High tax season 2012 is over (yay!), but people who pay the smallest tax bills know that tax tasks never end.
Wait! Come back! It's not as bad as is sounds. Smart taxpayers know that they need to stay on top of their taxes year round to make sure they don't overpay the IRS.
You can't simply wait until April and hope that you won't owe Uncle Sam.
The key to paying the fewest possible taxes is setting up strategies and following them. By staying on top of your tax and financial situations, you can make the savvy tax-cutting moves throughout the year.
The 2012 edition of the Weekly Tax Tip is here to help you do just that.
Each Wednesday from now, April 18, until Jan. 2, 2013, you'll find a new tax tip posted atop the ol' blog's right column.
Some tips will help those of you who postponed your 2011 filing until October. Others will suggest strategies to cut your impending 2012 tax bill. And sometimes the tips will offer general tax advice and information.
If you miss a weekly tip or simply want a refresher, bookmark this page and come back at your leisure to check out this running list of tips.
- Disaster tax relief -- Many residents of Iowa, Kansas, Nebraska and Oklahoma didn't mess with filing a tax return on April 17. It's not that they were flouting the law. It's that they had more important things, like trying to put their wrecked lives back together after more than 100 tornadoes whacked those states, some with deadly consequences, over the April 14-15 weekend. The Internal Revenue Service understands. It's used to dealing with the special tax rules afforded victims of major disaster areas. They include extended filing deadlines, some penalty relief and the option to file an amended return for the prior tax year and claim any disaster losses there if that reworked form would produce better tax results. Taxpayers who are awaiting word as to whether they'll get special disaster tax relief should go ahead and file their 2011 returns as soon as they can. To alert the IRS as to why the return is late, they can write on top of the 1040 their state's name, the storm type and the date of the disaster. The IRS will evaluate each storm area filing case by case to see what relief might be appropriate in lieu of an overall disaster area designation. (April 18, 2012)
- Fixing tax mistakes with an amended return -- Nobody's perfect, especially when it comes to taxes. But when you discover a mistake on your 1040, the Internal Revenue Service gives you a second chance. You can file an amended tax return via Form 1040X and straighten out your taxes. You can use 1040X to correct errors on all previously filed tax forms: the 1040, 1040A or 1040EZ. Be sure to enter the year of the return you are amending at the top of Form 1040X. You usually must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later. And if you're amending several years' returns at the same time, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing office. You can find those addresses in the 1040X instructions. Even if your mistake means you owe the IRS more, you should file an amended return. The IRS will eventually catch your error and by the time that happens, penalties and interest could really add up. Finally, you cannot e-file an amended return. You must send in a paper 1040X. (April 25, 2012)
- Dealing with a wrong refund -- Your tax refund finally arrived and it's wrong! Now what? First, figure out why you didn't get as much money -- or in some cases more money -- from the Internal Revenue Service than you expected. Common reasons for different final refund amounts are math errors that the IRS corrects, erroneously claimed credits or deduction or offsets to pay other government obligations such as a federal student loan or state-mandated child support. The IRS usually will send you a letter or notice explaining the discrepancy. Or if you can't wait, you can call the IRS with questions about the different refund amount. In addition to wrong refunds, sometimes taxpayers' refunds go astray. This happens when a filer's name and tax ID number (usually your Social Security number) don't match IRS or Social Security Administration records. In the case of direct deposits, incorrect (or incorrectly entered) bank account routing numbers can mean the refund won't be deposited. So check all your entries to make sure you get the proper refund amount in a timely fashion. (May 2, 2012)
- The tax joys of parenthood -- Most of us kids will be pampering our moms this Sunday as part of the Mother's Day annual ritual. But the Internal Revenue Code also has some presents for (most) moms year-round. A dependent child provides an added exemption that's subtracted from mom's adjusted gross income to get to a lower taxable income amount. And there are a variety of dollar-for-dollar tax reduction options, such as the child tax credit, the child care credit and the adoption tax credit. Even saving for the kiddos' higher education offers some tax advantages. So moms, be sure to enjoy all the treats that are so well-deserved on your special day. And don't forget to take advantage of the Internal Revenue Service's gifts for mothers at tax time. (May 9, 2012)
