The future of tax season in America — Will filing taxes get easier?

Mitchell Fox, founder of GoodApril for Venture Beat writes: Why is it that each spring, so many of us cringe, cross our fingers, and start filing our taxes without knowing what we’re in for?

What’s worse, we rarely feel confident that we’ve achieved the best possible outcome for ourselves when it comes to taxes – and with good reason.  Back in 2002, the nonpartisan Government Accountability Office (GAO) estimated that people were overpaying their taxes by nearly $1B a year. (And they only looked at one of many ways to mess up – with the real number of overpaid taxes likely much higher).

Even more striking is that these problems affect most Americans regardless of whether they’re firing up tax filing software, working with an accountant, or filling out IRS forms by hand.

So, what will tax filing be like five years from now if technologies continue to advance and consumers demand better tax policies and better software solutions? Will this process be easier or the same? Lets take a look:

You will already know your outcome

While tax rules are complicated, they are well defined.  A majority of the things that affect the average taxpayer’s return are already digital and available online: paychecks, investment gains and losses, mortgage payments, and the like.

Five years from now, this data will be collected, organized, and crunched on your behalf, in near real-time.  You will know whether you’re going to owe the IRS or get a big refund at any point during the year.  That job change, stock market windfall, or new home will have been considered as they happened, and your forecast adjusted.

Tax law changes, like this year’s Taxpayer Relief Act (the “Fiscal Cliff” deal) and Affordable Care Act (“Obamacare”), will have been analyzed in the context of your financial situation, and their impact explained and accounted for.

You won’t owe a dime

If you can already know your tax outcome, then why shouldn’t the tax withholdings on your paycheck (or estimated tax payments if you’re self-employed) have been adjusted automatically to ensure you have paid only what you owe?

Started a freelance gig on the side, or purchased a house? Your tax software should detect that and guide you to make the appropriate adjustments to keep your tax bill as close to $0 as possible. A small refund is probably always in store, but the days of big tax refunds and tax bills should be over.

Your data will be waiting for you

Why is it necessary for me to wait for tax documents to arrive in the mail in order to file my taxes?  While tax prep software providers are making tremendous strides toward financial data aggregation, it’s still a gruesome process of individually looking up each account, digging up long-forgotten passwords, and cursing when the connection invariably fails.

As financial institutions get better at providing secure data connections, and software providers get better at extracting and interpreting it, your tax data should already be loaded when it comes time to file your taxes.

The experience of filing your return should be a lot more like checking out your Amazon shopping cart – clicking to confirm the numbers are accurate and as-expected – rather than an epic weekend of wrangling 1099s, W2s, and 1098s.

You will only pay your fair share

The tax code is full of incentives that taxpayers can use to their advantage to pay less in taxes and get access to services at lower cost.  Getting a college education, home ownership, and paying for childcare are just some of the many activities that are tax advantaged.  The IRS also gives you a break when your expenses pile up: supporting a dependent parent, for instance, or paying excessive medical bills.  You should know what tax benefits are available to you, and what actions you could be taking to pay less.  In order to only pay your fair share, tax software must be watching out for your best interests throughout the entire year, and be presenting this analysis and advice to you in a timely and easily understood way.

You will have access to your own history

You probably have filing folders of tax documents for the last few years somewhere in your house.  If you’re more tech savvy, maybe those are PDFs.  But that data is not stored in a way that you can use it for your own analysis, nor is there an easy way to share it, for instance with a loan underwriter trying to decide whether you can afford to repay that mortgage.  Today you’re still stuck opening or sending the actual tax filing documents, and manually extracting the data.

Your historical tax data should be yours to consume not just as documents, but as bits.  While your tax return provider ought to be giving you access to this data, it’s the IRS that should not only be collecting that data each year, but making it available to you and the financial institutions you authorize.

Your taxes will be simpler

Technology can’t solve every part of what makes taxes so painful.  A big part of the blame lays with policy makers who, with the best intentions of rewarding “good” behaviors (like donating to charity or investing in retirement or getting health insurance), create a spaghetti code of tax law so confusing that less than 10% of taxpayers are brave enough to even try to do their taxes without the assistance of software or a professional. 

 Even the IRS’ own National Taxpayer Advocate called the complexity of the tax code the “#1 most serious problem facing taxpayers.”   In 2005, the GAO estimated that the cost of complying with tax policies, in the form of time and money spent on this like tax planning, preparation, and filing, cost our nation at least $100B annually and projections by the Tax Foundation estimate that by 2015 the cost will reach nearly $500B.

Five years from now, let’s hope that we have done our part as the end-consumers of that tax code to have advocated for simpler, easier to use tax policies that the average American can understand, comply with, and get back to their lives.

Where innovation should come from

Even without tax reform, however, as I hope I have shown, smarter technology can make taxes easier for the average consumer.

The most obvious place where these innovations should arise is within one or both of the consumer tax software powerhouses: Intuit (TurboTax) or H&R Block.

