J.K. Lasser's Your Income Tax 2013 3rd Edition

Five Ways to Save on Your 2012 Tax Return

by J.K. Lasser Tax Institute

To paraphrase a federal judge, you aren’t required to pay one penny more than the law requires. The trick to minimizing your tax bill is knowing what those rules are so you can take advantage of them without running afoul of the IRS. Here are five strategies you can use to save on income taxes.

1. Use last year’s return as a reminder.

Review your tax return for 2011, looking closely at the deductions and tax credits you claimed. Then consider your activities for 2012 to see that you don’t overlook anything when completing your 2012 return. For example, if you usually deduct charitable contributions, review the list of organizations you gave to in the past; this may prompt you to remember donation made in 2012 that would otherwise have been forgotten. However, be sure you have the required substantiation to prove your deduction.

2. Check for new eligibility thresholds for tax breaks.

Some tax breaks are limited to those with income below set limits. Just because you didn’t qualify for a particular tax break last year because your income exceeded a threshold amount doesn’t mean you are barred this year as well. Many eligibility thresholds have increased for 2012, potentially making you eligible for the break. For example, if you participate in your employer’s 401(k) plan, you may also be able to make a tax-deductible IRA contribution to reduce your tax bill as long as your modified adjusted gross income (MAGI) is below a threshold (based on your filing status). Those threshold amounts are higher in 2012 than they were in 2011.

Other breaks with higher eligibility limits in 2012:

• Lifetime learning credit
• Retirement savers credit
• Roth IRA contribution

3. Check for new exclusion, deduction, and credit limits.

The amount that you can write-off may be larger in 2012 than was permissible in 2011. For example, the IRS-set mileage allowance for driving your vehicle for business, medical, and moving purposes is slightly higher for 2012 (in 2011, two rates for the year combined for a lower write-off).

Other write-offs with higher limits in 2012 include:

• Foreign earned income exclusion
• Health savings account contributions
• Long-term care insurance premiums (the deductible portion)
• Personal exemptions
• Standard deduction amounts

4. Decide whether to itemize or take the standard deduction.

Don’t let laziness prevent you from claiming your maximum write-offs. Compare your itemized deductions with the standard deduction for your filing status; then deduct the higher amount. Itemized deductions include payments for:

• Medical expenses not covered by insurance or other health plans
• Certain state and local taxes
• Mortgage interest (within limits) and net investment interest
• Charitable contributions
• Casualty and theft losses
• Miscellaneous itemized expenses, such as employee business expenses and costs related to tax return preparation

5. File a return even if you aren’t required to do so.

You may be eligible for a refundable tax credit, which means you receive money back even though it is more than the taxes owed. Two refundable credits for 2012 are the earned income credit and, for some taxpayers, the child tax credit.

Final word

If you overpaid your income taxes because you had too much withheld from your paycheck or your estimated tax payments were larger than necessary, be sure to file for a tax refund. The IRS does not send you a refund automatically.

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Easy-to-Use Format Explains Complex Tax Laws

• FILING TIPS and FILING INSTRUCTIONS help you prepare your 2012 return
• PLANNING REMINDERS highlight year-end tax strategies for 2012 and planning opportunities for 2013 and later years
• CAUTIONS point out potential pitfalls to avoid and areas where you might expect IRS opposition
• LAW ALERTS indicate recent changes in the tax law and pending legislation before Congress
• COURT DECISIONS highlight key rulings from the Tax Court and other federal courts
• IRS ALERTS highlight key rulings and announcements from the IRS

Basics of Filing (Chap. 1)
including:

• Which form to file – Chap. 1
• Filing for your children – Chap. 1
• Filing as Head of Household – Chap. 1
• Filing for married couples – Chap. 1

What Must You Report as Income? (Chaps. 2–11)
including:

• Fringe Benefits – Chap. 3
• Traditional & Roth IRAs – Chap. 8
• Capital gains & losses – Chap. 5
• Rental Income – Chap. 9

What Deductions Can You Claim? (Chaps. 12–21)
including:

• Moving expenses – Chap. 12
• Charitable deductions – Chap. 14
• Casualty Loss – Chap. 18
• Who is a dependent? – Chap. 21

How Much Tax Do You Owe? (Chaps. 22–27)
including:

• The AMT – Chap. 23
• Personal tax credits – Chap. 25
• Your child’s tax – Chap. 24
• Estimated taxes – Chap. 27

Strategies to Save You Taxes (Chaps. 28–39)
including:

• Tax-free residence sales – Chap. 29
• Armed forces rules – Chap. 35
• Investing in securities – Chap. 30
• Tax credits for education – Chap. 33

Planning Ideas for Your Business (Chaps. 40–45)
including:

• Home office deduction – Chap. 40
• Auto expenses – Chap. 43
• Keogh, Simple, or SEP – Chap. 41
• Self-employment tax – Chap. 45

Now That You’re Done (Chaps. 46–48)
including:

• Electronic filing – Chap. 46
• IRS Audits – Chap. 48
• Filing extensions – Chap. 46
• Amended returns – Chap. 47