Filing taxes for the first time?
Or maybe this is the year you vow to be smart about your returns. Either way, here is all you need to know when filing your taxes this year and what you need to know going forward.
Commonly missed deductions
Most people take the standardized deduction, but accountants warn that it might make sense to file itemized deductions. For the 2012 tax year, the standardized deduction is $5,950 for a single person, $8,700 for head of household and $11,900 for a married couple filing jointly. Commonly forgotten deductions, according to the IRS, include:
• Out-of-pocket charitable expenses. Giving to your church, donating to the school bake sale, offering goods to the Salvation Army and buying raffle tickets for your local community center can all be written off—even if you pay with singles out of your pocket. Be sure to get receipts for donations totaling more than $250. (Get $10 offTurboTax Deluxe software with TurboTax sales.)
• Job-hunting expenses. Itemize any money paid for résumés, traveling to interviews (including meals, if you had to stay overnight for an interview, and 55.5 cents per mile if you drove your own car, plus tolls and parking), advertising yourself and paying staffing and head-hunting fees.
• Mortgage interest points. Did you take advantage of the record-low interest rates and refinance in the past couple of years? You can write off any prepaid interest points as they are paid over the terms of the loan. (Through April 30, get $25 off in-store tax preparation services at Jackson-Hewitt.)
You can’t pay your tax bill
It can seem like a nightmare: Your accountant completes your tax returns and finds that there will be no return at all. Your bill is bigger than your savings account. What do you do?
• File by April 15. If you’re worried about what you might owe, ask your accountant to file an extension on your behalf. This can push back payments until October. Late filing—without an extension—will cost you up to 5 percent of the total amount owed for every month you’re late. Ouch! (At least you can save on the filing itself though: Get 50 percent off Liberty Tax preparation services at participating offices with Liberty Tax coupons.)
• You really can’t pay. If you don’t expect to come up with what you owe, ask for a payment plan. In the past couple of years, the IRS has offered its Fresh Start program to help self-employed people and small business owners contend with unpaid tax bills of up to $50,000. Others can expect to pay late-payment penalties of 0.5 percent per month—up to 25 percent of total due—up until all back taxes are settled, as long as you work out a plan with the government. Plus, you will owe 3 percent interest for the period your taxes are late. That’s a lot, but it’s less than most credit card offers. (Get 30 percent off H&R Block tax software with H&R Block coupons.)
• Call up the IRS. Or have your accountant call for you and negotiate a lower bill. Be prepared to file many extra forms and do a lot of haggling. Consider hiring a tax settlement company that will negotiate a lower back-tax bill on your behalf, but exercise caution, as some such services have been found to conduct fraudulent practices in recent years.
Smart ways to spend your refund
Getting a refund? Yay you! For tax year 2011, the average refund was about $3,000. Think critically about whatever windfall you get (no matter that it was your money all along!) and invest in ways to make it pay you back.
• Invest in your retirement. Any funds you contribute to your 401(k) plan before April 15 are deductible right off the top of your income. Sweet! Also awesome: Contributing to a Roth IRA isn’t deductible, but any funds you withdraw from it in retirement are not taxed. Starting in 2013, the limits have been raised. You can now contribute $17,500 to a 401(k) and $5,500 to a Roth IRA. (Save $20 on Quicken personal finance software withQuicken coupons.)
• Hire a financial planner. For a few hundred dollars, this professional can help you set goals, get you out of debt, come up with a savings and investing strategy and help you accumulate hundreds of thousands of dollars over a lifetime. Open a TD Ameritrade account with at least $5,000 and access the broker’s financial experts to help create a financial plan.
• Invest in greening your home. Replace a refrigerator from the ’70s with an energy-efficient model and save $200 per year on your power bill. Or hire a company to conduct an energy audit and suggest ways to make your home more efficient. These can run around $300.
New for the new year
Get up-to-speed now on how the next tax laws impact you. A few highlights:
• You’re less likely to pay the Alternative Minimum Tax (AMT). The exemption threshold for married couples is projected to be bumped up to $80,750 (from $78,750) for married couples filing jointly and $51,900 (from $50,600) for single or head-of-household filers.
• Earned income tax credits were increased in some instances for the 2013 tax year. Check out this IRS site for details, but the maximum adjusted gross income is now $46,227 for couples with at least three kids.
• Payroll taxes are higher for 2013. The tax returned to 6.2% from 4.2%.
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