The 2014 tax filing season is finally if full swing, with the Internal Revenue Service accepting and starting to process 2013 returns on Jan. 31.
Now we head into February, with the rush on by early filers to get their 1040s in and the tax refunds back. To help in that area, we have February 2014's Daily Tax Tips.
As with the January tips, this page will collect tax tidbits one a day, Monday through Sunday, holidays included, for the 28 in our shortest month.
But just because it's a short month, that doesn't mean you'll get shorted on 2013 filing and 2014 tax planning moves that could lower your tax bills.
And the Daily Tax Tips will continue to be featured in the upper right corner of the ol' blog through April 15.
If you happen to miss one or more there, catch up here and at the other 2014 monthly tax tip compilation pages.
Many of the tips posted throughout filing season are part of Bankrate's annual tax guide. Others are original Don't Mess With Taxes advice.
From whatever source, stay tuned this month and beyond. Now, here are the Daily Tax Tips for February 2014.
- Avoiding bad tax pros -- The sad truth is that some tax professionals are unscrupulous. They take advantage of taxpayer eagerness to turn over this annual task. They also know they often can count on some filers' eagerness for a bigger refund. The result can be tax refund fraud and/or identity theft. To avoid ending up with a bad tax pro, stay away from return preparers who claim they can obtain larger refunds than other preparers. Run from those base their fees on a percentage of your refund. And never sign a blank tax form. Remember, regardless of who fills out your 1040, you are ultimately and legally responsible for the accuracy of all entries made on the return. (Feb. 1, 2014)
- The shared tax liability of joint return filers -- Most married couples share their tax filing, too, sending the Internal Revenue Service on 1040 under the married filing jointly status. That generally doesn't cause problems, but there always are exceptions to every rule. Section 6013(d)(3) of the Internal Revenue Code gives the IRS the ability to come after either spouse for payment of a tax bill. This is known as joint and several liability and it applies equally to both spouses who sign a 1040, even if one spouse earned all the income or claimed improper deductions or credits or one spouse is in more dire financial straits. It also remains in effect if the couple later divorces. So no matter how much you love and trust your husband or wife, take the time to read your 1040 before you sign it. If you have any qualms about what's on the form(s), don't sign it and consider sending in a married filing separately return. (Feb. 2, 2014)
- Reporting your gambling winnings -- Did you pick the Seattle Seahawks to blow out the Denver Broncos in Super Bowl XLVIII? You are in a small club. Most bettors put their money on the Mile High City team. That's too bad for them and for the Internal Revenue Service. With less money won, Uncle Sam will collect fewer taxes. Remember, all gambling winnings (and prize money, too) are taxable income in the eyes of the IRS. For most casual bettors, the winning go on Form 1040's "other income" line 21. The good news, though, is that you can reduce your gambling winnings by any gambling losses. (Feb. 3, 2014)
- Who has to file taxes? -- From the truth is stranger than fiction file, some folks don't have to file taxes. Most of us, however, are not that lucky. So just who has to file a tax return? The Internal Revenue Service takes three things into account when determining whether you must send it a Form 1040. They are your age, your filing status and your income. Generally, once you reach a certain income level (it's adjusted each year for inflation), you must file. The earnings amounts, adjusted each year for inflation, are calculated for your age and your filing status. There also are special rules for older taxpayers and dependents. And if you own your own business be careful. Self-employed people might need to pay self-employment taxes even if they don't own income taxes. So check the filing rules carefully. (Feb. 4, 2014)
- Taxable vs. nontaxable income -- The "Taxman" gets his hands on almost all your earnings (and yes, that's shout out to The Beatles, who first came to the United States 50 years ago this week). Even ill-gotten gains are taxable; remember Al Capone! But there are still a few things that are out of the Internal Revenue Service's reach. The main problem is that most of this money comes from situations you wish you weren't in, such as court awarded damages for physical injury and associated emotional distress, disability payments, crime victim fund payments and relief grants following a disaster. But at least you won't be giving the taxman, in song or real life, any more of your money than he's due. (Feb. 5, 2014)
