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Eight ways to make the most of your tax return
WASHINGTON (2/25/14)--Tax filings in 2014 are up 2.5% from this time last year. Yet, of those who've filed, fewer taxpayers visited irs.gov or used a professional tax preparer than in 2013 (IRS.gov Feb. 14).
 
Tax-preparation software helps you file your returns accurately and with ease. But, without professional help, there still are countless ways to mess up a return. Here are eight ways to tighten up your tax return and avoid extra costs (MarketWatch Feb. 19):
  1. Get receipts for charitable donations: Make sure you have receipts for any donations of $250 or more by the time you file. Otherwise, you may not write them off.
     
  2. File a tax-free rollover correctly: If you rolled over a retirement account, tax-free, into a traditional IRA in 2013, your 1099-R shows a taxable retirement-account distribution, even though you didn't have one. Include the figure from Line 15a on your 1040; if it was a retirement-plan distribution, use Line 16a. Indicate zero in Line 15b or 16b, respectively, for the taxable amount. Write "rollover" next to it to avoid an Internal Revenue Service inquiry.
     
  3. Look for three potential mortgage breaks: If you bought an existing home in 2013, you may deduct mortgage points paid by the seller--as long as you reduce the tax basis of your new home by the amount of the seller-paid points you deduct. If you refinanced your mortgage in the past, paid points, and sold the home in 2013, remember to deduct the unamortized balance on Schedule A as "qualified residence interest." And if you sold your house in 2013 and prepaid a portion of the property taxes, you can deduct the amount on your return.
     
  4. Use the most favorable filing status: If you're single, your non-adult child lives with you, and you pay for more than half of household costs, you qualify to file as head-of-household--a more advantageous filing status than single. Even if you're married but lived apart from your spouse for at least the last half of 2013, you qualify.
     
  5. Don't forget baby: If you had a child in 2013, sign baby up for a Social Security number before you file your tax return. Otherwise, you'll be leaving your $3,900 personal exemption write-off on the table.
     
  6. Think about college-education tax credits: Your income might be too high to claim the Lifetime Learning and American Opportunity tax credits but, before you give up and claim your college-age child as an exemption, compare the exemption to how much your child could save by claiming an education credit. This gambit will work only if your child has enough income to owe taxes and the credit is worth more than the exemption.
     
  7. Take advantage of the retirement savings tax credit: If you contributed to a traditional or Roth IRA, a 401(k), 457, 403(b), or other retirement savings plan in 2013, you might be eligible for a tax credit of 10%, 20% or 50% of your contribution, depending on your income.
     
  8. Make the deadline: If you can't pay your tax bill by April 15, apply to get an automatic extension until Oct. 15. The interest rate is about 0.75% a month. Compare that with the 5% penalty you'll be charged if you do nothing.
For related information, listen to "Tax Time Doesn't Have to Be a Taxing Time" in the Home & Family Finance Resource Center.
 
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