Another possibility is through one of the personal financial management platforms that consumers use today to get a complete perspective on their finances: Mint (also owned by Intuit), PageOnce, Personal Capital, and most recently, Credit Karma.

Additionally, there is an emerging crop of financial planning startups that could develop to include tax capabilities: for instance FutureAdvisor (investments), LearnVest (wealth planning), Ready for Zero (debt), and PlanWise (goals). And yes, my own company, GoodApril, is working on these problems as well, and look forward to collaborating with other financial innovators to realize this vision for pain-free taxes.  Here’s to a future where our taxes are no longer a surprise, and we have confidence that we’re only paying our fair share to Uncle Sam.

Do You Owe Taxes on a Credit Card Sign-Up Bonus?

Simon Zhen for US News & World Report writes: Banks are always promoting their credit card offers and sometimes they entice potential customers through the use of sign-up bonuses, which may include cash, points, airline miles, gifts or other financial services. Only some of these bonuses must be reported to the IRS because you have to pay taxes on them,.

“How can I tell which sign-up bonuses must be reported on my tax return?” It’s a common question among consumers who take advantage of such promotional bank offers.

Sign-up bonuses you receive for opening a deposit account or making a deposit are considered interest income—making them subject to taxes. For example, you have to report the $100 bonus you earned for applying for a new checking account and posting a direct deposit.

When you sign up for an account with a bonus, the bank should note—often in the fine print—that you will receive Form 1099-INT at the end of the year. This is the same form you might receive when you earn interest on an interest-bearing account, such as a savings or money market account.

In the event the bonus comes in noncash forms, you’re still responsible for reporting it to the IRS. “If your receive noncash gifts or services for making deposits or for opening an account in a savings institution, you may have to report the value as interest,” the IRS says in Publication 550 Investment Income and Expenses. “For deposits of less than $5,000, gifts or services valued at more than $10 must be reported as interest. For deposits of $5,000 or more, gifts or services valued at more than $20 must be reported as interest. The value is determined by the cost to the financial institution.”

However, this rule doesn’t apply to credit card sign-up bonusesthat carry a spending requirement. For instance, a credit card deal may offer you $100 cash or 20,000 bonus miles if you spend $500 within the first 90 days of opening the card.

However, tax rules may vary from person to person. Consider consulting a tax professional if you have questions regarding your personal tax situation.

What Your Approach to Filing Your Taxes Says About You

Jen Doll for The Atlantic Wire writes: You know it's tax season, right? It's tax season! That is to say, it's the very end of tax season and your 2012 U.S. income tax filings are due to the IRS Monday. (If you're using the U.S. mail, they need only be postmarked by that date. If you're e-filing, you're e-filing, no postmark necessary.) So, where are you with your taxes? Take a moment's break, or a moment to pat yourself on the back, and read this mini-investigation of tax-doing strategies. 

Wait, What? This means you only just realized that you had taxes to do, by reading this post, or when someone in line at the grocery store grunted and said, "Ugh, taxes!" and you thought to yourself, taxes? Whatever does the word mean? Then you went home, or to wherever it is that you stay, and Googled the word, finding out far too many things in the process. You have probably recently time traveled to America in the year 2013 from Victorian-era London or Ancient Rome or the Mesolithic era, or perhaps you are an alien. Suggestion: Travel back when the IRS starts sending you demanding notes.  

The Procrastinator. Oh, you. I know you well. You are me, or you were me, at one point in time. True story: There was a Monday in April a long, long, long time ago when I spent the day in my office cubicle attempting to do my taxes on my own after realizing the strangely affordable Russian accountant my old roommate had set me up with had "gone missing." Or maybe this was before he came into my life, and before he disappeared from it, taking all of my tax information with him. But anyway! That Monday I managed to get the right-enough numbers on the requisite papers and then went to the post office and waited in line for an hour or more to certify the letter and it was all really grueling and terrible, so much that I vowed never to let it happen again. In the time that has passed I have changed to a tax Overachiever. But Procrastinators still number many, and it's quite possible if you are this type that you will reach a point of crisis mid-Sunday and try to find an H&R Block to take your urgent case, which I also did once. You may or may not succeed. Suggestion: Become a Weekend Warrior (see below); hang in there. 

The Daredevil. One of our own at the Atlantic Wire is the hybrid-procrastinator type who's done his taxes, but simply hasn't finished them yet. The finishing part is perhaps the easiest, and you'll get around to it, you will, but you simply haven't yet. It's sort of like painting the entire Sistine Chapel except for God's finger and then, in a rush at the very last minute, finishing everything only to realize that God's finger and Jesus's don't touch (but you did that on purpose, right, Michelangelo?). Oh, the adrenalin! Anyway, our Matt Sullivan says, "I am so lazy about my taxes that I hired an accountant to do them but am still too lazy to fax them my e-file authorization, which takes 10 seconds." Suggestion: You'll be fine.