- Choosing the standard or itemized deductions -- You can decide each year whether to use the standard deduction or itemize. The standard amount is a set dollar figure for each filing status; it is updated for inflation every year. When your applicable standard deduction amount is greater than your itemized expenses, then claim the standard deduction. Don't worry. It's not an irrevocable choice. You can use the standard deduction one year, then the next filing season add up all the many categories -- mortgage interest, medical expenses, state and local taxes, charitable gifts and certain miscellaneous expenses -- found on Schedule A and claim itemized expenses. The bottom tax deduction line is always pick the method that helps you get the lowest possible tax bill. (Feb. 6, 2014)
- 10 often overlooked tax breaks -- Everyone want to pay the Internal Revenue Service as little as possible. The way to ensure that happens is to take every tax deduction, credit or other income adjustment you can. Some frequently overlooked tax breaks are for itemizers only, others can be claimed by any taxpayer. They include noncash charitable gifts, mortgage refinance points, moving expenses, military reservists' travel expenses, job-hunting costs, child care credit, many medical costs, retirement tax savings, educational expenses and energy-efficient home improvements. Check them out to make sure you save as many tax dollars as possible. (Feb. 7, 2014)
- Tax concerns of the unemployed -- 2014 began with 1.3 million Americans losing their unemployment benefits. And with tax season in full swing, the news got worse. Uncle Sam expects to hear from out-of-work folks if they got the benefits last year. Why? Because unemployment benefits are taxable income. If you didn't opt to have any withholding taken from your unemployment or pay the amount via estimated taxes, and that's a lot of folks because they needed all the money they could get to cover living expenses, you must come up with it by April 15. The only good news is that you might be eligible for some tax breaks, such as the Earned Income Tax Credit (EITC). (Feb. 8, 2014)
- 6 ways to be the best tax client -- You decided to get help from a tax professional this filing season. Let's make sure you followed all the steps. Evaluated your tax pro options. Check. Thoroughly vet the tax pro. Check. Now comes the really important part. Be the best tax client. Here are six easy ways to do just that. (1) Be prepared. (2) Be ready to answer questions. (3) Be honest. (4) Be professional. (5) Be open to advice. (6) Be adult about your taxes. These steps will help you and your tax pro get your taxes done correctly. Your bottom line, your tax professional and the Internal Revenue Service will appreciate it. (Feb. 9, 2014)
- 4 options for your tax refund -- Afraid you'll spend your tax refund as soon as you get the check in hand? Then don't get a check. Instead, tell the Internal Revenue Service to directly deposit your refund. You have four ways to get you’re your tax cash into financial vehicles that help you hang onto it a bit longer. You can have your refund sent directly to up four accounts so you won't be so tempted to immediately spend it. The choices are yours. In addition to a standard checking or savings account, consider putting your refund directly into your individual retirement account. You even can use up to $5,000 in tax refund to purchase U.S. savings bonds. If you want your refund to go to one account, you can do that directly on your 1040. If you want it to go into several accounts or want to buy bonds, check out Form 8888. (Feb. 10, 2014)
- Where's your refund? -- Folks who file early usually do so because they're getting money back from Uncle Sam. So it doesn't take them long to start wondering where the heck is their Internal Revenue Service refund. The IRS used to provide projected issuance dates, but that just riled people up when those weren't met. Now the tax man generally promises that refunds for most people -- emphasis on most, not all -- will be delivered within 21 days. If you want more detail on your check or direct deposit, you can check the agency's Where's My Refund? online search tool. It's also available via the IRS' smartphone app IRStoGo. And while you wait, you might want to ponder the pros and cons of getting a tax refund. (Feb. 11, 2014)
- How taxes can lower your tax bill -- Paying any taxes is not fun. But there is a bit of consolation. Some state and local taxes can help lower your federal tax bill. If you itemize you can deduct state and local income taxes or, for some filers, state and local sales taxes. It's your choice, so pick the tax total that's larger. Other deductible taxes you can list on Schedule A are real estate taxes, personal property taxes and intangible taxes on investments. There's even a catchall itemized deduction line for "other" taxes. Here you can deduct occupational taxes or any foreign income taxes you paid. (Feb. 12, 2014)
- Filing status options for married couples -- A couple has a choice of how to submit their tax return: married filing jointly or married filing separately. Which one is better? It depends. The tax code tends to reward couples who file jointly. Many tax breaks are not available when couples send in two separate 1040 forms. Sometimes, though, the tax separation is wise. When one spouse was sick a lot and has a low enough income to be able to claim the medical expenses in excess of 10 percent of adjusted gross income, a separate return could produce a lower tax bill than if the pair filed jointly. Also if you're concerned your spouse is taking questionable filing chances, you can protect yourself against future Internal Revenue Service action by filing your own return. So check with your husband or wife and run the numbers before choosing your filing status. And remember, gay and lesbian married couples. This filing season, you have to make the married filing jointly or married filing separately choice, too. (Feb. 13, 2014)
