It’s that time of year again that people either love or hate – tax time! Regardless of the sentiment evoked, whether it is warm and fuzzy or stone-cold hatred, there are some helpful tax tips below that should be considered to optimize your next tax filing.
1. Review W-2s Closely
It is not uncommon for there to be errors on a W-2. Therefore, it is recommended to compare the last paystub received during the year to W-2s. Note that there may be some minor discrepancies due to timing but anything large should be followed up on with an employer. Also, it is highly recommended to check that payroll taxes were calculated correctly. In most cases, the amount in
Box 4 should be 4.2% of the first $110,100 in earnings reflected in Box 3 for 2012. Similarly, the amount in Box 6 should be 1.45% of all earnings reflected in Box 5. A discussion should be had with an employer if the amounts don’t calculated accordingly as this may result in an additional refund opportunity.
2. Flexible Savings Accounts – “Use It or Lose It”
Many employers allow Flexible Saving Account (FSA) participants an extra 2 ½ months after the end of the year to spend any balances remaining in a FSA. Therefore, it is advised to check with an employer on their FSA plan rules. Remember, balances do not roll over from year to year. Amounts not spent by the deadline will be forfeited.
3. Review Prior Year Tax Returns
Many people miss opportunities to save money by not carrying over certain amounts from a prior year return. For example, capital losses (i.e., stock losses) that exceeded the maximum amount that could have been claimed in a prior year can be carried forward and claimed on a current and future year returns. Another example of missed savings is not accounting for prepaid mortgage interest that many first-time homebuyers pay but are unable to itemize the first year they purchase their home. In a similar fashion, excluded amounts that should have been carried over may result in additional taxes, interest, or penalties assessed by the IRS or North Carolina Department of Revenue.
4. Consider Traditional IRA Options
In many cases, contributions to a traditional IRA will increase tax refund potential. Luckily, the deadline for making a contribution isn’t until the annual April 15th filing deadline; however, the deduction may be claimed and filed prior to the aforementioned deadline. This is one of the few examples for when you can take a deduction for the prior year made in the present year. Be sure to check with a tax advisor before considering this option as the rules can be quite quirky.
5. Calculate Quarterly Estimated Tax Payments
Self-employed? Plan on selling high-dollar assets? If so, you may be required to remit federal and state estimated tax payments on a quasi-quarterly basis. The first payment is due April 15th. In general, federal estimated tax payments need to be made if a liability of $1,000 or more is expected when income tax returns are filed next April. Be sure to consider calculating estimated tax payments when returns are prepared this year.
The information contained within this article is for general guidance only. As such, it should not be used as a substitute for consulting with professional accounting, tax, legal or other competent advisers.