Filed Your 2012 Taxes? These Tips Will Help You Prepare Now For a Better Return in 2013

By NPMGAdmin

by Rebecca Chandler

Filed your 2012 taxes?  The April 15 deadline is looming, so now’s the time.  However, now is also the time to plan for 2013 while 2012 is fresh in mind.  Some tips below from TurboTax such as home office deductions and avoiding penalties by making estimated payments are especially meaningful to real estate agents.
Here’s a overview of the strategies TurboTax recommends to help  lower your taxes,  save time and money when preparing, avoid costly penalties and interest, and potentially,  and keep  more money in your pocket.
  1. Contribute to retirement accounts. If you haven’t already funded your retirement account for 2012, do so by April 15, 2013. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA. However, if you have a Keogh or SEP and you get a filing extension to October 15, 2013, you can wait until then to put 2012 contributions into those accounts. To start tax-free compounding ASAP,  your should make those contributions now.
  2. Make a last-minute estimated tax payment. If you didn’t pay enough to the IRS during the year, you may have a big tax bill staring you in the face. Plus, you might owe significant interest and penalties, too. Why? Your withholding on your paycheck may be the culprit or maybe you  received a big gain from selling stock. According to the IRS, you must pay 100 percent of last year’s tax liability or 90 percent of this year’s tax to prevent owing an underpayment penalty. If your adjusted gross income for 2011 was over $150,000, you must pay more than 110 percent of your 2011 tax liability to avoid a 2012 underpayment penalty. In other words, if  your tax payments were  light, you may owe. However, if you had made an estimated payment by January 15,  you would have erased any penalty for the fourth quarter, but you would still owe a penalty for earlier quarters if you estimated payments were not made then.  If your income windfall came after August 31, 2012,  you can file Form 2210: Underpayment of Estimated Tax to annualize your estimated tax liability, and possibly reduce any extra charges. A note of : Try not to pay too much. It’s better to owe the government a little rather than to expect a refund. Remember, the IRS doesn’t give you a dime of interest when it borrows your money.
  3. Organize your records. For many, getting all of the documentation together is a pain. TurboTax recommends using a personal finance software application throughout the year to have easy access at the end.  Other tips include creating a checklist of the documents you used this year to have on hand for next year.  Keep up with details such as the price you paid for stocks or funds you sold and income from rental properties.  Also, when in doubt, hang on to any tax-related document, just in case.
  4. Find the right forms. View and download a large catalog of forms and publications at the Internal Revenue Service Web site or have them sent to you by mail. You can search for documents as far back as 1980 by number or by date.  The IRS may also refer you to a site which lists state government sites for  state forms and publications.
  5. Itemize. You may save a bundle if you itemize, especially self-employed real estate professionals.  It will be worth it if  your qualified expenses are more than 2012 standard $5,950 deduction of  for singles and $11,900 for married couples filing jointly. Deductions such as mortgage interest and charitable donations may seem obvious, but don’t overlook expenses such as tax-preparation fees, business car expenses and professional dues which are deductible if the combined amount adds up to more than two percent of your adjusted gross income. You can also deduct the portion of medical expenses that exceed 7.5 percent of your adjusted gross income.
  6. Don’t shy away from a home office deduction. Loosened eligibility rules for claiming a home office make this a deduction deserve a close look.  If you have no fixed business location, you can claim a home office space used for administrative or management activities, even if you don’t meet clients there.  As always, you must use the space exclusively for business.You are also entitled to write off expenses associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance and housekeeping). The percentage that is deductible is based on the ratio of  square footage of the office to the total area of the house. HOT TIP for home sellers –  In the past, if you used 10 percent of your home for a home office, for example, 10 percent of the profit when you sold did not qualify as tax-free under the rules that let homeowners treat up to $250,000 of profit as tax-free income ($500,000 for married couples filing joint returns). Since 10 percent of the house was an office instead of a home, the IRS said, 10 percent of the profit wasn’t tax-free. But the government has had a change of heart. No longer does a home office put the kibosh on tax-free profit. You do, however, have to pay tax on any profit that results from depreciation claimed for the office after May 6, 1997. It’s taxed at a maximum rate of 25 percent. (Depreciation produces taxable profit because it reduces your tax basis in the home; the lower your basis, the higher your profit.)
  7. Provide dependent taxpayer IDs on your return. Be sure to plug in Taxpayer Identification Numbers (usually Social Security Numbers) for your children and other dependents on your return. Otherwise, the IRS will deny the personal exemption of $3,700 for each dependent and the $1,000 child tax credit for each child under age 17. Be especially careful if you are divorced. Only one of you can claim your children as dependents, and the IRS has been checking closely lately to make sure spouses aren’t both using their children as a deduction. If you forget to include a Social Security number for a child, or if you and your ex-spouse both claim the same child, it’s highly likely that the processing of your return (and any refund you’re expecting) will come to a screeching halt while the IRS contacts you to straighten things out. The $1,000 child tax credit begins to phase out at $110,000 for married couples filing jointly and at $75,000 for heads of households. After you have a baby in 2013, be sure to file for your child’s Social Security card right away so you have the number ready at tax time. Many hospitals will do this automatically for you. If you don’t have the number you need by the tax filing deadline, the IRS says you should file for an extension rather than sending in a return without a required Social Security number.
  8. File and pay on time. If you can’t finish your return on time, make sure you file Form 4868 by April 15, 2013 for a  six-month extension of the  deadline to  October 15, 2013. On the form,  make a reasonable estimate of your  liability for 2012 and pay any balance due. Requesting an extension is especially important if you owe  the IRS. If you file and pay late, the IRS can assess a late-filing penalty of 4.5 percent per month of the tax owed and a late-payment penalty of 0.5 percent a month of the tax due. The maximum late filing penalty is 22.5 percent and the late-payment penalty tops out at 25 percent. By filing Form 4868, you stop the clock running on the costly late-filing penalty.
  9. File electronically. Because the IRS processes electronic returns faster than paper ones, you can expect  your refund three to six weeks earlier. If  your refund is deposited directly into your bank account or IRA, the waiting time is even less. The IRS also checks your electronic return to see that it is complete,  increasing your chances of filing an accurate return. Less than one percent of electronic returns have errors, compared with 20 percent of paper returns. The IRS also acknowledges that it received your return, which you don’t  get even if you send your paper return by certified mail. That helps you protect yourself from the interest and penalties that accrue if your paper return gets lost. If you owe money, you can file electronically and then wait until the federal tax filing deadline to send in a check along with Form 1040-V. You may be able to pay with a credit card or through a direct debit. With a credit card, expect to pay a service charge of as much as 2.5 percent. With direct debit, you may delay the debiting of your bank account until the actual filing deadline. Federal e-filing is included at no additional charge with all TurboTax federal products.
  10. Decide if you need help. Products like TurboTax Online  handle even complex returns and allow you to file taxes electronically for a faster refund. The questions are simple, such as whether you’ve had a baby, bought a home or had some other life-changing event in the past year. TurboTax will then fill out all the right forms for you. They also offer additional services such as the ability to ask a tax expert a question or review your return. They also offer  ”Audit Defense” coverage so you are professionally represented in an audit.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on your taxes, your investments, the law or any other business and professional matters that affect you and/or your business.

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