- Tax record keeping tips -- You finished your taxes. Now it's time to deal with all the material you used to fill out your 1040. Since it's the taxpayer's responsibility to prove that tax claims are allowable, the natural tendency is to hang onto everything forever. Chill. Yes, you do need to keep documentation. Keep income verification docs, such as W-2, K-1 and 1099 forms; expense and deduction records, including receipts, canceled checks and credit card statements; and investment transactions, such as brokerage and mutual fund statements. You'll also need to file away material substantiating residential expenses like closing statements, property tax assessments and payments and home improvement costs. But you also can use the Internal Revenue Service's audit statute of limitations as a guide for just how long you need to hang on to certain tax materials. After three years, the usual time limit for the IRS to examine your individual tax return, you can get rid of most of the supporting documentation. But remember, you'll want to go ahead and keep documents related to your home beyond the tax year; in fact, store those until you sell the house. Similarly, keep forever a copy of each year's tax return that you file. Those 1040s and associated schedules will come in handy not only for subsequent filings, but also when you apply for loans. (May 16, 2012)
- Appealing your property appraisal -- Real estate property tax assessments are hitting mailboxes nationwide. That means that many homeowners are readying their appeals of the valuations of their homes. A home's value is key to your ultimate tax bill. It's calculated by multiplying your your home's appraised value by your taxing jurisdiction's tax rate. An incorrectly high appraisal will mean an excessive property tax bill. So you need to gather the data to show the appeals board the correct value of your home. Make sure you don't miss the deadline for filing a protest of your appraisal. Since it will take some time to collect the data that you'll need to prove your case, you might find it worthwhile to hire a property tax appeal specialist. But pick your tax appeal rep carefully. And when it comes to the actual payment of your real estate taxes, also beware of firms offering to pay the overdue taxes in exchange for a note in the amount of taxes on the house, including loan fees and interest. In most cases, the interest rate is generally higher than market rate and if you miss a payment, a lien could be placed on your home. Instead, consider working with your original lender or tax office to settle your overdue tax bill. (May 23, 2012)
- Tax breaks for combined business, personal travel -- If you're planning a business trip this summer, consider tacking on a few personal days and let Uncle Sam cover some of your costs. The key to getting travel help from the tax code is to make sure that your main reason for hitting the road (or flying or taking the train) is work. That way those legitimate expenses, including transportation and lodging and some meals, can be deducted. Then when you stay a day or two to see the sights, you only have to cover those costs on your own. Remember to carefully track your trip, detailing the separate business and personal expenses. Good documentation will help you substantiate your legitimate business travel claims just in case any IRS auditor questions whether you properly kept business and personal expenses separate. (May 30, 2012)
- Father's Day gifts for him, tax breaks for you -- Found the perfect gift for dad yet? Don't panic. Father's Day isn't until Sunday, June 17. But since dads are usually a bit harder to shop for than moms, you probably need a bit of a head start. It seems, however, that we kids are starting to spend more on our fathers, closing the gift-giving gap somewhat with Mother's Day. Many kids, however, are giving dad (and mom) something 365 days a year, helping their aging parents cover daily living expenses. If that's the case, you might be eligible for a tax gift from Uncle Sam. When you make a substantial contribution to your parent's support, covering such things as living and housing costs and medical expenses, you might be able to claim mom or dad as a qualifying relative tax dependent. That then will give you an extra exemption amount on your tax return. To ensure you do meet the parental tax dependent rules, you'll also need to evaluate your parent's income, including Social Security, as well as how much your brothers and sisters also pitch in for mom's and/or dad's care. Having the typical parent-child roles reverse is not an easy situation for either parents or children. But it happens to most of us eventually. When it does, make sure you get all the tax help to which you're entitled. (June 6, 2012)
