Don't Mess With Taxes

Welcome to month three of tax season 2013. If you've yet to send the Internal Revenue Service your tax return, it's probably because your owe Uncle Sam, the paperwork is a bit more complicated or both.

Then you've come to the right place.

These March 2013 Daily Tax Tips tend to deal with more specific tax issues. One or more of them should be just what you need to get your 1040 filled out properly and with the lowest possible tax bill.

As with the January and February tax tips, this month's page will list all 31 of March's tax tidbits. That's one each day, Monday through Sunday, holidays included.

Many of the tips posted throughout filing season are part of Bankrate's annual tax guide. Others are original Don't Mess With Taxes advice.

And if you've already finished your annual tax filing task, stick around, too. You'll also find some 2013 tax planning moves that could help make this year's tax bill lower.

The Daily Tax Tips will continue through April 15, featured in the upper right corner of the ol' blog.

But if you miss them there, catch up here and at 2013's other monthly tax tip compilation pages.

Here's what's happening in the Daily Tax Tips for March 2013.

1. Capital losses can help cut your tax bill -- The stock market has generally been doing pretty good of late. But all investors know that portfolio prices can change on a dime, sometimes for the worse. When you do end up taking a loss on the sale of a stock or other long-term investment asset, it still could pay off at tax time. You can use a capital loss to help erase any taxable capital gains. If you don't have any gains, use up to $3,000 of your losses to reduce your ordinary income amount. And if you have more than $3,000 in losses, fire your financial adviser and then carry the excess forward to a future tax year. (March 1, 2013)
2. Homeowner hazard insurance is not tax deductible -- If you're a homeowner, you know that sometimes bad things happen to good houses. In these cases, all those premiums you paid for hazard insurance comes in handy. But unfortunately, unlike myriad other home-related expenses, you can't deduct your homeowners' insurance coverage. But here's hoping that all of your home's other tax write-offs allowed you to save enough cash so you can handle your homeowners' policy payments on your own without too much trouble.(March 2, 2013)
3. Don't overlook your 401(k) -- If you're trying to save for your retirement, be sure you take advantage of your workplace 401(k) plan. This retirement plan, called a 403(b) for public school or nonprofit employees or a 537 for state and municipal government workers, allows you to contribute a percent of your paycheck each pay period to the account. Your contributions are made before you ever see your paycheck. And because the contribution is made before taxes are calculated, your tax bill is a bit smaller. Plus, in many cases employers match at least a portion of employee contributions. Some companies also offer Roth 401(k) plans. As with Roth IRAs, these workplace accounts take your contributions after your withholding taxes are calculated. But when you withdraw from your Roth 401(k) in retirement, you'll owe no taxes. And thanks to the American Taxpayer Relief Act (fiscal cliff bill), owners of traditional 401(k)s can now convert them any time they wish to a Roth 401(k). (March 3, 2013)
4. Tax advantages of converting your hobby to a business -- Your hobby has started to produce a decent amount of income. It might be time to turn your hobby into a real business. Once you make that conversion, you'll be able to deduct expenses directly from your hobby-turned-business. Be sure, however, that you follow the tax rules when it comes to running a business. The Internal Revenue Service wants to make sure you're serious about running a business. That means you need to make money. If you're just using your new enterprise as a way to write off your former hobby's expenses, the IRS could disallow your deductions. So keeping good records, note your time commitment to the business and how much its earnings contribute to your livelihood. The IRS also will take into account your background and knowledge in the business area. If Uncle Sam believes you're making a good-faith effort, then your new business could help you save some cash. (March 4, 2013)
5. Education tax credits help cover school costs -- The cost of education get higher every year. But a couple of tax credits, which cut your tax bill dollar for dollar, can help cover those costs. The American Opportunity credit is worth up to $2,500 per student for four academic years. Even better, up to $1,000 of the credit is refundable to lower income taxpayers. Then there's the Lifetime Learning credit, which can help pay for other education expenses, such as coursework you take to improve your job skills. The Lifetime Learning credit can shave up to $2,000 off your tax bill. Study up on your schooling situation and compare the education tax credits to see which works best for you. Your homework could pay off with an A+ tax saving return. (March 5, 2013)
6. Let Uncle Sam help pay some child care costs -- Parents who work have an added job: finding child care for their kids. The tax code can help here. No, the Internal Revenue Service won't send over a babysitter until you get home from the office. But the child and dependent care tax credit can help cover some of the costs of child care. It won't cover every cent you spend on child care. Only the first $3,000 for one child's care or $6,000 for the combined care of two or more kids counts. And then just a percentage based on your earnings can be used to figure your actual tax credit. But every little bit helps. But it does cover the after-school program you pay for most of the year, as well as the costs of summer day camp. And if you don't have kids, the credit still might be valuable. It also applies to the care of other, older dependents that need attention while you're at work. (March 6, 2013)
7. Deducting private mortgage insurance -- Home buyers who can't come up with a down payment of at least 20 percent of their new residence's purchase price usually must buy private mortgage insurance policy. Known as PMI, this is coverage that you, the home buyer, pays for, but it protects your lender in case you default on your loan. In most cases, it's just one of the costs of becoming a property owner. But some PMI payers can at least use those insurance payments as a home-related tax deduction when they file their returns. This tax deduction first appeared on 2007 tax returns, but has been extended through 2013. If you meet the eligibility requirements, which include limits on your income, you can claim the policy premium amounts paid for the tax year in the "Interest You Paid" section of your Schedule A. So check the annual tax statement your lender sent you and check out the PMI deduction. It could save you some tax dollars. (March 7, 2013)
