How to Prepare for Tax Season and the Fiscal Cliff

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It’s the end of December and we are still on the edge of the Fiscal Cliff. As we wait for some sort of resolution from Congress, what should the average taxpayer being doing to get ready for tax season?

The most important thing to do right now is to pay attention. Keep an eye on Washington, DC, the latest tax developments, and news and updates regarding the fiscal cliff. Most importantly, once a decision is made on how taxes will change, make an appointment with your tax professional and start getting ready to file your taxes. With all of the complexity surrounding taxes, having a tax preparer to help guide you in the process is even more important than ever. It’s never too early to get ready to file your taxes, and being engaged and organized will also help you prepare for any late changes.

To get started, gather all of your records, including a copy of last year’s tax return. You can use the prior-year return as a guideline/checklist to make sure you include all income and deduction records for this year. In addition, here are some tips to help you reduce your taxes during the last few days of this year:

Put more money into your 401(k) and your IRA: You can contribute up to $17,000, with an additional $5,500 allowed contribution if you are 50 or older.

Pay your January tuition payment by December 31: If you, your spouse, or your dependent are in the first four years of their undergraduate degree or certificate and attend school half-time or more, you may be eligible for the American Opportunity credit, which offers up to $2,500 of credit. However, keep in mind that the American Opportunity credit is scheduled to expire December 31, 2012 and the replacement credit in 2013, called the Hope credit, only offers up to $1,500 and only pertains to the first two years of undergraduate studies, as opposed to four years.

Clean out your closets, attic and garage: Donate clothing and other household goods that are in good or better condition. Doing so by December 31 lets you increase your charitable contribution for 2012.

Make the January payment on large medical expenses: Do you have a large medical expense you are making payments on, such as braces or surgery?  If so, pay your January payment now; this lets you can claim the deduction this year.  Beginning January 1, 2013, the “floor” for the medical expense deduction increases to 10% of AGI (from 7.5%).The “floor” is the amount you must subtract from your total expenses to determine the deductible amount (with only the remaining expenses  allowed as a deduction), so it will be more advantageous to claim these expenses in 2012 if possible. 

Make your January mortgage payment now: This lets you deduct your interest from the payment this year.

No matter what happens in Washington, don’t delay. Tax season will come no matter what. The best thing to do now is to be prepared and take advantage of these last few days of the year to maximize your 2012 tax return. 

A Holiday Message from President & CEO Phil Sanford

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As we quickly approach the end of the year and speed toward another tax season, I want to take a moment to wish you the safest and happiest of holidays. There has been a lot of talk in the news about "Taxmaggedon" and the "Fiscal Cliff." It's true there are many tax law changes coming but that's why we are here; to help you navigate through these confusing times.  

At Jackson Hewitt, we stay on top of the latest tax laws, and we understand how they can affect you and your family. You've worked hard all year long, and when it comes to tax time, we want to help you make every dollar count. We know that as you are enjoying the holiday season with your loved ones, you may not be thinking about taxes. But I want you to know that we are thinking about you. We're getting ready to partner with you to help you get every deduction and credit you deserve.

We look forward to seeing you this January.

Jackson Hewitt Helps You Start Early

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Jackson Hewitt Tax Service, the nation’s largest privately held tax preparation firm, will open locations around the country on January 2, 2013 to serve taxpayers for the 2013 tax season. Taxpayers can  head to any one of more than 6,800 neighborhood locations right after the new year to meet with a knowledgeable tax preparer.

Jackson Hewitt is looking to spread joy at tax time to more people than ever. Webster’s Dictionary defines joy as, “A state of happiness: bliss,” but at Jackson Hewitt, joy means helping taxpayers make the most out of tax time. Jackson Hewitt’s tax preparers are experienced in helping clients uncover often-overlooked credits and deductions that can boost their tax refund amount or lower their tax liability – a joy that can only come at tax timeAnd with approximately 75 percent of taxpayers eligible to receive an average refund of about $3,000, many people will be feeling that joy in the coming months.

