Experiencing Tax-Induced Anxiety?
In my line of business, January is the time of year when the phones start ringing off the hook with concerned callers asking “What can I deduct this year on my tax return?” or “Is the new tax legislation going to affect my taxes this year?” or “My deduction statements haven’t come in in addition, what do I do?”
These questions get answered in each year’s mission to educate people about what they need to know regarding taxes – and this year is no different. Filing the 2012 income tax return has produced a tax-induced anxiety for some people due to the continuous political discussions about the “Fiscal Cliff” and our economic situation.
However, there is no need to panic. Planning is one of the best remedies for ensuring a smooth tax filing experience. To help you with that, this article provides information to be used as a guide throughout the 2013 tax season.
Your tax return may be bigger than you think.
The American Taxpayer Relief Act of 2012 stems from the new legislation Obama signed into law in January offering “extender” provisions that extend several tax cuts that were set to expire in 2011 to December 2012 (meaning you get to keep more of the money you’ve work so hard for.)
Tax deductions 101
About two thirds of taxpayers choose to use the standard deduction method versus itemizing. Although itemizing may be more work up front, if you own a home, have a child/children, donated large portions to charity, etc., you could be forfeiting 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 obtainable if you choose to itemize. Visiting the IRS website at http://www.irs.gov or speaking to a licensed tax specialized such as an Enrolled Agent or CPA will provide you with the in-thoroughness knowledge you’re looking for to file your return. In the meantime, I’ve provided a few general examples.
• Medical Expenses – Does your total medical expenses equal more than 7.5% (this number is rising to 10% in 2013) of your modificated gross income? If so, then this qualifies as a valid deduction.
• Business-Related Expenses – Job search expenses i.e. travel interviews, printing resumes, and job relocation of at the minimum 50 miles away are all deductible. Are you self-employed? If so, you may also be able to deduct expenses related to dedicating a home office and other business purchases.
• Mortgage Expenses – Points that are paid on your home mortgage may be deductible. already mortgage refinancing expenses may be deducted.
• Charitable Donations – Giving money and other items of value to charity is deductible. Gas mileage and other expenses related to a volunteer activity are also worth taking a look at for possible deductions.
• Higher Education – The IRS limits taxpayers to one tax deduction per filing. Eligibility for higher education tax deductions depends on your income and filing position.
Late Deduction Statements
Depending on how elaborate your financial situation is, you may receive a few forms after the April Filing deadline. However, if you plan ahead and file an extension, it will make waiting a little easier. I’ve listed a few of the forms that are known culprits for arriving late.
• Form 5498 (IRA contributions form)
• Form 5498-ESA (contributions to Coverdell- formerly known as Education IRAs)
• Schedule K-1 (if you’ve received compensation from an estate, trust, partnership, or S corporation)
These are just a few guidelines to help sort out questions related to filing your 2012 income tax return. Check with your Enrolled Agent or CPA for a more smooth and personalized tax filing experience.