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Avoid making costly year-end tax errors
Dec 26, 2012 4:00 pm
With the close of the holiday season comes the close of another tax year. By making some strategic financial moves now, taxpayers can possibly reduce what they will owe come tax time.
According to Watertown Certified Public Accountant Jerry Taylor one of the main things people should be looking at is the capital gains tax.
“If [anyone has] any capital gains they plan to take anytime soon, they should close their transactions before the end of the year,” said Taylor. “We’ve been really busy with calls from people looking to sell investments, and they’re anxious to know whether they should sell now or later. They can get the best rate now.”
Currently the rate ranges from 5 percent to 23.8 percent, depending on the transaction.
The IRS also offers the following tips to help plan ahead:
Contribute to qualified charities. Those who plan to take an itemized charitable deduction on 2012 tax returns, donations must go to a qualified charity by Dec. 31. Ask the charity about its tax-exempt status. Filers can also visit IRS.gov and use the exempt organizations select check tool to check if the charity is a qualified charity. Donations charged to a credit card by Dec. 31 are deductible for 2012, even if the bill is paid in 2013. A gift by check also counts for 2012 as long as it's mailed in December. Gifts given to individuals, whether to friends, family or strangers, are not deductible.
What can be deducted. Generally, cash contributions and the fair market value of most property donated to a qualified charity can be deducted. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
Keep records of all donations. Records of any donations deducted, regardless of the amount, should be kept. A written record of all cash contributions to claim a deduction must be on file. This may include a canceled check, bank or credit card statement or payroll deduction record. The charity may also be asked for a written statement that shows the charity’s name, contribution date and amount.
Gather records in a safe place. As long as records for charitable contributions are being gathered, it’s a good time to start rounding up documents needed to file tax return in 2013. This includes receipts, canceled checks and other documents that support income or deductions to be claimed on tax returns. Be sure to store them in a safe place so they can be easily accessed later when filing tax returns.
Plan ahead for major purchases. If major purchases are made during the holiday season, don’t base them solely on the expectation of receiving a tax refund before the bills arrive. Many factors can impact the timing of a tax refund. The IRS issues most refunds in less than 21 days after receiving a tax return. However, if a tax return requires additional review, it may take longer to receive a refund.