- Don't miss estimated tax deadlines -- If you get income that's not covered by payroll withholding, then you probably need to file estimated taxes. These four extra tax filings -- and payments -- each year are a hassle. But owing a big tax bill in April, as well as interest and penalty charges for underpaying your annual tax liability, is a bigger pain. Estimated taxes, which require Form 1040-ES, are due each April 15, June 15, Sept. 15 and the following year's Jan. 15. The filings and payments are common for folks with self-employment income, investment earnings or even gambling winnings. You can pay your estimated taxes by mailing 1040-ES vouchers to the Internal Revenue Service or by making electronic payments via credit or debit card, electronic funds withdrawal or the IRS' Electronic Federal Tax Payment System (EFTPS). (June 13, 2012)
- Count day camp costs toward child care credit -- Working parents look forward to summer day camps as much as their kids. The young'uns get some new, fun experiences and still get to sleep in their own rooms each night. The parents don't have to worry about their kids being away from home and the camps still keep the youngsters occupied while mom and dad work. Even better for the taxpaying parents is that the day camp costs can be used in computing the child care tax credit. The rules for claiming the tax credit are the same regardless of whether the care costs were incurred in the summer or the other nine months of the year. First, in most situations you (and if you're married, your spouse with whom you file a joint tax return) must work or be looking for work in order to claim the credit. You kid age counts, too; your dependent son or daughter must be younger than 13. And you likely won't be able to claim all your child care costs. You can count only $3,000 for one child's care or $6,000 for two or more kids. Even then, you only get to claim a percentage of those dollar amounts, from 20 percent to 35 percent depending on your income, as your child care tax credit. (June 20, 2012)
- Teens, summer jobs and taxes -- If your teenager gets a summer job, you could be dealing with the tax consequences next filing season. Yep, things can quickly go from being a source of pride -- I'm now paying at least part of my way! -- to irritation -- Hey, why is this FICA guy getting so much of my money?! The good news is that in some cases, taxes aren't a worry for teen workers. While the Internal Revenue Service generally wants its piece of a worker's earnings, some special tax rules apply to young workers based not only on age, but also on amount of money earned and even the type of job. For example, a teen who can be claimed as a dependent on someone else's tax return doesn't have to worry about filing until the youth's wage income exceeds the standard deduction amount for a single taxpayer. For the 2012 tax year, that's $5,950. And even if the kid doesn't have to file, he or she might want to. If too many taxes were withheld, that's the only way to get Uncle Sam to refund the money. (June 27, 2012)
- Bunch your tax deductible expenses -- Every year you collect a pile of receipts so you can claim more tax deductions on your Schedule A. And more often than not, you find that your trouble was for naught. Why? Because some itemized deductions require you to overcome an adjusted gross income hurdle. This is the case for medical expenses with its 7.5 percent (for now) requirement and miscellaneous expenses that must be more than 2 percent of your AGI. A bunching strategy can help you clear these percentages and claim the amounts. Basically, it's a plan to consolidate eligible expenses into one tax year where they will count the most. And it's better to start doing that now, with many months left in the year, rather than trying to come up with deductible expenses at the end of the tax year. (July 4, 2012)
- Home sale tax break -- If you're a homeowner, you have the opportunity to take advantage of one of the best tax breaks around: the exclusion of profit on your residential sale. It's one of the many homeownership tax benefits. In this case, up to $250,000 in profit on the sale by a single taxpayer of a primary residence ($500,000 for a married couple filing jointly) on a primary is not taxed. You must, however, meet some requirements in order to avoid the tax. You must be the owner of the house and have lived in it for two of the five years prior to the sale. But as long as you do this, you can take the exclusion on every residence you sell. Also be sure to accurately figure the amount of profit. You'll need your home's correct basis, which is basically your cost plus any IRS-qualified improvements. You subtract your basis from the sales price you get and that's your profit, which ideally is entirely excluded from tax. (July 11, 2012)
