7 tax return screw-ups to avoid

Bill Bischoff for MarketWatch writes: After Dec. 31, there’s nothing you can do to affect your taxes for the year that just passed, right? Not so. There are countless things you can do before you file to screw up your return. We’re talking about the stupid filing blunders that can increase your tax bill, raise the odds of unwanted IRS attention, or cost you if you get audited. Leaving aside obvious ones, such as forgetting to sign your return, here are seven gaffes, or missed opportunities, I see most often in my tax practice: 

1. The Gift That Ends Up Taking

You probably know you need charitable organization receipts to back up any donations of $250 or more. But did you know you must actually have those receipts in hand by the time you file? Otherwise, the tax law says no write-off is allowed. Period.

There’s more: for charitable donations of used clothes and household items, you get no deductions unless the stuff is in “good” condition or better. “Household items” include furniture and furnishings, electronics, appliances, linens, and the like. In other words, no charitable write-offs for donated junk. Under an exception, you’re allowed a write-off for any single item, regardless of its condition, that is appraised at over $500 (see IRS Form 8283 for details).For cash donations of less than $250 made in 2013, you’re not allowed any write-off unless you retain either a bank record that proves the donation (for example, a canceled check or credit card statement) or a written communication from the recipient charity that meets tax-law requirements. Therefore, small undocumented cash contributions (such as money placed on church collections plates and cash dropped in Salvation Army pots) will not result in any write-offs for you. You must get a receipt from the charity to lock in your rightful tax break. (You also must obtain charity-provided substantiation for any cash contributions of $250 or more.)

2. The Rollover Fumble

This is something I messed up on my own return not too long ago. Say you left your old job or retired in 2013 and rolled over your retirement account, tax-free, into a traditional IRA. What you’d receive from your former employer is a 1099-R that shows a taxable retirement-account distribution, even though it was tax-free. Or maybe you rolled over an existing IRA tax-free from one brokerage house to another. Again, you’d receive a 1099-R showing a taxable distribution, even though you didn’t actually have one.

The solution: Include the 1099-R figure on Line 15a of your 1040 (or Line 16a if it was a retirement-plan distribution). Then show the taxable amount—zero if you rolled everything over—on Line 15b or 16b, respectively. Be sure to write “Rollover” next to Line 15b or 16b. Blank lines will trigger an IRS inquiry about why you failed to account for the distribution shown on your 1099-R. Then—like me—you’ll become pen pals with the government as you try to explain what happened. Not fun.

3. Home Cooking

If you bought an existing home last year, you may find a tax goody buried under the blizzard of paperwork. I’m talking about your right to deduct any mortgage points paid by the seller. I know that being able to write off an expense someone else has paid for sounds too good to be true. But it is true, so don’t overlook it. The only catch: you must reduce the tax basis of your new home by the amount of seller-paid points that you deduct. That will mean a bigger profit when you sell, but since you can usually exclude home sale gains up to $250,000 ($500,000 if you are married), the bigger profit probably won’t actually result in any extra federal income tax.

Another little known deduction: If you refinanced the mortgage on your home and paid any points, you have been slowly amortizing the cost of those points over the life of the loan. But say you sold your home in 2013. Many people forget they can deduct the unamortized balance in the year of sale. Use the write-off on Schedule A as “qualified residence interest.”

Here’s another deduction many people miss simply because they aren’t aware of it: If you sold a house last year, take a look at your real estate closing statement. It probably shows that you prepaid a portion of the property taxes that came due after the date of sale. You can deduct this amount on your return.

4. Who’s in Charge Here?

One of the most common mistakes I see is people filing as single taxpayers when they qualify for the much-more-favorable head-of-household (HOH) filing status. After I wrote about this issue a while back, a reader took my story to his accountant. A few weeks later, amended returns claiming refunds for the last several years appeared in his mailbox.

Say you’re single and your non-adult child lives with you and pays for less than half of his or her own support. If you pay more than half the household’s costs, you qualify. You may also qualify if you are still married and lived with your child but apart from your spouse for at least the last half of 2013.

Finally, if you are single and can claim your parent as a dependent, you can probably file as HOH. This is true even if your parent has his or her own place. You are the HOH if you pay more than half the cost of your dependent parent’s home.

5. New Kid on the Block

If you have a little bundle of joy who was born last year, don’t forget to sign them up for a Social Security number before filing. It’s required to claim your rightful personal exemption write-off ($3,900 for 2013). What happens if you file without the number? The IRS will disallow the exemption, recompute your tax, and either send you a bill or mail you a lower-than-expected refund.

