5 Tips for Early Preparation
1. Gather your records in advance. Make sure you have all the records you need, including W-2s and 1099s. Don't forget to save a copy for your files.
2. Get the right forms. They're available around the clock on IRS.gov in the Forms and Publications section.
3. Take your time. Rushing can cause you to make a mistake and that can be expensive!
4. Double-check your math and Social Security number. These are among the most common errors on tax returns. Taking care on these reduces your chances of hearing from the IRS.
5. Get the fastest refund. When you file early, you get your refund faster. Using e-filing with direct deposit gets you a refund in half the time as paper filing.
Filing an Extension
If you can't meet the April 15 deadline to file your tax return, you can get an automatic six-month extension of time to file from the IRS. The extension will give you extra time to get the paperwork into the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amounts not paid by the April deadline, plus a late payment penalty if you have paid less than 90 percent of your total tax by that date. You must make an accurate estimate of any tax due when you request an extension.
Plug-In Electric Vehicles (PEVs)
The Alternative Motor Vehicle Credit, originally enacted under The Energy Policy Act of 2005, allowed a tax credit for some popular hybrid vehicles. However, this tax credit expired at the end of 2010. Although the former credit for many hybrid vehicles is no longer available for 2012 and future tax years, a tax credit of up to $7,500 is still available for vehicles classified as plug-in electric vehicles, or PEVs.
Credit for the Elderly or Disabled
You may be able to take the Credit for the Elderly or the Disabled if you were age 65 or older at the end of last year, or if you are retired on permanent and total disability, according to the IRS. Like any other tax credit, it's a dollar-for-dollar reduction of your tax bill. The maximum amount of this credit is constantly changing.
Selling Your Home
If you sold your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years.
With more and more United States citizens earning money from foreign sources, the IRS reminds people that they must report all such income on their tax return, unless it is exempt under federal law. U.S. citizens are taxed on their worldwide income.
If you gave any one person gifts valued at more than $13,000, it is necessary to report the total gift to the Internal Revenue Service. You may even have to pay tax on the gift.
Marriage or Divorce
Newlyweds and the recently divorced should make sure that names on their tax returns match those registered with the Social Security Administration (SSA). A mismatch between a name on the tax return and a Social Security number (SSN) could cause your tax return to be rejected by the IRS.
Filing Deadline and Payment Options
If you're trying to beat the tax deadline, there are several options for last-minute help. If you need a form or publication, you can download copies from the Forms page on our website. If you find you need more time to finish your return, you can get a six month extension of time to file using Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. And if you have trouble paying your tax bill, the IRS has several payment options available. The extension will give you extra time to get the paperwork to the IRS, but it does not extend the time you have to pay any tax due.
Refund, Where's My Refund?
Are you expecting a tax refund from the Internal Revenue Service this year? If you file a complete and accurate paper tax return, your refund should be issued in about six to eight weeks from the date IRS receives your return. If you file your return electronically, your refund should be issued in about half the time it would take if you filed a paper return — even faster when you choose direct deposit.
The Tax Advocate Service, Provided by the IRS
Have you tried everything to resolve a tax problem with the IRS but are still experiencing delays? Are you facing what you consider to be an economic burden or hardship due to IRS collection or other actions? If so, you can seek the assistance of the Taxpayer Advocate Service or by calling the IRS directly at (877)-777-4778.
Taxation on Tips
Do you work at a hair salon, barber shop, casino, golf course, hotel, or restaurant or drive a taxicab? The tip income you receive as an employee, by cash or charge, from those services is taxable income, according to the IRS.
Domestic Production Deduction
If your business is engaged in a qualifying production activity you may be able to take a tax deduction for your U.S. based business activities. The deduction is limited to income arising from qualified production activities in whole or in part based in the United States.
Organizational and Start Up Costs
Have you just started a new business? Did you know expenses incurred before a business begins operations are not allowed as current deductions? Generally, these startup costs must be amortized over a period of 180 months beginning in the month in which the business begins. However, based on the current tax provisions, you may elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred. The $5,000 deduction is reduced by any start-up or organizational costs which exceed $50,000. If you want to deduct a larger portion of your startup cost in the first year, a new business will want to begin operations as early as possible and hold off incurring some of those expenses until after business begins.
Deductible Home Offices
You may be able to take a home office deduction if you use a portion of your home exclusively and regularly for business purposes, regardless of whether you are self-employed or not.
You can deduct certain expenses if your home office is the principal place where your trade or business is conducted or where you meet and deal with clients or patients in the course of your business. If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.
Coverdell Savings Accounts
A Coverdell Education Savings Account (ESA) is a savings account created as an incentive to help parents and students save for education expenses.
The total contributions for the beneficiary (who is under age 18, or is a special needs beneficiary) of this account in any year cannot be more than $2,000, no matter how many accounts have been established. The beneficiary will not owe tax on the distributions if, for a year, the distributions from an account are not more than a beneficiary's qualified education expenses at an eligible education institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.
Generally, any individual (including the beneficiary) can contribute to a Coverdell ESA if the individual's modified adjusted gross (MAGI) income is less than an annual, constantly changing maximum. Usually, MAGI for the purpose of determining your maximum contribution limit is the adjusted gross income (AGI) shown on your tax return increased by the following exclusion from your income: foreign earned income of U.S. citizens or residents living abroad, housing costs of U.S. citizens or residents living abroad, and income from sources within Puerto Rico or American Samoa. Contributions to a Coverdell ESA may be made until the due date of the contributor's return, without extensions.
ROTH IRA Contributions
Can you contribute to a Roth IRA? The IRS suggests checking these simple rules:
To contribute to a Roth IRA, you must have compensation (e.g., wages, salary, tips, professional fees, bonuses). Your modified adjusted gross income must be less than:
• $188,000 — Married Filing Jointly
• $10,000 — Married Filing Separately (and you lived with your spouse at any time during the year).
• $127,000 — Single, Head of Household, or Married Filing Separately (and you did not live with your spouse during the year).
Unlike traditional IRAs there is no age limitation for Roth IRA contributors.
In general, if your only IRA is a Roth IRA, the maximum current year contribution limit is the lesser of your taxable compensation or $5,500 ($6,500 for those age 50 or over). The maximum contribution limit phases out if your modified adjusted gross income is within these limits:
• $178,000-$188,000 — Married Filing Jointly or Qualifying widow(er)
• $0-$10,000 — Married Filing Separately (and you lived with your spouse at any time during the year)
• $112,000-$127,000 — Single, Head of Household, or Married Filing Separately (and you did not live with your spouse)
Contributions to Spousal Roth IRA:
You can make contributions to a Roth IRA for your spouse provided you meet the income requirements.
* Note - threshold amounts listed above are for tax year 2013.