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Daily Tax Tips January 2014

Tax_tip_icon_pencil_point Can it already be another New Year?

Yes. And that means a new tax-filing season.

2014 arrived with much less tax consternation as 2013. Thanks to the American Taxpayer Relief Act (ATRA) of 2012 passed early in 2013, the tax laws for last year were set.

Still, Congress can't do anything easily. The House and Senate left Washington, D.C., without passing the extenders that expired on Dec. 31, 2013. That will make some tax planning more difficult until we find out which tax laws will be renewed.

In the meantime, we have to finish up the 2013 tax year by filing our returns for last year. We can't formally do that until the 2014 filing season officially opens on Jan. 31, but we can get ready to snail mail our 1040s or hit "send" on our e-filed returns.

The Daily Tax Tip returns to help you do that, as well as find ways to cut your 2014 tax bill.

Many of the tips will be courtesy of Bankrate's annual tax guide, of which I'm the chief reporter and contributing tax editor. If you want the weekday tips delivered directly to your inbox, you can sign up for the Daily (and/or Weekly) Tax Tip newsletter.

The weekend tips will be courtesy of tax geeky me directly via Don't Mess With Taxes because who really wants time off in tax season?!

As has been the case in prior tax years, each day's tip will be featured in the upper right corner of the ol' blog.

This filing season I pledge to do my best to get the tip posted early in the day. But sometimes other tax duties might get in the way.

But one thing I can guarantee is that you'll be able to find 2014 tips on special blog pages for each month. That way if you miss a tax tip on the day it's featured on the home page or simply want a refresher, bookmark this page and come back at your leisure to check out the January list.

At the end of this January tips list you'll find links to tax tips for February, March and April 2014 as those months arrive.

That's all the housekeeping I have. It's off to the Daily Tax Tips list!