One Maryland taxpayer thought (logically enough) that having lots of dirty diapers ought to be more than enough proof for his deduction, even without a Social Security number for the kid. So he litigated the issue. Guess what? He lost. The moral: This requirement is nonnegotiable. To get a number for your new child, fill out Form SS-5 (Application for a Social Security Card). To get Form SS-5, visit the Social Security Administration’s website at www.ssa.gov .

6. Exemption for College-Age Child

Those college-education tax credits are tasty. Unfortunately, the Lifetime Learning credit is phased out for 2013 starting at an adjusted gross income (AGI) of $107,000 for joint filers and $53,000 for singles (complete phase-out occurs at an AGI of $127,000 and $63,000, respectively). The American Opportunity credit is phased out starting at AGI of $160,000 for joint filers and $80,000 for singles (complete phaseout occurs at AGI of $180,000 and $90,000, respectively).

When your income is way too high to take advantage, claiming your college-age child as an exemption could turn out to be a mistake. Why? Because if you forego the exemption ($3,900 for 2013), your child can use the education credit against his or her tax bill. Remember: this strategy works only if your child has enough income to owe taxes so that the credit is worth more than the exemption (otherwise, the credit has no value to your child).

7. Where’s the Cash Flow?

So you won’t have the money to pay the feds by April 15? Don’t make the common—and expensive—mistake of ignoring your tax-filing requirement until you’ve rounded up the bucks. Instead, you should either file your return by the deadline or apply to get an automatic extension until Oct. 15.

Either way, you can defer paying your tax bill until later. Sure, you’ll be charged penalty interest. But the current rate is only 0.75% a month. (The rate is adjusted quarterly, so it may be higher or lower by the time you read this.) If you do nothing, you’ll be penalized to the tune of 5% of the unpaid balance a month, up to a total of 25% (after five months). After that, you’ll be charged interest at the 0.75% monthly rate. So, what if you extend until Oct. 15 and are still short on cash when that date rolls around? You can then try to arrange for installment payments of your tax debt. (Use IRS Form 9465—Installment Agreement Request—to apply for an installment deal.) Alternatively, consider charging your tax bill on your credit card if that gives you a better interest rate. 

3 Good Reasons Not to Pay an Accountant to File Your Taxes

Erin Lowry for Daily Finance writes: Apparently, Americans missed out on $1 billion last year by filing their own tax returns. Perhaps you've seen the commercials featuring dramatic warship or football stadium representations of just how much cold, hard cash w squandered by taking our financial fate into our own hands. However, before these fear-mongering ads cause you to run headlong into the open arms of the nearest tax professional, let's discuss why it still makes sense to file your taxes yourself.

Warren Buffett certainly isn't rocking tax season with online software, but there are plenty of reasons why many of us probably should.

"The average American, unfortunately, doesn't have much in the way of investments," says Erin Al Essa, a freelance writer and former tax accountant. "These people whose applicable tax information is limited to W-2 wages, a few 1099s, and basic deductions are typically better off doing their own taxes."

For taxpayers who have complicated investments or who own a business, Al Essa does recommend getting your taxes done by a professional.

1. Basic Taxes Are Simple to Do with Software

Gone are the days of picking up paper tax forms at the post office and diligently scrutinizing all the instructions to make sure you're not committing tax evasion. Technology has made the average taxpayer's financial dealings with Uncle Sam simple, thanks to software like TurboTax, TaxACT, FreeTaxUSA, and H&R Block(HRB). And, all of those, plus many other commercial software options, areavailable free if you go through the IRS website -- if your income wasn't too high.

"Taxes are simply the story of a person's year, a story no one knows better than they do," says TurboTax CPA Lisa Lewis. "And with TurboTax, people don't need any tax knowledge or expertise to do their own taxes and get them done right."

TurboTax and similar software walk you through the process of filing your taxes by asking simple questions such as, "Did you buy a house?" or "Did you have a baby?"

2. You Keep More of Your Hard-Earned Dollars in Your Pocket

According to a recent report from the National Society of Accountants, 2013 tax returns done by a tax professional cost an average of $261 for an itemized Form 1040 with a Schedule A and a state tax return.

"If you are one of the 60 million taxpayers with [a] simple tax situation," Lewis says, "you can prepare and e-file your taxes in as few as 10 minutes with TurboTax Federal Free Edition."

While the IRS says the average taxpayer filing a 1040EZ is likely to spend four hours on the process, using online software reduces the amount of time involved.