- Alimony tax implications -- When the end of matrimony leads to the start of alimony, each parting partner can feel the tax effects. The ex-spouse getting alimony payments must report the payments as taxable income in the year it is received. Enter it on line 11 of the long Form 1040. Sorry for the terrible tax surprise. As for the ex-husband or ex-wife making alimony payments, you can subtract those amounts from your income as an adjustment to income, also referred to as an above-the-line deduction, on line 31 of Form 1040. Be sure to also enter the Social Security number of your former spouse who's getting the money. That helps the Internal Revenue Service double check that he or she is reporting it as income. (Feb. 14, 2014)
- IRS promotes automated help over phone hotline -- Don't call us, says the Internal Revenue Service. The tax agency warns that if you do seek help via it's tax assistance telephone hotline, you'll be on hold for a while. The reason is, naturally, money. Sequester and Congressional budget cuts have forced the agency to adjust operations. Now it is focusing on automated help efforts and is encouraging taxpayers to look for their tax answer online. IRS.gov has many links to specific tax areas where filers can find the information they need; several are highlighted in the table in the full tip. You can also check out IRS Publication 5136, also known as the IRS Services Guide. (Feb. 15, 2014)
- Adjust your withholding -- Most taxpayers get federal tax refunds every year. For many it's an easy way to save some money for a special purchase or project. The first batch of 2014 filing season tax refunds averaged $3,317. But because of the delayed filing season, those folks had to wait until February to get their money back from the Internal Revenue Service. You can prevent this annual wait for the IRS to issue your refund by not getting one in the first place. Simply adjust your withholding so that the amout taken out of each paycheck is as close as possible to your eventual tax liability. It's easy to make the change. Just give your payroll manager a new W-4. The IRS even has an online calculator to help you arrive at the proper amount. That way you don't have to worry about when your refund will show up. You'll have already had your tax money in hand throughout the year. (Feb. 16, 2014)
- Claim your state and local sales tax deduction -- State and local taxes are a popular federal deduction. Claiming these taxes on Schedule A is a no-brainer if you live in one of the five states without a general sales tax -- Alaska, Delaware, Montana, New Hampshire and Oregon. But choosing to deduct sales tax instead of state and local income tax also could be worthwhile if your state's income tax rate is low. Whatever the reason you choose to deduct sales taxes, note that this might be the last year you can do so. The deduction expired at the end of 2013 (as one of the many tax extenders that must periodically be renewed) and must be approved by Congress in order to be available for the 2014 tax year and beyond. So don't waste this possible last shot at writing off your state's and county's and/or city's levies on last year's purchases. If you kept all of 2013's sales receipts, you can total them for your basic deduction amount. (Feb. 17, 2014)
- Hobby or business? How to decide -- You know what they say about all work and no play, so it's good to have a hobby. But if your hobby is turning into a regular money-maker, you might want to consider treating it as a business. When your hobby produces income, you owe tax on it. You can reduce your taxable hobby income by deducting your hobby expenses, but this tax break is limited. The expenses are counted as part of the miscellaneous section of Schedule A, meaning you must have more than 2 percent of your adjusted gross income before you can claim them. However, you have more options when your profitable hobby is a real business. By filing a Schedule C, you get more chances to write off your hobby-turned-business costs. Remember, though. That when you run a business, you'll owe self-employment tax on your earnings. (Feb. 18, 2014)
- Deductible job-hunting expenses -- If you looked for another job, you might be able to deduct those job search costs. Just make sure you follow the rules. You've got be looking for a job in the same field. Uncle Sam won't subsidize a career change. And you've got to itemize. So hang onto all those receipts for resume copies, telephone calls and travel to job interview. You'll need enough so that your job search costs and all your other miscellaneous expenses exceed 2 percent of your adjusted gross income. (Feb. 19, 2014)
