Tax Prep Advice for Feds
by Jason Kay |
As the tax season looms, taxpayers need to prepare carefully in the wake of new tax laws. Although many mistakes are simple enough and fairly easy to avoid, there are some changes that make 2013 quite different than many taxpayers expected. Here are some tips on what federal employee taxpayers can expect as they file taxes for the past 2012 tax year.
Be careful with the math
As simple and obvious as this advice may seem, mathematical errors are still the most common problem with tax returns. Pay close attention and double-check every figure, as the tiniest slip could create a huge issue. Using a tax software program is advisable, as it can easily perform calculations and help you avoid simple mistakes.
Include an identification number
Social Security numbers are no longer automatically included on taxpayer forms, so remembering to write an identification number on the tax form is crucial. The identification number is necessary in order for the tax return to be linked to income statements. In addition, the identification number is needed if the taxpayer wishes to obtain certain credits, such as the child tax and dependent care costs.
Not all medical expenses can be counted towards a deduction for the 2012 tax year. Deductions based on medical expenses can only be the amount of medical and dental expenses that exceed 7.5% of one’s adjusted gross income (AGI). Watch out for next year, when that number rises to 10%. Taxpayers over the age of 65 will be able to continue to claim deductions at the former rate until 2016.
The cost of health coverage
In box 12 of the W-2 form, taxpayers will find the amount that their employers spend on their healthcare. Don’t worry about this number, however, because it does not need to be included on the tax return. It is there simply for informational purposes.
One easy step that can reduce your tax bill is placing money in your TSP plan. Contributing to the TSP means that the money is set aside before withheld taxes are calculated, so the figures going on to a tax return are reduced. For next year, remember that FERS employees are allowed to place $17,500 in their TSP in 2013, and that number is increased to $23,000 if a taxpayer is over 50 years of age.
A regular TSP account can now be rolled over into a Roth TSP at any time, as long as the option is available to you. A Roth TSP option offers a flexible tax plan that can make it preferable to the regular TSP. You must be aware of Roth conversion taxes, however. Taxpayers who converted to a Roth IRA in 2010 must still pay extra taxes with their 2012 tax year return.
Taxpayers should be sure to include all of their charitable donations on their tax return, whether it was cash or a physical gift, such as clothes or a car. If a taxpayer donated to a qualified organization, there is an even better chance that he or she will receive a good deduction. Another issue to consider is qualified charitable distribution provision (QCD). Taxpayers who are over 70 ½ may own a distribution from the IRA that can be paid directly to a qualified charitable organization.
Don’t be too hasty
Taxpayers should not be in too great a rush to get their taxes filed. Yes, they must be timely, but spending time to make sure that every aspect of your tax return is recorded correctly could save you lots of money long-term. You must be sure to check all of the changes in the law. There might be new deductions which you could qualify for. Simply taking time to read back over your work on a tax form, even just once, is a wise idea. Double-check every entry, every calculation. Have someone check your work.
Perhaps one of the most important pieces of advice for taxpayers is to seek professional assistance. Tax advisors will be completely knowledgeable of the new laws for 2013, and able to assist you with the tricky issues of tax returns. Even if you are reasonably confident in your ability to file your taxes on your own, a tax advisor can help you to have peace of mind that you aren’t missing something important, and haven’t made any errors in calculation. Even tax software programs cannot quite match the ability of a tax advisor to catch little mistakes.
Changes in 2013
With the passage of the “American Taxpayer Relief Act of 2012” through Congress, a whole new set of tax laws came to be. Here is a quick rundown of the most important changes to be aware of in the midst of filing tax returns for the 2012 tax year.
- Income Tax Rates
Income taxes are largely staying the same in 2013 except for taxpayers in the highest bracket. Taxpayers with incomes above $400,000 per year will face a tax rate of 39.6%.
- Medicare Surtax
A part of Obama’s health care laws, the Medicare surtax is a 3.8% tax on net investment income, which includes unearned income such as interest and dividends.
Deductions based on personal and dependent exemptions will be phased out for taxpayers with a certain level of income.
- Earned Income Tax Credit
Low and middle-class spouses filing jointly with 3 or more dependents will benefit from the increase of the earned income tax credit in 2013. They will now be eligible to receive $6,044 in an attempt to help them stay on top of their finances.
As taxpayers finish up their tax returns, the most important things to remember are to take great care in entering your information and to thoroughly check all of the tax laws, both old and new. Small mistakes can have great consequences, and no one wants to face penalties and fines due to an honest mistake. Most importantly of all, taxpayers should obtain the assistance of tax software programs or tax advisors.
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by Jason Kay |