From the IRS: Seven facts to help you choose the right filing status.
The filing status you choose when you file your 2012 tax return will affect the tax breaks you’ll qualify for, your standard deduction amount, and ultimately the amount of tax you’ll pay. Are you single, head of household, married filing jointly, or married filing separately?
Here are seven facts that will help you choose the right status.
1. Your marital status as of the last day of the year is your marital status for the entire year.
2. If you qualify for more than one status, choose the one that results in the lowest tax liability for you.
3. Single filing status is likely to be your filing choice if you are not married or you are divorced or legally separated.
4. Married individuals can file a joint return. If your spouse died during 2012, you generally may still file a joint return for 2012.
5. Married couples may file “married, filing separately” if they choose.
6. “Head of household” status is available to you if you are not married and you paid more than half the cost of maintaining a home for yourself and a child.
7. The status “qualifying widow(er) with dependent child” is available if your spouse died during 2010 or 2011 and you have a dependent child. Other conditions may apply.
How to know if you’ve been a victim of identity theft
You may be a victim of identity theft and not have a clue that this has happened to you until you get a notice from the IRS telling you that –
* You filed more than one tax return, or someone has already filed using your information.
* You owe taxes for a year even though you didn’t file a return because you weren’t required to file.
* You were paid wages from an employer where you did not work.
If you get such a notice, the IRS wants you to respond immediately so that they can correct the problem and secure your tax account. For more information, please contact the team at Simons Bitzer at (317) 782-3070.
IRS cautions taxpayers about identity theft
The IRS has made preventing identity theft a top priority this year.
Here’s what identity thieves have been doing: They steal a taxpayer’s personal information and use it to file a tax return claiming a refund under the taxpayer’s name. Then when the taxpayer actually files a return, the IRS won’t accept it and notifies the taxpayer that a return under his name and ID number has already been filed.
The IRS recommends that taxpayers should do the following in order to avoid becoming an identity theft victim:
* Guard your personal information. Identity thieves can get your information by stealing your wallet or purse, going through your trash, or posing as someone who needs your information for a legitimate reason.
* Watch out for IRS impersonators. Don’t fall for phone calls, faxes, e-mails, or other contacts made by people claiming to be from the IRS. Don’t respond to the message. Don’t open any attachments in an e-mail or click on any links. Do not enter your personal information.
The IRS recommends that you enter “phishing” in the search box at the top of its website (www.irs.gov) to get more information on avoiding tax scams. E-mail suspected scams to phishing@irs.gov.
* Protect information on your computer. Protect your tax information with a password, and once you’re finished with your tax data, take it off your hard drive.
For further information, contact Simons Bitzer at (317) 782-3070.
When to start drawing social security is an important decision
Over the coming years, millions of baby boomers will reach age 62, the minimum threshold for receiving social security retirement benefits. If recent history is any indication, most of these people (over 70% by some estimates) will take their benefits as early as possible.
But whether you should take social security retirement benefits at the earliest possible age, or defer them until reaching normal retirement age (or even age 70), depends on several factors. Among these are your overall health and life expectancy, your plans to earn income before reaching normal retirement age, anticipated returns on other investments, even your guesses about the future of social security. Like most retirement planning choices, this decision isn’t one-size-fits-all.
For some people, deferring social security benefits isn’t an option. If your savings won’t cover ongoing expenses, you may need to rely on social security income to make ends meet.
But if your circumstances offer more financial flexibility, you may want to consider deferring social security benefits. For each year you delay taking benefits, the payouts increase, up to age 70. Also, if you plan to earn significant income between age 62 and your normal retirement age (age 65 to age 67, depending on the year you were born), putting off your social security benefits may make sense. That’s because any benefits in excess of specified limits ($15,120 in 2013) will be reduced. You’ll lose $1 of benefits for every $2 in earnings above the limits. Fortunately, you won’t lose any social security benefits (regardless of earnings) once you reach full retirement age.
On the other hand, let’s say you’ve accumulated $500,000 in your 401(k) account and expect that account to generate an 8% annual return. Under such a scenario, you might be better off leaving your retirement savings alone and taking your social security benefits early to cover living expenses. Or perhaps your family has a history of health problems and you don’t realistically expect to live into your 80s. Again, taking social security benefits at age 62 might be a good choice.
When it comes to retirement planning, there are no guarantees. When deciding whether to defer social security benefits, take a realistic look at your situation, run the numbers, and give it your best shot. For help with this important decision, give the team at Simons Bitzer a call at 317-782-3070.
Dependents: What are the tax rules?
Most taxpayers believe that a “dependent” is a minor child that lives with them. While that is essentially correct, dependents can include parents, other relatives and nonrelatives, and even children who don’t live with you. There is really much more to the dependent deduction than you might at first imagine.
* Exemptions and your taxable income. For 2012, each dependent deduction is worth $3,800, reducing your taxable income by this amount. In 2013, the deduction increases to $3,900 and is phased out for high-income taxpayers.
* Dependents defined. It’s impossible to present all of the rules relative to dependents here, since they are so complicated. Generally speaking, if somebody lives with you and you provide more than half of that individual’s support for the entire year, there is a good chance that person is a dependent. There are many exceptions. For example, parents don’t have to live with you if they otherwise qualify, but some other relatives do. A child of divorced parents doesn’t necessarily have to live with the noncustodial spouse for the dependent deduction to apply.
