Filing your N.J. or federal tax return? Don't miss these last-minute tips

Ed Beeson for the Star Ledger writes:   One week to go.  New Jersey’s 4.3 million federal income tax filers have until April 15 to put the finishing touches on their federal and state tax returns.   But in the rush to complete a return (and hopefully reap a refund), taxpayers easily can miss deductions that would reduce their tax burden.

Marcia Geltman, a partner with accounting and advisory firm Nisivoccia in Mount Arlington, spoke with The Star-Ledger and offered tips on what filers should look out for. A former agent with the Internal Revenue Service who’s been with Nisivoccia for 25 years, Geltman encouraged filers to not overlook oft-missed deductions for medical expenses and education. She also warned about red flags that tax collectors are searching for and discussed options Hurricane Sandy victims have.  Edited excerpts of the interview are below.

Q. What are some common deductions that get overlooked?
A. Some things people forget are that they can deduct long-term care insurance premiums, mileage back and forth to doctors at 23-cents a mile and tuition credits up to $2,500 on their federal returns
Medical expenses for federal returns have to exceed 7.5 percent of your adjusted-gross income before you can take a deduction, but in New Jersey you only have to exceed 2 percent. Many people are now required to contribute to the health care insurance they receive through work. Even though most times these contributions are taken out pre-tax at the federal level, it’s usually not pre-tax for New Jersey, which means you could deduct that contribution on your New Jersey return. When you put that down, sometimes health insurance premiums push you past that 2 percent threshold. Therefore, things like medical mileage, long-term care insurance and co-pays can really benefit you on your New Jersey return.
Also, if you have capital gains in 2012, remember that losses in prior years can be used to offset gains in the current year. But that’s only for federal returns. New Jersey doesn’t allow loss carry-overs.

Q. What are some typical errors taxpayers make, particularly if they’re in a rush?
A. If you have distributions from an IRA account, they may be taxable on your federal return because you would have gotten deductions when you put the money in. But for New Jersey, when you put money into an IRA, you don’t get a deduction for it. So when the money comes out, for New Jersey purposes you should only be taxed on the earnings. It’s possible your tax on IRA distributions would be different for New Jersey than it would be for your federal return.

Q. Are there certain red flags that the IRS or the New Jersey Division of Taxation are on the lookout for this year?
A. Obviously, very high levels of deductions compared to your income, including charitable contributions and business expenses, would be a red flag. The IRS publishes once a year the average medical expense based on income, charitable based on income, but that doesn’t mean you wouldn’t be audited if you came higher or lower than that.
If you claim an Earned Income Tax Credit in New Jersey, the state may require you to submit copies of your Social Security card, IRS transcripts or passport. If you do claim an EITC in New Jersey, be prepared to provide additional substantiation. The state has indicated there has been a lot of abuse in this area, which is why I think they’re asking for more substantiation. But personally I think it’s unfair for those who are eligible for the credit to have to provide all of this documentation.

Q. Do have any advice for self-employed filers?
A. If you’re an individual and you want to put money in an IRA account, you have to do it by April 15. But if you’re self-employed and you want to put money into a self-employed retirement plan, of SEP, you have until the extended due date for the return, which is Oct. 15. If you don’t have the money now, you could file for an extension to complete your tax return.
If you are filing for an extension, you have to remember that New Jersey doesn’t accept an extension unless 80 percent of your tax is paid by April 15. And if you file for an extension on your federal or New Jersey return, that doesn’t eliminate any late penalties or interest. So even if you’re filing for an extension, you should still estimate the amount of tax you think is due and pay it by April 15.

Q. If you were a victim of Hurricane Sandy, what are your options with taxes?
A. Unless you have a substantial loss from Sandy that was not compensated by insurance, in most cases you do not benefit from it from a tax standpoint.
You can claim a casualty loss based on the decline in the value of your property. However, once you determine that decline in the value of your property, you have to reduce it by any insurance proceeds that you are entitled to receive. Then you have to further reduce that by 10 percent of your income. Then you further reduce that amount by $100.
I’ve had a number of people ask about lost income, lost wages as a result of Sandy. Unfortunately, you do not get a deduction for that.