Health & Fitness
10 Tips for Taxpayers
10 Tips for Taxpayers Brought to you by Hoboken Real Estate Monitor.com and Donna Antonucci
TIP 1: GET READY TO WAIT
Remember the delays in 2011 when some taxpayers had to wait until mid-February to file their returns because of the late passage of tax laws? Expect the same in 2013. Congress waited until Jan. 1 to pass new tax laws, and the Internal Revenue Service needs time to reprogram its computers to account for the changes. Former IRS Commissioner Doug Shulman, who completed his term just before the presidential election, warned about delays as far back as March 2012. In November, acting IRS Commissioner Steven Miller wrote to the leaders of the House and Senate tax-writing committees, alerting them that the filing of tax returns by as many as 69 million taxpayers could be delayed, some possibly as late as March 2013, because of procrastination by Congress. Most of the inconvenienced taxpayers would be those affected by the alternative minimum tax.
TIP 2: WATCH OUT FOR THE 3.8 PERCENT MEDICARE INVESTMENT TAX
Several new taxes created as part of the Patient Protection and Affordable Care Act, popularly known as Obamacare, take effect in 2013. The major new tax is a 3.8 percentage point surtax on investment income earned by wealthier taxpayers. Single taxpayers making at least $200,000 and households making $250,000 or more would see this tax added to their investment earnings. Unearned income that will be subject to the new tax includes interest, dividends, capital gains, annuities, royalties and rents. Distributions from individual retirement accounts are exempt from the surtax, but since they are taxable (at your ordinary income tax rate), the retirement account money could increase your adjusted gross income and possibly push you into the Medicare surtax area.
TIP 3: TAKE NOTE OF THE 0.9 PERCENT MEDICARE PAYROLL TAX INCREASE
In addition to the Medicare surtax on investment income, individuals who make more than $200,000 ($250,000 for joint filers) in 2013 will see a new 0.9 percent Medicare payroll tax taken out of their paychecks on the amounts earned over their filing status thresholds. Self-employed workers will have to figure the added payroll tax on their earnings, too.
Tip 4: Monitor your medical expenses
A major shortcoming of the itemized medical expenses deduction is that you must rack up enough qualified costs to be able to claim the amount on Schedule A. In 2013, again as part of the health care law, you'll need even more. For the 2012 tax year, you can deduct only the amount of medical and dental expenses that exceed 7.5 percent of your adjusted gross income, or AGI. In 2013, you must have qualified medical expenses that are more than 10 percent of your AGI. Taxpayers age 65 or older, however, can still use the 7.5 percent threshold through 2016.
Find out what's happening in Hobokenwith free, real-time updates from Patch.
If you plan to get around the higher deduction threshold by using a flexible spending account, or FSA, to pay for unreimbursed medical costs, that's still a good 2013 tax strategy. But as you learned when you signed up for your medical FSA during your workplace benefits enrollment period, you can only put up to $2,500 into the account. So, plan accordingly for expenditures of this reduced amount.
TIP 5: DETERMINE WHETHER YOUR INSURANCE REBATE IS TAXABLE
Last fall, health insurers issued more than $1 billion in premium refunds to nearly 13 million consumers. The payments, officially known as medical loss ratio, or MLR, rebates were required by the Affordable Care Act in cases where health insurers did not spend at least a certain percentage (generally 80 percent to 85 percent) of the prior year's health insurance premiums on health care services. The rebates issued in August 2012 covered premiums collected for the 2011 plan year. And in some cases, the rebates are taxable. The general tax rule is that if you got a tax break for the money and then got some of it back, the Internal Revenue Service wants to collect its portion. So, for example, if you paid for your medical insurance and itemized those premiums as part of your medical deductions, at least a portion of the rebate is taxable. The IRS has a frequently asked questions Web page with more on the various insurance rebate payment methods and taxability issues.
Find out what's happening in Hobokenwith free, real-time updates from Patch.
TIP 6: NOTE YOUR COMPANY HEALTH COVERAGE'S VALUE
One more health care act tax provision will show up on your 2012 Form W-2 that your employer is required to send you by the end of January. In Box 12, you'll see how much your workplace-provided medical coverage is worth. Don't worry. You don't have to include the amount, which will have the explanatory code DD next to it, on your tax return. It's for informational purposes only. The IRS will use this data to help it enforce the eventual individual coverage mandate (effective in 2014), as well as collect the so-called Cadillac tax on more expensive workplace insurance plans (effective in 2018).
TIP 7: PAY YOUR 2010 ROTH IRA CONVERSION TAXES
If you converted a traditional IRA to a Roth account in 2010, you were able to spread any conversion tax payments equally over two subsequent tax years. Your first payment was due with your 2011 tax filing. The second half is due with your 2012 return.
TIP 8: MAXIMIZE YOUR WORKPLACE RETIREMENT PLAN
Speaking of retirement savings, don't overlook your 401(k) plan. Your contributions are made via payroll deductions before your withholding taxes are calculated, so in addition to saving for retirement, you shave a bit off your tax bill. Many companies make matching contributions to employee accounts. That's basically free retirement money. And the total earnings in the account grow tax-deferred. Each year the IRS reviews the maximum amount that workers can contribute to their 401(k)s and, if warranted, adjusts the contribution levels for inflation. In 2013, you can contribute up to $17,500 to your 401(k). If you're 50 or older, you can add an extra $5,500, allowing a worker who is closer to retirement to contribute as much as $23,000 in a 401(k).
And if your company offers a Roth 401(k) option, the fiscal cliff tax bill also now allows plan participants to convert to that type of retirement savings at any time. You no longer have to wait for one of the three qualifying events -- a job change, retirement, or turning 59 ½ -- to roll your regular 401(k) into a Roth 401(k), which eventually provides tax-free distributions. Remember, however, if you do roll over your workplace retirement account, you'll owe tax on the converted money.
TIP 9: FIND A TAX PROFESSIONAL
Tax laws change every year. And too often, the changes are made late in a tax year, giving you very little time to adjust. If 2013 is the year you decide to get professional help in deciphering the late-breaking and convoluted tax laws and filing your return, start searching for a tax pro now. You have plenty of time to determine which tax professional best fits your tax needs and then thoroughly check out the tax adviser before hiring.
TIP 10: TAKE YOUR TIME
Here's one more adage to keep in mind as an important tip for taxpayers: Haste makes waste. That can be true and costly when it comes to taxes. Although the filing deadline is April 15, you can get more time to finish your tax forms. If you need it, take it by filing for an extension with Form 4868. Remember, if you owe a tax bill, you must send in that amount (or close to it) by April 15 or you could end up owing more in late-payment penalty charges.