- Make midyear tax moves -- Are you enjoying your summer? You can extend the season's good times into tax time by making some tax moves now instead of waiting until the end of 2012. With months instead of just days left to act, you can make a substantial difference in your tax liability. There are simple steps such as adjusting your payroll withholding and getting organized. A bit more trouble, but definitely worth it, are things such as contributing to a tax-deferred or tax-free retirement account and evaluating your portfolio with an eye on how to take full tax advantage of capital gains and losses. Or you can think really big and look into buying a home with its many tax breaks or making tax-saving alternative energy improvements to the house you already have. Sure, these tax moves might cut into your beach time a bit. But make the time because they also could cut your tax bill. (July 18, 2012)
- Beware property tax scams -- Everyone wants lower property taxes. But don't be in such a hurry to appeal your property tax bill that your fall for a scam purporting to help you do just that. Questionable property tax payment plans have popped up across the United States. In some of these so-called "deals," the tax-paying organization obtains a lien that supersedes the original lender's lien, meaning that if you don't make the payments, the tax payment company will take your house. In other cases, the folks who say they'll get you a lower tax bill and pay it on your behalf, for a nice fee of course, don't pay your tax bill at all, meaning your county government can and usually will lien your property. If you do have problems paying your tax bill, make sure you hire a reputable firm to help make it through the appeals process. And remember you always can touch base with your tax collector directly to see if that office offers alternative ways to pay. (July 25, 2012)
- Back-to-school sales tax holidays underway -- Attention back-to-school shoppers in Alabama, Arkansas, Florida, Iowa, Louisiana, Missouri, New Mexico, North Carolina, Oklahoma, South Carolina, Tennessee and Virginia. You can buy some things your kids (or you!) need (or want!) without paying sales tax on the products this first weekend in August. These states represent the bulk of the annual back-to-school sales tax holiday events. The most common tax-free items are clothing and shoes. But a couple of states actually exempt schools supplies from taxation. And a few even allow tax savings on computers. The key to being a smart tax holiday shopper is paying attention to exactly which items are tax-free and which aren't. It can get confusing so check out your state's tax holiday website. Also make a list and stick to it. You don't want to immediately blow your tax savings by making more costly -- and taxable -- impulse buys. And heads up shoppers in Connecticut, Georgia, Maryland and Texas. Your August sales tax holidays are coming up in a few more days. (Aug. 1, 2012)
- Take cover. Taxmageddon is on the way! -- Or maybe not. Jan. 1, 2013, could be one of the biggest financial disaster days in recent memory if, and it's a big if, Congress lets the batch of current tax laws expire. The much-discussed Bush tax cuts, from individual tax rates to investment income tax treatment to estate taxes, will go back to 2000 (read higher) levels. The first day of 2013 also is when the employee payroll tax rate, now 4.2 percent, is scheduled to return to the previous 6.2 percent rate. Add to this mix the tax extenders, the 70+/- tax breaks that expired at the end of 2011 and might not be renewed for either 2012 or 2013 and, well, you get the picture: impending Taxmageddon, Taxapocalypse or a giant fiscal cliff off which Uncle Sam (and the rest of us) could fall. Will the worst happen? Probably not. But we likely won't know for sure until after the November election. And that presents a whole other set of concerns, specifically much uncertainty as to which tax moves to make and when to make them in order to lower our 2012 tax bills. So keep an eye on the calendar and be ready to act when Washington, D.C., finally does. (Aug. 8, 2012)
- Financial laws with famous namesakes -- OK, the people whose names are on or behind legislation are famous only in wonky Washington, D.C. But haven't you heard? The nation's capital is Hollywood for ugly people! And Capitol Hill will take its publicity where it can get it. The latest Capitol Hill star is Paul Ryan, the 2012 vice presidential nominee. Ryan has lots of ideas about the federal budget and taxes, detailed in the House Budget Committee's "A Roadmap for America's Future." But instead of that unwieldy title, they're usually referred to as the Ryan Plan. The convention of naming pieces of legislation or eventual laws after the people who sponsored or championed them is a D.C. tradition. So we have, for better or worse, the Bush tax cuts, Roth IRAs and the Buffett Rule to name, no pun intended, just a few. (Aug. 15, 2012)