The "Rebel." Taxes? You scoff in the face of taxes. You haven't paid 'em in, like, a year. You think Americans shouldn't have to pay taxes, in fact. You don't drive on highways. You don't use social programs. You believe in living a government-free life. You might move to another country, or into the woods—at least, you're always talking about it. You complain and moan and groan but in the end you send your paperwork to the IRS and you pay what's due or you accept your refund and deposit it into your bank account and use it to buy stock in mutual funds. Or, maybe you are a bona-fide tax dodger. Suggestion: Moving's easy, it's the living that's hard.

The Weekend Warrior. You haven't done your taxes yet, but that's cool, you've got all weekend! And you work better when there's a deadline crunching up against you. The Wire's Philip Bump told me he plans to complete his taxes "as quickly as possible. By putting the Turbo in TurboTax" this Saturday and/or Sunday. It's not like he purposely procrastinated, nor does he hate doing taxes. "It's just not really something one prioritizes unless you're getting a big ol' refund," he said. Or, unless you are an Overachiever. Suggestion: Order in meals. 

The Person Who Legitimately Doesn't Have to File Taxes. This weekend and Monday you are the luckiest person in the whole darn world. The rest of the time, you are a student, or a dependent, or someone who may be struggling to make more but who simply doesn't make enough money to pay taxes, or maybe someone who is paid under the table and is not going to report all earnings. This is you if you are single and made less than $9,750 in 2012. Suggestion:Check the "special cases" that mean you do actually have to file. 

Just a Guy or Girl Looking at the IRS and Asking Them to Love Him or Her. You did your taxes, oh, maybe two weeks ago. You haven't gotten a refund back, yet, but you probably will soon. You didn't even lie on your taxes, and you will never be audited (unless you are). Suggestion: You got it covered. 

The Outsourcer. You may additionally belong to other categories listed here, but this is the place where you get named for not doing your taxes all by yourself, like my dad used to do, with a calculator and using a pencil first, in case he had to erase anything. (Let's call that type the "Lone Shark.") You may use H&R Block or TurboTax or maybe your aunt or uncle, who went to school for these things, helps you out, or maybe you hire an expensive or less expensive accountant. Maybe you keep all your receipts in a box and tote them to your accountant each year; maybe you just "guesstimate" (never tell). The point is, you don't do your taxes all by your lonesome, that's the thing, and you have no desire ever to try to do so. Suggestion: That's fine.

The Overachiever. You've already done your taxes, of course you have. You made an appointment with your guy or lady back in November, to get the cheaper session before March, and you went in February and you've already gotten your refund, for both federal and state, and you've stashed them away and are watching the interest accrue already, yum yum. Suggestion: Share this only with people who are also overachievers. 

The Overachiever Whose Money Burns a Hole in Her Pocket. Not only have you done your taxes (like, two months ago or more, dude), you've also already gotten your refund and you've spent it. For you, tax season 2013 is a faint memory, but you really do like your new shoes a lot. Suggestion: Admire your shoes.  

The Extender. There's still time! The tax deadline for extended returns this year is October 15, 2013. You can file Form 4868 to get an automatic extension. However, you're still supposed to pay what you owe by April 15 (which is sort of the problem, sometimes). That said, if you don't pay and you extend, you'll be subject to penalties and interest, but there aren't going to be IRS people knocking on your door, just yet. Suggestion: If you haven't addressed your taxes by Monday afternoon, this might be your best bet.

With tax day looming, tax reform is in the air.President Obama introduced several proposals aimed at simplifying the tax code. David Cay Johnson, columnist for Tax Analysts magazine, and economist Douglas Holtz-Eakin join Jeffrey Brown to debate different strategies and whether real tax reform is possible. (Click To View Video) - PBS Newshour

TAX DEADLINE LOOMS: How To File Your Taxes At The Eleventh Hour

Mandi Woodruff for BusinessInsider writes: The tax deadline is looming.  Right now, about 47 million American workers are feeling a familiar pang anxiety as April 15 bears down.

Don't panic just yet.   We've put together a comprehensive guide for anyone who needs a hand getting across that finish line:

1. Gather all of your paperwork. 

• Identification: Social Security Numbers for everyone included on your return.
• Proof of employment: That includes a W-2 from each employer or a 1099 form from any freelance or contract work that netted over $600. If you collected unemployment, you'll need a 1099-G form, which you should find in your online your state labor department. 
• Proof of interest earned: You'll need financial statements of interest paid and/or earned on savings and loan accounts. The same goes for gains you've earned on any investments or a home sale (and yes, even those Bitcoins). Student loan servicers typically include that information in your online account, and banks will send out interest statements via mail. 
• Last year's Adjusted Gross Income (AGI): This number should be included on your previous year's tax return. Alternatively, click here to get an Electronic Filing PIN from the IRS or call them at 866-704-7388.

2. Decide how you're going to file: 

• Free filing online. There are a number of ways to file your taxes on the Web, which is hands down the fastest way to get a refund. If you earned less than $57,000, you can file your federal taxes for free at IRS Free File. Some tax software companies also offer free state tax filing. 

