January to-do list for taxes
How to get organized for tax year 2013. Plus, five tax resolutions
January 07, 2013|Eva Rosenberg, MarketWatch
We start the year off with tax legislation that finally makes it possible to do some definitive tax planning. Some of the measures affect your 2012 taxes; the rest cover 2013-17, with permanent changes.
The single most helpful tool for keeping your tax resolutions is a checklist. Every successful self-improvement course, study program — and even job — benefits from one. Have you ever noticed how many checklists you use on a daily basis?
Consider consolidating them, so you can see your daily, weekly and monthly responsibilities at a glance. Let’s build your tax checklist for January 2013:
Set up your 2013 tax file. Pull out your labelmaker and put new labels on file folders, expanding files, or drawers, so you have a place to drop your 2013 records and receipts. Now you can consistently file all relevant documents for the year in one place. Instead of a set of file folders, consider using an expandable file. While you’re at it, do the same for last year — and get a head start on locating and organizing your 2012 papers.
Let me understand this. The BEST advice the Wall Street Journal came up with for tracking expenses is to add up the numbers on pieces of paper. Manually. Better idea, why don’t you put DOWN the labelmaker and spend that time getting your Mint.com account set up?
Set up your 2013 tax calendar. Individuals can use IRS Publication 509 (www.irs.gov ) to locate deadlines for the year. Small businesses can use the IRS’s colorful “Important Tax Dates for Small Business” calendar (www.tax.gov ) to set reminders for 2013 due dates. Not only is it available online, but there’s also a desktop version and a tool to integrate it with a variety of personal electronic calendars. The Spanish print version is sold out and won’t be reprinted again this year due to budget limitations. But the calendar is still available in English.
Any piece of advice that starts with “Read IRS Publication…” is likely going to be overkill. If you need to worry about more than just the year-end tax deadlines, you should have someone helping you who knows them. Simple.
Update your address. If you moved in 2012, be sure to update your address with everyone who is expected to send you tax-related documents: Former employers (W-2s), banks (1099-Int), lenders (1098), brokerages (1099-DIV, 1099-B), the IRS, your state tax agency, clients (1099-MISC), investments (K-1s) and trusts (K-1s).
Reasonable advice. But if you move, and leave a forwarding address, then the USPS will forward those forms as well. And what address is on most of those forms is not relevant. So focus on just changing your address with people you currently work with.
Update your name. New brides generally remember to change their names on driver’s licenses and paychecks, but often forget to notify the Social Security Administration. You won’t be able to e-file your tax return with your new name if it doesn’t match the Social Security Record.
This actually is good advice. If you change your name, notify SSA.
Get a special IRS PIN. Were you the victim of identity theft last year? Make sure to contact the IRS and have them issue you a special Identity Protection Personal ID Number (www.irs.gov ). Notifying the IRS about the identity theft will flag your account. By getting the IP PIN issued to you, no one will be able to file a tax return under your Social Security Number without it. Your refund will be safe.
This is good advice too. Just make sure to write it down somewhere you won’t lose it! Not having it, once it is issued, can be a huge pain.
File a new W-4 with your employer now — and again in March. The legislature did not extend the 2% reduction of Social Security payments from paychecks. Your paycheck will be a little lower this year. Consider increasing your withholding if you have refinanced your mortgage and your mortgage interest has been reduced, or if your child or children are no longer dependents. You can reduce your withholding if you are making a payment for private mortgage insurance (PMI). The deduction has been restored, retroactive to Jan. 1, 2012. Also, reduce your deductions if you have bought a home, gotten married, have a new child or expect large, deductible losses in 2013. Use the IRS withholding calculator to help (www.irs.gov ).
You do not need to make a new W-4 every year. You might consider changing it if something happens that might cause you to pay less tax. My advice? Leave it alone. Why? Getting a large refund you can bank won’t hurt anyone (we can all afford to save more!). Trying to figure out how to re-do a W-4 might.
Send out W-2s this month. Have you been paying household employees? Although the IRS has sort of a short-cut — Schedule H (www.irs.gov ) — for reporting and paying taxes for those workers, you’re still responsible for sending them a W-2 in January. Your state will require full, year-end payroll tax returns.
