Tax Tips

Early Tax Preparation Tips

1. Adjust Your Withholding—Why wait another year for a big refund? Now is a good time to review your withholding and make adjustments for next year, especially if you’d prefer more money in each paycheck this year. If you owed at tax time, perhaps you’d like next year’s tax payment to be smaller. Contact ABS for help calculating your withholding.

2. Organize Recordkeeping—Establish a central location where everyone in your household can put tax-related records all year long. Be consistent to avoid a scramble for misplaced mileage logs or charity receipts.

3. Review Your Paychecks—Make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions, and other items. These payroll adjustments can make a big difference in your bottom line. Fixing an error on your paycheck now helps you avoid hassles later.

4. Prepare to Itemize Deductions—If your expenses typically fall just below the amount to make itemizing advantageous, a bit of planning to bundle deductions into 2012 may pay off. For example, an early or extra mortgage payment, pre-deadline property tax payments, or planned donations could equal
some extra tax savings.

5. Strategize Tuition Payments—The American Opportunity Tax Credit, which offsets higher education expenses, is set to expire after 2012. It may be beneficial to pay 2013 tuition in 2012 to take full advantage of this tax credit, up to $2,500, before it expires.

6. Stay Apprised of Changes—Find out about tax law changes, helpful tips, and IRS announcements during the year by subscribing to IRS Tax Tips through www.irs.gov or IRS2Go (the IRS’s mobile app). The IRS issues tips regularly during summer and tax season. Special Edition tips are sent periodically for other timely updates.

Tax Tips

1. Charitable Contributions – When preparing to file your federal tax return, don’t forget your contributions to charitable organizations. Your donations can add up to a nice tax deduction for your
a corporation or your personal taxes.

2. Home Refinance – Taxpayers who refinanced their homes may be eligible to deduct some costs associated with their loans. Generally, for taxpayers who itemize, the “points” paid to obtain a home mortgage may be deductible as mortgage interest. Points paid to obtain an original home mortgage can be, depending on circumstances, fully deductible in the year paid. However, points paid solely to refinance a home mortgage usually must be deducted over the life of the loan. Other closing costs such as appraisal fees and other non-interest fees — generally are not deductible. Additionally, the amount of Adjusted Gross Income can affect the number of deductions that can be taken. Please contact us if you’ve recently refinanced.

3. Sale of Home – If you sold your main home, you may be able to exclude up to $250,000 of gain ($500,000 for married taxpayers filing jointly) from your federal tax return. This exclusion is allowed each time that you sell your main home, but generally no more frequently than once every two years. To exclude gain, a taxpayer must both own and use the home as a principal residence for two of the five years before the sale. The two years may consist of 24 full months or 730 days.

4. Taxes – You may be able to deduct certain taxes on your federal income tax return. There are four types of deductible taxes. State and local income and sales taxes, Real estate taxes, Personal property taxes, and Foreign income taxes.

5. Tips Received – If you work at a hair salon, barbershop, casino, golf course, hotel, or restaurant or drive a taxicab the tip income you receive as an employee from those services is taxable income. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes and to report the correct amount of your earnings to Social Security.

6. Home Office Expenses – Whether you are self-employed or an employee, if you use a portion of your home exclusively and regularly for business purposes, you may be able to take a home office deduction. Generally, the amount you can deduct depends on the percentage of your home used for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.

Tax Saving Strategy

1. Charitable Giving – Instead of selling your appreciated long-term securities, donate the stock
instead and avoid paying tax on the unrealized gain while still getting a charitable tax deduction for the full fair market value.

2. Health Savings Accounts (HSAs) – If you have a high deductible medical plan you can open an HSA and make tax-deductible contributions to your account to pay for medical expenses. Unlike flexible spending arrangements (FSAs), the contributions can carry over for medical expenses in future years.

3. ROTH IRAs – Contributions to a ROTH IRA are not tax deductible but the qualified distributions, including earnings are tax-free.

4. Municipal Bonds – Interest earned on these types of investments is tax-exempt.

5. Own a home – most of the cost of this type of investment is financed and the interest (on mortgages up to $1,000,000) is tax-deductible. When the property is sold, individuals may exclude up to $250,000 ($500,000 if married jointly) of the gain.

6. Retirement Plans – Participate in your employer-sponsored retirement plan, especially if there is a matching component. You will receive a current tax deduction and the tax-deferred compounding can
add up to large retirement savings.