  1. 10 tax traps to watch out for in 2014 -- Taxpayers rang in 2014 knowing that they didn't have to wait on Congress to finalize tax laws affecting their 2013 returns. The American Taxpayer Relief Act of 2012 that was finally enacted on Jan. 2, 2013, made many tax laws permanent and extended other provisions through 2013. But there still are plenty of tax-related matters -- delayed filing, expired tax provisions, new health-care tax laws, continuing IRS troubles, tax reform possibilities and more -- that you need to watch out for in 2014. (Jan. 6, 2014)
  2. 7 ways to get organized for the tax year -- While we're waiting for the Internal Revenue Service to open its 2014 tax-filing doors, taxpayers can still get ready to file. Even if your tax situation isn't complicated, there's still documentation the IRS demands. To help you get your tax paperwork in order so that you and the IRS will be happy, here are seven ways to help you get organized. (Jan. 7, 2014)
  3. 2013 & 2014 tax rates and income brackets -- There are seven federal income tax brackets, and the income that falls into each is adjusted each year for inflation. For 2013 returns due by April 15, 2014, that means that in our progressive tax system, the lowest of the seven tax rates is 10 percent while the top tax rate is 39.6 percent. In the 10 percent through 25 percent tax brackets, married joint tax return filers' income is double the single taxpayer amount, essentially erasing the marriage tax penalty in these lower brackets. Another reason it's usually advisable to file jointly if you're married is that married couples who file separate returns tend to face higher taxes. And heads of household gets wider income brackets than single filers, meaning their taxes are a bit lower. Check out both the 2013 tax rates/income bracket table for this year's returns and the 2014 inflation adjusted tax bracket amounts to see what your taxes might be on the money you make this year. (Jan. 8, 2014)
  4. 2013 standard tax deduction amounts -- Most taxpayers claim the standard deduction. The amounts for each of the five filing statuses are adjusted annually for inflation. For taxpayers younger than age 65, the standard deduction for married joint filers is double the single amount. Head of household taxpayers get a larger deduction since they're supporting dependents. Older taxpayers and visually impaired filers get bigger standard deduction amounts. And there is a special standard deduction calculation for dependents who also need to file a tax return. (Jan. 9, 2014)
  5. Filing status makes a difference in tax bill -- What's your tax filing status? It sounds like a simple question, but the correct answer could make a difference in your tax bill. You have five choices. If you're not married, you generally will choose single or, if you're claiming dependents, head of household. Married taxpayers, including same-sex husbands and wives, must choose married filing jointly or married filing separately. And widows and widowers who are taking care of kids get their own filing status. Picking the right filing status isn't always easy; some individuals qualify to file as more than one type of taxpayer. But picking the wrong way could be costly. So take the time to examine your personal situation and how it fits into the various filing status choices. (Jan. 10, 2014)
  6. The value and limits of personal tax exemptions -- Personal exemptions allow almost every taxpayer to reduce his or her adjusted gross income (AGI) to a lower taxable income amount. Remember, the less money that the Internal Revenue Service can tax, the smaller your eventual tax bill. Personal exemptions are found on all three individual tax returns, although in a slightly different form on Form 1040EZ. In addition to claiming an exemption for him- or herself, each filer also can claim one for a spouse (same-sex couples, too, now) and eligible dependents, both children and qualifying relatives (who might not even be related at all!). Higher income taxpayers, however, beware. Beginning in 2013, the personal exemption is phased out if your AGI is more than a specific threshold for your filing status. (Jan. 11, 2014)
  7. Don't miss these January tax deadlines -- The IRS is serious about its due dates. If you don't file any tax payment on the proper day, you end up paying interest and possibly penalties. The biggie, of course, is April 15 or the next business day when the deadline falls on a weekend or federal holiday. That's when our annual tax filings and payments if we owe are due every year. But the start of a new tax year also is full of important filing tasks keyed to the calendar. Some key January 2014 tax dates and deadlines include Jan. 13, when the IRS starts processing business tax returns; Jan. 17, when Free File opens to qualifying taxpayers; and Jan. 31, when many important tax statements for filers (W-2 and 1099 forms) must be issued and also when the Internal Revenue Service finally starts processing all 2013 tax returns. (Jan. 12, 2014)
  8. Making penalty-free estimated tax payments -- The U.S. tax system is based on the pay-as-you-earn concept. For folks getting paychecks from bosses, that's accomplished via payroll withholding of taxes. But if you get money from other sources where withholding isn't in effect, Uncle Sam expects you to take care of your due taxes in a timely fashion, too. The mechanism for this is estimated tax payments via Form 1040-ES. They are due four times a year -- April 15, June 15, Sept. 15 and the following year's Jan. 15 -- and the Internal Revenue Service prefers that all payments be equal amounts covering your guesstimate of how much you'll make and the taxes due on that money. If you underpay your estimated taxes, you could face a penalty. But there are ways to meet your tax-paying responsibilities and avoid owing the IRS any added charges. (Jan. 13, 2014)
  9. Picking the appropriate 1040 form -- Even the Internal Revenue Service says you should pick the easiest tax return that fits your filing needs. But too many people fixate on "easiest" instead of finding the 1040 that will provide them the best tax result. There are three individual tax return choices: 1040, 1040A and 1040EZ. As its suffix indicates, the EZ is the shortest and simplest form. Form 1040A is a bit longer and a bit more complex, but it also offers more tax breaks. And the granddaddy of returns, Form 1040, is the longest, making it the most detailed and potentially difficult. But the 1040 also provides the most opportunities for tax adjustments, deductions and credits. So even if your tax life is simple and straightforward, it could be worth your time to investigate all the 1040 options. the other two forms. Why? Generally, the longer the form, the more opportunities for tax breaks. So don't do more tax paperwork than necessary, but also don't cheat yourself out of tax savings by using an easier -- and wrong for you -- tax return form. (Jan. 14, 2014)