* People who can’t be claimed. Generally, you may not claim a married person as a dependent if that person files a joint return with a spouse. Also, a dependent must be a U.S. citizen, resident alien, national, or a resident of Canada or Mexico for part of the year.
* One dependent deduction per individual. If you claim yourself as your own dependent, anybody else who can truly meet the tests and claim you as a dependent will lose out. This is common for college students who file their own tax returns for their part-time jobs, while mom and dad really meet all of the qualifications to claim the dependent exemption.
While the dependent deduction might seem relatively minor, it can lead to other deductions on the tax return. In order to claim the child tax credit, the education credits, the dependent care credit, for example, you must claim the dependent deduction for the child that qualifies for the deduction or credit.
Finally dependent deductions can be negotiated, which is especially important for divorced taxpayers. In the past, the IRS would accept the language of the divorce decree to allow the noncustodial parent the dependent deduction. However, under the current rules, the IRS will no longer accept a divorce decree in lieu of IRS Form 8332 (Release of Exemption). With questions or for more information, please contact Simons Bitzer at (317) 782-3070.
Home office recordkeeping simplified
The IRS is reducing the recordkeeping required for the home-office deduction, effective for 2013. Taxpayers who qualify may use a new optional deduction calculated at $5 a square foot for up to 300 square feet of an area in a home that is used regularly and exclusively for business. The deduction is capped at $1,500 a year.
Taxpayers opting for the simplified deduction cannot depreciate a portion of the home as they can under the other method. However, business expenses not related to the home, such as advertising, supplies, and employee wages, are still fully deductible.
This simplified option is available starting with the 2013 tax return which will be filed in 2014.
With questions or for more information about tax planning or tax preparation, please contact Simons Bitzer & Associates at (317) 782-3070.
New law causes filing season delay
The delayed passage of the “American Taxpayer Relief Act of 2012″ has put the IRS behind schedule. Due to several provisions of the law affecting 2012 tax returns, the IRS could not open the Form 1040 filing season for the majority of taxpayers until late January.
Those taxpayers filing Form 5695 (Energy Credit), Form 4562 (Depreciation), and Form 3800 (General Business Credit) will not be able to file until late February or possibly not until March. Apparently a large percentage of taxpayers in this group typically file later in the season because they have more complex returns.
The IRS must complete the updating of forms and computer programming and testing before it is ready to accept any filings either on paper or electronically. The IRS said that taxpayers will receive refunds faster by e-filing and using direct deposit.
If we can be of assistance to you in preparing any of your 2012 tax filings, please contact Simons Bitzer at (317) 782-3070.
Don’t miss out on the “saver’s credit”
If you’re not sure what the “saver’s credit” is, you’re not alone. Members of the Senate Finance Committee believe many people who are eligible to claim the credit are unaware of its existence.
Here’s what you need to know:
*The saver’s credit, also called the “retirement savings contributions credit,” is a tax break designed to encourage you to make contributions to your traditional and Roth IRAs and certain other qualified retirement plans — including your 401(k).
*You apply the credit directly to your federal income tax liability, including the alternative minimum tax. The credit is nonrefundable, meaning you can use it to reduce your tax liability to zero, but no lower.
*The maximum credit is $1,000 ($2,000 if you’re married filing a joint return).
*You’re eligible if you’re not a full-time student or a dependent, are over age 18, and your 2012 adjusted gross income is less than the phase-out amount of $28,750 ($57,500 for married filing jointly). For 2013, those phase-out amounts increase to $29,500 for singles and $59,000 for joint filers.
If you’re eligible, you can take the credit and still deduct your traditional IRA contribution, which gives you the opportunity for double savings.
Additional rules might apply. For instance, the amount of the credit may be reduced by certain distributions from your retirement plans. To learn how you can obtain the maximum benefit, please contact one of the Simons Bitzer Tax Specialists at (317) 782-3070.
Speed up your IRA deduction
If you did not contribute the 2012 maximum to your IRA by December 31, 2012, and you make any IRA contributions before April 15, 2013, tell your bank or other trustee that these 2013 contributions are for 2012 until you reach the $5,000 limit ($6,000 if you’re 50 or older). You can then deduct these 2013 amounts on your 2012 tax return for a quicker tax benefit.
Save more for your retirement:
The amount you can contribute to your retirement plan increases in 2013. The 401(k) maximum salary deferral increases from the 2012 limit of $17,000 to $17,500. The catch-up limit for those 50 and older remains unchanged at $5,500. The maximum deferral for a SIMPLE increases from the 2012 limit of $11,500 to $12,000. The catch-up limit for 50 and older remains at $2,500. The 2013 maximum IRA contribution increases from the 2012 limit of $5,000 to $5,500. If you’re 50 or older, your IRA contribution limit is $6,500.
With questions or for more information, please contact the Simons Bitzer tax specialists at (317) 782-3070.
There’s still time to contribute to your 2012 IRA
If you did not contribute the 2012 maximum to your IRA by December 31, 2012, and you make any IRA contributions before April 15, 2013, tell your bank or other trustee that these 2013 contributions are for 2012 until you reach the $5,000 limit ($6,000 if you’re 50 or older). You can then deduct these 2013 amounts on your 2012 tax return for a quicker tax benefit.
The 2013 maximum IRA contribution increases from the 2012 limit of $5,000 to $5,500. If you’re 50 or older, your IRA contribution limit is $6,500.
With questions, please contact Simons Bitzer at (317) 782-3070 or consult your financial advisor.
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