What’s New for the 2013 Tax Filing Season?

If you’ve not already received all of your 2012 W-2 and 1099s, you should any day now. After the “fiscal cliff” delay, the IRS is geared up and ready for tax filing season, which officially starts on January 30.

Bottom line: it’s time to start thinking about putting together your Form 1040 for last year.Before you do, take note of the following key changes.

Some Things Stay the Same: These Breaks Were RestoredThe tax breaks listed below expired at the end of 2011, but the fiscal cliff legislation retroactively restored them for 2012 tax returns (filed in 2013):Deduction for Higher Education Tuition – This write-off can be as much as $4,000 or $2,000 for higher-income folks.

Option to Deduct State and Local Sales Taxes – If you paid little or no state income tax in 2012, you have the option of instead claiming an itemized deduction for general state and local sales taxes. The deduction is claimed on Schedule A of Form 1040.

Charitable Donations from IRAs – For 2012, IRA owners who were age 70 1/2 or older as of December 31, 2012 were allowed to make tax-free charitable donations of up to $100,000 directly out of their IRAs. These donations counted as 2012 IRA required minimum distributions. This break expired at the end of 2011, but the fiscal cliff legislation retroactively restored it for 2012. To take advantage of the retroactive deal, you can donate IRA distributions taken in December of last year to qualified charities and treat them as 2012 donations from your IRA. There is a January 31, 2013 deadline for this option. Consult with your tax adviser for details.

Deduction for K-12 Educator Expenses – The deduction to cover up to $250 of school-related expenses paid by teachers and other K-12 educators out of their own pockets is claimed on Line 23 of Form 1040.

Deduction for Mortgage Insurance – Premiums for qualified mortgage insurance on debt to acquire, construct, or improve a first or second residence can potentially be treated as deductible home mortgage interest. The fiscal cliff legislation restored the break for premiums paid in 2012. However the deduction is only available for premiums for qualifying policies issued after December 31, 2006 and premium amounts allocable to periods before 2013, and it is phased out for higher-income taxpayers. If you qualify, claim the deduction on Schedule A of Form 1040.

Credit for Energy-Efficient Home Improvements – If you made qualifying 2012 expenditures for certain energy-saving improvements to your principal residence, you may be able to claim a credit of up to $500 on Form 5695.

The Due Date

Monday April 15 is the filing deadline for your 2012 Form 1040. Last year, the deadline was Tuesday April 17 because April 15 was a Sunday and Monday April 16 was Emancipation Day, a District of Columbia holiday that postponed the filing deadline for the whole nation. However, Emancipation Day is not an issue this year.

It’s okay if your return won’t be ready by April 15. You can extend the filing deadline all the way out to October 15 by submitting an extension request to the IRS, using Form 4868, on or before April 15. Your request will be automatically approved.

Remember: An extension to file is not an extension to pay. You should pay whatever remaining federal income tax you owe for 2012 with the extension request.

Reduced Self-Employment Tax Bill  

For 2012, there was another temporary reduction in the Social Security tax component of the self-employment (SE) tax — from the normal 12.4 percent of net SE income to 10.4 percent. The Medicare tax component of the SE tax remained at the usual 2.9 percent rate. For 2012, the net SE income ceiling for the Social Security tax component of the SE tax was $110,100.

Therefore, the SE tax rate on your first $110,100 of net 2012 SE income was “only” 13.3 percent (10.4 percent for Social Security plus 2.9 percent for Medicare) versus the usual 15.3 percent. The maximum amount you could save from the Social Security tax reduction was $2,202 (2 percent times $110,100) or $4,404 if you had two workers in the household last year (2 times $2,202). The Social Security tax savings are reflected on your Schedule SE (Self-Employment Tax), which you’ll file with your 2012 Form 1040.

Note: Unless something changes, there won’t be any Social Security tax reduction for this year.

No Reduction in Page 1 Deduction for Self-Employment Tax

If you are self-employed, you know that you can usually deduct exactly half of your SE tax bill on Page 1 of Form 1040. Due to the aforementioned reduction in the Social Security tax component of the SE tax, there’s a different drill for your 2012 return.

Your SE tax deduction equals 57.51 percent of the SE tax amount, as long as that amount does not exceed $14,643. If your SE tax bill exceeds $14,643, you multiply the SE tax amount by 50 percent and then add $1,100. These calculations are made on the 2012 version of Schedule SE. The effect is to allow you to claim an SE tax deduction equal to what your write-off would have been without the Social Security tax cut.

Special Drill If You Did a 2010 Roth Conversion

If you were among the many who converted a traditional IRA into a Roth account in 2010, the conversion was treated as a taxable liquidation of your traditional IRA followed by a contribution to the Roth account.

For 2010 conversions, you had the one-time option of reporting half the resulting taxable income on your 2011 Form 1040 and the other half on your 2012 return — instead of reporting it all in 2010. You could do the same drill with a qualified retirement plan distribution (say from a 401(k) plan) that you rolled over into a Roth IRA (another type of conversion). In other words, you could defer the tax hit from a 2010 Roth conversion until 2011 and 2012. That was nice while it lasted, but the remaining tax bill from the 2010 conversion is due with your 2012 return, if you took advantage of the deferral option.

Inform your tax preparer that you made a 2010 conversion and opted for the deferral option to ensure the income is properly reported on your 2012 return. However, if you did a 2010 Roth conversion and did not take advantage of the deferral option, no action is necessary with your 2012 return — because you already reported all the taxable conversion income on your 2010 Form 1040.

Adoption Credit Is No Longer Refundable

For some pre-2012 years, the adoption credit was refundable, which meant you could collect the full amount of the credit even if you did not actually owe any federal income tax. For 2012, the refundable deal is no longer available. So on last year’s return, the adoption credit will only help you out if you actually owe tax.

Once You File, Find Out When Your Refund Will Arrive

After you file your return, you can track the status of any refund due with the IRS “Where’s My Refund?” tool. To access it, go to the www.IRS.gov website. New this year, instead of an estimated date, the tool will give you an actual personalized refund date after the IRS processes the return and approves the refund.

“Where’s My Refund?” will be available for use after the IRS starts processing tax returns on January 30.

Initial information will generally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after mailing a paper return.

The IRS explains the system updates every 24 hours, usually overnight, so there’s no need to check more than once a day.

To use the refund tracker, taxpayers need to have a copy of their tax return for reference. You will need your Social Security number, filing status and the dollar amount of the refund you’re expecting.