  10. Alternatives to tax refund loans and checks -- Tax filing season is delayed until Jan. 31. But don't be in such a hurry for your refund that you fall prey to tax refund offers of quick cash. You have other options. Go electronic. E-file, either on your own, via a paid tax preparer or through the Internal Revenue Service's Free File program that opens on Jan. 17. Have your refund directly deposited to a financial account. Use store financing if you're planning on using your tax refund for a big-ticket consumer purchase. Or simply wait just a few more days. Sure, it's tough sometimes when you really, really need cash. But patience could be a money-saving virtue at tax filing time. (Jan. 15, 2014)
  11. 5 stupid tax mistakes -- The only thing worse than having to file taxes is making a mistake on your return. Here are five stupid errors you definitely want to avoid. 1. File even if you can't pay. Penalties are tougher for non-filing than non-payment. 2. Acknowledge IRS letters. Just tossing them in the trash or ignoring them won't make your tax trouble go away. In fact, it will compound it. 3. Pay your tax bill with a high interest credit card. If you carry a balance, the interest will quickly add up. 4. Get a refund-related loan. Financial products based on presumed tax refund amounts are costly and could cause more problems if your refund is less than you expect. And finally, 5. Spend your refund quickly. Consider all the ways you might put your tax cash to work. (Jan. 16, 2014)
  12. Tax tips for new filers -- Are you filing a federal tax return for the first time? We veteran taxpayers welcome you to our not-so-exclusive club. The process can be frightening, but here are six steps you can take to successfully make it through your first filing season. 1. Get organized. 2. Talk with your parents about who can make claims for which you both might qualify, such as education tax breaks. 3. Decide how to file, either with software on your own or via Free File or by going to a tax preparer. 4. Don't leave money on the table by overlooking tax breaks. 5. Don't procrastinate. Putting things off until the last minute can cause added tax problems. 6. Don't be in such a hurry. Haste really can make waste at tax time. (Jan. 17, 2014)
  13. Obamacare tax credit calculators -- The Affordable Care Act, or Obamacare as it's popularly known, requires folks to buy health insurance. The Premium Tax Credit was created to help make purchasing that coverage via healthcare marketplaces, known as exchanges, more affordable for people with moderate incomes. The tax credit is available to individuals with annual incomes of up to $45,960; to two-person families earning up to $78,120; and to families of four with incomes of up to $94,200. So just how much of a tax credit might you as an Obamacare marketplace insurance buyer get? Obviously, myriad personal permutations involving the millions of newly insured will determine the precise amounts for each filer. But there are some online tools that will give you a guesstimate of your possible Obamacare Premium Tax Credit. Calculators are available from the Kaiser Family Foundation, IHC Specialty Benefits, TurboTax, TaxAct and H&R Block. (Jan. 18, 2014)
  14. Girl Scout cookies might be tax deductible -- If you're a big fan of Girl Scout cookies, you might be able to turn that into a tax deduction, too. The only downside is that you can't eat them. The Girl Scouts of the USA is an Internal Revenue Service registered 501(c)(3) group, so donations you make to the group are tax deductible. But when you're buying cookies for your own personal consumption from your neighborhood Girl Scouts, you are not making a donation. You are purchasing a product as a fair market value, so no part of your purchase price is tax deductible. But if you buy the cookies and then give them right back to the Girl Scouts who sold them, you can deduct the purchase price as a charitable contribution. Similarly, you can donate cookies you purchased from a Girl Scout to another organization, which may qualify as a donation to the organization receiving the cookies and may therefore be tax-deductible. Of course, such cookie donations beg the obvious question of just what kind of fruitcake, to mix food metaphors, would not take the Thin Mints (or other varieties) to immediately eat!? It might be better to write the Girl Scouts a clearly tax-deductible check, which also serves as documentation of the gift, separate from cookie purchases. (Jan. 19, 2014)
  15. 9 states don't tax wage income -- Most folks who file federal income taxes also have to file a state tax return around the same time. But lucky residents of nine states are off this additional tax hook. Seven of the states -- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming -- have no state-level taxation of any earnings. Two others, Tennessee and New Hampshire, tax only interest and dividend income. Of course, these states have to get money from somewhere to pay bills, so expect to pay plenty in sales and property taxes. And if you live in the other 41 states and District of Columbia, remember to file your annual tax return. (Jan. 20, 2014)
  16. 5 tips to picking the perfect tax pro -- This is finally the year that you turn over the hassle of filing your taxes to a professional. But which tax pro? You have lots of options, so you must do some homework before deciding. Among your choices are franchise tax preparation firms, accountants (including CPAs), Enrolled Agents, attorneys or the mom and pop tax office down the street. What you don't have is help from the Internal Revenue Service. The agency's proposal to register tax preparers and require they pass competency tests is tied up in federal court. So get started now with your tax assistance research. Good tax pros fill up their client lists quickly. (Jan. 21, 2014)
  17. Don't let your tax break get washed away -- The market has been going gangbusters of late, but sometimes we all buy a bad stock. Selling it can help at tax time when you can use the capital loss to offset capital gains or, not having any of those, up to $3,000 of ordinary income. But what if you decide you really want that stock, or one that's substantially identical to it, back in your portfolio? If you buy it back within 30 days after the sale, the tax code's wash sale rule will force you to disallow that loss on the tax return for the year in which you sold it. Basically, the wash sale limit was created to prevent people from making asset transactions just for tax reasons. Note, too, that the wash sale rule applies to stock repurchases both 30 days before or 30 days after a sale. (Jan. 22, 2014)