To help clients experience this joy as soon as possible, Jackson Hewitt is making it easier than ever for taxpayers to start their tax returns as early as January 2nd this year, with no W-2 in hand. With Jackson Hewitt’s free W-2 download service, qualifying taxpayers can start their return before their paper W-2 arrives in the mail. Free W-2 download service is available to all clients whose employers make W-2’s available online.

For those taxpayers whose companies do not provide W-2 download, taxpayers just need to bring in their last paystub to start their tax return. Then, when their W-2 arrives, Jackson Hewitt will finalize and submit the return. Taxpayers don’t even need to come back to the office to finalize, making tax time more convenient than ever!

To learn if your employer’s W-2’s are available online, visit your conveniently located neighborhood Jackson Hewitt office.

Mark Steber Talks Fiscal Cliff and What You Need to Know

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Jackson Hewitt’s Chief Tax Officer, Mark Steber, recently explained the implications for average taxpayers should we go off the “fiscal cliff.” It’s coming our way, so  let’s take a look at the ways the fiscal cliff can, and will, impact you. 

  1. The “Extenders”, a group of short-term tax benefits that have been extended regularly for more than 20 years, expired December 31, 2011. They included many tax deductions and some smaller credits such as the state and local sales tax deduction, and mortgage insurance premium deduction, the up-to $250 Educator Expense deduction for teachers, the up-to $500 energy credit for energy efficient home improvements, and the up to $4,000 tuition and fees deduction.
  2. The AMT “Patch” expired December 31, 2011. Up to 31 million taxpayers will be subject to either the additional tax or will see their tax credits reduced by the AMT rules.
  3. The Bush-era tax cuts are due to expire on December 31, 2012. Tax rates will go up beginning with a five percent increase, from 10 percent to 15 percent on the first $8,500 of taxable income. In addition to the loss of the 10 percent tax rate, the 25 percent tax rate also expires and capital gain tax rates increase.
  4. Bush-era tax cuts from 2001 and 2003 are scheduled to expire. These tax cuts include reducing many credits, such as the child tax credits, the credit for child care, and the earned income credit. Additional tax cuts scheduled to expire also include the married taxpayer’s standard deduction, tax rate spread, and maximum income limits for many tax benefits. The expiring credits will also limit the student loan interest deduction.
  5. Temporary tax cuts from the American Recovery and Reinvestment Act (ARRA) in 2009 expired. This includes the exclusion of the debt forgiven when a main home is foreclosed forcing many taxpayers whose foreclosure won’t be final until 2013, or later, to pay taxes on the forgiven mortgage debt.
  6. With tax rates increasing, tax deductions being eliminated or limited, and credits dramatically reduced, taxpayers will see a much smaller refund than in the past years. The Temporary Payroll Tax Holiday, a two percent reduction in employee Social Security tax withholding, expired December 31, 2012. Beginning January 2013, the average taxpayer will see as much as a $1,000 decrease in take home pay.
  7. If Congress is unable to reach a decision before the end of year or into next year, income tax filing and refunds could be delayed for some taxpayers.
  8. With Congress deadlocked over the federal budget, we are in danger of falling off the fiscal cliff. Lack of agreement on the budget could lead to possible layoffs of government employees. This could potentially reduce the number of employees at the IRS who ensure technology and services continue to run smoothly during tax season, as well as the number of employees available to help the public with tax questions and issues.
  9. An automatic budget reduction of around 8.2 percent for each government division will lead to reduced government services, gradually impacting the work done by these departments.
  10. The Health Care Act starts impacting more taxpayers with an increase to 10 percent for the medical deduction floor. Taxpayers will pay an additional .09 percent Medicare taxes on wages greater than $200,000 ($250,000 if married filing jointly) and will pay 3.8 percent additional Medicare taxes on investment earnings greater than $200,000 ($250,000) starting January 1, 2013.
“These and many other changes may impact you if we fall off the fiscal cliff in the coming days,” said Mark. “Also keep in mind that these changes noted above are already law and are in place, so if the government does nothing to amend these laws, what I’ve described is what’s known as the fiscal cliff. A fix, patch or new legislation is what is needed to prevent going over the cliff. It’s important to understand that this is not something that impacts only the rich or the high-income wage earners. It impacts many more and very likely you.”