With the tax-filing deadline looming, here are ten tips to help make this year’s filing a breeze.
1. Lost your job? Could be good news! You might quality for the Earned Income Tax Credit. And since unemployment benefits do not count towards eligibility, only take your regular wages into account. For a single, childless taxpayer, you need to make less than $13,980, with two children you qualify with less than $41,952.
2. Report it all! If you did receive unemployment benefits, including disability payments or assistance that falls under the Disaster Relief and Emergency Assistance Act, you should have a Form 1099-G to report your income.
3. Last call for the American Opportunity. The American Opportunity Tax Credit, which was introduced in the 2009 stimulus bill, was extended through 2012. This means a credit of up to $2,500 of the cost of eligible education expenses, and up to $1,000 of this credit could come back to a taxpayer as a refund.
4. Pay attention to form 1099-K. This new form records payments received through third party networks like credit card companies or PayPal. The form was introduced for 2011 over concerns that small businesses were not reporting all of their income. Now that the IRS has access to credit card or online payments, this form ensures that parties keep it honest.
5. Gift fiving is good. In 2011 the estate tax was resurrected and the unified gift tax as well. This means that you can give away $5 million in your lifetime without suffering the 35% gift tax. Also, giving to charities can help to reduce your annual tax bill.
6. Only hire a pro. If you hire someone to prepare your taxes, ask him or her about their IRS registration status and verify it is in good standing. Tax return preparers must fine their PTIN (Preparer Tax Identification Number) with each submission, and over time the IRS has made tax preparers more accountable to the numbers and their filings. It has been proposed that they will need to prepare proposals with their fingerprints, and as of this year, pass competency exams.
7. Accelerate income. The top income tax bracket in 2012 is 35% of annual taxable income. This could jump to 39.6% in 2013, so if you are in the top tax bracket, you may wish to opt to accelerate income into 2012 and pay taxes at a lower rate.
8. Don’t overpay tax prep. There are sites that help you compare the benefits of using Turbotax vs. H&R Block to do your taxes.
9. Choose the right form. The 1040EZ offers only the Earned Income Tax Credit, while the longer 1040 offers education and other credits.
10. Always file an extension. If you simply can’t complete and fine on time, file for that extension to avoid penalties and interest.