The New Year has brought with it new tax legislation. Some of the changes will affect your 2012 taxes, while others won’t kick in until tax years 2013 through 2017. Minimizing your potential income tax liability requires a regular review of your financial picture and the current tax strategies available to you.
Although your tax picture is unique to you, there are steps you can take now to ensure that you are better prepared to file your 2012 taxes.
- Organize your 2012 tax file. Keeping complete records may help you save money, especially if it prevents you from having to hunt down or recreate information.
- Update your name and address. If you moved or changed your name in 2012, be sure to update this information with all mediums that relate to your taxes, including with former employers, banks and lenders, the IRS, your state tax agency, and the Social Security Administration.
- Review IRA opportunities. If you haven’t maxed out contributions to your retirement accounts, it’s not too late. For most accounts, the deadline for 2012 contributions is April 15, 2013 (extensions may apply). Remember: Contributing more to pretax retirement accounts lowers your taxable income—and thus your tax burden—for the year.
- Use up your flexible spending account (FSA). If you find that you haven’t spent enough to get all of your deductions back, contact your plan supervisor or payroll department to see if you have any extra time to do so; the deadline is generally around March 15.
- E-file your return. E-filing is not only an environmentally friendly way to file your taxes, but it’s also a faster way to receive your refund.
- Notify the IRS if you fell victim to identify theft in 2012. The IRS will provide you with an Identity Protection Personal ID Number (IP PIN) and flag your account. The IP PIN will serve to verify your tax return and protect your refund.
Mistakes to avoid
Every year, many Americans make easily avoidable mistakes on their tax returns:
- Claiming the wrong status. When filing your return, you cannot simply choose either single or married. If you are married, you have to indicate whether you are filing separately or jointly.
- Failing to use the correct forms and schedules. Using the incorrect forms and schedules can delay the approval of your return—and increase your chance of getting audited.
- Not signing and dating the return. If you fail to sign and date the return, the return is considered unfiled. Unfiled tax returns are subject to many penalties and interest on taxes you may still owe. This also applied to e-filed returns, which require a PIN for an electronic signature.
- Failing to report all income. Unreported income has come under heavy scrutiny recently, and it could even lead to civil and criminal sanctions. Be sure to keep a detailed record of any and all income you receive.
Taking advantage of these tips can be key to a more efficient tax filing process, but the most important step you can take is to get started. Happy filing!
Commonwealth Financial Network® does not provide legal or tax advice.
IRS CIRCULAR 230 DISCLOSURE:
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.