The Top Tax Tips for 2013: Expert Tax Filing Advice

Susan Lyon for Nerd Wallet writes As we head into tax season, taxpayers nationwide are gearing up for Tax Day – April 15^th is the 2013 federal tax filing deadline.

There have been several major legal and regulatory changes over the past year, so to help ease the pain of tax season, NerdWallet surveyed a broad spectrum of tax experts to uncover their top tax filing tips for 2013 – and how to get started now to prepare your 2012 taxes by the deadline.

Here are the top seven recommendations from several top tax filing experts on how to get a head start now:

1.  Get Organized Early to Maximize Deductions

Even the experts agree: getting started early is the hardest, but most important, part.  Easier said than done?  Just taking the first step – as simple as putting all your tax related documents into one big box, envelope, or pile as you receive them in the mail – can make taking the next couple of steps after that far easier.

Josh Barger, VP of Tax Services at Foundation Financial Group, urges:

“All financial institutions have until January 31 to postmark and mail your W-2, 1099, and 1098 forms, so being ready to go with your deductions and expenses before they come will help to speed up your process when preparing the actual returns.”

Shauna Wekherlien, CPA and Tax Expert with Tax Goddess Business Services PC, advises:

“My #1 tip to prepare for tax day 2013 is organization; if you get your paperwork in order, you can find missed deductions.  If you keep track of all your receipts and bills too, this makes tax prep cheaper and faster in the end as well.”

2.  If You’re Already Running Behind, Prepare Accordingly

This tax tip for Tax Day 2013 is simple but critical: if you suspect you’re going to miss the deadline, file that extension now!

Eva Rosenberg, MBA, EA and owner of Your TaxMama, recommends:

“File an extension – Form 4868. If you’re not totally ready to file yet, you can file the extension to avoid the late filing penalties, which can be as much as 5% per month. The extension will give you six more months to get organized.”

3.  Be Thorough and Methodical At Every Step  

There are a few key steps you need to go through every year, no matter how much your tax paperwork varies from year to year.

Michael Raanan, MBA/EA and President of Landmark Tax Group and former IRS Revenue Officer, lays out the five steps every taxpayer should go through to be as thorough as possible:

“Due to the substantial increase in IRS audits, taxpayers should take these 5 steps when filing their taxes this year to help reduce their chance of an audit:

1. Beware of your deductions;
2. Claim proper exemptions;
3. Ensure all your tax filings reconcile;
4. Document any questionable information;
5. File on time.”

4.  Learn The Rules of the Game – Then Play The Game

There are a lot of obscure tax rules that can give you a leg up (and more cash back) if you capitalize on them.  Figuring out which laws can apply to you is the hard part.

Dan Flugrath, CPA and principal with the top 40 public accounting firm Morrison, Brown, Argiz & Farra (MBAF), provides some of these top tax secrets for 2013:

“1. Consider gifting shares of appreciated stock to children: particularly to children who are not subject to the “kiddie tax” and who are in the 10 percent and 15 percent tax brackets and are thus not subject to the capital gains tax. There will no tax on capital gains if the taxpayer beneficiary is not in a higher tax bracket than 10% or 15%. However, if the long-term capital gains on the stock cause the taxpayer’s taxable income to exceed the upper threshold of the 15 percent tax bracket, the capital gains will be taxed at 15 percent during 2012 and 20% in 2013.

2. Look out for special January 2013 distribution rules: There will be a special election for Jan. 2013 distributions from Individual Retirement accounts – for purposes of both (i) the tax-free qualified charitable distribution rules, and (ii) the RMD rules as they apply to IRAs.  Any qualified charitable distribution made after Dec. 31, 2012, and before Feb. 1, 2013 will be deemed to have been made on Dec. 31, 2012, if the IRA owner so elects at such time and in such manner as IRS will prescribes.  Future guidance will be issued by the IRS regarding how to make the election.

3. Look into the Section 529 Qualified Tuition Programs – federal income tax exemption: Earnings accumulate tax-free and withdrawals are tax free if used to fund qualified higher education expenses.  Withdrawals from Section 529 plans remain tax-free if made on the death or disability of the beneficiary.”

5.  Beware of The Most Common Tax Prep Mistakes

It may seem obvious to point out, but some of the worst mistakes made on tax forms are also some of the easiest to avoid.

Timothy Gagnon, CPA and Accounting Specialist at the D’Amore-McKim School of Business at Northeastern University, reminds us to watch out for these common mistakes that he sees the most:

1. “Failure to add correctly;
2. Failure to prepare Schedule A (Itemized Deductions) to see if your standard deduction or itemized is greater on the return, because this can vary each year;
3. Not obtaining receipts on non-cash charitable contributions so they can take the deduction on their tax return;
4. If itemizing: not taking car and boat taxes, prior year state tax payments made in the current year, and real estate taxes on vacant lots held into account.”

6. Entrepreneurs: Take Into Account Small Business Expenses

Have a home office or a small business?  You need to go the extra mile and think about how to most efficiently file tax paperwork that takes into account your work-related expenses. 

Gail Rosen, CPA offers home office and small business tax preparation strategies from her 30 years of experience working with entrepreneurs:

1. “Don’t Forget Start-Up Cost Deductions: Small businesses often “forget” that any expenses that are incurred before the first sale are called “start-up costs.”  These costs cannot be deducted until the first sale, but then they are deducted over 15 years and you can elect to deduct the first $5,000 in the first year of business.
2. Consider a home office deduction: this is a great tax deduction to consider, if you’re legally entitled.  Unlike many think, the home office deduction does not create a big future tax when you sell your home.  You cannot take the home office deduction if it creates a net tax loss for you. If you expect to have a profit in future years, then you should compute the deduction and carry forward the disallowed home office deduction to future years.
3. Don’t forget your cell phone: the Small Business Jobs Act of 2010 removed cell phones from the definition of listed property and the substantiation requirements that apply to listed property no longer apply to cell phones.  Therefore you no longer have to document each business purpose for each call, and you can deduct your cell phone based on the percentage you use it for business as long as more than half the time is business related.”

7.  Evaluate Whether You Need a Professional Tax Preparer

Don’t forget to look into the many free and inexpensive online tax filing packages to see if they’re up to snuff, as well as accessible enough so that you think you could complete the process on your own.

As tempting as DIY tax software can look, though, it isn’t for everyone.  It can sometimes lead you astray because there is no one dedicated to fact checking your work to make sure you’ve filed correctly; it offers limited customer support and can lead to filing mistakes for the inexperienced tax filer.

Many tax experts agree it’s definitely worth at least considering hiring a pro.  John-Paul Valdez, a personal finance expert with Pearl.com, says getting a tax professional is one of his most recommended investments in this uncertain fiscal climate:

“Over the past 3-5 years, tax laws have changed dramatically. By hiring a tax professional, you can save time, prevent headaches and confusion and be prepared in the event of an audit. Tax software you can buy at an office supply store is great, but it may not catch all of your deductions. Additionally, after you file your taxes, the software can’t help you file an extension or establish a payment plan for taxes you owe – but a tax professional would be able to.  Hiring someone to do your taxes is actually very affordable, often around $200-400 – I call it one of my most recommended investments.”

While it isn’t surprising that tax professionals would urge you to hire a tax professional, it makes sense on a case-by-case basis.  So don’t take their word for it; if you’re at all unsure of what you’re doing, figure out what you know and don’t know, then take the time to shop around and price out all your options.

The number one takeaway from experts?  Don’t let April 15^th sneak up from you.