9 things to know for filing your 2013 taxes

With constantly changing tax laws, new forms, and no lack of contradicting advice, tax season can be daunting for even the most fiscally informed.

CPA, Jason Nazelrod of Nazelrod & Associates Tax & Consulting LLC, which is part of the CapellaTax Network’s group of Certified Public Accountants, offer some tips on navigating tax season to avoid some of the most common mistakes and oversights people make.

1. Prepare and file your return once you are sure you have everything

People are in such a rush to file if a refund is due, but if you file your tax return before you have received all of your tax documents, filing an amended return may be required. Taxpayers should note that many companies now have until February 18^th to issues 1099 forms, which is later than the January 31^st deadline from prior years. Amended returns to correct missing or inaccurate information cannot be efiled and will take longer process, and may lead to additional cost for a tax preparer. Having patience can really pay off.

2. Know when certain actions you take will lead to taxable income

Taxpayers may be surprised to find out that the following can lead to taxable income:

• Some cancellation of debt – for example, if a credit card company wipes out debt, it is likely to be taxable income to the debtor.
• Paying for nonqualified education costs with a child’s 529 education plan, such as room and board. For example, if taxpayer pays for room and board costs from a 529 college savings plan, it is likely to result in the distribution being subject to income taxes and a 10% penalty.
• Principle Residence Exclusion – if you move out of your principal residence and decide to rent the property, you may be giving up a huge tax deduction. Taxpayers can exclude up to $250,000 (single filer) or $500,000 (married filers) of taxable gain on the sale of a principle residence. If you have not lived there as a primary residence for 2 out of the past 5 years, you lose the exclusion, and any gains will be taxable upon sale.
• Early/unqualified distributions from retirement accounts are taxed as ordinary income (like a paycheck) plus a 10 percent penalty. It can be a heavy hit.

3. Be aware of identity theft

Taxpayers can encounter identity theft involving their tax returns. However, there are some ways to minimize the chances.

Efiled returns will notify the taxpayer immediately if someone has already filed on their behalf.  Also, the IRS will never correspond by email due to the potential of email scams.

In addition, the IRS may require taxpayers to confirm tax payments they have made during the year, as a way of confirming the taxpayer’s identity. When requested, failing to reply with a list of tax payments made during the year can result in the IRS withholding refunds.

Additionally, some taxpayers are being issued Identity Protection Personal ID numbers instead of filing with Social Security Numbers. This helps in identifying and reducing identity theft through tax filings.

4. Understand health care requirements

The Obamacare health coverage mandate (individual mandate) went into effect on January 1, 2014. The penalty for not having qualifying health insurance during 2014 is the greater of $95 ($47.50 for children), or 1% of your taxable income. The penalty will be calculated for each month an individual does not have coverage in 2014 (although a 3 month grace period may be afforded).

5. Understand the rules around issuing 1099s

Anyone who pays an individual or non-corporate identify (LLC) more than $600 per year for services must issue a 1099. For example, if you employ a nanny or a housekeeper and pay that individual more than $600 for the year, you are required to issue a 1099.

6. Be aware of evolving same sex marriage rules (federal taxes)

Starting in 2013, same sex married couples must file their federal return as Married Filing Jointly or Married Filing Single, regardless of whether they live in a jurisdiction where the marriage is recognized. Filing as Single on the federal return will not be allowed. Same sex married couples may file amended returns for prior years to be treated as married if within statute of limitations.

7. Know when tax deductions and credits can help you

It’s remarkable how many times taxpayers overlook deductions and credits from which they can benefit. Major life events can have an impact on your potential refund. Examples include:

• Change in marital status
• Birth / death of child or spouse
• Casualty losses
• Significant medical issues
• Moving / relocation
• Employment changes
• Retirement
• Personal bankruptcy

8. What’s likely going away for 2014 (unless congress extends)

• Teacher’s classroom expense deduction
• Exclusion of cancellation of debt for principal residence
• Mortgage insurance premiums deduction
• IRA distribution cap to charity

9. Know when you should talk to a CPA

If your tax return is very straightforward, hiring a CPA may not be needed. However, a CPA may be able to advise you on tax and financial matters that can help keep you in line with tax laws and potentially save you money. By understanding your situation, a CPA can advise you on the proper deductions and credits as well as provide other tips that aim to protect your hard earned assets.