Updated: 12/18/2012 4:45 PM ET|
Your 15-point tax-return checklist
Face it: The tax fairies aren't going to file your return for you. Here's a step-by-step guide to finding and filing those forms you've been avoiding.
It's time to start thinking about getting those taxes done. Maybe you're in a panic. Not to worry. Just follow Schnepper's 15 steps to getting your taxes done, and you'll be much happier. Ready? Here they are:
1. Get serious. Unless you're focused, you're going to see that receipt six times rather than the once you need. This is all mental now. Schedule a time to get to work and commit to that time. Then . . .
2. Get started. Remember that commitment to get to work? Keep it! This step requires action. Get your pencil and take the blank forms out of the envelope where you've been hiding them, praying that the tax fairies would make them go away. My father reminds me of the old Brooklyn proverb, "A trip of a thousand miles begins with a traffic jam." Get in that "jam," and your tax return will begin to jell. Now . . .
3. Get organized. Something has to go on those returns. Get your W-2s together to report wages, your 1099s to report interest and dividends, your 1099Bs for reporting stock and bond sales, and your 1098s for deducting your interest and taxes. The Internal Revenue Service and your accountant both want final numbers. It makes it easier for them and less painful financially for you. Bring either one a shopping bag full of receipts and you're going to feel the pain . . . especially in your wallet.
4. Get informed. Have you been following all the changes the U.S. tax code has seen in the past decade? In April 2011, IRS Commissioner Douglas Shulman reported that there had been about 3,500 tax changes since 2000, including multiple tax measures passed last year and this year. The Bush cuts and many of the "extenders" were scheduled to expire this year. But Congress again extended many of the expiring provisions and continued most of the Bush cuts for those with taxable incomes of not more than $400,000 ($450,000 for a joint return).
For example, have you looked at the new American Opportunity Tax Credit, which can give you as much as $2,500 in tax savings? If not, get educated! Congress has renewed this one through 2017.
If you're "tax simple," the IRS can actually do the return for you, or you can have your return done online -- sometimes even for free. Alternatively, if you're tax-savvy, do your own return after learning the new rules. A good place to start: the IRS' absolutely free Publication 17. It's hundreds of pages of everything you need to know about your 2012 tax return and your planning for 2013. If that's too much, go to a professional.
5. Get help. You might remove a splinter from your own finger, but you wouldn't perform heart surgery on yourself. A trip to a tax professional should at least tell you what you're missing. Don't hesitate to ask for help; it's deductible. But call for an appointment now! The later your accountant does your return, the more tired that tax preparer will be. You want your return done when she's at her best.
6. Get status. Decide how you're going to file. The lowest rates are with joint returns, but if there are potential high medical or miscellaneous deductions, married filing separate may yield a lower total tax. Do it both ways. Alternatively, a single mother may qualify for the head-of-household rates, which are better than the rates for filing as a single. Sometimes, when a joint return isn't practical, even a married person with a dependent child can qualify for head-of-household rates, which are much better than married filing separate. You need to know the rules.
7. Get adjusted. There are certain deductions that are allowed regardless of whether you itemize. Such deductions include IRA and qualified pension contributions, student loan interest, moving expenses, alimony, medical savings account deductions and, for the self-employed, the health insurance deduction and deduction for half the self-employment taxes paid. These are known as "above the line" deductions. The infamous "line" is your adjusted gross income -- line 37 on Form 1040.
8. Get itemized. Which is bigger -- your standard deduction or the sum of your itemized deductions? We're now "below the line." The instructions for Form 1040 for 2012 list your standard deduction. Compare this amount to your total allowable itemized deductions. That's the sum of your allowed medical expenses, taxes, interest, charitable contributions, casualty and theft losses, and miscellaneous itemized expenses. Always do it both ways -- and, subject to the alternative minimum tax (and don't even try to get into that), always take the higher amount.
9. Get exemptions. For 2012, you get to take off as much as $3,800 from your income for each qualified exemption you have. Despite myths to the contrary, these include children who are full-time students under age 24, regardless of how much income they may have. For 2012, increases in income will no longer decrease your exemption deduction. The American Taxpayer Relief Act of 2012 restores both the phaseouts for personal exemptions and itemized deductions (Pease limitations) for those with incomes of $250,000 or more ($300,000 for joint returns).
VIDEO ON MSN MONEY
The current federal income tax system is clearly broken -- unfair, overly complex, and almost impossible for most Americans to understand. But there is a reasonable, bipartisan alternative that is both fair and easy to understand. A system that allows you to keep your whole paycheck and only pay taxes on what you spend.
The FairTax is a national sales tax that treats every person equally and allows American businesses to thrive, while generating the same tax revenue as the current four-million-word-plus word tax code. Under the FairTax, every person living in the United States pays a sales tax on purchases of new goods and services, excluding necessities due to . The FairTax rate after necessities is 23% and equal to the lowest current income tax bracket (15%) combined with employee payroll taxes (7.65%), both of which will be eliminated.www.fairtax.org
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