With W-2 forms and receipts spilling out of shoe boxes across the Mother Lode, area tax experts are preparing for filing season by taking a hard look at some of the changes to federal and state tax codes.
People are generally filing their taxes earlier this year, according to Steven Aldridge, a certified public accountant in Sonora. They’re spooked by the prospect the state issuing more IOUs rather than refunds like in 2010.
“It scared people when they heard about the $3 billion deficit last year,” Aldridge said.
Many of his clients are also getting their refunds faster by using direct deposits, which can refund overpaid taxes in four days, and it’s generally more secure than snail mail.
He said one of the most common mistakes people make when filing is that they allow the government to hold more taxes than it is entitled to. But, with banks paying paltry interest rates on savings accounts, most people would rather take a large refund at the end of the year rather than risk underpaying their taxes, Aldridge said.
A number of changes are taking hold in the tax code this year as well. Aldridge said that the biggest surprise in store for many taxpayers will be the absence of the $800 credit for people with earned income. The credit was part of President Barack Obama’s economic stimulus plan, which ended in 2010.
He suggested people with large medical expenses look into itemizing deductions, even if you ordinarily take the standard deduction. There is the potential for large tax credits and savings on medical bills incurred over the past year.
He said self-employed people who pay their own Social Security and income taxes should include income on Schedule C, including deductible expenses and net profits or losses.
There are a litany of credits for businesses as well, according to Robert Hoyt, with the firm Hohne, Hoyt & Aguilera CPAs. There are credits for providing health care for employees, a state credit for hiring someone on unemployment assistance and a federal retention credit for companies that hire people and keep them on staff for at least a year.
Hoyt said taxes will likely rise in several areas in 2012. He said people who are in foreclosure or looking to short-sale on a personal residence should do so by the end of this year. The reason is that homes that sell for less than the debt could be subject to income tax if the U.S. Congress allows an exemption to expire.
“Either way you’re going to lose the house,” he said. “You want to make sure the foreclosure closes by the end of the year.”
Congress last week extended a 2 percent Social Security tax cut that would have otherwise expired this week.
“Within our profession, there are changes every year, so we’re always having to adapt,” Hoyt said.
Hoyt said another common mistake taxpayers make is claiming young adult children as dependents, while at the same time the children are claiming themselves on their own tax returns.
Aldridge said the long-term unemployed should consider voluntary withholding on income taxes. They can elect to have income tax withheld on their benefits so they don’t end up with a big tax bill at the end of the year.
“Unfortunately, unemployment is a much higher factor in the past few years than it had been,” he said.
Additionally, he said federal policy changes will likely increase capital gains taxes for the 2012 filing season, affecting those with stock holdings and real estate investments.
“I think we’ll probably see higher taxes next year,” he said.