What to know before filing your 2012 returns
It's tax season again, and since 75 percent of all 2012 returns will be entitled to a refund, you might as well get that money from Uncle Sam as quickly as possible. Here's some of what you'll need to know before you file, especially when it comes to your retirement accounts.
While many of the tax rules are similar to tax year 2011, there are a few new developments that you may want to discuss with your tax preparer.
The IRS is providing taxpayers whose adjusted gross incomes are $57,000 or less with free tax prep software options through "Free File," which is available through IRS.gov.
E-filing through the IRS' Fillable Forms is available to all taxpayers, regardless of income. If you are filing a paper return, you may be mailing it to a different address this year because the IRS has changed the filing location for several areas. See "Where To File" for a list of IRS addresses.
Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions, such as mortgage interest, charitable contributions, and state and local taxes. Some are leaving money on the table. If your deductible expenses exceed the 2012 standard deduction limits, be sure you itemize and grab these write-offs:
Tax-preparation fees, job-hunting expenses, business car expenses and professional dues are deductible to the extent that they exceed 2 percent of your adjusted gross income, often referred to as AGI.
Sales tax You can deduct state and local sales tax paid in 2012 if that amount was greater than the state and local income taxes you paid. In other words, if you made a big purchase like a car, you may want to write off your local sales taxes versus your local income taxes. If you didn't keep your sales-tax receipts, use the IRS' Sales Tax Deduction Calculator.
Medical expenses You can only deduct the portion of your 2012 medical expenses that exceeds 7.5 percent of your adjusted gross income.
IRAs Contributions may be deductible, although there are limitations. You have until tax filing to contribute to your traditional and/or Roth IRAs (the limit being the lesser of your taxable compensation for the year or $5,000; $6,000 if you're age 50 or older).
Even if you (or your spouse, if you cohabitate or are filing jointly) are covered by a retirement plan at work, you can deduct some or all of your traditional and Roth IRA contributions, depending on specified phase-outs for modified AGI levels as listed on the IRS website at 1.usa.gov/ZrYkl2. If your modified adjusted gross income is $183,000 or more, you cannot deduct your traditional IRA contributions.
Qualified charitable donations (QCDs)
Taxpayers aged 701/2 or older can make direct, tax-free transfers of up to $100,000 from their IRAs to qualified charities. These transfers can satisfy required minimum distributions without increasing AGI.
When you turn 701/2, you must take RMDs from retirement accounts (other than Roth IRAs) by April 1 of the year following the year in which you turn 701/2. For that first year and all subsequent years, you have to take your distribution by Dec. 31. Failure to take your RMD can result in a 50 percent penalty on the amount not withdrawn.
If you have multiple IRA accounts, you can calculate the RMD separately for each one, but you can only withdraw the total amount from one of them. Note that if you never rolled over your 401(k) or 457(b) plans, you will have to take your required minimum distributions separately from each of those plan accounts.
Although tax preparation requires attention to detail, with the help of the Web resources at irs.gov, a trusted tax preparer and this column, you'll be able to get all your tax ducks in a row without breaking a sweat.