8. 5 terrible tax surprises -- The tax law is complex and difficult for even experts to negotiate. Just when you think you've followed all the rules and researched all the angles, a tax regulation blindsides you. Here are five terrible tax surprises that you might encounter during tax season: (1) taxable unemployment benefits, (2) alimony payments received, (3) forgiven debt and taxes, (4) prize winning tax costs and (5) the taxability of some Social Security benefits. Now that you know what to look out for, check out the full tip to find out how to deal with the consequences. (March 8, 2013)
9. Deducting business travel expenses -- When your business takes you out of town, hang onto all your receipts. The expenses they document might be deductible. This includes registration fees for conferences, airfare or other transportation costs and lodging. Items you pick up at the event, such as a work-related book or new business software that debuted at the conference, also cold count as tax deductions. So do a portion (one-half) of meal and entertainment costs. Just be sure to keep good records of your business trip expenses. (March 9, 2013)
10. Tax-free short-term home rental income -- Yes, careful readers of the ol' blog, this is the second time this topic has been a daily tax tip this year. But in my defense, this weekend kicked off a big Austin event, the annual South by Southwest interactive, film and music festival. And since the Texas state capital is woefully short of hotel rooms, short-term residential rentals are crucial. Visitors get a place to stay. Homeowners, as I noted back in January, get tax-free rental income. The tax code exempts the income as long as you don't have renters for more than 14 days a year. But beware state and local rental rules. Many require homeowners to obtain permits. (March 10, 2013)
11. Making the most of miscellaneous deductions -- If you're like me, you have a miscellaneous file, either a paper one or a computer version. Here you stick in all the info on myriad things that might one day be useful. The Internal Revenue Service has the same sort of thing on Schedule A. It's that itemized deductions form's section titled "Job Expenses and Certain Miscellaneous Deductions," covering lines 21 through 27. The first item, unreimubursed employee expenses, on line 21 is self-explanatory. But double check all the items that count in this category; it's quite a variety that you'll find IRS Publication 529. Line 22, tax preparation fees, also is clear. I'll just note that this includes not only your accountant's bills, but tax software so you can do your returns yourself also counts here. Other tax deduction miscellany goes on line 23. Many of these are investment related. When all are totaled, they must exceed 2 percent of your adjusted gross income (AGI). That's not always an easy hurdle to clear, but if you make sure you claim all allowable miscellaneous expenses, you might just clear it. (March 11, 2013)
12. Deducting unreimbursed employee expenses -- Sometimes you give extra to your job, literally. But when you pay some work-related costs and aren't reimbursed, you may be able to turn your professional dedication into a tax break. You can claim them as miscellaneous itemized deductions on Schedule A. There's just one problem. These deductions can't be counted unless they exceed 2 percent of your adjusted gross income (AGI). To get over that deduction threshold, be sure to count such things as dues to professional societies and unions, coursed to improve your work skills, job hunt expenses, licenses and regulatory fees and work clothes and uniforms, as well as their upkeep costs. A full list of what can (and can't) be claimed as a miscellaneous deduction is in IRS Publication 529. And remember the name of this deduction; it's for unreimbursed expenses. So be sure to submit the costs to your boss first. When she says "no," then you can claim your out-of-pocket work expenses. (March 12, 2013)
13. Key alternative minimum tax (AMT) changes -- Forty-four years ago, Congress enacted a measure designed to ensure that the wealthy paid at least some tax. But over the years, the Alternative Minimum Tax, or AMT, came to affect more middle-class taxpayers because it was not indexed for inflation. Lawmakers had to OK changes every year, increasing the amount of income exempted from AMT consideration in order to protect those for whom the AMT is not really intended. There will be no more of that. But don't worry. There still are AMT protections for middle-income filers. For 2012 taxes, it's $50,600 for single filers and $78,750 for married taxpayers. But thanks to the American Taxpayer Relief Act of 2012, the parallel tax exemption amounts are indexed for inflation. That should keep more people from having to deal with the AMT. Even better, we no longer have to wait on Congress to make the changes each year. To see if you are subject to the AMT and it's separate tax rates of 26 percent and 28 percent, check out the Internal Revenue Service's online AMT Assistant. (March 13, 2013)
14. 6 tax terrors and how to overcome them -- Admit it. You're afraid of your Form 1040 or any other tax forms. That's OK. A lot of us are. And our tax fears, sometimes irrational, sometimes warranted, cause us to do a lot of dumb things when it comes to our annual returns. But you don't have to be held hostage to your tax fears, both the irrational ones or those that are completely justified. There are practical ways to overcome your fears and make sure you get your taxes completed on time and at the lowest possible cost to you. (March 14, 2013)
15. W-2 forms now detail health care costs -- If you get health care coverage through your job, check out box 12b on your 2012 W-2. There you'll find out just how much you and your employer spent on your health insurance premiums last year. This figure is a new reporting requirement of the Affordable Care Act, popularly known as Obamacare. The idea behind this provision is that when we know what we're spending on medical coverage -- or most of it; things like added vision or dental coverage and what you put in your flexible spending account (FSA) aren't included in this total -- we'll shop for more economical coverage that meets our health care needs. Depending on your coverage, the options you chose or even where you live, the amount on your annual earnings statement could be quite large. But don't panic if you see a surprising total on your W-2. The money shown in box 12b, and designated by the description code DD, is not taxable income. (March 15, 2013)
