Three Year-End Tax Tips to Help You Save

Although the year is almost over, you still have time to take steps that can lower your 2013 taxes. Now is a good time to prepare for the upcoming tax filing season. Taking these steps can help you save time and tax dollars. They can also help you save for retirement. Here are three year-end tips to consider:
1. Start a filing system.  If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.
2. Make Charitable Contributions.  If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2013. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Use the IRS Select Check tool at IRS.gov to see if an organization is qualified.
Make sure to save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats. For more about these rules see Publication 526, Charitable Contributions.
If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2013. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2013. See Publication 590, Individual Retirement Arrangements (IRAs), for more information.
3. Contribute to Retirement Accounts.  You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.

The Saver’s Credit, also known as the Retirement Savings Contribution Credit, helps low- and moderate-income workers in two ways. It helps people save for retirement and earn a special tax credit. Eligible workers who contribute to IRAs, 401(k)s or similar workplace retirement plans can get a tax credit on their federal tax return. The maximum credit is up to $1,000, $2,000 for married couples. Other deductions and credits may reduce or eliminate the amount you can claim.

Give Withholding and Payments a Check-up to Avoid a Tax Surprise

Some people are surprised to learn they’re due a large federal income tax refund when they file their taxes. Others are surprised that they owe more taxes than they expected. When this happens, it’s a good idea to check your federal tax withholding or payments. Doing so now can help avoid a tax surprise when you file your 2013 tax return next year.
Here are some tips to help you bring the tax you pay during the year closer to what you’ll actually owe.
Wages and Income Tax Withholding

• New Job.   Your employer will ask you to complete a Form W-4, Employee's Withholding Allowance Certificate. Complete it accurately to figure the amount of federal income tax to withhold from your paychecks.
• Life Event.  Change your Form W-4 when certain life events take place. A change in marital status, birth of a child, getting or losing a job, or purchasing a home, for example, can all change the amount of taxes you owe. You can typically submit a new Form W–4 anytime.
• IRS Withholding Calculator.  This handy online tool will help you figure the correct amount of tax to withhold based on your situation. If a change is necessary, the tool will help you complete a new Form W-4.

Self-Employment and Other Income

• Estimated tax.  This is how you pay tax on income that’s not subject to withholding. Examples include income from self-employment, interest, dividends, alimony, rent and gains from the sale of assets. You also may need to pay estimated tax if the amount of income tax withheld from your wages, pension or other income is not enough. If you expect to owe a thousand dollars or more in taxes and meet other conditions, you may need to make estimated tax payments.
• Form 1040-ES.  Use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you need to pay estimated taxes on a quarterly basis.
• Change in Estimated Tax.  After you make an estimated tax payment, some life events or financial changes may affect your future payments. Changes in your income, adjustments, deductions, credits or exemptions may make it necessary for you to refigure your estimated tax.
• Additional Medicare Tax.  A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. 

• Net Investment Income Tax.  A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts.

Tips on How to Amend Your Tax Return

If you discover an error after you file your tax return, you can correct it by amending your return.

Here are 10 tips about amending your federal tax return:

1. When to amend a return.  You should file an amended return if you need to correct your filing status, number of dependents, total income, tax deductions or tax credits. The instructions for Form 1040X, Amended U.S. Individual Income Tax Return, list additional reasons to amend a return.

2. When NOT to amend a return.  In some cases, you don’t need to amend your tax return. For example, the IRS usually corrects math errors when processing your original return. If you did not include a required form or schedule, the IRS will send you a request for whatever is missing.

3. Form to use.  Use Form 1040X to amend a previously filed Form 1040, 1040A, 1040EZ, 1040NR or 1040NR-EZ. Make sure you check the box to show the tax year that you are amending on the Form 1040X. You cannot e-file an amended return. You must file an amended tax return on paper.

4. Multiple amended returns.  If you’re filing an amended return for more than one year, prepare a separate 1040X for each return. Mail them in separate envelopes to the appropriate IRS processing center. (See "Where to File" in the instructions for Form 1040X.)

5. Form 1040X.  Form 1040X has three columns. Column A shows figures from the original return. Column B shows the changes you are making. Column C shows the corrected figures. There is also an area on the back of the form where you should explain the specific changes and the reasons for the changes.

6. Other forms or schedules.  If the changes involve other tax schedules or forms, attach them to the Form 1040X. Failure to do this will cause a delay in processing.

7. Amending to claim an additional refund.  If you’re expecting a refund from your original tax return, don’t file your amended return until after you have received that refund. You may cash the refund check from your original return. The IRS will send you any additional refund you are owed.

8. Amending to pay additional tax.  If you’re filing an amended tax return because you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit any interest and penalty charges.

9. When to file.  To claim a refund, you generally must file Form 1040X within three years from the date you filed your original tax return or within two years from the date you paid the tax, whichever is later.