- Deducting refi loan points -- If you want a better loan rate than your mortgage lender is offering, you might be able to buy it down via points. Each point is one percent of the mortgage amount and points are offered on both original home loans and refinancings. And in both case, the points are tax deductible. However, the precise method of deducting them does differ. On your first mortgage, you can deduct the points in full on your tax return for the year the points are paid. But with a refi loan, rather than deducting the full amount of refi points in the tax year in which you paid them, you must amortize them over the life of the loan. So instead of deducting, for example, $1,500 in full refi points on a 15-year loan, you deduct $100 worth of points on each tax filing for 15 years -- or until you pay it off, at which time you can claim the remaining points on the return for that tax year. And remember, the other home-related tax breaks that you're used to taking are the same for the refinanced loan. (Aug. 22, 2012)
- Taxes and big events in your life -- Taxes became a part of your life the minute you were born. From that day, your parents had a new dependent and the many tax breaks associated with raising a child. Since then taxes have (or will) come into play in all your major life events, from getting your first job, making a cross-country career move, saying "I do," buying and selling homes, starting your own business, having kids of your own and even retiring. And in many of these major life changes, the tax code can help, as long as you know the rules. (Aug. 29, 2012)
- Comparing the Obama, Romney tax plans -- You watched the Republican convention. You're tuning in to this week's gathering of Democrats. After all, you did help pay for both political extravaganzas. You've read the GOP and Democratic platforms. What else do you need? An easy to read side-by-side look at Barack Obama's and Mitt Romney's tax plans. You asked, you got it! The short-term focus of both candidates is on tax rates for individuals, businesses and investors. But as evidenced in their parties' platforms and conventions, the Democratic and Republican tax plans reflect the overall political direction of each party. Thanks for taking the time to compare the two and especially for being an informed, active participant in your government! (Sept. 5, 2012)
- Community property states and taxes -- The hubby and I have always shared our finances. And I've always joked that we share everything because we were married in Texas, a community property state. Nine states have community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. If you're in one of them, your taxes could be complicated if you file separate returns. Divorce gets even trickier in these jurisdictions. And same-sex couples in California, Nevada and Washington, which have registered domestic partnerships (and some 2008 Golden State same-sex marriages), also must deal with community property laws in filing federal tax returns since their relationships aren't recognized by Uncle Sam. Now I'm not saying let taxes determine where you settle, but do keep in mind that if you move to a community property state, it could affect your finances and your taxes. (Sept. 12, 2012)
- Education tax breaks help cover college costs -- Every parent with a kid in or about to enroll in college knows that the cost of higher education keeps going, well, higher. That's why so many take advantage of the many education tax breaks found in the Internal Revenue Code. There are 529 plans and Coverdell savings accounts and the American Opportunity and Lifetime Learning tax credits and some deductions for tuition and fees and student loan interest that you don't have to itemize to claim. And more. Heck, the IRS even offers online help in filling out student financial aid applications. Of course all the tax breaks have eligibility requirements and rules on how you can and can't combine them. But it's definitely worth doing your educational tax benefits homework to see if you can get some help in paying those ever increasing school costs. (Sept. 19, 2012)
- Don't forget to deduct your charitable donations -- Unless you're Republican presidential candidate Mitt Romney, you'll probably want to deduct every possible charitable donation you made in the tax year. To ensure that you get the full tax benefit of your philanthropic gifts, make sure you know the rules. First, you must itemize on Schedule A instead of claiming the standard deduction. Next, make sure you donate by the end of the tax year. You also need to check out the charities to which you contribute. If the nonprofit isn't approved by the Internal Revenue Service, then your deduction is no good. There also are limits on extremely generous deductions and rules as to what physical goods, such as clothing and household items are acceptable. And always remember to get receipts for your contributions. (Sept. 26, 2012)
