Tooele Transcript Bulletin – News in Tooele, Utah

February 14, 2013
Federal income tax filing season is here: 4 things to know

The due date for 2012 federal income tax returns is April 15. Whether you’re preparing your own taxes or paying someone else to do them for you, you’ll want to start pulling things together sooner rather than later. That includes gathering a copy of last year’s tax return, W-2s, 1099s and deduction records.

Filing for an extension If you’re not going to be able to file your federal income tax return by the due date, file for an extension using IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Filing this extension gives you an additional six months (until Oct. 15) to file your return. Don’t make the mistake of assuming that the extension gives you additional time to pay any taxes due, though. If you do not pay any taxes you owe by April 15, you’ll owe interest on the tax due, and you may owe penalties as well. Special rules apply if you’re living outside the country or serving in the military outside the country on April 15.

There’s still time to contribute to an IRA

You generally have until the due date of your federal income tax return to make contributions to either a Roth IRA or a traditional IRA for the 2012 tax year.

That means there’s still time to set aside up to $5,000 ($6,000 if you’re age 50 or older) in one of these retirement savings vehicles. It’s worth considering, in part because contributing to an IRA can have an immediate tax benefit.

That benefit comes in the form of a potential tax deduction. With a traditional IRA, if you’re not covered by a 401(k) or another employer-sponsored retirement plan (if your spouse is covered by an employer plan, you’re considered to be covered as well), you can generally deduct the full amount of your contribution.

If you’re covered by an employer-sponsored retirement plan, whether or not you can deduct some or all of your traditional IRA contribution depends on your filing status and income.

It’s a little different with a Roth IRA. If you qualify to make contributions to a Roth IRA (whether you can contribute depends on your filing status and income), the contributions you make aren’t deductible, so there’s no effect on your 2012 taxes. Nevertheless, a Roth IRA may be worth considering because qualified Roth distributions you take in the future are completely free from federal income tax.

There’s still time to undo a 2012 Roth conversion

Did you convert a traditional IRA to a Roth IRA in 2012, only to see the account drop in value? Wish you could go back in time so that you wouldn’t have to pay tax on the value of the IRA assets lost in the downturn? Turns out, you can. If you undo the conversion, you’re treated for tax purposes as if the conversion never happened. You wind up with a traditional IRA again and no tax bill for the conversion. You generally have until the due date of your 2012 return, including extensions, to characterize a 2012 Roth conversion. Note that special rules allow individuals who file timely 2012 returns to characterize up until Oct. 15. Talk to a tax professional about the details.

If you do characterize your 2012 conversion in 2013, you’re allowed to convert those dollars (and any earnings) back to a Roth IRA after waiting 30 days, starting with the day you transferred the Roth dollars back to a traditional IRA. If you reconvert in 2013, then all taxes due as a result of the reconversion will be included on your 2013 federal income tax return.

Review casualty loss deduction rules

If you were one of the many individuals who suffered property damage or loss as a result of late-2012 storms (like October’s Hurricane Sandy), be sure to familiarize yourself with the casualty loss rules. You may be entitled to a deduction for storm-related losses that weren’t covered by insurance. Review IRS Publication 547, Casualties, Disasters, and Thefts for details.

Bruce Wingrove is a financial adviser for Ameriprise Financial Services, Inc. His office is in Salt Lake City, however, he regularly works in Tooele and Grantsville meeting clients at any of the three H&R Block tax offices. Wingrove was recently named by Ameriprise as one of their top financial advisers.

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