• Paid tax software. Unfortunately, commercial tax software prices tend to rise the closer it gets to the filing deadline. Still, no matter which software you end up choosing, run a quick Google search beforehand to see if any coupon codes pop up online. Prices vary widely –– $30 to $100 with TurboTax, $20 to $80 with H&R Block At Home and $55 for TaxACT, according to Consumer Reports.

• Hire a professional accountant. The 11th hour is not exactly prime time to get an appointment with a professional tax preparer. Still, it's worth a shot. Find a certified public accountant via the American Institute of Certified Public Accountants' search function. It's the safest way to be sure you're getting someone competent who has your best interests at heart.

• National tax preparer chains. National chains like H&R Block, Jackson-Hewitt, and Liberty Tax Service are widely available and open on the weekend. They're best (and cheapest) for straightforward tax returns, which means they can be pricey for people with more complicated finances. A married couple filing jointly would have paid more than $200 for federal and state filing via H&R Block in 2012. Still, for some, the peace of mind of speaking with a live individual is worth the cost. 

 3. Don't leave money on the table. 

The beauty of tax software or working with a CPA is that you'll be prompted throughout the process to determine whether you qualify for certain tax deductions. Since the tax code is constantly fluctuating, you may be eligible for new deductions you never knew existed. Kiplinger has a helpful list of some of the deductions taxpayers miss the most, and we would recommend heading to the IRS to find out how to claim them. Everything from child care costs and moving jobs, to student loan interest and the earned-income tax credit could put more cash in your pocket. 

4. Check for errors –– even if you're sure it's perfect.

Don't let a dumb mistake get in the way of your refund. The most common error cited on tax returns is the simplest thing of all –– the Social Security Number. You should always sign and date your return as well, and that goes double for your CPA, if you hired someone to help.

5. Max out your retirement and Health Savings Account contributions.

Most people can still make a contribution to their tax-advantaged retirement and healthy savings accounts before April 15. For IRAs, you can contribute as much as $6,000 if you’re over 50. Maximum contributions for HSAs run up to $6,000 for families.  It's a great way to reduce your taxable income. Important: Make sure you tell your account holds that you're making a contribution for the tax year 2012, otherwise they'll wind up reporting it as a 2013 contribution.

6. Figure out how you're going to pay. 

• You can't afford to pay: File your taxes anyway. Even if you apply for a filing extension, that doesn't give you any extra time to pay your tax bill. Once you've filed and you know what you're up against, you can work out a repayment plan that suits your needs with the IRS. Be aware of the fact that you'll still be charged late fees and interest each month the debt goes unpaid. If you have a 0% interest credit card handy, that might be a better route –– but only if you're sure you can pay it off within the promotion period.
• You're ready to pay: You can pay directly through tax software. Otherwise, e-payment options are available through the IRS. Checks should be written out to the “United States Treasury.”
• Request a Filing Extension. This does NOT mean you have more time to pay if you owe taxes. This simply gives you until Oct. 15 to do the paperwork. File for an extension here, or download Form 4868

The final tax deadline doesn't have to be your enemy year in and year out. You've got all the relevant information above, now get to it and remember to at least try to file just a little bit earlier next year.

Taxes: You must pay up, even with extension

Susan Tompor for USA Today writes: The last minute — if you're into dragging things out — officially hits Monday for filing your federal income tax return.

Of course, anyone could have a good excuse for not filing a tax return by now. The dog ate your 1099s. March Madness took over your every waking moment. You're still trying to dig up receipts for all those old gambling losses to offset that big win.

The good news: Form 4868 is only a click away and offers an automatic six-month extension until Oct. 15. If you qualify for the Internal Revenue ServiceFree File program, several companies offer free filing for Form 4868, too. See www.irs.gov.

The bad news: You will owe interest on any tax owed that is not paid by the regular due date of your return. The interest accrues until you pay the tax owed. A late-payment penalty could be charged, too, unless you show a reasonable cause for not paying on time.

This year, some taxpayers might have more excuses for filing close to the deadline or even wanting an extension to file later, thanks to extra delays for specific forms due to the 2012 Taxpayer Relief Act.

But many taxpayers can avoid the late-payment penalty — if they're filing any of 31 specific forms that were delayed. Forms include Form 3800 General Business Credit,Form 5695 Residential Energy Credits and Form 8863 Education Credits.

Mark Luscombe, principal analyst for CCH, a Wolters Kluwer business, noted that a taxpayer must still make a good faith effort to properly estimate and pay the tax due with the extension request.

Any year, tax filers can find reasons to delay filing. A taxpayer might want an extension if specific statements are lost or have not yet arrived.

If only one statement is missing, the tax filer typically would bring W-2s and other paperwork to a tax preparer before the April 15 deadline, then the tax preparer can estimate the taxes owed, have the filer pay that amount by the deadline and request an extension by April 15, said George Smith IV, a CPA in Southfield, Mich.

He said his firm typically files about 150 extensions a year. Perhaps not surprisingly, most are the same people year after year.

You should think twice if you only want to file an extension because you know you owe a lot of money.

"Not a good idea at all," Smith said.