- Tax breaks dead until Congress revives them -- A lot of taxpayers depend on tax breaks that are no longer in the tax code. But they're hopeful that Congress will reinstate them soon after they get back to back to work in mid-November. These technically temporary tax provisions expire and then are renewed, or extended, for another year or two. This process has led to these tax laws being known as extenders. Among the popular individual extenders are the educators above-the-line $250 deduction, The higher education tuition and fees tax break worth up to $4,000 and the option to deduct state and local sales taxes. The Senate Finance Committee has OK'ed these and other extenders. The House has yet to act, so a bipartisan group of 64 Representatives sent the Ways and Means Committee leadership a letter asking that the state and local sales tax deduction be included in any tax extenders package considered during the upcoming lame-duck session of Congress. That's likely to happen, but whether it's in a lame-duck session or 2013 is up in the air. (Oct. 3, 2012)
- Don't overlook these tax breaks -- There are two ways to trim your tax bill. Use deductions to reduce your taxable income and use credits to reduce your actual tax bill. But too often, people overlook some of these valuable tax breaks. Don't. Here are a few that are frequently missed. On Schedule A be sure to count job search expenses as well as cash and other types of charitable donations. Other tax deductions, like moving expenses in connection with that new job you found, can be claimed directly on Form 1040. There also are credits that you might not have considered before, such as the Earned Income Tax Credit or EITC. A lot of folks who had to take lower-paying jobs now might qualify for this tax break that's available if you earned some money, but not too much. The point is, don't just take the same tax breaks you claimed year after year. Check to make sure you aren't missing some that now could save you more tax dollars. (Oct. 10, 2012)
- Tax advantages of FSAs -- Every fall employees get a chance to sign up for workplace benefits. Among the options at many companies are flexible spending accounts, commonly referred to as FSAs. These workplace accounts can help you pay for medical expenses that aren't covered by insurance, as well as for some child care costs. They also can save you a few tax dollars because contributions are made directly from your paycheck to your FSA before payroll taxes are calculated. So there's a little less of your income to tax, meaning a slightly smaller tax bite. You can contribute up to $5,000 to a child care FSA and beginning with the 2013 tax year up to $2,500 to the flexible spending account designated to pay for medical and dental costs. Be sure to do the math when deciding how much to contribute. If you put more money into your FSA than you need, any amount left in the account at the end of the benefits year -- or the two and a half month grace period if your employer allows it -- is your company's to keep. (Oct. 17, 2012)
- 8 costly tax breaks -- Taxpayers are always searching for tax deductions, credits and income exclusions that can help them reduce their IRS bills. Now Congress also might be searching out these popular tax breaks to save Uncle Sam some money. The problem is, though, in order for the federal government to save money, we taxpayers are likely to end up paying more. Lost in all the talk about tax reform is that many popular tax breaks cost the U.S. Treasury a lot of money. And they are tax breaks that are claimed by the rich and poor alike. They include the Earned Income Tax Credit (EITC) for those near the bottom of the earnings scale to the home mortgage interest deduction for most homeowners in all income brackets to lower tax rates for capital gains from investments earned mostly by wealthier taxpayers. Which ones could be on the chopping block if Congress ever does get around to seriously discussing tax reform? More importantly, which ones are you willing to give up in exchange for lower tax rates? (Oct. 24, 2012)
- 6 tax terrors -- What's scarier than a Halloween haunted house? Taxes. There are some common tax areas that instill fear in many taxpayers. But there also are easy ways to overcome them. Six that are experienced by all of us at one time or another are 1) afraid I can't do my taxes myself; 2) afraid I'll overlook a tax break; 3) afraid I'll make a mistake that will cost me money; 4) afraid that my tax adviser is incompetent or a crook; 5) afraid I'll get audited; and 6) afraid to file because I can't pay. To overcome these fears you can always 1) get help from tax software, a tax professional, free tax clinics (or a tax blog!); 2) do your homework before your file so you know what tax breaks to look for; 3) don't get in such a big rush to file that you make mistakes; 4) thoroughly vet your tax pro; 5) keep good records to prove to an auditor that your tax claims are valid; and 6) even if you can't pay your tax bill, file and pay what you can. The IRS penalty for not filing is actually worse than if you file but don't pay your tax bill in full. (Oct. 31, 2012)
