit at a seminar of 500 CPAs, a former District Director of the IRS when asked about how to avoid an audit he said “pay your tax on time and file late. If you file late the service is just glad to get the return and get it processed…”

Is this fool proof?  I don’t know, but can it hurt you?  No, there is no reason that you cannot fully comply with your responsibilities as a tax payer and file by October 15 as required by law.  Do your part, but be smart.

I just read a great post over on Chris Brogan’s blog that discussed Price Points.  Apparently, quite a few of his other readers were shocked to find what he charges for a day of his time – $22,000.   Chris went on to give some direction at how he sets him pricing.  Chris doesn’t want hundreds of people signing up for a day of his time.  He wants two to three each month.

It all goes back to value.  When you are setting the value of your services or products, what is it worth?  Chris is a well known business strategist, but lets look at this same scenario in a typical small business – for instance a contractor who does home remodeling services.

Let’s look at two scenarios.  Jim Contractor has ten different jobs working at the current moment.  In order to win the bids on the jobs, he had to be the low bigger.  His expected profits was cut to the bone and he has to work around the clock to get them done on time – and if his budget is off – he will likely lose money on a few of the jobs?

Bob Contractor has only three jobs in process right now.  When he bid the jobs, he priced the jobs so that he could make a nice wage once the jobs were completed.  His prices were more expensive than Jim’s and he had a higher profit margin.  Bob has time to excel in not just the quality of his work, but also in building a relationship with his customers.  He is able to give them comfort that the job is being done right – providing that extra little bit of value in the eyes of his customers.  He also does not have to worry as much about making an error figuring up his job cost – if he is off a little bit, he isn’t as likely to go into the hole.

Who would you rather be – Jim or Bob?

There are thousands of Jim’s out there – fighting for that customer who is always looking to pay the cheapest price.  He is always struggling to win bids and a typical dinner time conversation is how he keeps getting underbid by his competitors – ultimately resulting in him lowering his prices even more.    Jim is selling a commodity.

There are only a handful of Bob’s.  Bob creates value for his customers.  I suggest you strive to become Bob.

If you have been excluded from the education tax credits in the past, the new credits may now change that.  The new American opportunity credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Income guidelines are expanded and required course materials are added to the list of qualified expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The American opportunity credit, in many cases, offers greater tax savings than existing education tax breaks. Here are some key features of the credit:

• Tuition, related fees, books and other required course materials generally qualify. In the past, books usually were not eligible for education-related credits and deductions.

• The credit is equal to 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.

• The full credit is available for taxpayers whose modified adjusted gross income is $80,000 or less (for married couples filing a joint return, the limit is $160,000 or less). The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and lifetime learning credits.

• Forty percent of the American opportunity credit is refundable. This means that even people who owe no tax can get an annual payment of the credit of up to $1,000 for each eligible student. Existing education-related credits and deductions do not provide a benefit to people who owe no tax. The refundable portion of the credit is not available to any student whose investment income is taxed at the parent’s rate, commonly referred to as the kiddie tax. See Publication 929, Tax Rules for Children and Dependents, for details.

Tax planning may be in order to see how this credit change effects your tax liability.  As we have discussed in the past, we do not recomend overpaying your taxes this year in case federal or state governments decide they may repay with I.O.U.’s.  With tax planning and coaching, we can help you adjust your withholdings to increase your net pay now instead of being at the mercy of the taxing authorities to grant you your own money back in the form of a “refund”.