Filing an extension does not give you more time to pay what's owed, Smith said. The failure-to-pay penalty is 0.5% per month, up to a maximum of 25% of what is owed. Plus individual taxpayers would owe interest a bit above 3% on taxes and penalties. The IRS interest rate on underpayments changes quarterly.

But it's better to file Form 4868 than do nothing. If you don't file a return, you'd face the failure-to-file penalty, which is 5% per month on the unpaid tax due for a maximum penalty of 25% of taxes owed.

What should you do if you owe money?

Do you have a credit card that currently offers 0% on purchases or balance transfers? Even if you don't have one, it may be possible if you have excellent credit to apply now and transfer the balance to a new 0% card, said Greg McBride, senior financial analyst at Bankrate.com.

Remember that the 0% offer will expire; it might only last 12 months.

However, charging your tax balance to a major credit card triggers a convenience fee charged by the IRS-approved credit card processor. Check the fee calculator at the processor's website to know the charge in advance. Charging $1,000 to your credit card would generate a fee of $23.50 for example, if you used the service through OfficialPayments.com.

Or ask the IRS for an installment agreement, which would spread the debt over months or years, said Barbara Weltman, author of J.K. Lasser's 1,001 Deductions and Tax Breaks 2013.

If you think you could pay the entire bill within 120 days, you may ask the IRS for a short-term extension either by calling the IRS at 800-829-1040 or requesting the extension using the Online Payment Agreement Application at www.irs.gov.

No fee is charged for the 120-day extension, but interest will be charged and a late-payment penalty might be imposed.

Pull out that paperwork and get cracking. Maybe things won't be nearly as bad as you think.

Bracketology and Taxology: Why Filing an Extension May Be Your Best Tax Strategy as a Small Business Owner

 Mark J. Kohler for paysimple.com writes: Finding your best tax strategy can seem as complex as picking a winning NCAA bracket. In fact, ESPN experts and their “bracketology” oftentimes claim that the unconventional wisdom can be the secret to success and saving your precious $5 entry fee into your office pool.

But what about your tax strategy this March and saving thousands on your tax return? What’s your “Taxology” for super savings?

Now let’s be honest. We all know that tax planning takes place in November and December.

So instead of me writing an article on a bunch of last minute pseudo tax tips that are simply a feeble attempt at making us feel better for putting off what we should have done last year, let’s call a spade a spade.

You know what I’m talking about: filing an extension

Now here’s why I think filing an extension could be your sleeper ‘Taxology’ strategy to winning on your tax return.

First, by filing an extension, it’s equivalent to taking a timeout right before the final shot of a game. It gives you a chance to dig up all the expenses you can and reevaluate how aggressive you want to be on your tax return. 

I’m not suggesting being too aggressive and “taking a bad shot” or risking an audit, but giving yourself the chance to uncover real write-offs you’re probably missing out on.  Let’s face it, many CPAs and taxpayers are far too conservative and leave legitimate tax deductions you are entitled to on the table and cost you thousands.

Second, filing an extension is as easy as raising your hands in a game and waving to the referee. By filing the extension, you buy time until October 15^th to send in your final tax return. In order to make it happen, you simply file Form 4868 electronically or mail it in.  (However, keep in mind, it’s important you estimate how much you think you might owe in tax and send it in with your extension. You can always get a refund later and it will prevent any penalties or interest). Download the form here.

Third, don’t be afraid to file an extension. Millions of American file extensions every year and there is nothing wrong with it. In fact, various statistics over the years have shown that you actually reduce your chances of an audit by extending; simply because the IRS is assigning their audit teams to the already filed returns.  Now maybe this is an urban legend, but hey, if there’s any truth to it all…why not? 

Finally, let me give you the “why” and get your juices flowing. Just as in a basketball game with seconds to go, let’s pull out a clip board and think of all the different strategies or write-offs we could be missing if we rush into filing. Here’s just a few to consider:

Travel-related expenses. In my opinion, this is one of the most underutilized tax deductions by small business owners today. Unlike meals and entertainment that are limited by 50%, travel expenses are 100% deductible. These include airfare, hotel, rental cars, valet, taxi, trains, tolls, etc…  Consider all of your travels last year that may have involved a meeting with a client, a vendor,  or a training meeting, a tour of a competitor’s facility or store, your annual board of directors, shareholder, manager or member meeting, a conference retreat with a partner (the list goes on and on).

Auto Deductions. Remember this isn’t travel, but expenses for your car or truck used in your business. There are two main options: mileage or actual expenses. Statistics show that 90% of small business owners actually utilize the mileage method. For 2012, this was 55.5 cents per mile. Surprisingly, again I see many taxpayers shy away from claiming their true mileage because they are afraid of an audit. True, you should do your best to keep a written record, but if you haven’t been extremely detailed, still utilize an estimate and take the deduction. 

 Dining and Entertainment. Again, a highly underutilized expense by small business owners and should be a healthy line item on your tax return.  Please make sure you consider all of your meals last year where you discussed business with a partner, or a potential client, vendor or strategic alliance.