So, this only applies to business owners. Also, if you cannot afford the 50 bucks a month to pay a payroll company to do all the payroll for you, then you cannot afford to have employees. If you have the time to run your own payroll, you don’t need employees to help you!
Send out 1098s this month. Folks collecting payments on private mortgages or loans must send out Form 1098 (www.irs.gov ) showing the amount of interest paid by their borrowers. Even if you don’t send out the form, be aware that your borrower will be reporting the interest on their Schedule A. There’s an area on Schedule A to list your name, address and taxpayer ID number. So remember to report the private mortgage interest income you receive.
How many people are paying their mortgage to a private party?! Listen, if you are required to issue a 1098, you already know all about it. Including every conceivable contingency in articles like this is is exactly why people think this stuff is so complicated!
Send out a 1099-MISC this month. Although owners of rental properties don’t need to send 1099s to folks who worked for them, all other business owners must still comply. Send Form 1099-MISC (www.irs.gov ) to anyone who was paid $600 or more during the year for services. There’s no need to send it to vendors who supplied merchandise or supplies — just service providers. There’s no need to send 1099s to corporations, except attorneys and medical care providers. When a company operates as an LLC, you don’t know whether or not they are filing as a corporation. So get a Form W-9 (www.irs.gov ) from each vendor and have them tell you. In fact, it’s a good idea to send a new Form W-9 to each vendor in January, so you can have the most up-to-date information before paying them.
This is something you need to do. But I want to reiterate something I said earlier. If you need to be issuing 1099s, then you should have an electronic records keeping system that makes this pretty easy. A new W-9 is every year is overkill though. Why create more work for you, and your vendors, if nothing has changed?
Use up your medical Flexible Spending Account (FSA). If you haven’t spent enough money on medical care to get all your FSA deductions back, you might still have some time. Turn in your receipts from your doctors, dentists, clinics, therapists and pharmacies immediately. If you don’t have enough receipts to get all your money back, contact your FSA administrator or payroll department to find out if your plan gives you extra time. Some plans are set up to give you until March 31 to get the medical care and the related receipts. Naturally, if you get reimbursed by your FSA plan for these costs, you may not list them as itemized deductions.
If you just realized that you have an FSA and you are trying to use it up, you are a little late to the game. Better advice? Spend an hour figuring out what benefits your company offers and how they work so you can have all of 2013 to make sure you don’t leave money on the table.
Retirees: Make contributions from your IRA in January. Congress has restored the special provision for those age 70.5 or over to transfer up to $100,000 from their IRA (www.irs.gov ) to a charity for 2012. You have until Jan. 31, 2013, to make this donation. You will not get a deduction for the charitable contribution. But you will avoid all taxes on this withdrawal. It will count as your required minimum distribution.
I don’t know about you, but if I was going to transfer $100,000 to a charity, I wouldn’t have forgotten about it and been glad this article reminded me. Yes, you can transfer money directly from your IRA, to a charity, to satisfy your RMD requirement. But this is not something that should be done last minute. It should be part of a considered strategy.
Make your fourth estimated tax payment. Jan. 15 is the due date for the fourth quarter estimated tax payment for 2012. This is important for folks who have investment income, unemployment income or any freelance income. If your business profits were over $400, you will owe self-employment taxes, even if you don’t owe income taxes.
Yes, you should probably do this.
Make 5 tax resolutions for 2013.
Resolve to pay not more than your fair share of taxes.
OK, but none of this advice helps with this.
Resolve to pay no penalties and interest this year.
Actually, you might want to pay interest. Currently the IRS charges 4% on underpayment. If you make more than that, keep your cash, make the higher return, pay the penalty, and bank the difference.
Resolve to take advantage of every tax credit and deduction legally available to you.
Because last year I didn’t care about this? Thank God I made tax resolutions for 2013!
Resolve to make your tax return audit-proof.
This does not exist. Trust me.
Resolve to read MarketWatch’s tax columns year-round.
Eva Rosenberg is the publisher of TaxMama.com, where your tax questions are answered for free. She is the author of several books and ebooks, including Small Business Taxes Made Easy. And she teaches tax courses at IRSExams.com and CPELINK.