- Get IRS help in a disaster -- When disaster strikes, you might be able to get some recovery help from an unexpected source: the Internal Revenue Service. In most instances, unforeseen casualty losses can be claimed as itemized deductions. This includes damages and losses sustained because of burglaries and thefts, fires, tornadoes, hurricanes, blizzards, other severe storms, earthquakes, mudslides and even drought. And when a disaster is so severe that it's declared a major disaster area by the president, you get additional choices on when to file the tax claim. You can claim the losses in the tax year in which they occurred. Or you can file an amended return and claim the major disaster losses in the prior tax year. This could get you much-needed money for repairs sooner. Of course, you need to run the numbers for both years to make sure you get the larger disaster tax relief amount. And you'll have to file extra forms and meet the disaster loss eligibility guidelines. But when you're trying to get back on your feet after a disaster, the effort could definitely be worthwhile. (Nov. 7, 2012)
- Zero capital gains tax for some investors -- During the Occupy Wall Street movement's heyday and recent presidential campaign, we all became very familiar with how the wealthiest 1 percent of Americans got that way. They tend to let their money work for them via investments. In addition to packing their portfolios with assets that grow in value, they sell at the right time and then they pay lower taxes on their profits thanks to the capital gains tax rules and rates. Sell an asset that you've held for more than a year and it is classified as a long-term capital gain. That then makes the profit on the sale eligible for the lower capital gains tax rate. For folks in the current 25, 28, 33 and 35 percent tax brackets, the capital gains tax rate is 15 percent. That's in effect through Dec. 31. Unless Congress and the president take action, it will go to 20 percent in 2013. But folks in today's 10 and 15 percent tax brackets get an even better deal. They don't owe any taxes on their capital gains. You heard/read right. Folks in the two lowest tax brackets owe no tax -- nada, nothing, zilch, zero -- on their capital gains. But just like the 15 percent rate, the 0 percent tax rate is good only through 2012. On Jan. 1, 2013, without legislative action it will jump to 10 percent. So if you think the Bush-era tax cuts of which the capital gains rates are part will expire next year, you might thing about selling some appreciated long-term assets now. (Nov. 15, 2012)
- Employee vs. contractor tax differences -- If you are hired as an independent contractor instead of an employee and aren't aware of exactly what the classification means, you could face some tax troubles at filing time. Although you might do essentially the same work, the Internal Revenue Service views contractors and employees, and the businesses that hire them, differently. Determining whether the person providing the service is an employee or an independent contractor is based primarily on the degree of control and independence over the work. If it's the boss who's fully in charge, then you're probably an employee. If you have most of the control, including when and how you do the job, then you're the boss as an independent contractor. Some companies try to hire or classify workers as contractors when possible. Carrying workers as contractors saves them money because the employer then doesn't have to provide employee benefits or pay the firm's portion of employment payroll withholding taxes. That absence of withholding taxes means the worker, as a contractor, must pay his or her income taxes, as well as both the employer and employee Social Security and Medicare taxes. In this case, contractors need to file quarterly estimated tax payments so that they don't face a big tax bill when they file their returns. While it might be tempting to get contractor payments that don't have any taxes taken out, you'll end up paying them eventually. So make sure you know how you're carried on the company payroll -- and that it's correct -- when you are hired. That way you can make tax plans accordingly. (Nov. 21, 2012)
- How the fiscal cliff could affect your taxes -- On Jan. 1, 2013, tax laws U.S. taxpayers have enjoyed for more than a decade are scheduled to expire. Along with those historically low tax rates (both on ordinary income and investment earnings) enacted under the George W. Bush administration, several popular tax credits and deductions already have or will soon disappear or be reduced. That possibility, along with other tax breaks that have already expired (the extenders) or will also end next year (the 2 percentage point employee payroll tax holiday) plus billions in automatic spending cuts scheduled to kick in next year, make up what has been described as a fiscal cliff. If American taxpayers are nudged over that cliff by Congressional inaction, most of them will face dramatically higher tax bills. President Obama and the lame-duck Congress have been inching toward a deal to keep us from going over the fiscal cliff, but with just more than a month until the deadline arrives, it's unclear whether they will be successful. (Nov. 28, 2012)