Office Supplies and Technology. Every small business owner is regularly buying supplies and upgrading their phone, computers, and digital reading devices. Don’t forget that when you have a small business, the majority of these items can be fully expensed. 

Technology and Telephone. Many don’t know that recent case law and IRS rulings allow business owners to write-off 100% of their cell phone expenses, so long as they have at least one dedicated home phone line. Moreover, make sure to include the cell phones of your family members that work in the business alongside you and need a cell phone for their legitimate role in the business.

If you have to, consider a SEP contribution before filing. I say this in a negative way, because a 401k is FAR better for the small business owner and the SEP should really only be considered if you failed to implement the 401k back in December. However, by filing an extension you ‘buy time’ to consider a contribution and then make the contribution. The contribution amount is 25% of your net income or up to $50,000, whichever is less. 

Bottom line: be confident if and when you file an extension. Take that ‘hail mary’ shot from half-court! If you have a reasonable argument for taking a deduction and miss, the worse the IRS will do is disallow it. Take the time to dig up those expenses on credit card statements, bank statements, receipts, or anything you can find. Don’t shy away from throwing them on your return. 

Tax changes may mean adjusting your investment strategy

Andrew Menachem for the Miami Herald writes: If you’re an investor, you need to pay close attention to the recent changes in the federal tax laws.  The American Taxpayer Relief Act (ATRA), passed on Jan. 2, affects income and estate taxes, as well as capital gains and qualified dividends. Because tax rates, in general, went up, you may want to talk with your financial advisor or accountant this spring about potential adjustments to your portfolio.

For example, many investors own stocks and bonds — either directly or through mutual funds — that pay dividends or produce capital gains when sold for a profit. Under the ATRA, the top tax rate for long-term capital gains and qualified dividends rose from 15 to 20 percent for many high-income taxpayers.

If you own mutual funds that buy and sell gold, exchange traded funds (ETFs) or hold gold bullion yourself, those investments are considered “collectibles” and may be taxed at an even higher rate of 28 percent.

So if your taxable income exceeds $400,000 (single filer) or $450,000 (filing jointly), you may want to consider swapping some of those securities for municipal bonds. Although “munis” typically have lower returns than corporate bonds, the income they generate is usually tax-free — a clear advantage to advantage to investors in higher tax brackets. In addition, municipal bonds avoids the new 3.8 percent tax on investment income.

On a more positive note, you can now contribute more to a tax-deferred retirement account, such as a 401(k) or a SEP-IRA for the self employed. For 2013, workers can choose to contribute up to $17,500 to an employer’s 401(k) plan. If you are age 50 or older, you can add another $5,500 to your retirement account. The contribution limit for SEP-IRAs was raised to $51,000.

If possible, you should try to maximize your retirement contributions, since they are subtracted from your taxable income and reduce your current tax bill. Since the ATRA raised the top 2013 income tax rate to 39.6 percent, compared with 35 percent in 2012, each $100 you contribute to a retirement account would trim your 2012 tax bill by $39.60.

In most situations, no taxes would be due until you withdrew those funds years later in retirement, when presumably your income would be much lower. This simple strategy of maximizing your contributions, when followed on a consistent basis, is one of the best ways to set aside funds for the future.

The ATRA also revises the federal estate and gift tax laws. You can now give away $14,000 a year to any number of individuals without incurring a gift tax. Since you can give these gifts to non-family members, this strategy may allow unmarried partners to gradually transfer wealth between them. It’s also an excellent way to begin funding a college education for a young grandchild.

Talk with your advisor about the best way to make such a gift. In some cases, it may make sense to sell shares of stock or a property at a loss to take advantage of a tax deduction that could offset your capital gains on other assets. Then, you could make the gift in cash.

Passage of the ATRA also raised estate tax provisions. Now an individual can convey up to $5.25 million ($10.5 million for a married couple) without paying federal estate taxes. You may want to review your will and any trusts you have created to see if they are still appropriate in the new financial landscape.

If you receive Social Security benefits — or expect to do so in the next few years — you may want to pull out your calculator, since those benefits may be subject to tax. For instance, if you are still working, those Social Security benefits may be taxable if you start getting those checks before you reach full retirement age, which is now 66 for those born between 1943 and 1954. However, there is no limit on earnings if you keep working after you have reached the full retirement age.

Read more here: http://www.miamiherald.com/2013/04/13/3340793/tax-changes-may-mean-adjusting.html#storylink=cpy

How the taxman handles child care / It’s not too late to take advantage of certain tax breaks

Eva Rosenberg for MarketWatch.com writes: Most people think tax season is torture — and this year, it was more tortuous than usual. We started with longer delays for e-filing, confusion about qualifications and licensing of tax professionals, and endless wrangling about a new budget. Callers to IRS help lines are walking away more frustrated and confused than ever. And time is running out for those who need answers.

