Save Money / Consumer News
Filing your tax returns: Get tips to save you money
LOS ANGELES (KABC) -- The deadline for filing your taxes is Monday, April 15. If you're confused about filling out your tax forms or you're not sure what deductions you're allowed, here are a few extra tips to lower your taxes and save you money:
Last Minute Advice
- If you haven't contributed to your retirement account, you have until April 15 to open and/or fund a traditional or Roth IRA, or qualified retirement plan such as a 401(k). You can contribute up to $5,000 ($6,000 if you're age 50 or older), or your taxable compensation for the year. Use IRS Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit.
- If you can't finish your return on time, make sure you file Form 4868 by April 15. You can get up to a six-month extension, giving you until October 15, 2013 to file.
- Filing electronically works best if you expect a tax refund. The IRS processes electronic returns faster than paper ones, so you can expect to get your refund three to six weeks earlier.
- The amount of the standard deduction increased for all taxpayers for the 2012 tax year. If you're single, the standard deduction is now $5,950, up $150 from the previous year. And, if you're married and filing jointly or a qualifying widow or widower, the deduction is $11,900 -- up $300.
Saving You Money
- If you are self-employed, you can deduct the cost of health insurance for yourself and your family members. And keep track of car repair bills and how much you spent on gas for business purposes.
- If you're self-employed or employed by a company and use your own car on the job, you can take a deduction for your business travel. Standard mileage rate for business use of a vehicle is 55.5 cents per mile, and 23 cents per mile for medical and moving travel.
- If you purchased a computer or a cell phone that you use for your job, you might be able to claim the business use of the device as a tax deduction. And, you can depreciate the costs over the expected decline in value of the phone or computer over time.
- In the past, people who lost their homes to foreclosure or a short sale, were still taxed by the IRS for the amount they didn't have to pay back. But under the Mortgage Forgiveness Debt Relief Act and Debt Collection, taxpayers generally can exclude income from the discharge of debt on their principal residence. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). But it only applies if it's your primary residence, the exception does not apply to second homes or vacation homes.
- The IRS says for the most part, charitable contributions are only deductible if they're given to a U.S. based nonprofit, not foreign groups that are not recognized as a charitable organization.
- Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
- For contributions of $250 or more, including cash and property, you must have a receipt from the qualified organization.
- Many unemployed people forget about deductions they're entitled to at tax time.
- Keep track of your job-search expenses. If you looked for a position in the same line of work in 2011, you can deduct job-hunting costs as miscellaneous expenses if you itemize, but the total itemized deductions must exceed 2 percent of your adjusted gross income. However, you can not deduct if you looked for a job in a new occupation or if there was a substantial break between your last job and your new search.
- Job-hunting expenses incurred while looking for your first job don't qualify.
- Deductible job-search costs include food, transportation and lodging (if your search takes you away from home overnight), along with expenses of printing resumes, business cards, and postage.
- If you pay your child care bills through a reimbursement account at work you can still qualify for a child care credit. If you use up the maximum through a plan at work but spend even more for work-related child care, you can claim the credit on as much as $1,000 of additional expenses. That would cut your tax bill by at least $200.
- You can claim your parents as dependents on your returns if you're responsible for more than half of their financial support.
- If you paid someone to prepare your taxes last year, you can deduct those fees on your taxes this year.
- If you purchased a home this year, you can fully deduct points in the year. If you refinanced your home, you can deduct any points you paid over the life of the loan.
- The American Opportunity Credit is a tax credit of up to $2,500 for college tuition and related expenses paid during the year. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return). Complete IRS Form 8863 and attach it to your personal income tax return to claim the credit.
- Keep track of charitable giving. You might need a receipt to prove it. Contributions over $250 require a letter from the charity to substantiate the deduction.
- Make sure to include your W-2 when you spend in your taxes. Many taxpayers actually forget to do this and this simple error could cost you in additional taxes plus interest as it could take a long time to process. Don't spend the time and effort to do your taxes only to find that you forgot to send in the paperwork.
- Don't deduct other people's expenses you paid for on your own returns. Even if you're a nice person, the IRS doesn't really care. You can't deduct any expenses for another taxpayer, even if it's for a spouse who is filing separately.
Avoiding an Audit
- Report all of your income. IRS computers cross-check your W-2s and 1099s to make sure your claiming all of your income.
- Pay attention to details. Math errors or incorrect entries of Social Security numbers or tax ID numbers can easily trigger an inquiry into your return.
- Avoid deductions that are audit red flags, including excessive write-offs, large charitable contributions, and filing for a home-office deduction.
Anyone can get free advice from any IRS office, but the lines can be extremely long as it gets closer to mid-April. The Volunteer Income Tax Assistance (VITA) offers free tax help for those making less than $51,000 a year, check the IRS website to find a site near you.
And if you earn less than $57,000 a year, you can e-file your taxes for free through IRS approved websites from several companies including H&R Block, FileYourTaxes.com, Turbo Tax and TaxSlayer.
Internal Revenue Service: http://www.irs.gov
IRS Tax Tips for 2013: http://www.irs.gov/uac/Tax-Tips-for-2013-1
IRS List of Charitable Organizations: http://www.irs.gov/app/pub-78
IRS Charitable Contribution Tips: http://www.irs.gov/taxtopics/tc506.html
IRS Free Tax Return Preparation: http://www.irs.gov/individuals/article/0,,id=107626,00.html
IRS Information for e-File: http://www.irs.gov/efile/index.html
California Society of CPAs: http://www.calcpa.org
AARP Foundation Tax-Aide Locator: http://www.aarp.org
TurboTax Tips: http://turbotax.intuit.com
H&R Block Tax Tips and Calculators: http://www.hrblock.com/free-tax-tips
Bankrate Tax Center: http://www.bankrate.com/taxes.aspx
SmartMoney Tax Page: http://www.smartmoney.com/taxes
taxes, save money / consumer news, ric romero
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