The majority of tax-preparation software providers offer free federal returns and often charge less than $40 for state returns, which means the average taxpayer could save upwards of $200 simply by filing her own taxes.

3. Tax Software Still Catches Your Eligible Tax Credits

To get the largest possible refund, taxpayers must capitalize on every tax credit and deduction they are eligible for. Some may be skeptical that tax preparation software will find them all, which sends them running off to an accountant.

Lewis says that regardless of your tax preparation method, you should still get the same refund.

"TurboTax is always up to date with current tax and health care laws," she says. Similar software will also ask some simple questions to determine if you're eligible for tax credits. But even if your software and your accountant can determine your eligibility, you should still be aware of those tax credits yourself.

Al Essa suggests checking your eligibility for the Saver's Credit, which allows low- to mid-income earners contributing to retirement to take 10, 20 or 50 percent off up to $2,000 of their contributions (or $4,000 if taxpayers are married filing jointly).

Lewis recommends researching the tax credits related to your dependents and your education, such as the child tax credit of $1,000 or the American Opportunity Tax Credit if you, your spouse or a dependent are in college.

Throwing Money at the Problem

"Obviously," says Al Essa, "if you really hate prepping taxes, you can always hire someone, no matter how simple the return. It's a matter of priorities -- save the cash and spend the time, or spend the cash and save the time."

If filing your taxes with software will truly take you 10 minutes to an hour, perhaps it's worth pocketing the $200 or more you'll save by doing them without an accountant -- or at least seeing if you're eligible for free tax help.

Divorce Causes Tax Audits

Cameron Keng for Forbes writes: Divorce is an experience everyone dreads and hopes to forget.  The worst way to be reminded of something you want to forget is a “tax audit.”  The IRS turns the divorce into a recurring nightmare.  Divorce is a common part of our lives and it’s something that we all need to know more about.  This article came about from a client that recently fell into the unfortunate circumstance, where the IRS came calling to discuss that “divorce.”

Before you assume that this will “never happen to you,” we should probably look at your “chances.”  This situation is unfortunately commonplace.

Breaking Marriage Down By The Numbers:

• More than 50% of all marriages end in divorce. (Based on CDC, 6.8 marriages per 1,000 people in the US are married.  3.6 marriages per 1,000 people divorce. )
• 41% of First Marriages End in Divorce (30 Years-Old)
• 60% of Second Marriages End in Divorce
• 73% of Third Marriages End in Divorce
• The average marriages lasts 8 years.
• There is a divorce every 13 seconds in the United States.

English: Marriage and divorce rates in the US, 1990-2007. Source: Statistical Abstract, 2009. (Photo credit: Wikipedia)

This means that the first time people learn about divorce is when they turn 30 years-old.  This is the first time you’ll hear the words:

• Moneyed Spouse
• Non-Moneyed Spouse
• Equitable Distribution
• Sequester
• Forensic Accountants
• Hidden Assets

The timing of the age is relevant because it’s the period of our lives, where we’ve begun to amass a significant amount of assets or net worth.  Taking a huge “hit” could affect your long-term future by setting your retirement back years.

How Does The IRS Know About Your Divorce?

The IRS has the single greatest databank of personal information ever collected on American citizens.  Its information is so sensitive that it’s legally required to be held in a secure server that is never permitted to be connected to the internet.  Notice of your marriage is required to be disclosed by selecting either (1) Married Filing Joint or (2) Married Filing Separately.  Divorce is required to be disclosed by filing as either (1) Single or (2) Head of Household.

How Does the IRS Know That They Should Audit You From The Divorce?

Divorces can be contentious and painful, where emotions overwhelm reason and cause dire consequences to all those involved.  Hidden assets, undisclosed income and other facts will always become exposed in a divorce proceeding because of the required “forensic audit.”  These facts are collected and reported by forensic accountants to property determine the value of all the income and assets for “equitable distribution.”  But, the Judge is required to review all the facts and circumstances in order to determine the final judgment or distribution.  The problem is that the Judge is also required to report or refer any reasonable inconsistencies to the IRS under their ethical requirements.  Thus, the Judge is legally required to report these facts to the IRS for a tax audit.

The Recurring Nightmare (Statute of Limitations)

After a divorce occurs, the IRS has 3 years to audit your finances during the marriage.  This period can be even longer depending on the scale of the “discrepancy” or the existence of “fraud.”  A discrepancy over 25% will extend the review period or “statute of limitations” to 6 years.  Fraud will cause extend the review period indefinitely, thus the IRS can always audit you for fraud.

