January 22, 2013

Significant changes in store for this year's tax season

The fiscal cliff deal took care of some longstanding tax hassles, and preserved key credits and deductions for most.

The Associated Press

WASHINGTON — Taxpayers preparing to file their 2012 returns can breathe a collective sigh of relief.

 

The alternative minimum tax, or AMT, has been patched — permanently — and numerous tax credits and deductions that technically expired at the end of 2011 were extended as part of the fiscal cliff legislation that Congress passed and President Barack Obama signed into law in January.

"It certainly puts back into place many of the tax benefits that had expired for many people," said Mark Steber, chief tax officer with Jackson Hewitt Tax Services. "The extenders will be back on people's tax returns, making their 2012 refunds larger than they would have been."

But the delay in congressional action could mean confusion for some taxpayers over what credits and deductions still exist.

Going it alone on tax day could be costly. Experts recommend seeking some guidance, whether it's from a professional tax preparer, up-to-date software program or tax guide.

More than 90 percent of taxpayers go to a tax preparer or use tax software to file their returns, estimated Jim Buttonow, a 20-year veteran of the Internal Revenue Service who is now vice president of products for New River Innovation, a tax technology company.

The IRS will begin accepting returns on Jan. 30, an eight-day delay necessitated by the late congressional action.

"We have worked hard to open tax season as soon as possible," the agency's acting commissioner, Steven T. Miller, said in a statement. "This date ensures we have the time we need to update and test our processing systems."

Taxpayers claiming energy credits, depreciation of property or general business credits will need to wait, until late February or March, while the IRS updates its forms and systems.

Last year, the IRS received more than 148 million returns. Electronic filing reached 80 percent for the first time, an upward trend that tax experts expect to continue. All told, in 2012, more than 119 million returns were filed electronically, up 6.6 percent from the year before.

More than 110 million people received refunds last year totaling nearly $310 billion. The average refund was $2,803, slightly less than in 2011, according to the IRS.

As people sit down to do their taxes this year, they'll find that the standard deduction has been adjusted higher for inflation, to $11,900 for married couples filing jointly, $8,700 for heads of households and $5,950 for single taxpayers.

About two-thirds of taxpayers claim the standard deduction, according to Barbara Weltman, a contributing author to J.K. Lasser's Tax Guide 2013.

Each exemption is worth $3,800 this year, up from $3,700 in 2011. Look expansively at dependents beyond your children under 19, or 24 if in college. For example, if you're paying more than half the support for your parents and their taxable income is less than the $3,800 exemption, you might be able to claim them as dependents, even if they're not living in your home.

"When we say income over the exemption amount, we mean taxable income," said Jackie Perlman, principal tax research analyst with H&R Block's Tax Institute. "If a parent's only income is Social Security, chances are little or none of the Social Security will be taxable. Otherwise, very few people would get to claim a parent."

Single taxpayers with qualified children or relatives as dependents also may be able to use head of household filing status, which is more advantageous to the taxpayer.

There also are higher mileage rate deductions this year — 55.5 cents per mile if you use your car for business, 23 cents per mile for moving or medical issues, and 14 cents a mile for charity.

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