Tax Tips

Use the IRS’s app—IRS2go—to track your refund and more. The app lets you:

• Get the latest tax news
• Watch IRS videos on YouTube
• Get your tax records

The app is available in English and Spanish. Download the app from the iTunes store for iPhones or from Google Play for Androids.

After April 15, you may want to weed out old papers you no longer need. Toss what you don’t need, but be sure to keep:

• Copies of old tax returns, along with proof of filing, forever
• Returns filed for the 6 previous years, along with supporting materials
• Information you may need in the future, such as proof of capital improvements to your home

Sure, you can take a vacation or pay down your credit card debt. But you can also choose to use the money in other ways, including savings and certain investments, and do so directly (with no funds passing into your hands). Some options even offer tax benefits. Arrange for a direct deposit of some or all of your refund check into:

• Checking or savings account
• Coverdell education savings account (ESA)
• Health savings account (HSA)
• IRA
• Roth IRA
• U.S. savings bonds through Treasury Direct (the cap on this option is $5,000, and transfers must be made in multiples of $50)

You can split the refund in as many as 3 ways. Use Form 8888, Allocation of Refund, to tell the government where to send your money.

1. $57,000. This the maximum amount of adjusted gross income you can have to use Free File (www.irs.gov/uac/Free-File:-Do-Your-Federal-Taxes-for-Free), which enables you to complete your return and file it with the IRS electronically at no cost.
2. This is the number of years you have to submit a refund claim in most cases. Thus, April 15, 2013, is the deadline for filing for a refund of 2009 taxes.
3. $2,200. This is the average earned income tax credit claimed by eligible taxpayers last year. For 2012, the maximum credit ranges from $475 for a taxpayer with no qualifying child to $5,891 for those with 3 or more qualifying children.
4. 3%. This is the penalty rate you’ll owe on underpayments of estimated taxes for 2012.
5. The number of other languages (besides English) that the IRS supports. These include Chinese, Korean, Russian, Spanish, and Vietnamese. And American Sign Language is used on IRS videos.

If you do nothing, your employer will continue to withhold federal income taxes based on the information you’ve already provided (your filing status, withholding allowances, etc.). But you may want to make a change if:

• Your family has changed. You can reduce withholding and increase your take-home pay if you have a new baby or expect one in 2013.
• Your residence has changed. If you bought a home recently or expect to buy one very soon, you’ll likely have deductions for mortgage interest and real estate taxes that can lower your tax bill. If you are selling soon, the opposite strategy may apply if you plan to rent after the sale.
• Your income has changed. You’ll increase withholding if your spouse has returned to work but reduce it if your spouse left the job market.
• You expect to owe the new 3.8% net investment income tax. Technically, this is an additional Medicare tax, but you can cover this obligation by extra income tax withholding.

Complete a new Form W-4, Employee’s Withholding Allowance Certificate, and give it to your employer; it is not filed with the IRS.

Your smartphone and tablet can be helpful tax tools with the right apps. Here are some apps that may be helpful (some are free, others have a cost):

• Form 4868 Extension enables you to file for an extension of time to file your federal income tax return.
• iDonatedIt helps record items (including photos) donated to charity.
• IRS2go lets you track your federal tax refund.
• Shoeboxed helps you organize receipts.
• TaxCaster Mobile helps you estimate your taxes for the year.

While no one likes to be a tattler, reporting incidents of suspected tax fraud can be both patriotic (because it saves the federal government money) and monetarily rewarding (because you may be entitled to receive up to 30% of what the government recovers because of your tip). Here’s what to do:

• Complete IRS Form 211, Application for Award for Original Information, to describe the fraud and the information you have about it. This form must be signed under penalty of perjury.
• Mail the form to the IRS Whistleblower Office at 1111 Constitution Ave., NW, Washington, DC 20224.
• Wait. The process can take several years. Payments of awards are not made until after the taxes, penalties, interest, additions to tax, and additional amounts that are finally determined to be owed to the IRS have been collected.

In some but not all cases, if you believe you were denied the award to which you are entitled, you can appeal the IRS decision to the U.S. Tax Court. You have 30 days to file an appeal from the date on which the IRS makes its final determination about the award.

Record keeping has never been simpler now that there are apps on smartphones and tablets for this purpose. You can use apps to track:

• Business meals and entertainment costs. Snap a photo of the expense receipt and archive it.
• Business mileage on your personal vehicle. You can also use a mileage app to track driving for charitable, medical, or moving purposes.
• Charitable contributions. Take photos of property donations, such as used clothing. Then tie them to apps for this purpose.

Check the apps available for your mobile device. Note: The cost, if any, for the app is tax deductible!