Innocent Spouse Relief

When the IRS audits you because of an ex-spouse, an option that might be available to you is the “innocent spouse relief.”  Often, the IRS notice you’re getting is a total shock and has nothing to do with you.  In cases where you’re completely innocent, you may ask the IRS to allocate or assign the fault to the “right” spouse at fault.  The three types are relief possible are (1) innocent spouse relief, (2) separate of liability relief or (3) equitable relief.

• Innocent Spouse Relief provides you relief from additional tax you owe if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits.
• Separation of Liability Relief provides for the allocation of additional tax owed between you and your former spouse or your current spouse from whom you are separated because an item was not reported properly on a joint return. The tax allocated to you is the amount for which you are responsible.
• Equitable Relief may apply when you do not qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to your spouse. You may also qualify for equitable relief if the correct amount of tax was reported on your joint return but the tax was not paid with the return.

Qualifying for these types of relief are taken into consideration on a case-by-case basis, but the general rules are available to help you navigate through the heady waters.  The IRS gives a great summary and straight-forward explanation in their publications.  Hopefully, you’ll never find yourself in the awkward position of need to apply these rules and regulations.

Conclusion

An ounce of prevention can save a pound of flesh.  While I sincerely hope that none of the readers find themselves in this predicament, it is safe to say that knowing the above can only help.

New 3.8% Investment Tax Raises Flags / IRS just released Form 8960 to report the tax

Arden Dale for the Wall St Journal writes: A new tax on investment income is raising red flags with some advisers as the tax season begins.

Congress enacted the 3.8% surtax on dividends, interest and other income back in 2010, but didn't make it effective until tax year 2013. Even though advisers have been studying the tax's rules, many still have some questions as they help clients report the tax for the first time.

Retirement income, state and local taxes, and investment advisory- and other expenses are a focus of concern. Tax experts want more direction from the Internal Revenue Service on how to report retirement income and calculate write-offs for state and local taxes and certain expenses that are also subject to the tax.

"It's the first time we have had to make a precise calculation of this tax," said Bill Fleming, managing director in PricewaterhouseCoopers Private Company Services practice, who added that there's "consternation" among accountants over the gray areas.

The general outlines of the tax are straightforward enough. It applies a 3.8% levy to investment income over modified adjusted gross income of $200,000 for individuals ($250,000 for couples). Many advisers spent significant time in 2013 helping clients estimate how much they were likely to owe in the near future, and came up with ways to reduce its effects.

For example, one strategy might involve selling appreciated stock in a year when someone is unemployed, so that capital gains don't put the taxpayer over the $200,000 threshold. Many estates and trusts are subject to the tax, as are capital gains, rental and royalty income, as well as interest.

But the devil is in the details for advisers as they start to work on hard numbers for clients. IRS rules, for instance, stipulate that non-qualified annuity distributions are subject to the tax but qualified pension distributions are not. Both kinds of income are reported on Form 1099-R with only a small notation to distinguish non-qualified annuity distributions.

Mr. Fleming, who is a financial planner and lawyer in Hartford, Conn., has many clients who receive pensions of between $20,000 to $90,000 a year, and a slip in reporting one of the distributions could cost $3,000 or more in unnecessary taxes.

In addition, even the experts could be confused by an IRS publication intended to help taxpayers report their 2013 taxes, he said. The document, Publication 17, says that non-qualified retirement distributions are subject to the 3.8% tax without noting the difference between non-qualified annuity distributions and non-qualified retirement distributions paid to former employees (which are reported on Form W-2 and not subject to the investment tax.)

Mr. Fleming also has clients who, as former mid- to upper-level corporate managers, got non-qualified pensions to supplement their 401(k)s or other qualified pensions. A few get more than $200,000 a year of income from these pensions. Someone in this situation could end up paying $7,000 or more in taxes on a distribution by reporting them as subject to the 3.8% tax, a mistake that could arise from reading the IRS guidance on filing 2013 taxes, he said.

The takeaway, Mr. Fleming pointed out: Taxpayers and their advisers should be very clear about what kind of pension and retirement income they have when handing over documents to an accountant working with Form 8960--which the IRS released last month to report net investment income. The one-page document and its lengthy draft instructions has been prompting questions among advisers and tax experts.

The IRS declined to comment for this article.