- 5 terrible tax surprises -- The only thing worse than doing taxes is being surprised when you're filling out your 1040. But every year, lots of filers are shocked to discover that (1) unemployment benefits are taxable, (2) so is alimony, (3) debt you had written off (canceled or forgiven) is taxable income, (4) they owe Uncle Sam on the value of prizes won and (5) some Social Security benefits could get you a tax bill. (Feb. 20, 2014)
- How the Earned Income Tax Credit can help -- Lots of people work hard for relatively little money. They might, however, be able to get some relief at tax filing time by claiming the Earned Income Tax Credit (EITC). It's a credit, which is applied directly to any tax you owe. Even better, it's a refundable credit, meaning in addition to not only erasing your tax bill, the EITC could net you a tax refund check. To get this tax break, you must work but not exceed the earning threshold for your filing status. And the EITC is not just for families; even if you don't have any kids, you might still be eligible for the EITC. (Feb. 21, 2014)
- Will you face a marriage tax penalty or bonus? -- Most married couples file a joint federal return, something that same-sex wedded couples will have the pleasure of doing starting this filing season. Sometimes, though, combining all your income on one Form 1040 leads to larger tax bill than if the two spouses had filed as single taxpayers and then totaled their individual tax bills. This is known as the marriage tax penalty. This happens most often when both spouses work and earn roughly the same amount. However, some couples get the benefit of a marriage tax bonus. This happens when one spouse earns most of the couple's money. (Feb. 22, 2014)
- Report all your income -- When employers hire independent contractors, they typically send the workers a year-end Form 1099-MISC noting the amount the workers earned. The reporting rule is that a payer must issue a 1099 when a worker's earnings are $600 or more. What happens, though, if you didn't make enough on a particular job to trigger issuance of a 1099? You still have to report those earnings. How will the Internal Revenue Service know? Well, that's a chance you might be willing to take, but remember if the tax agency does discover you underreported your earnings, you'll owe tax, interest and penalty charges. (Feb. 23, 2014)
- Tax help for college costs -- The cost of higher education goes up every year. Let your Uncle Sam help. The Internal Revenue Code offers many tax-advantaged ways to pay higher education costs. They include 529 savings plans, Coverdell education savings accounts, the American Opportunity and Lifetime Learning tax credits and the above-the-line deductions for tuition and fees and student loan interest. (Feb. 24, 2014)
- 12 tax scams to avoid in 2014 -- Tax time is scam time and the Internal Revenue Service has once again issued its annual list of the Dirty Dozen ways criminals use tax hooks to get your money or personal information. Topping the list once again is identity theft. New this year is the growing use of tax-related telephone scams. And the perennial problem of phishing comes in third in 2014. Check out the full list, be careful and remember that if something sounds too good to be true, it probably isn't. (Feb. 25, 2014)
- Child and additional child tax credits -- It costs a lot to raise a family, but Uncle Sam can help with the child and additional child tax credits. The basic $1,000 per child child tax credit is one of the easiest to claim. As long as your kid meets the requirements -- essentially was 16 or younger at the end of the tax year -- you simply enter the child youth's Social Security number and credit amount on your 1040. There's a little more work if you qualify for the additional child tax credit, but it's worth it. That credit is refundable, meaning you could get a refund check. (Feb. 26, 2014)
- Get tax help in caring for a parent -- If you're a Baby Boomer, you've probably discovered that your aging means your folks are getting older, too. In many cases, our elderly moms and dads need more and more of our help. If you are taking care of an aging parent, you might be able to get some tax relief by claiming Mom or Dad as a dependent. The biggest hurdle here is providing more than half of a parent's support. This is difficult not just from a financial perspective, but because our folks are often too proud to accept help, especially form their kids. But check out the tips for specifics and run the numbers. You could end up helping yourself out at tax time as well as helping out your folks. (Feb. 11, 2014)
- Adoption tax credit -- A growing family is expensive. The costs could be even more when you add a child via adoption. In this case, be sure to let Uncle Sam help cover some of the costs by claiming the adoption tax credit. Because it's a credit, it reduces your tax liability dollar-for-dollar. Adoptive parents who qualify for the maximum adoption tax break may be able to reduce what they owe the Internal Revenue Service by $12,970. This isn't a refundable credit, so you don't get the excess if your tax bill isn't that big, but you can carry any unused credit forward for up to five tax years. Finally, for tax year 2013 returns, the credit begins to phase out if your modified adjusted gross (MAGI) income is more $194,580. The credit is completely eliminated if your MAGI is $234,580 or more. (Feb. 28, 2014)