Paying a grandparent to care for children

With two-earner couples now the norm, who’s at home to take care of the baby? Sometimes, the ideal solution is to hire (and pay) Grandma. With so many people out of work, Grandma may be among them. She can probably use the money. Who better to give your children loving care?

But how do you handle paying Grandma? Is it a gift? Is she a household employee, needing a W-2 and full withholding? Are there any special provisions allowing you to skip some of the withholding? Is the income even taxable to her?

There are two ways that Grandma can care for your children. In her home — or yours. If she cares for them in her own home, she’s in business for herself. You need to issue her a Form 1099-MISC. Grandma reports the income and deducts her office-in-home expenses using the special Day Care Center rules (see IRS Publication 587). She even gets to use a special set of standard numbers to write off the cost of meals and snacks for the children — just in case she hasn’t been keeping track (also in IRS Publication 587).

Okay, that was easy. Now, what’s if she works in your home?

Actually, there’s a provision that allows you to pay her without deducting FICA and Medicare taxes. Since you can get away with that, you can also get away with not even preparing a W-2. But Grandma will still have to report that income. And it gets a bit confusing without that W-2. So, be kind. Put Grandma on the payroll so you have a paperwork trail, and so she gets a W-2. That way, Grandma won’t have to jump through complicated hoops when she files her own tax return.

Suppose you want to get some tax breaks for hiring Grandma — or for any child care expenses?

The flexible spending account at work allows you to set aside up to $5,000 for child care. That money comes right off the top of your paycheck without ever being taxed. You get that money back when you submit receipts for child-care payments to the administrator.

One taxpayer was distressed to learn that his child-care expenses did not qualify for this benefit — after he had set up the flexible spending plan deductions. Why?

In order to qualify for this benefit, you need to meet some standards.

First, you must make the payments to a child-care provider. You need to provide their name, address and Social Security number or Employer ID number. The EIN isn’t necessary if it’s an exempt organization like a religious organization, the YMCA, or other nonprofit. So far, Grandma qualifies.

Second, you need to be eligible to qualify under the child- and dependent-care credit rules. That means the child care is necessary so that you are freed up to work. Both parents must be working or disabled or full-time students in order to qualify for each month’s benefits. In other words, there must be either earned income, or the IRS equivalent. When you are a full-time student or disabled, the IRS provides an allowance of $250 per month, per child, for up to two children.

Say this taxpayer’s wife is a stay-at-home mom. She’s neither a student nor disabled. So…they don’t qualify for either the child- and dependent-care credit — or the flexible spending account.

The big problem for them will be — how will they get that $5,000 back? Once you set up the annual deductions, can you change them? If not, that wife will have to go work or become a full-time student in order to recover the $5,000 payroll withholding. Ouch!

Child- and Dependent-Care Credit

Speaking of the child- and dependent-care credit, you file to claim it on Form 2441. You’re allowed to use up to $3,000 worth of expenses for up to two children. The credit is a percentage of those expenses, ranging from 35% down to 20% as your income rises. However, since this is a nonrefundable credit, it’s generally never worth more than about $1,200.

Nonrefundable means the credit only reduces your tax liability. If your income and tax liability are low, say $600, and your credit is $1,050, you still only get to use $600 of it. The rest is wasted.

What if you have a flexible spending account (FSA) at work, or if your employer pays for your child care? You must deduct those amounts from your $3,000 or $6,000 allowance — and those reimbursements may wipe out your credit entirely.

But the flexible-spending account and having the employer pay for your child care are better deals anyway. Always opt for that if you qualify and those options are available.

Huh? Employer-paid child care?

This is one of the most overlooked credits available to the self-employed.

Yes, your employer may offer that to you as a tax-free benefit. This is a terrific idea for a company with many young workers with children. Heck, this is even a great idea for someone who is self-employed and only has his or her own children.

What’s the credit worth? A lot — both on a federal and state level.

First of all, the employer gets a deduction for the child-care benefits. Then, there’s a tax credit for the employer-provided child-care facility. Form 8882 provides for a credit worth 25% of the child-care expenses up to $150,000. Naturally, you must reduce your child-care deduction by the amount of the credit. (Note: Tax credits reduce your taxes dollar for dollar.)

There’s even an extra 10% credit available when you must pay a referral service to evaluate your child and determine the appropriate child-care provider.

Payments to Grandma are not likely to qualify for this benefit — unless Grandma gets licensed as a child-care provider. After all, your siblings might want to hire Grandma too. The employer may either set up its own child-care facility to get this credit — or pay someone who already has a licensed facility.

What now?

As an employee, it may be too late to take advantage of some of these benefits for this year — unless you start a new job. But as an employer, especially a self-employed business, you can still explore these options for 2013.

On the other hand, if your expenses in 2012 qualified for any of these benefits, including the Form 8882 credits, put your tax return on extension and do some research.

Top off your HSA by April 15 and save on taxes / If you didn't make the maximum contribution to your health spending account, you can still contribute and get a tax write-off.

 Ashlea Ebeling for Forbes.com/MSN Money writes: Are you one of the 13.5 million Americans covered by a high deductible health insurance plan coupled with a Health Savings Account?