16. File! It's the only way to get a refund -- Most of the time, the directive to file a federal tax return applies to those of us who end up owing taxes. As is made painfully clear to millions each year, if you must file and don't, you'll end up in a worse situation. You'll owe taxes along with interest and penalties. But it could be worth your while to file a tax return even when you technically don't have to do. It's the only way you can get a refund of any tax overpayment you've made. So be sure to file. If you don't and later realized you were due a refund, you only have three years from the returns original filing deadline to claim your money. (March 16, 2013)
17. 4 tax tips for independent contractors -- When you work for yourself, in addition to keeping your business on track, you also need to stay on top of your business' taxes. Here are four tips that can help. (1) Report all your income, even if you don't get a 1099-MISC. (2) Pay estimated taxes, including self-employment (SE) taxes. (3) Keep your receipts. Your documentation could help if you're ever audited. (4) Choose between Schedule C or C-EZ. You might be able to file the easier sole proprietor tax return. (March 17, 2013)
18. Earned income tax credit could pay off -- If you didn't make much money, you might be able to claim the Earned Income Tax Credit (EITC). This tax credit, created in 1975, offers lower-paid workers a way to offset the Social Security taxes that take a relatively big bite out of their smaller paychecks. For the 2012 tax year, the EITC could mean an extra $475 for eligible taxpayers with no kids; $3,169 for those with one qualifying child; $5,236 for filers who have two qualifying children; and $5,891 for folks with three or more qualifying children. You qualify for the 2012 EITC if you are a child-free single filer making $13,980 ($19,190 for married joint filers with no kids); $36,920 ($42,130 if you're married and file jointly) with one qualifying child; $41,952 ($47,162 if you're married and file jointly) with two qualifying children; and $45,060 ($50,270 if married filing jointly) in households with three or more qualifying children. (March  18, 2013)
19. 13+ ways to cut your taxes without itemizing -- Most taxpayers claim the standard deduction instead of itemizing. But that doesn't mean that these filers are shortchanged when it comes to tax write offs. Form 1040 contains a variety of adjustments to income, also known as above-the-line deductions because they appear just before the last line, where your adjusted gross income goes, on the long tax return's first page. There are 13 specific lines where you can deduct, or adjust your income downward. They include such popular tax breaks as moving expenses, traditional IRA deductions, student loan interest and alimony payments. Four also are found above-the-line on Form 1040A: educator expenses, IRA contributions, student loan interest and tuition and fees. So if you don't itemize, check these out. And if you do itemize, check them out, too. They're available to all taxpayers regardless of which tax deduction method you use. (March 19, 2013)
20. Tuition and fees deduction -- Anyone paying higher education expenses might want to study his or her tax return. The 1040 and 1040A contain a valuable lesson on how to write off up to $4,000 of college costs without having to itemize. It's the tuition and fees above-the-line tax deduction. As the write-off's name indicates, only payments for tuition and fees count. The deduction is reduced or eliminated if your modified adjusted gross income exceeds certain limits that depend on your filing status. And you can't claim the deduction if you're also claiming the American Opportunity credit or Lifetime Learning credit for the same student. But if you meet the eligibility requirements, the tuition and fees deduction is an easy way to trim your tax bill and pay some higher education costs. (March 20, 2013)
21. Educators can deduct some expenses -- Teaching takes a toll on many educators' pocketbooks as they routinely buy supplies for their financially strapped schools. But at least through the 2013 tax year their academic dedication is rewarded by an above-the-line tax deduction. Teachers and other educators can deduct up to $250 they spent to buy classroom supplies directly on their 1040 or 1040A, meaning there's no need to itemize to get the break. Rather, it's an adjustment to your income, helping cut your tax bill by reducing your overall income. The less income to tax, the lower the tax bill. Couples who share teaching careers and file a joint return could get a double tax break. But, and it's a bit but, each spouse is still limited to $250 of qualified expenses. That means if a principal spent $350 on school supplies and her fifth-grade teacher husband spent $150 on his classroom, they can only deduct $400 -- $250 for the wife plus $150 for the husband -- on their return, even though their combined education expenses were $500. And sorry home schoolers, you're not eligible for this deduction. (March 21, 2013)
22. Deducting student loan interest -- With college costs seeming to increase each semester, it's no surprise that many students take out loans to continue their educations. Now, thanks to an above-the-line tax deduction, that loan could help reduce your tax bill. The student loan t can even pay off for you at tax time if you took out a loan to further your schooling. You might be able to deduct up to $2,500 of the interest you paid on a student loan last year. Of course, there are requirements. The loan must be to pay for higher education classes for you, your spouse or a dependent. The eligible student must be enrolled at least half-time in a program that leads to a degree, certificate or other educational credential. And the school must be an IRS-approved educational institution. There also are income limits. As for how much you can claim, your Form 1098-E or acceptable substitute form will tell precisely how much interest you paid last tax year. If it's more than $2,500 that excess isn't deductible. If it's less, you can only claim the actual amount of student loan interest you paid. But every bit of a tax break helps. (March 22, 2013)
23. Gambling winnings are taxable income (redux) -- It's a big weekend. NCAA March Madness, the second heaviest betting time in the U.S. behind the Super Bowl, is heating up and the latest Powerball lottery jackpot is $320 million. That means that bettors are running amok. Most will lose, but for those few who do pocket a few extra bucks, the Internal Revenue Service thanks you. That's right. Gambling winnings, be they amounts large or small, are taxable income. The good news is that you can use your gambling losses to offset your winnings. (March 23, 2013)
    
