Make sure you're getting all the deductions you should for your mortgage, charity efforts and work life. But don't raise any red flags.
This post is by Matt Twomey at CNBC.com.
And then there are some deductions that could raise red flags for the IRS and get your return kicked back to you — or worse, trigger an audit.
Two simple rules that can save a lot of hassle are 1) Don't be sloppy; take your time to avoid careless mistakes; and 2) Think like the IRS, which likes matching numbers. If your mortgage deduction claim is different than what the bank reported, for example, red flags will rise.
Identity theft used to steal refunds again tops the list of the most common wrongdoings perpetrated against taxpayers.
This post is by Kelly Phillips Erb at Forbes.com.
Each year, the Internal Revenue Service issues a list of "Dirty Dozen" tax scams that can affect taxpayers. The list runs the gamut from schemes involving taxpayer participation (hiding offshore income) to schemes that taxpayers may know nothing about (identity theft). The IRS posts the list to educate taxpayers about the need to protect financial information and use common sense.
Acting IRS Commissioner Steven Miller reminds taxpayers, about the potential for fraud: "The Dirty Dozen list shows that scams come in many forms during filing season. Don’t let a scam artist steal from you or talk you into doing something you will regret later."
Here are the Dirty Dozen scams for 2013:
Gains from stocks and mutual funds are taxed at a lower rate than regular income. But those aren't the only investments from which you can get the lower capital gains rate.
This post is by Bill Bischoff of MarketWatch.com.
If you're a stock or mutual-fund investor, then you probably know that investments held for more than a year and sold for a profit are subject to lower tax rates as long-term capital gains. Generally speaking, if you're in the 25% tax bracket or higher, you will owe 15% of your profits to the Internal Revenue Service. If you're in the upper-income category, you may owe the maximum 20% rate for 2013 and beyond.
But what you might not realize is that more than just stock and mutual-fund shares are eligible for favorable capital-gains tax treatment.
If you sold, say, your vacation time share or your country-club membership, then you just might be pleasantly surprised to discover you'll owe only 15%, or at most 20%, on the gain (assuming that you held the asset for more than a year).
Tax pros estimate twice as many Americans will need to file gift-tax returns this year, after rushing to give away assets during the 'fiscal cliff' frenzy.
This post is by Deborah L. Jacobs of Forbes.com.
In the countdown to April 15, many people rushing to prepare their individual income tax returns will overlook another key tax document that’s due the same day: Form 709, covering taxable (or potentially taxable) gifts made during the previous year. Tax pros estimate there are more than twice as many people in this category for the current filing season (covering 2012) than for the previous one.
This is one more thing to blame on the year-end fiscal cliff frenzy. Unless you were living under a rock or have already mentally repressed the details, you probably recall that the $5.12 million per-person exclusion from the federal estate and gift tax had been scheduled to dip automatically to $1 million on Jan. 1, with the tax on transfers above that amount rising from 35% to as much as 55%.
At the urging of their financial advisers, some wealthy people rushed to make lifetime gifts that would pare down their estates, ruining the holiday season for their lawyers and tax advisers.
Working parents can save on their taxes through the child-care tax credit or by using a flexible spending account. Do the math to see which works better for you.
This post is by Bill Bischoff of MarketWatch.com.
You may have to pay child-care expenses for your kids so you can work. Thankfully, a federal income tax credit can help pay the bills. It’s available to all eligible parents regardless of income, although lower-income folks get bigger credits. Also, your employer might offer a child-care flexible spending account (FSA). When the FSA deal is available, it can offer even more tax savings than the credit.
Here’s what you need to know about both breaks.
The credit can only be claimed for child-care expenses so you can work. If you’re married and file jointly, you can generally claim the credit only if your spouse also works or goes to school full-time for at least five months during the year.
You don't have to be a big-time venture capitalist to take advantage of favorable tax treatment for investments ranging from real estate to stocks.
This post is by Kathy Kristof at Kiplinger’s Personal Finance magazine.
Yet, during tax season, it's helpful to review all the breaks you can take -- even if you missed them in 2012. They may help trim your tax bill in the future.
Some of the tastiest tax treats were originally designed for a rarefied clientele: venture capitalists and multimillionaire "angel" investors, who make a living finding and financing small companies. But new rules allowing corporate "crowd funding" arrangements may make these tax rules far more pertinent to average investors who might become tempted to help finance a friend's or neighbor's new enterprise.
Be sure to verify everything your tax preparer filled in on the forms, because you'll be held responsible. You also want to double-check names and numbers.
This post is by Eva Rosenberg at MarketWatch.com.
Did you find a tax pro who swears she can get you better refunds than anyone else in the world? Do all her clients get great refunds, and you can’t figure out why you and your accountant can’t get the same result? Is she smarter than everyone?
There might be another reason she can do this. She may be committing tax fraud. But what happens when your tax preparer commits tax fraud? You get into trouble.
Consider the case of someone who is being audited because her tax preparer took deductions for business expenses. She can’t provide receipts for those expenses because she doesn’t have a business -- or any such expenses. She is rightfully nervous. By the time the IRS gets done with her, she will owe the taxes on those fraudulent expenses, several types of penalties and interest on the whole shebang.
The first thing you need to know about any tax return you sign are these words that appear over your signature:
"Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge."
It's not too late to put money in an IRA, organize your records and make sure you're claiming all the deductions you can. But don't wait until April 15.
This post is by Kelley Holland of CNBC.
If you are among the millions of Americans who file tax returns later in the game -- perhaps you've been busy getting that root canal -- it's time to start looking for moves you can make to reduce your tax bill.
"Once December 31 comes and goes, there are not a lot of action items" to save on taxes, says Jackie Perlman, principal tax analyst at the Tax Institute at H&R Block. "But there are some things to consider."
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