The savings you reap by taking advantage of promotional activities, including coupons, sales, discounts, and rebates, is money in your pocket without generating any tax liability. The savings are viewed as a reduction in the purchase price of the items or services so they are not taxable. Thus, the free airline ticket you receive by redeeming frequent flyer miles is not taxable to you.

Caution: If you receive “free gifts” (cash or items) for opening a financial account, the gifts are taxable.

The tax law provides flexibility in allowing families to decide whether the parent who pays tuition should take the tax credit or let the student claim it. The reason why this becomes an important choice is because of the modified adjusted gross income limits that apply for the American Opportunity credit and the lifetime learning credit. These limits may preclude high-income parents from taking the credit. The credit isn’t lost to the family if:

• The parent waives the dependency exemption for the child.
• The child has sufficient income (e.g., from investments or earnings) to have tax liability that the credit can offset.

Note: If the child with investment income subject to the kiddie tax claims the American Opportunity credit because the parent waives it, no portion of the credit is refundable.

The IRS and JKLasser provide you with access to tax information and help through social media. Here are some easy links for you:

IRS

YouTube: www.youtube.com/user/irsvideos

Twitter: @IRSnews

App: IRS2Go is available for the iPhone or iTouch and the Android.

JKLasser

YouTube: www.youtube.com (search JKLasser)

Twitter: @jklasser

Facebook: www.facebook.com/JKLasserTax

Simplify your tax record keeping and do other tax chores by using an app for your smartphone to:

• Track mileage for business, medical, moving, or charitable purposes
• Record business receipts, including travel and entertainment costs
• Photograph charitable donation of goods and figure their value

Note: If the app isn’t free (some apps are), the cost is tax deductible!

If you have a job, you’ve completed a Form W-4 to tell your employer your withholding allowances. But there are other W’s to know about:

• Form W-7A—if you are adopting a child from abroad, you can obtain a taxpayer identification number for the child with this form. It is necessary to have such a number if you want to claim the adoption credit.
• Form W-9—if you are an independent contractor, the party for whom you provide services will ask you to complete this form. This will enable the party to issue a Form 1099-MISC if payments to you exceed $600 during the year.

Form W-10—if you use a day care provider, get taxpayer identification information on this form. Keep the form with your tax records.

If you can’t pay the taxes you owe by April 17 but you think you can do it by October 15, you may be able to avoid all late payment penalties. This option applies if the taxes are no more than $50,000 and you were:

• Unemployed at least 30 consecutive days during 2011 or in 2012 up to April 17.
• Self-employed individuals who experienced a 25% or greater reduction in business income in 2011 due to the economy.

File Form 1127-A to seek this penalty relief. Income limits apply.

Last year’s return can provide you with a road map for completing this year’s return. If you don’t have a copy of the return, you can get a free transcript containing all the vital information, including marital status, type of return filed, AGI, taxable income, and later adjustments. There are 2 ways to order your transcript:

• Go to https://sa2.www4.irs.gov/irfof-tra/start.do (you’ll need your Social Security number, date of birth, and street address with zip code).
• Call 800-908-8846.

The IRS reports that only 34.3% of taxpayers itemized their deductions on 2009 returns. The balance claimed the standard deduction. The number of taxpayers claiming the standard deduction has been increasing over the years. Which is the better choice for you? The way to determine which option will save you more taxes is to add up your itemized deductions and see whether they are more or less than the standard deduction amount. Here are some factors that may affect your decision:

• If you (and/or your spouse) are at least 65 years old, you can add an additional standard deduction amount to your basic standard deduction. For 2011 and 2012, the additional amount is $1,450 for singles or $1,150 for joint filers. However, additional amounts that were allowed in the past for real estate taxes, sales tax on car purchases, and disaster losses, are not longer permissible.
• If you failed to keep required records for itemized deductions, such as acknowledgments for charitable contributions of $250 or more, you can avoid problems by using the standard deduction.
• If you are married and file separately, both spouses must be consistent. This means both must itemize or both must claim the standard deduction for married filing separately.

If you are a victim or potential victim of identity theft and it is or could be affecting your federal taxes, take action. You can file an affidavit (www.irs.gov/pub/irs-pdf/f14039.pdf) with the IRS, along with proof of who you say you are (e.g., a copy of your driver

When you receive information returns from payers of last year’s wages, interest, and dividends, keep them together so you can easily prepare your return. If you’re missing any of these, contact the payer.

Instead of paying your last installment, merely file your tax return by the end of January rather than waiting until April. You won’t owe any late payment penalties. If you’re owed a tax refund, you’ll get it that much sooner.

If your medical deductions are not enough each year to entitle you to an itemized deduction because they don’t exceed the adjusted gross income floor, consider bunching medical costs. Schedule elective procedures and costs in one year to exceed the floor, so that you can at least claim this write-off every other year.