10. Processing time.  Normal processing time for amended returns is 8 to 12 weeks.

Simplified Option for Home Office Deduction

Do you work from home? If so, you may be familiar with the home office deduction, available for taxpayers who use their home for business. Beginning this year, there is a new, simpler option to figure the business use of your home.
This simplified option does not change the rules for who may claim a home office deduction. It merely simplifies the calculation and recordkeeping requirements. The new option can save you a lot of time and will require less paperwork and recordkeeping. 
Here are six facts to know about the new, simplified method to claim the home office deduction.
1. You may use the simplified method when you file your 2013 tax return next year. If you use this method to claim the home office deduction, you will not need to calculate your deduction based on actual expenses. You may instead multiply the square footage of your home office by a prescribed rate.
2. The rate is $5 per square foot of the part of your home used for business. The maximum footage allowed is 300 square feet. This means the most you can deduct using the new method is $1,500 per year.
3. You may choose either the simplified method or the actual expense method for any tax year. Once you use a method for a specific tax year, you cannot later change to the other method for that same year.
4. If you use the simplified method and you own your home, you cannot depreciate your home office. You can still deduct other qualified home expenses, such as mortgage interest and real estate taxes. You will not need to allocate these expenses between personal and business use. This allocation is required if you use the actual expense method. You’ll claim these deductions on Schedule A, Itemized Deductions.
5. You can still fully deduct business expenses that are unrelated to the home if you use the simplified method. These may include costs such as advertising, supplies and wages paid to employees.

6. If you use more than one home with a qualified home office in the same year, you can use the simplified method for only one in that year. However, you may use the simplified method for one and actual expenses for any others in that year.

Job Search Expenses May Lower Your Taxes

Summer is often a time when people make major life decisions. Common events include buying a home, getting married or changing jobs. If you’re looking for a new job in your same line of work, you may be able to claim a tax deduction for some of your job hunting expenses.

Here are seven things you need to know about deducting these costs:
1. Your expenses must be for a job search in your current occupation. You may not deduct expenses related to a search for a job in a new occupation. If your employer or another party reimburses you for an expense, you may not deduct it.

2. You can deduct employment and job placement agency fees you pay while looking for a job.


3. You can deduct the cost of preparing and mailing copies of your résumé to prospective employers. 

4. If you travel to look for a new job, you may be able to deduct your travel expenses. However, you can only deduct them if the trip is primarily to look for a new job.

5. You can’t deduct job search expenses if there was a substantial break between the end of your last job and the time you began looking for a new one.

6. You can’t deduct job search expenses if you’re looking for a job for the first time.


7. You usually will claim job search expenses as a miscellaneous itemized deduction. You can deduct only the amount of your total miscellaneous deductions that exceed two percent of your adjusted gross income.

Tax Tips if You’re Starting a Business

If you plan to start a new business, or you’ve just opened your doors, it is important for you to know your federal tax responsibilities. Here are five basic tips from the IRS that can help you get started. 

1. Type of Business.  Early on, you will need to decide the type of business you are going to establish. The most common types are sole proprietorship, partnership, corporation, S corporation and Limited Liability Company. Each type reports its business activity on a different federal tax form.

2. Types of Taxes.  The type of business you run usually determines the type of taxes you pay. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.

3. Employer Identification Number.  A business often needs to get a federal EIN for tax purposes. Check IRS.gov to find out whether you need this number. If you do, you can apply for an EIN online.

4. Recordkeeping.  Keeping good records will help you when it’s time to file your business tax forms at the end of the year. They help track deductible expenses and support all the items you report on your tax return. Good records will also help you monitor your business’ progress and prepare your financial statements. You may choose any recordkeeping system that clearly shows your income and expenses.


5. Accounting Method.  Each taxpayer must also use a consistent accounting method, which is a set of rules that determine when to report income and expenses. The most common are the cash method and accrual method. Under the cash method, you normally report income in the year you receive it and deduct expenses in the year you pay them. Under the accrual method, you generally report income in the year you earn it and deduct expenses in the year you incur them. This is true even if you receive the income or pay the expenses in a future year.

Tax Tips for Newlyweds

Late spring and early summer are popular times for weddings. Whatever the season, a change in your marital status can affect your taxes. Here are several tips from the IRS for newlyweds.

