With Thanksgiving now behind us and December right around the corner, it's never too early to start thinking about your tax situation. Even with just over a month until the start of the tax-filing season, many tax laws are up in the air, so the time to prepare is now. Let's look at some important tips to help you prepare for the tax-filing season.
Five Things to Know
• There are many potential tax law changes coming that could affect most taxpayers. Almost all tax changes proposed by President Obama for 2012 favor the majority of taxpayers and can lead to bigger refunds.
• The majority of taxpayers today "e-file" their tax returns: It is faster, safer and you will receive your refund check from the IRS faster than filing a paper return.
• Tax fraud and identity theft are growing problems and expected to get worse this year. By filing early, you can prevent thieves from being able to use your Social Security number and personal information to file a return under your name.
• Sitting down now with a tax professional and putting a plan together, as well as following the news on tax policy changes, can help you be better prepared when it comes time to file.
• Tax issues surrounding "Taxmageddon," the "fiscal cliff" and the national debt ceiling are largely tied together. Follow these issues in the news to have a full understanding of the implications.
Five Things to Watch For
• Late-year tax legislation changes may impact income tax returns for 2012, 2013 and beyond.
• Loss of "Extender" Provisions, which includes the deductions for state and local sales tax, the mortgage insurance premium, deductions for out-of-pocket classroom expenses for teachers, deductions for college tuition and fees, as well as the $500 credit for making energy efficient home improvements.
• Whether or not the Bush tax cuts will be renewed. This includes the expiration of the 10 percent tax rate, a reduction in the Child Tax Credit, the reinstatement of the marriage penalty, changes to the student loan interest deduction and the expiration of the American Opportunity Credit for students.
• More than 27 million taxpayers stand to be hit by the Alternative Minimum Tax (AMT) if the patch is not extended. Keep an eye out for updates.
• If reached, the government's debt ceiling could impact the IRS's operations, including IRS staffing cuts during the tax season.
Five Things to Do Before December 31
• Think about any life changes you had in 2012 and how these may impact your tax return. Many common events, like having a baby or buying a home, can trigger tax credits or deductions. Start planning for your income tax return by putting together an action timeline and to-do list.
• Get to know your neighborhood tax preparer. Not only can working with a paid preparer provide you with a better understanding of taxes when filing a 2012 return, it can also put you in a good place for upcoming tax years -- especially if you know changes are coming down the road.
• Gather all your tax documents for 2012 and 2011. Having your prior-year tax document on hand can help when it comes to filing for 2012.
• Consider year-end tax moves that will reduce your taxable income, such as giving to charity, prepaying your January mortgage payment or increasing your retirement plan contributions.
• Create a plan with your tax preparer that includes a list of things to do to get your taxes done this year. Start a shoebox for your tax documents, review your year for life changes and put a target date on the calendar to file.
The coming tax-filing season is shaping up to be like no other in recent years. The combination of expiring tax laws and tax policy changes, possible renewed retroactive provisions and last-minute legislative action calls for taxpayers to be extra careful when managing their taxes in order to ensure that there is no money left on the table.