  18. Household help deadline looms for employers -- Your new baby is definitely a blessing…and a lot of work. So you hired a nanny. Make sure your household help doesn't trip you up at tax time. If your nanny is an employee, not an independent contractor, then you are responsible for paying Social Security, Medicare and unemployment taxes, as well as possible state taxes for your workers. And you must give them W-2 forms by Jan. 31 (unless that date falls on a weekend or federal holiday). These responsibilities are commonly called the nanny tax, but the rule applies to all household workers you employ. (Jan. 23, 2014)
  19. Tax documents necessary to file -- Statements are on the way from employers, financial institutions and other payors that were involved in your financial life last year. They have, by law, until Jan. 31 (or the next business day when that date falls on a holiday or a weekend) to get these annual tax statements. So be on the look-out in your snail or email box for W-2 and 1099-MISC forms reporting income you earned; 1099-INT and 1099_DIV forms with details on investment income; 1098 forms for home-related tax data on each mortgaged property; and education tax information on forms 1098-T and 1098-E. (Jan. 24, 2014)
  20. Don't miss out on the tax deduction for charitable donations -- Americans were incredibly generous in 2013. They donated more than $416 billion, an almost 13 percent increase over the prior year. If you were part of this record-setting giving group, be sure to thank yourself by claiming your charitable tax deduction. Just follow the tax rules. Give to an Internal Revenue Service qualified charity. Count both cash and noncash donations. Get a receipt for every gift. And remember that you'll have to itemize to claim this deduction. (Jan. 25, 2014)
  21. Tax filing checklist -- With annual tax statements trickling in, now is the time to make sure you have all the other info necessary to file your 1040 when the 2014 season opens on Jan. 31. Some of the things you'll need are W-2s, 1099s and other income documents; Social Security numbers for yourself, spouse and all dependents; last year's federal return, including your prior year's state filing if you live in a state that collects tax. Don't forget about retirement account contributions, estimated tax payments and any charitable gifts you made. (Jan. 26, 2014)
  22. What to do if you don't get a W-2 -- You're still waiting for your W-2. You know you're getting a refund and you want to file your return, but it's something you can't do until you receive your annual wage statement. The Internal Revenue Service requires employers to get workers their earnings information by the end of each January, so allow a few days after the 31st for it to show up. But if your Form W-2 never arrives, you can create your own for tax-filing purposes. You'll need last year's final pay stub and IRS Form 4852. This is a substitute form in which you plug in, using your pay stub info, as much as you can to recreate your missing W-2. The attached instructions will walk you through the process. If you need more help, call the IRS (toll-free 1-800-829-1040) and the agency will contact the employer or payer for you and request the missing tax statement. And if that still doesn't produce the missing W-2, you can use the Form 4852 to file. Remember, though, filing the substitute form instead of an actual W-2 will slow down processing of your return. (Jan. 27, 2014)
  23. Working around missing 1099 forms -- 1099 forms cover a variety of income, most commonly from jobs as an independent contractor and investment earnings. Unlike your W-2, you don't have to send 1099s in with your return. But you need the information they contain. And remember, the Internal Revenue Service gets 1099 copies and double checks the amounts you enter on your taxes. If you don't receive an expected Form 1099 in early February, contact the issuer and ask for a duplicate to be issued. You also can get an idea of the missing amount for investment income by checking your accounts' year-end statements. And double check company websites. You might be able to download your form from there. (Jan. 28, 2014)
  24. Tax software selection tips -- This time every year millions of us thank God, goodness and who/whatever else for tax software. These computer programs have made our annual tax filing so much easier. But to ensure that tax filing is a breeze and accurate, you need to make sure you select the tax software that fits your tax needs as well as your budget. Are your taxes relatively simple or do you have a lot of tax issues -- freelance income, many dependents with related tax issues -- to take into account? In this case, you'll want a program that will walk you through the process. Or you might be a veteran filer, wanting software simply for its calculators that double-check your math. Maybe you don't need to buy any program. You might be eligible for the Free File program. (Jan. 29, 2014)
  25. Electronic tax filing options -- 2014 is the tax season that you're finally are going to electronically file your return. The big question is how? You have lots of options. Go to a tax pro who's registered with the Internal Revenue Service to electronically file returns online for clients. Purchase tax software that includes e-filing. Remember that there might be an added charge for this when you get to this point in the process, especially if you're also e-filing a state tax return. Use tax software companies' online tax preparation and e-filing options. If your adjusted gross income is $58,000 or less, use Free File. (Jan. 30, 2014)
  26. Tax filing season 2014 now underway -- On Jan. 31, 10 days later than planned, the Internal Revenue Service finally started accepting and processing 2013 tax year returns. That last day of January meant that everyone, not just Free File users who got sort of a head start, could electronically submit their taxes. The IRS also will now work on paper forms that are filed the old-fashioned snail mail way. Since most early filers send in their 1040s ASAP because they are getting refunds, the next question is just when can they expect their tax cash back? They can find out 24 hours after e-filing by checking the IRS' Where's My Refund? online tracking tool. (Jan. 31, 2014)

Also check out:

February 2014 Daily Tax Tips

March 2014 Daily Tax Tips

April 2014 Daily Tax Tips

Can't get enough tax tips? Check out the rest of the news and advice at Bankrate's Tax Guide, as well as Don't Mess With Taxes' ever-growing collection of year-round tax tips and money moves.