• It’s important that the names and Social Security numbers that you put on your tax return match your Social Security Administration records. If you’ve changed your name, report the change to the SSA. To do that, file Form SS-5, Application for a Social Security Card. You can get this form on their website at SSA.gov, by calling 800-772-1213 or by visiting your local SSA office.
• If your address has changed, file Form 8822, Change of Address to notify the IRS. You should also notify the U.S. Postal Service if your address has changed. You can ask to have your mail forwarded online at USPS.com or report the change at your local post office.
• If you work, report your name or address change to your employer. This will help to ensure that you receive your Form W-2, Wage and Tax Statement, after the end of the year.
• If you and your spouse both work, you should check the amount of federal income tax withheld from your pay. Your combined incomes may move you into a higher tax bracket. Use the IRS Withholding Calculator tool at IRS.gov to help you complete a new Form W-4, Employee's Withholding Allowance Certificate. See Publication 505, Tax Withholding and Estimated Tax, for more information.
• If you didn’t qualify to itemize deductions before you were married, that may have changed. You and your spouse may save money by itemizing rather than taking the standard deduction on your tax return. You’ll need to use Form 1040 with Schedule A, Itemized Deductions. You can’t use Form 1040A or 1040EZ when you itemize.
• If you are married as of Dec. 31, that’s your marital status for the entire year for tax purposes. You and your spouse usually may choose to file your federal income tax return either jointly or separately in any given year. You may want to figure the tax both ways to determine which filing status results in the lowest tax. In most cases, it’s beneficial to file jointly.

Tips to Start Planning Next Year's Tax Return

For most taxpayers, the tax deadline has passed. But planning for next year can start now. The IRS reminds taxpayers that being organized and planning ahead can save time and money in 2014. Here are six things you can do now to make next April 15 easier.

1. Adjust your withholding.  Each year, millions of American workers have far more taxes withheld from their pay than is required. Now is a good time to review your withholding to make the taxes withheld from your pay closer to the taxes you’ll owe for this year. This is especially true if you normally get a large refund and you would like more money in your paycheck. If you owed tax when you filed, you may need to increase the federal income tax withheld from your wages. Use the IRS Withholding Calculator at IRS.gov to complete a new Form W-4, Employee's Withholding Allowance Certificate.

2. Store your return in a safe place.  Put your 2012 tax return and supporting documents somewhere safe. If you need to refer to your return in the future, you’ll know where to find it. For example, you may need a copy of your return when applying for a home loan or financial aid. You can also use it as a helpful guide for next year's return.

3. Organize your records.  Establish one location where everyone in your household can put tax-related records during the year. This will avoid a scramble for misplaced mileage logs or charity receipts come tax time.

4. Shop for a tax professional.  If you use a tax professional to help you with tax planning, start your search now. You’ll have more time when you're not up against a deadline or anxious to receive your tax refund. Choose a tax professional wisely. You’re ultimately responsible for the accuracy of your own return regardless of who prepares it. Find tips for choosing a preparer at IRS.gov.

5. Consider itemizing deductions.  If you usually claim a standard deduction, you may be able to reduce your taxes if you itemize deductions instead. If your itemized deductions typically fall just below your standard deduction, you can ‘bundle’ your deductions. For example, an early or extra mortgage payment or property tax payment, or a planned donation to charity could equal some tax savings. See the Schedule A, Itemized Deductions, instructions for the list of items you can deduct. Planning an approach now that works best for you can pay off at tax time next year.

Top 10 Tax Time Tips

The end of the tax filing season is almost here. Even though your tax return is not due until April 15, you can make tax time easier on yourself by starting now. Here are 10 important tips to ensure a smooth process.

1. Gather your records.  Round up any documents you will need when filing your taxes, including receipts, canceled checks and other documents that support income or deductions you will be claiming on your tax return. Store them in a safe place.

2. Report all your income.  You will need all your Forms W-2, Wage and Tax Statements, and 1099 income statements to report your income when you file your tax return. To ensure you don’t misplace them, add them to your other records.

3. Get answers to questions.  Use the Interactive Tax Assistant tool available on the IRS website to find answers to your questions about tax credits and deductions.

4. Use Free File.  There is at least one option available for everyone to prepare and e-file a tax return at no cost. Let IRS Free File do the work for you with brand-name tax software or online fillable forms. It's available exclusively at IRS.gov. If your income was $57,000 or less, you qualify to use free tax software. If your income was higher, or you are comfortable preparing your own tax return, there's Free File Fillable Forms, the electronic version of IRS paper forms. Visit IRS.gov/freefile to review your options.

5. Try IRS e-file.  IRS e-file is the best way to file an accurate tax return. It’s safe, easy and the way most taxpayers file their return. Last year, more than 80 percent of taxpayers used IRS e-file. Many tax preparers are now required to use e-file. If you owe taxes, you have the option to file early and pay by April 15.

6. Weigh your filing options.  You have several options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free, face-to-face help at a volunteer site. Weigh your options and choose the one that works best for you.

7. Use direct deposit.  Combining e-file with direct deposit is the fastest and safest way for you to get your refund.

8. Visit the IRS website.  The IRS website at IRS.gov is a great place to find everything you need to file your tax return. This includes many online tools, filing tips, answers to frequently asked questions, the latest tax law changes, forms and publications.

9. Remember number 17.  Check out Publication 17, Your Federal Income Tax, on the IRS website. It’s a complete tax resource that includes information such as whether you need to file or how to choose your filing status.

10. Review your return.  Don’t rush. We all make mistakes when we rush. Mistakes slow down the processing of your return. Be sure to double check all Social Security numbers and math calculations on your return as these are the most common errors.