All right, folks it’s tax time for 2012 and, remember, without extensions your return is due April 15. So here are the top seven tips to keep in mind:
1. Many tax breaks were extended for 2012. Here are the highlights:
a. Deductions for certain school teacher expenses (elementary teachers and secondary teachers).
b. Discharge indebtedness on renegotiated qualified principle residence loans. This is big for many people because discharge of indebtedness is usually treated by the IRS as income which results in income tax. This has pardoned many people who had their houses foreclosed on or who were able to negotiate their mortgage down.
c. Mortgage insurance premiums and mortgage interest.
d. Deductions for state and local sales taxes that qualify.
e. Deductions for qualified tuition expenses.
2. Tax credits were also extended. If you forget these credits, the IRS won’t necessarily tell you so keep in mind the following tax credits:
a. Employer wage credit for employees who are active members of the armed forces.
b. There is a work opportunity tax credit which is taken on Form 5884 for employers who paid qualified wages to targeted groups of employees.
c. Adoption expenses of up to $12,650.
d. Health insurance credit. If you own a business with fewer than 25 full-time employees who make less than $50,000 per year on average you may qualify for a tax credit for small businesses that pay for health insurance. This computed on Form 8951.
3. Gift tax – You can now gift up to $13,000 to any individual. Of course, for most people this means their children, but technically, it applies to anyone. As long as your gift is no more than $13,000 per person per year, you do not need to file a gift tax return. Also keep in mind that the estate tax has been increased in 2013 to $5.12 million and it is now indexed for inflation.
4. Small businesses can write off equipment. In t he old days small businesses had to depreciate equipment and just get the tax benefits stretched out over several years. However, more purchases are permitted to be written off in the year the purchase occurred. This can be a huge benefit for a small business. This particular write-off goes up to $500,000 or 50 percent of what the IRS calls qualifying property.
5. Tax credit for college tuition – There is such a thing called Lifetime Learning American Opportunity Tax Credits. These are claimed on Form 8863 if you wish to take it as a credit or Form 8917 if you wish to take it as a deduction. Obviously, you have to determine which is best for you. In most cases, the tax credit is worth more than the deduction because it reduces your taxes dollar for dollar.
6. Revise your Form W-4. We now have new tax brackets and a new 0.09% Medicare tax on high wage earners so your old W-4 might be out of date which could cause you to make an underpayment of tax. Therefore, prepare a new W-4