State and local income taxes, investment advisory and brokerage fees, and tax preparation and fiduciary fees are other potential problem areas. Taxpayers can deduct a portion of those expenses to offset the 3.8% tax but there's no set formula to do so.

James Guarino, a partner at New Wealth Advisors in Tewksbury, Mass., said IRS rules allow taxpayers to use "any reasonable method" to calculate these deductions. That gives tax advisers opportunities to explore different tax savings strategies for their clients. Mr. Guarino, whose firm manages around $100 million, has been telling clients there may be an initial trial and error period for the first year or so.

Many of financial planner Jim Holtzman's clients will face the question of how to calculate the state and local tax deductions because all of them will owe the 3.8% tax. Mr. Holtzman, who is also a certified public account, doesn't prepare tax returns, but does review them for clients. He said he needs to come up with a method for calculating the deductions, and envisions himself questioning some deductions claimed on client returns.

"I might say something like, 'I would anticipate the write off on state income taxes should be $5,000, not $1,000," said Mr. Holtzman, at Legend Financial Advisors, which manages about $313 million.

Anyone who expects to owe the 3.8% tax will probably have to wait at least until the end of this month to file the Form 8960 along with their other tax documents. That's partly because Form 1099 from brokerage houses--necessary to help calculate a taxpayer's net investment tax--won't come out until then. The wealthy routinely file their taxes on extension, but will still need to pay by April 15 the amount of investment tax they expect to owe.

Reid Schlotterbeck, an accountant who works as part of a wealth advisory team at Truepoint Inc. in Cincinnati, predicted that over time, advisers and the IRS will identify "gray areas" that exist in how to apply the tax.

"We'll see what works and what doesn't, and what modifications need to be made," said Mr. Schlotterbeck, whose firm manages about $1.2 billion.

Ten Ways You're Probably Leaving Money on the Table / Tax-Advantaged Accounts, Property-Tax Appeals and More Are All There for the Taking

Ana Prior for the Wall St Journal writes: They're simple. They can save a bundle of money. But lots of people just don't use them.  People's financial lives are filled with potential low-effort strategies that can add up to huge savings over time. They can max out their benefits at work or take deductions for college-savings plans or spend a few minutes clicking around to find better rates on insurance once a year.

Yet, all too often, inertia kicks in. Think of it as the fiscal version of not going to the gym every day. People think they don't have time to squeeze in one more activity, even though it won't take that much time and they'll be all the better for it. (Or sometimes, it never crosses their mind.)

But the result is that they leave a lot of money on the table. Below are 10 money-saving moves that many people don't take advantage of—but definitely should. Doing all 10 could potentially result in savings of more than $15,000 a year, depending on your situation. Over 10 years? Let's say you invest that $15,000 every year and get a 5% annual return. With compounding, you'd end up with more than $198,000 after a decade.

1. Use IRAs for Nonworking Spouses

Traditional IRAs allow investors to save in a retirement account and potentially get a deduction for their contribution, depending on their income and whether or not they or their spouse actively participate in an employer-sponsored retirement plan at work. But they may not be getting as big of a deduction as they could. "If you have a nonworking spouse, spousal IRA contributions are often missed because they don't realize the spouse at home can make an IRA contribution and potentially get deductions on that as well," says Bill Houck, a wealth manager with Modera Wealth Management LLC in Westwood, N.J.

Though typical IRS rules require the IRA contributor to have earned income, working spouses may be able to make an additional deductible IRA contribution on behalf of a nonworking spouse.

Deductions typically begin to phase out if a household's modified adjusted gross income exceeds $178,000 and the working spouse contributes to a retirement plan at work, like a 401(k).

Let's look at a couple where the working spouse makes the maximum contribution for a nonworking spouse—$6,500. (For those under 50, it's $5,500.) Assuming a federal income-tax rate of 28%, that $6,500 might bring a tax savings of $1,000 to $1,800, depending on the couple's overall tax situation, says Mr. Houck.

2. Tap Commuter Benefits

The pitch is simple: Employees can use pretax dollars from their paychecks to pay for qualified commuting expenses, including mass-transit passes and parking. You reduce your taxable income—and potentially get a lower tax bill—while getting something you were going to pay for anyway.

But while roughly 11.7 million workers have access to a commuter-benefit plan, consumer-directed benefits administrator WageWorks estimates that fewer than three million sign up for it.

