Tips for filing your 2012 tax return with the IRS
It's that time of year again.
Tax season is here, and depending on how you managed your finances over the last year, you may be anticipating a hefty return or dreading the possibility of forking over your hard-earned money to the IRS.
The deadline for filing a tax return is April 15, 2013, so if you've obtained your W2 and want to avoid the rush, it's time to get started.
2012 tax changes
Some years see big changes to the tax system, which can make it challenging to file your return. But the good news for 2012 is that not a lot has changed since last year.
"For 99 percent of the population, everything will stay the same as it was on the 2011 return," says Charles Thompson, owner of highly rated Charles Thompson, CPA of Indianapolis.
The Residential Energy Tax Credit was retroactively reinstated for 2012 and through 2013 as part of the American Taxpayer Relief Act of 2012 (ATRA). It allows a $500 maximum tax credit on eligible energy-efficient home improvements such as installing new doors or windows, insulation, HVAC equipment or water heaters. However, it's a $500 cumulative maximum, so if you claimed more than that amount from 2006 to 2011, it's likely you won’t be eligible for the credit.
The educator expense deduction, which allows elementary and secondary teachers to deduct up to $250 of unreimbursed, school-related expenses, was also extended through 2013 under the ATRA.
Thompson, a 2012 Best Indianapolis Contractor winner, says there was also a change to the alternative minimum tax, also know as the AMT, which was permanently indexed for inflation as part of the ATRA.
The AMT was established by Congress in 1969 to keep high-income earners from deducting their way out of paying no income tax. It was originally designed to only apply to the ultra-wealthy, but over time it started affecting middle-class families because it was never indexed for inflation.
"For years, they've been trying to bring in a patch to index it for inflation because what was a lot of income in 1969 is no longer a lot of income," says Poonam Bansal, owner of highly rated Accounting & Taxation Solutions Inc., of Alexandria, Va.
Should I hire a tax preparer?
Thompson says it literally pays to hire a professional tax preparer because most people simply don't understand how the tax system works. "My experience is that most people who do their own tax return – unless they have an extremely simple return – they either cheat themselves or they underpay taxes," he says. "There are just too many rules and things that may be deductible in certain circumstances and not deductible in others that there's really no way for people who aren’t studying those things to keep up."
Bansal says homeowners who own rental property or small businesses and those who make frequent stock transactions should take their returns to a preparer. "Compared to the time you spend doing all the research and the stress, professional tax preparation comes at a very low cost," she says.
Due to the nature of the work and the personal information involved, all tax preparers are required by law to register with the IRS.
A preparer has to have an active Preparer Tax Identification Number (PTIN) on file with the IRS that must be renewed on an annual basis. All paid preparers must comply with IRS requirements to receive the PTIN and must sign and record their PTIN on the tax returns.
Any preparer who files more than 10 returns in a year must also register as an e-file provider. Bansal says she had to pass a rigorous background check that included having her fingerprints taken to obtain her e-file certification.
The key to limiting stress during tax season is to be prepared and plan ahead. "The biggest thing is to work on it all year long," Thompson says.
He recommends setting up a designated place in the home - such as a folder or envelope - for storing any documents that could influence your tax return. Even minor things that might not make a big impact should still be included so everything is in one place. "If you have a catastrophic medical problem later in the year that's really expensive, it might be worth it to go back and add up all your medical expenses," Thompson says.
Additional tax tips:
- Stay organized throughout the year and keep important tax-related documents in a safe place for easy retrieval at tax time
- Keep receipts for all tax-deductible donations
- Consult with a tax advisor before making significant decisions that may affect your taxes
- If you plan to hire a tax preparation service, schedule an appointment as early as possible
- Make sure to review the return and that the preparer signs it with their PTIN
- Obtain a copy of your return for your records