Useful Tips for Tax Returns

By Shmuel Simons for COLlive

Tax season is right around the corner. Many of you are already collecting those envelopes in the mail that are labeled ‘Important Tax Document’, and setting it aside for your accountant. Whether you are getting a refund, or paying owed taxes, your wallet will be affected.

Yet, how much do you know about your tax return? Here are some tips I compiled for your benefit, so you can become better acquainted with the process.

1. Get Your Tax Refund as a Prepaid Card

For those of you who prefer to receive your tax refund as a paper check because you do not want the check to have to go through your bank account, there is now a new option just for you from New York State. You can now receive your refund as a prepaid card. It will be secure since it cannot be used until you activate it. You will be able to use it at retail locations, online purchases or simply withdraw the entire refund as cash at an ATM machine.

2. Change in Your Refund

Many people have probably decided how they will spend their tax refund. There is one thing you should bear in mind before you go ahead and book that family trip or write up your tuition check. You will not be getting on your 2011 tax return that extra $800 ($400 for an individual) that most people enjoyed getting in 2009 & 2010. That Making Work Pay credit has expired and was not renewed for 2011.

3. Small Tax Benefit for Educators

If you are a teacher be sure that your accountant has put on your tax return the $250 tax deduction that you are given for educators’ out-of-pocket classroom expenses. It’s only a small deduction, but why shouldn’t you have it if you deserve it.

4. You Still Have Time to Lower Your 2011 Taxes

For those people who have some money to spare, you still have time to lower your taxes by contributing to an IRA (individual retirement account). Even though December 31, 2011 has already passed, you have until April 17, 2012 to contribute up to $5,000 ($6,000 if you are 50 or older) to an IRA and lower your income by that amount.

5. Remember This Before Selling Your Home

It’s difficult to get excited about income taxes – except when it comes to saving YOUR tax dollars! Admit it! No matter how wealthy you might be, you love to save money, don’t you?

It may not be relevant at this moment but it is worth mentioning so that you are aware of it at that later time whenever it may be. Before you sell your main home make sure that you pass these tests and you will not pay a cent of tax on up to $500,000 profit ($250,000 if single) you make from the sale of your home. You can sell that house you bought for $700,000 at up to $1,200,000 and all of that profit can go to you instead of Uncle Sam taking his nice usual chunk. During the 5 year period ending on the date of the sale you must have:

a. Owned the house for at least 2 years, even if only one spouse owns it.
b. Lived in the home as your main home for at least 2 years. You can rent it out for up to 3 of those 5 years without losing this exemption. These 2 years do not have to be continuous nor do they have to occur at the same time.
c. During the 2 year period ending on the date of the sale, you did not exclude gain from the sale of another home.

As long as you meet these easy tests you keep all of your hard earned money for yourself.

6. E-filing is Only to Your Advantage

I know there are still some of you who are hesitant to E-file your return and still prefer the old method of sending that paper copy in the mail. Last year nearly 100 million taxpayers opted for E-file. These are some advantages to E-filing which may change your mind this year.

If you are expecting a refund you will get it three to six weeks earlier since the IRS processes electronic returns faster than paper ones.

The IRS also acknowledges that it received your return, a courtesy you don’t get even if you send your paper return by certified mail. This helps protect you from the interest & penalties you would get if your paper return gets lost.

If you owe money, you can file electronically and then wait until the federal tax filing deadline to send in a check, or just have the IRS withdraw the money from your account on the day of the deadline.

The IRS checks your return for completeness which increases your chance of filing an accurate return.

May you all have Parnassah B’harchava, and enjoy lots of Hatzlacha in all your endeavors.

Shmuel Simons is a tax accountant in Crown Heights. He can be reached at 718-687-8596 or email Ssimons@rothcocpa.com