24. Converting a 401(k) to a Roth 401(k) is now easier -- Thanks to the American Taxpayer Relief Act 2012 (ATRA) it is even easier for more workplace retirement account owners to take advantage of Roth 401(k)s. Previously, you could only convert a traditional 401(k), where taxes are deferred until you take distributions in retirement, to a Roth 401(k), which offers tax-free retirement withdrawals, under specific circumstances. But now thanks to ATRA, you can convert your traditional 401(k) to a Roth 401(k) whenever you want. Remember, however, that when you convert a traditional workplace account to a Roth 401(k), you must pay tax on the retirement plan's conversion amount. (March 24, 2013)
25. IRA distribution deadline for some seniors is April 1 -- Earnings in traditional IRAs grow tax-deferred, but not forever. Tax law demands that you start taking out some of your traditional IRA money when you turn 70½. The withdrawals are known as required minimum distributions, or RMDs. And for some who've hit that half-year birthday, April 1 is a crucial date. Although RMDs are triggered once you turn 70½, you get a bit more time to make that first required withdrawal. You have until April 1 of the year that follows the calendar year of your 70½ birthday, which is six calendar months after your 70th birthday. If you push your first RMD into the next year, that means in that calendar year you'll have to take two RMDs, the initial one by April 1 and then that year's RMD by Dec. 31. The IRS has created a Uniform Lifetime Table that most senior citizens use to determine their RMD amounts. And remember that RMDs apply to more than just traditional IRAs. In figuring your required withdrawals you also must take into account money you have in other tax-deferred retirement accounts, such as a workplace 401(k) or self-employed retirement plans. (March 25, 2013)
26. Finalizing your 2010 Roth taxes -- 2010 was a great year for retirement savers. That was when the income limit restricting who could convert a traditional IRA to a Roth retirement plan was eliminated. It also was the year when folks who converted a traditional IRA to a Roth IRA were able to put off paying the tax due on the conversion. Those who opted to delay their tax bill on previously untaxed income rolled into a Roth were able to spread the payments out, in equal amounts, over the 2011 and 2012 tax years. One-half of the tax was paid with their 2011 tax filing last year. Now the other half is due with their 2012 tax returns. (March 26, 2013)
27. Education tax breaks overview -- College costs are continuing to rise, so it's not too early to start looking at ways to pay for your or your children's higher education expenses. The good news is that you have several tax-advantaged ways to come up with college cash, thanks to Uncle Sam's generous tax breaks. They include 529 plans, where money invested grows tax-free; Coverdell education savings accounts, where you can use some of the funds for pre-college costs; the American Opportunity and Lifetime Learning education tax credits; the tuition and fees above-the-line deduction that could be worth $4,000; the deduction for up to $2,500 in student loan interest; and U.S. savings bonds whose interest is tax-free if used for college expenses. (March 27, 2013)
28. Adoption tax credit helps growing families -- Raising kids is expensive. And if you're trying to adopt, it can cost you even more. But there is tax help available. Parents can claim a tax credit that covers some adoption expenses. For 2012 tax returns, the federal adoption tax credit is worth up to $12,650. For the 2013 tax year, the maximum nonrefundable adoption tax credit goes up to $12,970. That amount can go toward "reasonable and necessary" adoption fees, such as court costs, attorney fees and traveling expenses, including amounts spent for meals and lodging while away from home. To claim the adoption tax credit, you must adopt or try to adopt an eligible child. That, according to the IRS, is a child younger than age 18. It also can be an older individual who is physically or mentally incapable of caring for him or herself. (March 28, 2013)
    
