If you typically dread income tax time, remember this: Three out of four taxpayers receive a federal refund, and the average direct-deposited refund last year was $2,923.
You have almost as many tax savings opportunities as last year, thanks to the fiscal cliff-averting tax changes passed in early January. In addition to extending the lower Bush-era income tax rates for nearly all taxpayers, the American Tax Relief Act made permanent or extended dozens of tax breaks.
“This year’s tax law changes included thousands of dollars in tax benefits for working families, college students and homeowners in particular,” says Jessi Dolmage, TaxACT spokesperson.
When you’re ready to file your 2012 federal tax return, due April 15, 2013, watch for these key tax benefits:
• The child tax credit is worth up to $1,000 per eligible child, and is refundable for taxpayers with an earned income of more than $3,000.
• Parents who work or attend school and pay for child care may qualify for the child and dependent care credit. The maximum amount is $3,000 per qualifying dependent or $6,000 for two or more qualifying dependents under the age of 13.
• The earned income credit is for working taxpayers with low to moderate income. The refundable credit amount is based on filing status, number of qualifying children and income level. Families with three or more qualifying children could qualify for up to $5,891.
• The refundability of the adoption credit has expired, but the credit is still available and worth up to $12,650 in qualified expenses for 2012.
College and education
• You could deduct up to $4,000 for tuition and fees paid in 2012.
• Paying off student loans? You may be able to deduct up to $2,500 in interest paid during 2012.
• The American Opportunity Credit is worth up to $2,500 per student for post-secondary tuition, fees and course materials.
• Contributing to a Coverdell Education Savings Account? You can exempt a maximum of $2,000 per student in annual contributions.
• If itemizing your deductions, you may be able deduct mortgage insurance premiums paid during 2012.
• The nonbusiness energy property credit for qualified energy-efficient home improvements (insulation, exterior windows and doors, central air conditioners, water heaters and other improvements) was extended for 2012 and 2013. If you’ve claimed this credit on previous year tax returns after 2005, you must subtract the collective amount from the $500 available for 2012.
• Grade K-12 educators can deduct $250 in out-of-pocket expenses for classroom supplies.
• You may be able to exempt employer-provided mass transit and parking benefits from your gross income.
• If you itemize and have paid for work-related education, there’s a deduction for your costs paid minus any employer reimbursed amount.
Hundreds more tax benefits are up for grabs on this year’s federal returns due April 15.
When you’re ready to do your taxes, use these tips to make tax time easier and faster.
1. Gather all your tax forms (W-2, 1099, 1098, etc.), receipts and a copy of last year’s return first. Use TaxACT’s free return checklist at www.taxact.com/checklist.
2. Don’t spend too much on tax preparation. Online and downloadable software has all the guidance, forms and tools the vast majority of taxpayers need to do their own taxes. Some of the solutions are even free. “All taxpayers can file their federal tax returns free with TaxACT Free Federal Edition,” says Dolmage. “TaxACT includes all e-fileable forms for simple and complex tax returns, and there’s instant and personalized help available every step of the way.”
3. According to the IRS, more than nine out of 10 refunds were issued in fewer than 21 days last year. You should expect the same this year. For the fastest possible refund, e-file and choose direct deposit. You can track your federal refund with “Where’s My Refund” at www.irs.gov.
4. File your return by the deadline. If you need an automatic six-month extension, e-file Form 4868 and pay any taxes owed by the April 15 deadline to avoid late-filing penalties and interest fees. Finally, don’t procrastinate. Rushing can lead to costly errors.
For more information about tax deductions and credits available on 2012 tax returns, visit www.irs.gov and www.taxact.com/taxinfo. Visit www.taxact.com to file your IRS taxes free with TaxACT Free Federal Edition.