Wednesday, October 10, 2012

Three Reasons Oct. 15 is the Second Most Important Day for Taxes

April 15 has a pretty good chance of remaining the No. 1 day for taxes, but Oct. 15 is likely a close second. Three reasons Oct. 15 is important for taxpayers: (1) extension filers must submit their returns to avoid a monthly 5-percent, late-filing penalty on balance due, (2) Fresh Start participants must pay taxes due to avoid further penalties and interest because their six-month grace period ends and (3) the 2013 filing season starts in 100 days so now is a good time to assess the impact of life changes on 2012 taxes.
October really is the new April for taxes. Taxpayers used to believe the only day they had to worry about was the April filing deadline, but more people are realizing how paying attention to their tax situation year-round can put more money in their wallet.

1. Extension to file deadline is Oct. 15 - returning clients eligible for special discount

On average, more than 10 million taxpayers applied for a tax filing extension each of the past few years - even though approximately 66 percent of them were due a refund.
One reason taxpayers put off filing is to make sure they have all the paperwork needed to file an accurate return. Rushing to file at the last minute can also result in missing out on claiming tax credits and deductions to which they may be entitled, which can lead to overpayment of taxes. Not claiming all the deductions and credits to which they are entitled, picking the wrong filing status, not filing at all and assorted other missteps cause taxpayers to forfeit $1 billion in refunds annually.

2. Fresh Start participants face payment deadline Oct. 15

This year, the IRS introduced Fresh Start Penalty Relief allowing a six-month payment grace period for those unemployed for 30 consecutive days and self-employed taxpayers who lost at least 25 percent of business income in 2011 due to the economy - in addition to meeting other qualifications.
Those who met the qualifications will not face failure-to-pay penalties if their 2011 taxes, interest and any other penalties due are paid by Oct. 15. Those who can't pay in full by the extended deadline will have to pay penalties on the amount not paid by Oct. 15. The failure-to-pay penalty is 0.5 percent of the unpaid taxes for each month after the due date (cannot exceed 25 percent of unpaid taxes). The "meter" on interest for the taxes due started April 15.

3. Oct. 15 signals 100-day countdown to e-file, means still time to impact 2012

Even with e-file starting in 100 days on Jan. 22, there is still time for taxpayers to review their 2012 tax situation and make changes that might improve it. Also, because the start of the filing season has been delayed this year, people who typically get their tax returns in January may have to prepare themselves for a later arrival in February.
"Sitting down with a tax professional in October to look at last year's return and estimate next year's return can help taxpayers develop a financial strategy to be more prepared during these uncertain times," Rice said.

Saturday, October 6, 2012

Commonly Missed Federal Income Tax Deductions

Following are some of the most commonly missed deductions on federal income tax returns.

Charitable Contributions of Physical Items

Contributions given to a charitable organization are a common deduction on federal income tax returns. Many people know they can deduct the amount of any cash contributions made to such organizations. But they overlook deducting the value of other types of contributions to charitable organizations.

If you have donated clothing, furniture, baby toys, or any other item that is in good working condition, you can deduct the fair market value of that item on your federal income tax return.

Are you unsure how much an item you want to donate is worth? If so, some organizations publish guidelines to help you determine the fair market value.

Certain Costs Related to Refinancing

With many homeowners seeing the lowest mortgage interest rates they have seen in their lifetime, there has been an abundance of refinancing of homes. Some homeowners have been able to take advantage of the low interest rates to refinance their homes multiple times.

If you paid points related to your refinancing, you can deduct a portion of those points on your federal income tax return. You can calculate the amount of your deduction by dividing the number of months of your loan in the current year by the total number of months of your loan term, and then multiple that fraction by the amount you paid in points.

In addition, if you refinance and have points from a previous mortgage that you have not finished deducting, you can deduct the full amount of the remaining point cost.

Expenses as a Teacher

If you are a teacher of grades kindergarten through 12, or an office aide or principal in an elementary, middle, or high school, you can deduct up to $250 in expenses on suppliers you use for teaching that are not paid for by the school.

Energy Efficiency Upgrades to Your Home

The federal government has generally been supportive of providing an incentive for homeowners to improve the energy efficiency of their homes. Therefore, they offer federal income tax deductions on various energy efficiency improvements. These deductions can include a portion of expenses for insulation, high-seer air conditioning and heating equipment, solar panels, and energy efficient windows.

Casualty Losses

If your home was damaged due to any act of nature, including but not limited to tornadoes, hurricanes, floods, and forest fires, where the area was declared a federal disaster area, then your losses from the disasters can be deducted on your federal income tax.