Top 5 Mid-Year Tax Tips

With taxes in the news almost every day, and many important tax breaks having expired at the end of 2011 and more set to expire at the end of 2012, taxpayers would benefit from spending some time this summer reviewing their tax profiles and learning about possible changes. Jackson Hewitt Tax Service has honed in on the top five areas taxpayers should consider now, that may help put you in a better position when filing your tax returns next year:

1. Know how any major changes happening in your life can impact a tax return: A wide range of common life occurrences may trigger tax considerations, which can result in a higher tax refund or a reduction to the amount of income taxes owed. For example, did you get married? Did you have or adopt a child? Buy a home? Move for a new job? Decide to go back to school? All of these life-changing events, and many others, may have related tax deductions and credits available and it is important to know what benefits exist and who is eligible.
2. Check your withholdings to make sure they are correct: The Form W-4 determines the amount of withholding from a paycheck. In some cases, it is beneficial to consider changing a withholding status during the course of the year, such as when a child is born – leading to a new dependent to claim – or, if a taxpayer works multiple jobs during the year. Withholding can be changed at any time by completing a new Form W-4 for your employer.
3. Think about what you are saving: Putting money away in an IRA account, or participating in a company sponsored 401(k) plan, can be an easy, tax-free way to reduce taxable income and start saving for the future. Taxpayers in lower income brackets may also qualify for a tax credit. For 2012, you can contribute up to $17,000 for a 401(k) plan if you are under age 50 ($22,500 if 50 or over) and up to $5,000 for an IRA if under age 50 ($6,000 if 50 or over).
4. Beware of impending changes: A double whammy of problems for 2013 is expected to occur if provisions are not made by December 31, 2012. Taxpayers need to know what deductions and credits will be off the table – and what new considerations may be available to them that could improve their tax situation.
5. The results of the election can influence your tax situation: By the middle of November, we will know who will set the course for taxes over the next four years. There are many proposals being considered from general tax rates to tax rates on specific types of income, as with capital gains and dividends, and various considerations related to business, including small businesses.

Source: Jackson Hewitt Tax Service Inc.