They're missing out on potentially hundreds of dollars in annual savings. For instance, commuters can now set aside up to $250 a month for qualified parking expenses, up from $245 last year. Assuming a total tax rate—federal, state, local and FICA taxes—of about 40%, lowering your pretax income by $250 a month could end up saving you about $1,200 a year in taxes, says WageWorks. If a commuter invested that $1,200 every year and got a 5% return, he would have more than $41,000 after two decades.

While the monthly contribution limit for mass-transit riders has dropped to $130 from $245, WageWorks says there could be about $624 in tax-bill savings, using the same tax assumptions.

3. Opt for Flexible Spending

Another option that works on a similar principle—putting aside pretax dollars for certain expenses—is a flexible spending account. The two most common FSAs are health FSAs, which can be used for qualified medical expenses, and dependent-care FSAs, used for qualified child-care and elder-care costs. "What we find is that many employees aren't even aware that these tax-advantaged benefit plans are available," says Natasha Rankin, executive director of the Employers Council on Flexible Compensation, a Washington-based nonprofit that advocates for flexible-benefit programs.

For dependent-care FSAs, a person making $60,000 with a 30% tax rate could see $1,500 in tax savings in just one year by contributing the annual maximum of $5,000, according to WageWorks. One thing to keep in mind—funds in dependent-care FSAs can't be rolled over at the end of the year. But a recent change in the rules on health FSAs allows contributors to carry over up to $500 at the end of any given plan year, says Ms. Rankin.

4. Use a Health Savings Account

High-deductible health plans are becoming more common. With a qualifying high-deductible plan can come the chance to contribute pretax dollars to a Health Savings Account, or HSA.

Compared with health FSAs, HSAs have higher contribution limits—$6,550 for a family compared with $2,500 for a health FSA—and there's no limit to how much can be rolled over year to year. Sheltering $6,550 with a tax rate of 25% could result in annual savings of $1,500 on a tax bill, says Paul Winter, president of Salt Lake City-based Five Seasons Financial Planning LLC.

5. Shop for Insurance Discounts

Dealing with insurers isn't always the favorite item on the to-do list, but by failing to check in once a year, people might be overpaying. Melissa Sotudeh, a wealth adviser with Halpern Financial Inc. in Rockville, Md., suggests people gather auto and homeowners insurance quotes online and approach their current insurer about lowering their rate when coverage and quality of insurers are comparable. Also mention life changes, such as an adult child no longer needing auto insurance or a new home-security system.

Other discounts can typically be had for school-age drivers with good grades or for those who take a defensive-driving class, says Loretta Worters, vice president at the Insurance Information Institute. Plus, people with older vehicles worth under $1,000 could consider dropping comprehensive and collision coverage.

How much can you save? Ms. Worters says school-age drivers with good grades can save up to 25% on average, depending on the company and the state. Defensive-driving classes can yield about 10% savings, again depending on the state. (There are a few states where the discount isn't available.) Using the national average annual auto-insurance payment of $797, those discounts could yield annual savings of about $199.25 and $79.70, respectively.

She says dropping some coverage on an old car could bring savings of 15% to 40%, although she warns never to drop liability insurance on a car.

Meanwhile, there's always the option of switching to higher deductible—increasing a homeowners deductible to $1,000 from $500, for instance, can save 25% on annual premiums, says Ms. Worters.

That would amount to annual savings of $244.50 based on the national average premium of $978 in 2011, the latest year the statistic is available from the insurance institute.

6. Lower 401(k) Costs

Employer-sponsored retirement plans can come with a lot of investment choices. But employees often don't make sure they have access to the least-expensive ones. The average index mutual fund carries an expense ratio of 0.76%—$7.60 in annual fees for every $1,000 invested, according to Morningstar. For exchange-traded funds, it's 0.58%. However, for actively managed mutual funds, it's a heftier 1.27%.

Over time, that can really add up. Assuming a typical 401(k) size of $100,000 and annual contributions of $3,000, somebody with an expense ratio of 0.76% would pay $43,759 over 25 years while somebody with 1.27% would pay $68,189, says Mr. Houck, the Westwood, N.J., wealth manager. If that person has an expected return of 5% before costs, the final value for the fund with the 0.76% expense ratio is $412,317—versus $369,513 for the fund with the higher expense ratio, a difference of $42,804.

Employees should request a diversified group of low-cost index funds and ETFs as investment choices, says Mr. Houck. "The more noise an employee or group makes, the more likely the employer will become aware of these issues," he says.