Pay attention. You may still have a good way to cut your 2012 tax bill — and you probably don’t know about it. If you contributed less than the legal maximum to your HSA account through payroll deductions during 2012, you can still top out your 2012 contributions now and cut your 2012 taxes.

What? Your employer didn’t tell you about this? That’s not surprising, because you don’t make this after-year-end contribution through your employer. Instead, you send the money directly to the bank that holds the HSA account, just as you contribute directly to an individual retirement account. (If your HSA is administered through UnitedHealthcare and its Optum Bank, you may have gotten, and ignored, an email explaining how you can do this. Even if you didn’t get an email, your HSA administrator should be happy to take your money directly. If you can’t find directions on its site for how to do this, call and ask.)

HSAs come with a unique triple tax benefit: You sock away money pretax, it grows tax free, and when you take money out to pay for medical expenses, it comes out tax free. You can use HSA money to pay current medical bills or leave it growing tax free and use it tax free for uncovered medical and dental expenses in retirement.

"You can save a boatload of money in taxes," says Paul Fronstin, director of health research with the Employee Benefits Research Institute. And yes, millions of folks have more room to contribute for 2012. For 2012, you and your employer combined can put a total of $6,250 pretax into your HSA if you have family coverage, or $3,100 if you’re covered as an individual. On top of that, if you’re 55 or older, you can put in another $1,000 for each year until you’re eligible for Medicare.

Yet of those with individual insurance coverage, 15% contributed nothing to their HSAs in 2012 and 31% contributed less than $1,500, according to an EBRI report.  (For 2013, you can contribute up to $6,450 for family coverage or $3,250 for individual coverage.)

One reason this after-the-fact play is useful to many people is that if you’re on a tight budget, you might not have wanted to lock up too much money in advance in an HSA.  Your employer plan will define the rules around when and how frequently you can make changes in your payroll contributions going to your HSA, notes Maureen Fay, senior vice president in the Aon health and benefits consulting practice. But typically, you have to set your contributions before the start of each year (during "open enrollment") and then can only make changes if you have a "life event" like getting married or having kids.

Fronstin offers up a real life example of how useful contributing after the end of the year can be. Back in the fall of 2011, during open enrollment, a single woman he knows elected to divert $100 a month of her salary into her HSA during 2012. But she ended up incurring $2,000 in out-of-pocket expenses in 2012 – $800 more than what she had stashed away pretax. Now — before April 15, 2013 – she can add the extra $800 to her HSA earmarking it as a 2012 contribution (again, you can do this online with most HSA administrators) and deduct an extra $800. What if she’s short on cash? She can turn around and request a distribution from her HSA for the $800 to cover the expenses she incurred out of pocket in 2012.

In effect, you’re funneling your own money through the account in order to get the tax break, much as you do with a flexible spending account. The big difference is that with an HSA, unlike an FSA, you have the option of leaving the money in the account because there is no "use-it-or-lose-it" rule as there is with FSAs, and with an HSA you have the option of topping up your contributions after the end of the year.

Whether you contribute via salary deferral during the year or in a lump sum now, the end tax result is the same — every dollar you put in reduces your federal income tax bite and usually your state income tax bite, too. Even better, this is what’s known as an “above the line” deduction, meaning it is claimed on the front page of your 1040, before you calculate your adjusted gross income. With a lower AGI you might qualify for other tax breaks that are phased out for higher income folks—benefits like the deduction for interest on student loans and the $2,500 American Opportunity College tax credit.

Important note: Even if you apply for an extension and don’t file your 2012 tax return until October, the contribution to your HSA for 2012 must be made by April 15.  You report your HSA contributions (both employer and direct) on Form 8889. 

There’s yet another obscure option. You can direct some or all of your federal income tax refund into your health savings account by putting the routing and account number right on your tax return. For more details on splitting and directing your refund, see the instructions for IRS Form 8888.

Contributions that come in electronically from the IRS are counted in the year that they are received, so directing your 2012 tax refund into your HSA will count as a 2013 contribution. While this is an opportunity to boost your HSA contributions, be careful, warns Roy “Mr. HSA” Ranthun, who led the Treasury’s implementation of HSAs and now runs HSA Consulting Services. If you overfund your HSA, you must pay a 6% excise tax on excess contributions, although you can avoid the excess contribution penalty if you withdraw the excess contribution and earnings by the due date of your tax return, including extensions, for that year and report the earnings as income. You can download Ranthun’s "Common Sense Guide To HSAs" here for free.

Of course you get the biggest tax savings if you pay your deductibles out of pocket and leave the HSA money growing for years tax free. "If you took the time to set up an account, you should try to maximize it," says Jude Coard, a tax partner with Berdon LLP in New York, who sees HSAs growing in popularity among small business owners.

But not everyone has the cash flow to do that. So whether you’re looking for a long term tax shelter, or just to save a few bucks on taxes now, if you’ve got an HSA and room to contribute more for 2012, Uncle Sam has a special tax break for you.