- Use or lose your flexible spending account -- Be sure to make time this hectic holiday season to spend down any balance you have in your workplace medical flexible saving account. If you don't, you could lose the money. The reason? While an FSA as the accounts are popularly known has many advantages, such as saving you some taxes because your payroll contributions are made before your income and Social Security taxes are calculated, it has a major drawback. The FSA use-it-or-lose rule means that you can't carry over any unused account money into the next benefits year. Although time is running out, there are still plenty of easy ways to spend down your medical savings account. The costs of vision exams (and corresponding pairs of prescription glasses and contact lenses) and dental checkups that aren't covered by insurance are popular ways to spend down the money. So are wellness treatments, such as flu shots and first aid kits. And some workplace plans allow employees to use FSA cash to pay for alternative treatments, such as acupuncture or chiropractic sessions, that aren't typically covered by the company-provided medical insurance. However you spend it, just do so soon! (Dec. 5, 2012)
- Year-end tax tips in time of uncertainty -- Be sure to make time this hectic holiday season to take care of some year-end tax moves. Yes, it's more difficult in 2012 because Congress has yet to do its job and we're facing a fiscal cliff that could determine which tax options are best for our individual tax situations. There are, however, some tax tasks you can still take care of by Dec. 31. You can spend down any balance you have in your workplace medical flexible saving account. If you believe you'll be in a higher tax bracket, take some capital gains now while they're still taxed at a maximum 15 percent. And speaking of investments, if some of your assets are paying dividends early so you can lock in the lower tax rate, be sure you plan for the tax bill on that unexpected unearned income. Taking some time now will make your filing easier and hopefully your tax bill smaller when you fill out your 1040 next spring. (Dec. 12, 2012)
- Tax-saving value of capital losses -- If you locked in some capital gains this year to take advantage of the 15 percent tax rate just in case it goes up in 2013, good for you. But just because the tax rate is low is no reason to pay it. You might be able to reduce or even eliminate those gains on appreciated assets if you also suffered some capital losses this year. In that case, sell those losing stocks and use that negative amount to offset your gains. Using capital losses to offset capital gains is known as tax harvesting. Most folks do tend to wait until the end of the year to see how their portfolio has done the previous 12 months. If you haven't done so yet, you've still got time. And if you find some stocks that crashed and burned, then don't just whine about them. Use them now to lower your capital gains taxes or, if you have more losers than winners, to reduce your ordinary taxable income by as much as $3,000. (Dec. 19, 2012)
- Make the tax most of charitable gifts -- It's that time of year. Your email and snail mail boxes are stuffed with solicitations from charitable groups. Every third call is from a charity to which you've given before asking for more money now. The reason for the end-of-year pleas for philanthropic funding is that many donors put off gifts until they have an idea of how much their charitable gifts will be worth when they file their tax returns. But cutting it close also means you need to be extra careful that you follow the charitable giving tax rules so that you get the full benefit of your donations. First, don't miss that Dec. 31 deadline if you want to claim the itemized charitable deduction on this year's tax return. Make sure the group to which you give is a qualified charity per the Internal Revenue Service regulations. Be aware of special rules for different types of gifts; for example, the value of an auto donation depends in large part on how the charity uses the vehicle and any household goods you give must be in good or better shape. Finally, be sure you get a receipt. In most cases you won't have to submit it with your tax return, but if the IRS ever questions your donation you'll need it to prove that your deduction was legal. So now that you know the rules, get out there and give to the good cause of your choice. And remember, if you write a check or make your gift via credit or debit card by Dec. 31 it still counts as a donation this tax year even if the financial gift shows up on your January card or bank statement. (Dec. 26, 2012)
And when the 2013 tax filing season arrives in full force, the Daily Tax Tip will resume.
Missed some tips posted earlier this year? Check out the Daily Tax Tips from January, February, March and April.