It seems there are thousands of changes to the 2013 tax code. What are some of the most significant ones affecting everyone this year?
Barbara: Several tax rules that had been set to expire have been extended for 2012 returns for individuals. These include: the above-the-line deductions for tuition and fees and educator costs, the option to itemize state and local sales taxes in lieu of state and local income taxes, and the ability to directly transfer to a public charity up to $100,000 from an IRA by those age 70-1/2 and older on a tax-free basis.

In addition to law changes, various provisions in the tax law have been adjusted for inflation, including the personal exemption, standard deduction amounts, limits on long-term care insurance, and foreign earned income exclusion.
Notifications went out that the two-year payroll tax holiday is over (raising taxes by two percentage points). Let me tell you -- it hurt my eyes. Who is most affected?
Barbara: Every worker, whether an employee or self-employed, is impacted by the end of the payroll tax holiday. Employees see less in their take home pay. Self-employed individuals may need to pay more in estimated taxes in 2013 because of the end to the cut in the Social Security portion of self-employment tax.
How are small businesses impacted by this year's tax changes?
Barbara: Small businesses can take advantage of the extension of various tax breaks, including:

• An increased first-year expensing deduction of up to $500,000 for the purchase of machinery and equipment

• The ability to amortize qualified leasehold, restaurant, or retail improvements over 15 years

• Tax credits for hiring certain individuals (work opportunity credit, empowerment zone credit, Indian employment credit)

• A credit for wage differential payments to employees called to activity duty

Small businesses can also use increased write-off limits (items adjusted for inflation), including:

• Higher limits for qualified retirement plan contributions

• Higher limits for contributions health savings accounts

• Increased standard mileage rate for the full year (55.5 cents per mile)
Let's talk fiscal cliff. Perhaps because of it, the IRS is already experiencing delays in sending out refunds, and in accepting returns. Are those delays expected to continue?
Barbara: The IRS is working to get its systems ready to accept returns that claim certain types of deductions, credits, or other benefits. Starting Feb. 14, it will accept returns claiming education credits. Once it can accept returns with a particular schedule or form attached, things should move smoothly. The only catch: The IRS is more vigilant this year about identity theft and this fact may slow the issuance of refund checks in some cases.
What effects, if any, does this have on the rest of this year's economy?
Barbara: When refund checks are delayed, recipients who plan to spend or invest the money are delayed from doing so. For example, a taxpayer who planned to use the refund for a vacation cannot book the trip until the funds are received.

Barbara's Five Top Money-Saving Strategies for 2012 Returns


1. Speed the receipt of a tax refund by using direct deposit, which tells the IRS to which account the funds should be directed. Taxpayers can split the refund in up to 3 accounts (use IRS Form 8888 for this purpose).

2. If eligible, add money to an IRA; this can be done up to April 15th. This helps save for retirement and provides tax benefits (a deduction for a deductible IRA contribution; future tax-free income for a contribution to a Roth IRA).

3. Check for eligibility for the earned income credit and the retirement savers credit. The income limits for qualifying are higher in 2012 than they were in 2011, so just because a taxpayer was not eligible on last year's return does not automatically prevent the taxpayer from claiming it on a 2012 return.

4. Self-employed individuals who failed to set up a qualified retirement plan for 2012 but who are profitable can set up and fund a SEP retirement plan up to the extended due date of their return. This saves for retirement while sheltering income on the return.

5. If covered by a high-deductible health plan in 2012 (at least for all of December), contribute to a health savings account by April 15th for a triple tax play: Contributions are deductible, earnings on contributions grow on a tax-deferred basis, and withdrawals to pay qualified medical expenses are tax free.

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Barbara Weltman is contributing editor of J.K. Lasser's "Your Income Tax 2013" and author of J.K. Lasser's "Small Business Taxes 2013." A tax and business attorney since 1977, Weltman has authored more than a dozen books and has served as an expert source for such media outlets as The New York Times, The Wall Street Journal, The Washington Post, Forbes.com, CNN, CNBC and NPR.

To pick up her books, "1001 Deduction & Tax Breaks 2013," and "Small Business Taxes 2013," visit her website or find a bookstore near you.