7. Gift Securities to Charity

It's common to reach for the checkbook when a charity comes knocking, but experts say more people should think about another option: stock. By gifting stock that has increased in value instead of selling it and donating the cash, a donor can avoid paying capital-gains tax, which has the potential to save thousands come tax time. "Up until recently, it's been a number of years since we've had substantial unrealized gains in stocks, so people got out of the habit of thinking of this," says Mark Coffey, a financial planner with Summit Financial Strategies in Columbus, Ohio.

If someone bought 500 shares of a stock at $10 each and it's now worth $50, he wouldn't have to pay the capital-gains taxes on the $20,000 profit. That's a potential tax savings of $3,000 if that stock was held for more than a year and taxed at the 15% long-term capital-gains rate. That savings increases to $4,760 for joint filers with an adjusted gross income of $450,000 or more in 2013, who are subject to a 20% long-term capital-gains rate and a 3.8% Medicare surtax on net investment income, says Ronald Finkelstein, a tax partner at accountant and advisory firm Marcum LLP in Melville, N.Y.

8. Appeal a Property Assessment

While the housing market is recovering, 30% to 60% of properties are assessed at higher than their current value, and fewer than 5% of taxpayers appeal assessments, says the National Taxpayers Union, a conservative advocacy group that favors limits on taxes, spending and debt. "I've seen that many people are still paying real-estate tax on values that date back to 2006 and 2007," says Rob Siegmann, chief operating officer and adviser at Financial Management Group in Cincinnati.

National Taxpayers Union spokesman Pete Sepp says about 20% to 30% of appeals generally have some success. The tax savings for a home reassessed at a lower value can be big. A $2.4 million home in Westchester County, N.Y., reassessed at $2.1 million yielded about $6,000 in savings on a property-tax bill, says Nathan Fromowitz, a partner at Bruce Sokol & Associates, a property-tax appeal firm in White Plains, N.Y. That translates into about $82,000 in savings over 10 years, assuming the tax rate increases at historical levels.

9. Time Your Car Purchase Right

Typically, car buyers who wait until the end of the year to buy a new vehicle can score a deal as dealers give discounts to meet annual sales targets. If buyers can't wait that long, there still are ways to time a purchase to save hundreds or even thousands of dollars.

Buying at the end of the month can give a shopper more negotiating power as dealerships look to move volume, and shoppers in the late summer and early fall may be able to get a deal when the new-model-year vehicles enter dealerships' inventories.

Also, cold or rainy weather can work to a shopper's advantage, since bad weather can discourage people from walking around a lot to look at vehicles, potentially giving those who do show up a bit more negotiating power.

Even the time of day can help. According to auto marketplace AutoTrader.com, a serious buyer who goes to a dealership near the end of the day may have a better shot at a deal as the dealer makes concessions to speed things up so everyone can go home.

If you time your car purchase right, and you aren't buying one of the more popular models or colors, you could expect to save $500 to $2,000 just by waiting until the end of the month or day to make your purchase, says Brian Moody, Autotrader.com's site editor.

10. Deduct 529 Plan Contributions

Many states offer an income-tax deduction for residents that make contributions to state 529 college-savings plans, yet they often go overlooked.

Consider a single or married individual in Ohio with $150,000 in taxable income, a 28% marginal federal tax bracket and a 5.45% state marginal tax bracket. Investing $4,000 in Ohio 529 plan accounts for two kids would save roughly $218 come tax time, says the Columbus-based planner, Mr. Coffey.

Claim All the Tax Credits You Earned: What the Earned Income Credit Can Do for You at Tax Time!

How Much Can I Get?

If you have qualifying children, you can get up to $6,044 in the Earned Income Credit (EIC). 

If you are a worker without children, you can get up to $487. The Internal Revenue Service has a tool on their website to help you figure out how much you would get from the Earned Income Credit based on your income and family size. 

The calculator still has amounts for the 2012 tax year but will still give you a pretty good idea about what your 2013 EIC could be.

Find the EIC Calculator on the IRS website at apps.irs.gov/app/eitc2012/Forward_2012_Calc.do OR:  Go to iowalegal aid.org, Type EIC Calculator in the search box and click GO, then Select EIC Calculator from the list of the website’s tax issues resources.

What Children Qualify?

Qualifying children are sons, daughters, stepchildren, grandchildren and adopted children as long as they lived with you for more than six months during the tax year. Brothers, sisters, stepbrothers and stepsisters - and the children of any of these relatives - qualify if they were with you for more than six months during the tax year. Foster children who are placed with you by an authorized government or private placement agency also qualify. The children must be under age 19, or under age 24 if they are full-time students. Totally and permanently disabled children of any age are also qualifying children. Social Security numbers valid for employment are required for the taxpayer and the children claimed for the earned income credit. If you are not the parent of the qualifying child, you must be older than the child unless the child is totally and permanently disabled. If you live with the child and his or her parent(s), you can only claim the child if you have the required relationship, the parent chooses not to claim the child, and your adjusted gross income is higher than the parent with the highest adjusted gross income.  

