Timely tips offer help at taxing time of year
The deadline for filing your 2012 income tax return fast approaches, and you’re beginning to feel overwhelmed with the pile of documents and receipts sitting on the dining room table. You start to wonder if you’ll even meet the April 15 deadline.
The good news is you’re not alone. According to the IRS, between 25 percent and 30 percent of taxpayers wait until the last two weeks before the deadline to file returns or extensions.
Here, then, are some last-minute tips that hopefully will make your tax preparation experience at least a little more bearable:
Make a contribution to your Individual Retirement Account (IRA). An IRA contribution can be made until April 15 and still qualify as a deduction on your 2012 income tax return. Making an contribution in this manner is one of only a very few strategies to get a tax deduction from a transaction occurring after the end of the year. The contribution limit for 2012 is $5,000 — $6,000 if you’re over the age of 50. To qualify for a deduction, you must have earned income from such sources as wages or profits from a business. If you’re self-employed, you could be able to sock away even more by making a contribution to a Simplified Employee Pension Plan (SEP). Check with a trusted tax professional to determine what option makes the most sense.
Don’t forget about some often-overlooked deductions. Job hunting expenses, for example, can be deducted as a miscellaneous itemized deduction. There are various limitations with miscellaneous itemized deductions, so make sure your job-hunting expenses qualify.
Points paid from refinancing a mortgage can be written off over the life of the new loan. Mortgage rates remain at historically low levels and many people have taken advantage by refinancing their mortgages. Since refinance points must be written off over the life of the loan, this usually isn’t a very large deduction. But every little bit helps. Also, taxpayers refinancing for a second, third or fourth time are able to deduct the remaining points not yet deducted from previous refinancing.
Parents with children in daycare or other forms of child care could be able to claim a credit on their taxes. The credit can range from 20 percent to 35 percent of the cost of the child care. As always, there are tricky rules to work through to qualify for the credit. But this tax benefit could prove valuable to many parents.
Determine how to file your return. Filing electronically is the most popular method and the one preferred by the IRS. Electing to directly deposit your refund could produce a refund in your bank account within eight to 10 days, versus four weeks or more when filing a paper return and electing to receive a check through the mail.
Track your refund with the IRS “Where’s My Refund?” tool at www.IRS.gov. Starting this year, the tool will give you an actual personalized refund date after the IRS processes your return and approves the refund. Initial information is generally available within 24 hours after the IRS receives an electronically filed return or four weeks after mailing a paper return. The system is updated every 24 hours, so there’s no need to check more than once a day. To use the refund tracker, taxpayers need a copy of their tax return for reference. You’ll need your Social Security number, filing status and the amount of the refund you’re expecting.
What if I owe with my tax return? Paying with an old-fashioned check is always an option, even if you’re filing the return electronically. Just remember to use the correct voucher when mailing in the check. You may pay electronically by having the government withdraw funds out of your bank account through an ACH transaction. You also could pay with a credit card. Before you start counting up the possible points or airline miles on your charge card, though, know that the processing company will charge a “convenience fee” of between 1.5 percent and 2.5 percent of the amount of the transaction. Also check with your credit card company to determine if any additional fees that could be charged.
File an extension. Okay, you’ve decided this is just too stressful to deal with right now. Filing an extension by April 15 will give you another six months to complete and file your return. Remember, though, that an extension of time to file doesn’t constitute an extension of time to pay. You must make a good faith estimate of the amount of any tax due with the return. If you estimate an amount due, it must be paid with the extension to avoid penalties and interest.
Hire an experienced tax professional. The cost of hiring a trusted professional can pay off in increased accuracy, tax savings from proactive advice and peace of mind.