29. Maximizing your medical deductions -- Medical costs seem to increase every year. There is a way to get Uncle Sam to foot some of the doctor bills, but you need to make sure you know and follow the rules. First you must itemize. Then you must have enough medical/dental costs. On your 2012 tax return, that's more than 7.5 percent of your adjusted gross income. For the 2013 tax year, your medical expenses must exceed 10 percent of your AGI. To help you get over the deduction percentage hurdle, you need to get creative, within Internal Revenue Service rules. You can deduct such things as miles traveled to medical treatments, alcohol- or drug-abuse treatments, laser vision corrective surgery, weight-loss program expenses under certain circumstances and even some medical conference costs. Some home remodeling to meet doctor-ordered needs also might be just the prescription for a tax break. Just make sure you know and follow the rules. You'll find a complete list of what the IRS will and won't allow you to count toward your medical deductions in Publication 502. (March 29, 2013)
30. 7 rental income and expenses tax tips -- Some folks swear by the money-making power of rental real estate. But you must be attentive, not only to the properties, but also the tax implications of rental income and expenses. On the income side, pay attention to advance rent payments, property or services you receive in lieu of cash rent and security deposits. As for expenses, note the ones paid by your tenants; this counts as income to you. Other expenses you pay, however, can be deducted from our gross rental income. And there are special tax rules when you rent a second home that you also use as a personal vacation home. You can find more on rental property in IRS Publication 527. (March 30, 2013)
31. Put your money into different tax baskets -- Diversity adds spice to life and different tax treatments for your money. That's why you should take advantage of tax-deferred, tax-free and taxable accounts. Each offers advantages for different times of your life and/or your personal financial situations. Tax-deferred accounts, such as workplace 401(k) retirement plans and flexible saving accounts (FSAs) let you contribute money pretax for immediate savings. Tax-free accounts are ideal. The most popular of this type are Roth IRAs and Roth 401(k)s, but a 529 education savings plan also has tax-free options. As for taxable, these holdings can work for your finances, too, especially if they are long-term assets which will eventually be taxed the lower capital gains rate. (March 31, 2013)
    

Missed a tip or two?
Check out

January 2013's Daily Tax Tips

February 2013's Daily Tax Tips

April 2013's Daily Tax Tips