The Tax Resources Blog

Archive for October, 2002

Lump Sum Payment Taxes

Question: what should I save for taxes next year?

I am receiving a one lump sum payment from my disability insurance so I can pay off my credit cards and other bills. I am only on social security
since I am permanently disabled. I make about $16,500 a year but after the end of 2007 I will have to claim this payment on my taxes next year.
The payment is about $30,000 and I need to use about half of it to pay off these bills so I can live without worrying about bills and stuff.

What is your suggestion of how much I should save so I have enough for the taxes?

We File as married with only one income which is mine at around $1350 a month because my wife cannot work because someone has to be with me 24 hours a day. We try to itemize because of the drugs and other things that are needed to keep me at home. There’s not much that we can claim
when we itemize other than interest on our home which really isn’t that much because we just live in a small double wide.

And this one lump sum is taxable.

Answer: Make sure that you get the full benefit of your refund by staying far away from H & R Block or one of those other commercial places. The IRS has a program called VITA that does free tax preparation for households earning $40,000 or less. They can make sure that you get all your eligible credits, such as the Earned Income Tax Credit, the Child Tax Credit, the Dependent Care Credit, etc.

This is an absolutely FREE service. They can e-file and do direct deposit so that you can get your return back in 7-10 days. There is no need to get a refund anticipation loan, which is really nothing more than a high interest loan where you would be paying to borrow your own money. You have worked hard for your money and you should be able to keep it! To find a VITA free tax site near you, call the IRS at: 1-800-829-1040.

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