How Do I Get the Earned Income Credit? 

You must file a tax return. If you were raising children, you need to file a Federal 1040 or 1040A (not the 1040EZ) income tax return. If you are a married couple, you must file a joint return. (See exception for separated parents below.) A qualifying widow or widower with a dependent child may use this status to file and claim the EIC. An unmarried parent who does not pay more than half of the costs for maintaining the family home can file as single and still claim the Earned Income Credit for a qualifying child who lived with him or her for more than six months of the year. You must also file a form called the Schedule EIC with your tax return. You need to fill out only the front side of this Schedule EIC, and the IRS will calculate the exact amount of the credit on the back side. If you do not file the Schedule EIC, you will not get the Earned Income Credit. If you were not raising children, you can file any tax form including the form 1040EZ. You also do not have to file a Schedule EIC. 

What if I Am Self-Employed? 

You are eligible for the EIC, but you must fill out a special series of forms: Schedule C or Schedule C-EZ, Schedule SE, Form 1040, and Schedule EIC (if you were raising children in your home). Call the IRS to get the forms or go online. You need to carefully include all income and expenses for your business. Gather all business related receipts, bank statements and mileage records to accurately fill out these forms. 

What If I Am a Permanent Resident Alien Who Is Working in the U.S.? 

The EIC is available to taxpayers who have a Social Security number and have a child who has a Social Security number. All Social Security numbers must be valid for work. The taxpayer must have been a U.S. resident alien for tax purposes the entire year, and the child must have lived with the taxpayer for more than six months in the United States. If the taxpayer is married and lives with his or her spouse, the spouse must also have a Social Security number. 

What If the Parents Are Divorced or Separated?

The parent with whom the child lived for more than six months can file for the EIC, even if the other parent can claim the child as a dependent. The parent not living with the child may be able to get the smaller EIC for workers without qualifying children.

There is one case where married but separated parents who do not want to file jointly still can claim the EIC. The parents must have lived apart for the last six months of the year and their child(ren) must have lived with one of the parents for more than half of the year. In such cases, the parent with the child(ren) who meets the rules for filing as head of household can claim the EIC. 

What if the Parents Live Together But Are Not Married?

Either parent may claim the Earned Income Credit. If both parents claim the credit, the IRS will decide who receives the credit. The parent with whom the child lived the most time during the tax year will receive the credit. If they both lived with the child the same amount of time, the credit will go to the parent with the highest adjusted gross income. The parents may want to discuss how to claim the earned income credit to make sure the family gets the biggest credit permitted by the laws. 

What If I Have Not Filed in the Past?

You also can get EIC payments for the last three years - even if you did not file a tax 

return in those years - in addition to anything you may be eligible for in the current tax 

year. Therefore, you can get payments for the tax years 2010, 2011 and 2012 plus your 

2013 return if you have not filed federal income tax returns during those years and you 

were eligible for the 

EIC. For 2010, you must have the return on file by April 15, 2014 in 

order for it to be considered timely. You will need to get a Form 1040 or 1040A for those 

years. 

Where Can I Get Forms for a Prior Year?

You can get the forms you need by contacting the IRS:

• By Telephone: Call 1-800-829-3676 
• On the Internet: Go the IRS website at irs.gov 
  • Select the gray tab Forms and Pubs
  • Click Prior Year Forms & Pubs
  • Put the number of the form you need in the Find box and click the Find button. 

If you filed taxes in 2010, 2011 or 2012 and did not claim the earned income credit but you have learned you were eligible, you can file amended returns. 

Can I Get the EIC with Electronic Filing?

Electronic filing with direct deposit is the fastest way to get your refund. You can get it in as little as 10-15 days. Lower-income taxpayers may go a local free tax assistance site to get this service for free. 

Does the EIC Affect Public Assistance?

EIC payments are not income for the purposes of FIP (AFDC), Medicaid (Title 19), SNAP (food stamps), SSI or public/subsidized housing in the month received. That means the Earned Income Credit will almost never affect your eligibility for these programs or the amount of benefits you get. Money from the EIC may be counted as a resource in the following months, depending on rules for the individual program.