In my line of business, January is the time of year when phones start ringing non-stop and concerned callers ask “What can I deduct on my tax return this year?” or “Will the new tax law affect my taxes this year?” or “My deduction statements have not arrived yet, what do I do?”
These questions are answered in each year’s mission to educate people on what they need to know regarding taxes, and this year is no different. The filing of the 2012 income tax return has created tax-induced anxiety for some people due to ongoing political discussions about the “tax cliff” and our economic situation.
However, there is no need to panic. Planning is one of the best remedies to ensure a smooth tax filing experience. To help you with that, this article provides information that will be used as a guide during the 2013 tax season.
Your tax return may be larger than you think.
The US Taxpayer Relief Act of 2012 stems from new legislation that Obama enacted in January that offers “extension” provisions that extend various tax cuts that were scheduled to expire in 2011 through December 2012 (meaning that you can stay with more money than you’ve worked so hard for.)
Tax deductions 101
About two-thirds of taxpayers choose to use the standard deduction method instead of itemizing. Although itemizing can be trickier up front, if you own a home, have a child or children, donate large portions to charities, etc., you could be wasting some of your money by not itemizing your deductions. I’ll save the intricacies of this topic for another article and just say that some deductions are only available if you choose to itemize. Visiting the IRS website at http://www.irs.gov or speaking with a licensed tax professional, such as an enrolled agent or certified public accountant, will provide you with the in-depth knowledge you are looking for in filing your return. In the meantime, I have provided some general examples.
• Medical expenses: Are your total medical expenses equal to more than 7.5% (this number will increase to 10% in 2013) of your adjusted gross income? If so, this qualifies as a valid deduction.
• Business-related expenses: Job search expenses, that is, travel interviews, resume printing, and job relocation from at least 50 miles away, are all deductible. Are you an independent worker? If so, you can also deduct expenses related to a home office dedication and other business purchases.
• Mortgage Expenses – Points paid on your home mortgage may be deductible. You can even deduct mortgage refinancing expenses.
• Charitable Donations: Donating money and other items of value to charities is deductible. It’s also worth taking a look at gas mileage and other expenses related to a volunteer activity to see possible deductions.
• Higher Education: The IRS limits taxpayers to one tax deduction per return. Eligibility for higher education tax deductions depends on your income and filing status.
Late deduction statements
Depending on how elaborate your financial situation is, you may receive some forms after the April filing deadline. However, if you plan ahead and file an extension, the wait will be a bit easier. I have listed some of the forms that are known to be guilty of being late.
• Form 5498 (IRA contribution form)
• Form 5498-ESA (Contributions to Coverdell, formerly known as Education IRA)
• Schedule K-1 (if you have received compensation from an estate, trust, partnership, or S corporation)
These are just a few guidelines to help answer questions related to filing your 2012 income tax return. Consult with your enrolled agent or CPA for a more seamless and personalized tax filing experience.